Delaware
|
11-2920559
|
|
(State of incorporation)
|
(I.R.S. Employer Identification No.)
|
8000 Regency Parkway, Suite 542, Cary, NC 27518
|
(Address of principal executive offices, including Zip Code)
|
(919) 380-5000
|
(Registrant’s telephone number, including area code)
|
Securities registered pursuant to Section 12(b) of the Act:
|
NONE
|
Securities registered pursuant to Section 12(g) of the Act:
|
Common Stock, $.001 par value
|
Item
Number
|
Page
Number
|
|
PART I
|
||
1.
|
Business
|
1
|
1A.
|
Risk Factors
|
7
|
1B
|
Unresolved Staff Comments
|
11
|
2.
|
Properties
|
11
|
3.
|
Legal Proceedings
|
11
|
4.
|
Mine Safety Disclosures
|
11
|
PART II
|
||
5.
|
Market For Registrant's Common Stock, Related Shareholder Matters and Issuer Purchases of Equity Securities.
|
12
|
6.
|
Selected Financial Data
|
12
|
7.
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
13
|
7A.
|
Quantitative and Qualitative Disclosures About Market Risk
|
19
|
8.
|
Consolidated Financial Statements and Supplementary Data
|
19
|
9.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
19
|
9A.
|
Controls and Procedures
|
19
|
9B.
|
Other Information
|
20
|
PART III
|
||
10.
|
Directors, Executive Officers and Corporate Governance
|
21
|
11.
|
Executive Compensation
|
24
|
12.
|
Security Ownership of Certain Beneficial Owners and Management
|
29
|
13.
|
Certain Relationships and Related Transactions, and Director Independence
|
31
|
14.
|
Principal Accountant Fees and Services
|
31
|
PART IV
|
||
15.
|
Exhibits and Financial Statement Schedules
|
33
|
SIGNATURES
|
36
|
|
INDEX TO FINANCIAL STATEMENTS
|
F-1
|
·
|
Provides a source of rich data from the desktop, which is not readily obtainable or commonly utilized in business level analysis.
|
·
|
Is a solution to analyze data and identify areas of improvement with actionable intelligence (data-driven decisions).
|
·
|
Helps companies establish a desktop knowledge baseline.
|
·
|
Delivers role-based dashboards, reporting and analytics in a web and mobile context.
|
·
|
Supports data harmonization with the integration and correlation of data from other data platforms.
|
·
|
See how the events at the desktop impact business goals, the employee and customer experience.
|
·
|
Measure and assessing activity (what activity, by whom, where, how much and when).
|
·
|
Identify compliance issues (installed software and versions, approved/unapproved apps, web usage and domain access, copying files, external drive access, etc.).
|
·
|
Identify top performers, best practices, etc.
|
·
|
Have current hardware configuration and state of utilization data.
|
·
|
Establish a knowledge baseline for the employee desktop.
|
·
|
Measure and assess performance (hardware and user).
|
·
|
Measure and assess process/task efficiency (look at the frequency of use of an application vs total time spent in an application).
|
·
|
Identify improvement opportunities through automation, training, process changes, and fraud/regulatory and compliance changes.
|
·
|
A Regional Bank - A large U.S. regional bank selected Cicero software to provide intelligent unified desktop solutions for their customer service operations and throughout their enterprise. Leveraging existing applications, the new solution captures desktop activities, automates processes, provides user guidance, and displays composite views of information to improve user productivity and the customer experience.
|
·
|
Business Process Outsourcers - use our software solution in contact centers to provide real time integration among existing back-office systems, eliminate redundant data entry, shorten call times, provide real-time data access and enhance customer service and service levels.
|
·
|
A financial institution - uses our software solution to provide real-time integration among market data, customer account information, existing back-office systems and other legacy applications, eliminate redundant data entry, provide real-time data access and processing, and enhance customer service and service levels.
|
·
|
An insurance company – Information technology and Cicero professionals created a Cicero desktop solution which integrated computer telephony integration, key business systems and numerous secondary applications in use in the contact centers and elsewhere within the organization. Using Cicero, the contact center agents now use a central, integrated dashboard to navigate between applications, with key information (like customer and policy numbers) passed automatically between applications.
|
·
|
Product functionality and features;
|
·
|
Availability and quality of support services;
|
·
|
Ease of product implementation;
|
·
|
Price;
|
·
|
Product reputation; and
|
·
|
Our financial stability.
|
·
|
Middleware software provides integration of applications through messages and data exchange implemented typically in the middle tier of the application architecture. This approach requires modification of the application source code and substantial infrastructure investments and operational expense. Reuters, TIBCO and IBM MQSeries are competitors in the middleware market.
|
·
|
CRM software offers application tools that allow developers to build product specific interfaces and custom applications. This approach is not designed to be product neutral and is often dependent on deep integration with our technology. Siebel and Salesforce.com are representative products in the CRM software category.
|
·
|
Recently, there have been several companies that offer capabilities similar to our software in that these companies advertise that they can capture desktop activity and integrate applications without modifying the underlying code for those applications. OpenSpan is one company who advertises that they can capture desktop activity and provide integration at the point of contact or on the desktop.
|
·
|
make a special suitability determination for purchasers of our shares;
|
·
|
receive the purchaser's written consent to the transaction prior to the purchase; and
|
·
|
deliver to a prospective purchaser of our stock, prior to the first transaction, a risk disclosure document relating to the penny stock market.
|
2015
|
2014
|
|||||||||||||||
Quarter
|
High
|
Low
|
High
|
Low
|
||||||||||||
First
|
$ | 0.05 | $ | 0.02 | $ | 0.04 | $ | 0.01 | ||||||||
Second
|
$ | 0.06 | $ | 0.04 | $ | 0.04 | $ | 0.02 | ||||||||
Third
|
$ | 0.06 | $ | 0.03 | $ | 0.03 | $ | 0.02 | ||||||||
Fourth
|
$ | 0.04 | $ | 0.02 | $ | 0.03 | $ | 0.02 |
Plan Category
|
Number of Securities to
be issued upon exercise of
outstanding options
|
Weighted-average
exercise price of
outstanding options
|
Number of securities
remaining available under
equity compensation plans
(excluding securities reflected
in the first column)
|
|||||||||
Equity compensation plans approved by stockholders
|
3,657,110 | $ | 0.21 | 844,090 | ||||||||
Equity compensation plans not approved by stockholders
|
-0- | -- | -0- |
Years Ended December 31,
|
||||||||
2015
|
2014
|
|||||||
Revenue:
|
||||||||
Software
|
20.1 | % | 18.4 | % | ||||
Maintenance
|
76.1 | % | 76.8 | % | ||||
Services
|
3.8 | % | 4.8 | % | ||||
Total
|
100.0 | % | 100.0 | % | ||||
Cost of revenue:
|
||||||||
Software
|
0.0 | % | 0.0 | % | ||||
Maintenance
|
5.6 | % | 5.4 | % | ||||
Services
|
29.8 | % | 34.7 | % | ||||
Total
|
35.3 | % | 40.1 | % | ||||
Gross margin
|
64.6 | % | 59.9 | % | ||||
Operating expenses:
|
||||||||
Sales and marketing
|
55.6 | % | 57.7 | % | ||||
Research and product development
|
74.4 | % | 64.5 | % | ||||
General and administrative
|
59.2 | % | 51.5 | % | ||||
Goodwill impairment charge
|
-- | % | 61.7 | % | ||||
Total
|
189.2 | % | 235.4 | % | ||||
Loss from operations
|
(124.5 | )% | (175.5 | )% | ||||
Other income/(expense), net
|
(21.7 | )% | (30.9 | )% | ||||
Net loss
|
(146.3 | )% | (206.4 | )% |
2015
|
2014
|
|||||||
United States
|
92 | % | 97 | % | ||||
Europe
|
8 | % | 3 | % | ||||
100 | % | 100 | % |
Name
|
Age
|
Position(s)
|
John L Steffens
|
74
|
Director and Chairman
|
John Broderick
|
66
|
Director and Chief Executive Officer/Chief Financial Officer
|
Antony Castagno
|
48
|
Chief Technology Officer
|
Ryan Levenson
|
40
|
Director
|
Thomas Avery
|
62
|
Director
|
Mark Landis
|
74
|
Director
|
Bruce D. Miller
|
65
|
Director
|
Don Peppers
|
65
|
Director
|
·
|
Setting the total compensation of our Chief Executive Officer and evaluating his performance based on corporate goals and objectives;
|
·
|
Reviewing and approving the Chief Executive Officer’s decisions relevant to the total compensation of the Company’s other executive officer;
|
·
|
Making recommendations to the Board of Directors with respect to equity-based plans in order to allow us to attract and retain qualified personnel; and
|
·
|
Reviewing director compensation levels and practices, and recommending, from time to time, changes in such compensation levels and practices of the Board of Directors.
|
·
|
Base salary;
|
·
|
Non-equity incentive plan compensation;
|
·
|
Long-term equity incentive compensation; and
|
·
|
Other benefits
|
Name and
Principal
Position
|
Fiscal
Year
|
Salary
|
Stock Awards
|
Non- Equity
Incentive
Plan Compensation
|
All Other
Compensation
(5)
|
Total
|
|||||||||||||||
John P. Broderick
Chief Executive Officer, Chief Financial Officer, Corporate Secretary
|
2015
|
$ | 175,000 | (1) | -- | $ | 25,000 | (3) | $ | 7,810 | $ | 207,810 | |||||||||
2014
|
$ | 175,000 | (1) | -- | $ | 25,000 | (3) | $ | 7,340 | $ | 207,340 | ||||||||||
Antony Castagno
Chief Technology Officer
|
2015
|
$ | 150,000 | (2) | -- | -- | $ | 7,638 | $ | 157,638 | |||||||||||
2014
|
$ | 150,000 | (2) | -- | $ | 7,632 | (4) | $ | 6,981 | $ | 164,613 |
(1)
|
Mr. Broderick is currently deferring $25,000 of his annual salary which commenced in July 2013.
|
(2)
|
Mr. Castagno is currently deferring $25,000 of his annual salary which commenced in April 2014.
|
(3)
|
Non-equity incentive plan compensation for Mr. Broderick includes a bonus for certain revenue transactions earned during fiscal year ended December 31, 2015 and 2014. The revenue transaction was the acceptance of the first contract greater than $300,000 for each fiscal year.
|
(4)
|
Non-equity incentive plan compensation for Mr. Castagno includes a bonus for any revenues in excess of his base salary when engaged in consulting services on behalf of the Company.
|
(5)
|
Other compensation includes the Company’s portion of major medical insurance premiums and long-term disability premiums for named executives during fiscal years ended December 31, 2015 and 2014, respectively.
|
Option Awards
|
Stock Awards
|
||||||||||||||||||||
Name
|
Number of Securities Underlying Unexercised Options # Exercisable (Vested)
|
Number of Securities Underlying Unexercised Unearned Options# Unexercisable (Unvested)
|
Option Exercise price ($)
|
Option Expiration date
|
Number of Shares of Stock That Have Not Vested
|
Market Value of Shares of Stock That Have Not Vested
|
|||||||||||||||
John P. Broderick
|
549,360 | (1) | -- | $ | 0.51 |
08/17/2017
|
|||||||||||||||
75,000 | (2) | -- | $ | 0.09 |
08/20/2020
|
||||||||||||||||
549,630 | (4) | $ | 11,542 | ||||||||||||||||||
1,500,000 | (5) | $ | 31,500 | ||||||||||||||||||
Antony Castagno
|
75,000 | (2) | -- | $ | 0.09 |
08/20/2020
|
|||||||||||||||
70,513 | (3) | 141,026 | $ | 0.05 |
07/20/2025
|
(1)
|
These options were granted on August 17, 2007. This stock option vested in three equal installments with the first installment vesting on August 17, 2007.
|
(2)
|
These options were granted on August 20, 2010. This stock option vested in three equal installments with the first installment vesting on August 20, 2010.
|
(3)
|
These options were granted on July 21, 2015. This stock option vested in three equal installments with the first installment vesting on July 21, 2015.
|
(4)
|
These are restricted stock granted on August 17, 2007. The shares will vest to him upon his resignation or termination or a change of control.
|
(5)
|
These are restricted stock granted on November 9, 2012. The shares will vest to him in the event of the termination, with or without cause, of his employment by the Company or his resignation from the Company with or without cause or in the event of a change of control.
|
Base Salary
|
Restricted Shares Award
|
Deferred Compensation
|
Total Compensation and Benefits
|
|||||||||||||
John P. Broderick
|
||||||||||||||||
Death
|
$ | -- | $ | 43,042 | $ | 137,500 | $ | 180,542 | ||||||||
Disability
|
-- | 43,042 | 137,500 | 180,542 | ||||||||||||
Involuntary termination without cause
|
175,000 | 43,042 | 137,500 | 355,542 | ||||||||||||
Change in Control
|
175,000 | 43,042 | 137,500 | 355,542 | ||||||||||||
Antony Castagno
|
||||||||||||||||
Death
|
$ | -- | $ | -- | $ | 43,750 | $ | 43,750 | ||||||||
Disability
|
-- | -- | 43,750 | 43,750 | ||||||||||||
Involuntary termination without cause
|
75,000 | -- | 43,750 | 118,750 | ||||||||||||
Change in Control
|
75,000 | -- | 43,750 | 118,750 |
Name of Beneficial Owner
|
No. of Common Shares
|
% of Class
|
||||||
John L. Steffens (1)
|
153,341,564 | 65.9 | % | |||||
Ryan Levinson (2)
|
168,102,778 | 49.1 | % | |||||
Jonathan Gallen (3)
|
10,950,173 | 5.7 | % | |||||
Mark and Carolyn P. Landis (4)
|
8,564,020 | 4.4 | % | |||||
Antony Castagno/SOAdesk LLC(5)
|
17,360,206 | 8.4 | % | |||||
Thomas Avery (6)
|
4,605,555 | 2.3 | % | |||||
Bruce Miller (7)
|
6,346,822 | 3.2 | % | |||||
Don Peppers (8)
|
5,429,957 | 2.8 | % | |||||
John P. Broderick (9)
|
2,676,968 | 1.4 | % | |||||
All current directors and executive officers as a group (8 persons) (10)
|
366,427,870 | 88.6 | % |
*
|
Represents less than one percent of the outstanding shares.
|
1.
|
The address of John L. Steffens is 65 East 55th Street, New York, N.Y. 10022. Includes 112,932,501 shares of common stock, 40,391,063 shares issuable upon the exercise of warrants and 18,000 shares subject to stock options.
|
2.
|
The address of Mr. Levinson is 8000 Regency Parkway, Suite 542, Cary, NC 27518. Includes 18,250,000 shares of common stock and 149,852,778 shares issuable upon the exercise of warrants.
|
3.
|
The address of Mr. Gallen is 299 Park Avenue New York, New York 10171. Ahab Partner, L.P. (“Partners”), Ahab International, Ltd. (“International”), Queequeg Partners, L.P. (“Queequeg”) and Queequeg, Ltd. (“Limited,” and collectively with Partners, International and Queequeg, the “Funds”) held in aggregate 10,950,173 shares of common stock. Jonathan Gallen possesses the sole power to vote and the sole power to direct the disposition of all securities of the Company held by the Funds. In addition, Jonathan Gallen held the power to direct the disposition of 100,000 shares of common stock held in private investment account. Accordingly, for the purposes of Rule 13d-3 under the Securities Exchange Act of 1934, as amended, Mr. Gallen may be deemed to beneficially own 10,950,173 shares of common stock of the Company.
|
4.
|
The address of Mark and Carolyn P. Landis is 54 Dillon Way, Washington Crossing, Pa. 18977. Includes 5,472,853 shares of common stock, 3,079,167 shares issuable upon the exercise of warrants and 12,000 shares subject to stock options.
|
5.
|
The address of Mr. Castagno is 8000 Regency Parkway, Suite 542, Cary, NC 27518. Mr. Castagno is a principal owner of SOAdesk LLC. Includes 2,000,000 shares of common stock, 6,277,993 shares of common stock issuable upon conversion of a convertible promissory note in the principal amount of $700,000 and accumulated interest of $242,000, 5,886,987 common shares issuable upon conversion of a convertible promissory note in the principal amount of $675,000 and accumulated interest of $208,000, 100,000 shares issuable upon the exercise of warrants and 286,539 shares subject to stock options.
|
6.
|
The address of Mr. Avery is 8000 Regency Parkway, Suite 542, Cary, NC 27518. Includes 500,000 shares of common stock and 4,105,555 shares issuable upon the exercise of warrants.
|
7.
|
The address of Mr. Miller is 8000 Regency Parkway, Suite 542, Cary, NC 27518. Consists of 3,149,655 shares of common stock, 18,000 shares subject to stock options and warrants to acquire 3,179,167 shares of common stock. Mr. Miller has sole or shared voting or dispositive power with respect to the securities held by Delphi Partners, Ltd., which holds 509,267 shares of common stock.
|
8.
|
The address of Mr. Peppers is 8000 Regency Parkway, Suite 542, Cary, NC 27518. Includes 3,165,179 shares of common stock, warrants to acquire 2,252,778 shares of common stock and 12,000 shares subject to stock options.
|
9.
|
The address of Mr. Broderick is 8000 Regency Parkway, Suite 542, Cary, NC 27518. Includes 3,248 shares of common stock. 624,360 shares subject to stock options exercisable within sixty (60) days and 2,049,360 shares of restricted stock that is awarded upon termination or change of control.
|
10.
|
Includes shares issuable upon conversion of convertible promissory notes and exercise of options and warrants as described in above Notes for each director and officer.
|
Exhibit
Number
|
Description
|
3.1
|
Second Amended and Restated Certificate of Incorporation of Cicero Inc., a Delaware corporation, (incorporated by reference to Annex A to Cicero’s Definitive Proxy Statement on Schedule 14A filed August 27, 2015).
|
3.4
|
Amended and Restated Bylaws of Cicero Inc., a Delaware corporation (incorporated by reference to exhibit 3.1 to Cicero’s Form 8-K filed July 16, 2015).
|
4.1
|
Form of Long-term Promissory Note Stock Purchase Warrant (incorporated by reference to exhibit 4.19 to Cicero Inc.’s Form 10-K filed March 31, 2008).
|
4.2
|
Form of Long-term Promissory Note Stock Purchase Warrant (incorporated by reference to exhibit 4.17 to Cicero Inc.’s Form 10-K filed March 31, 2009).
|
4.3
|
Form of Amended Long-term Promissory Note Stock Purchase Warrant (incorporated by reference to exhibit 4.3 to Cicero Inc.’s Form 10-K filed March 31, 2011).
|
4.4
|
Form of Investor Warrant Agreement (incorporated by reference to exhibit 4.4 to Cicero Inc.’s Form 10-K filed March 31, 2014)
|
4.5
|
Form of Warrant to Purchase Shares of Common Stock (incorporated by reference to exhibit 10.3 to Cicero Inc.’s Form 8-K filed July 16, 2015)
|
10.2
|
Amended PCA Shell License Agreement, dated as of January 3, 2002, between Level 8 Systems, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to exhibit 10.2 to Level 8’s Form 8-K, filed January 11, 2002).
|
10.3A
|
PCA Shell License Agreement between Level 8 Systems, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to exhibit 10.2 to Level 8’s Report on Form 8-K, filed September 11, 2000).
|
10.3B
|
OEM License Agreement between Cicero Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to exhibit 10.12A to Cicero Inc.’s Form 10-K filed March 31, 2008).
|
10.3C
|
Software Support and Maintenance Schedule between Cicero Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to exhibit 10.12A to Cicero Inc.’s Form 10-K filed March 31, 2008).
|
10.10
|
Cicero Inc. 2007 Employee Stock Option Plan (incorporated by reference to exhibit 10.22 to Cicero Inc.’s Form 10-K filed March 31, 2008).
|
10.21
|
Registration Rights Agreement, dated as of January 15, 2010, by and among Cicero Inc. and the Purchasers thereto (incorporated by reference to exhibit 4.4 to Cicero Inc.’s Form 8-K filed January 20, 2010).
|
10.22
|
Form of Short Term Secured Promissory Note of Cicero Inc. among Cicero Inc. and John Broderick (incorporated by reference to exhibit 10.22 to Cicero Inc.’s Form 10-K filed March 31, 2014).
|
10.23
|
Source Code License Agreement between Cicero Inc. and Convergys Customer Management Group Inc. (incorporated by reference to exhibit 10.16 to Cicero Inc., Form 10-K filed April 16, 2012).
|
10.9
|
Lease Agreement for Cary, N.C. offices, dated July 21, 2010, between Cicero Inc. and Regency Park Corporation (incorporated by reference to exhibit 10.9 to Cicero Inc.’s Form 10-K filed March 31, 2011).
|
10.24
|
Form of Short-Term Promissory Note of Cicero Inc. among Cicero Inc. and John L. Steffens (incorporated by reference to exhibit 10.16 to Cicero Inc., Form 10-K filed April 16, 2012).
|
10.25
|
Form of Short-Term Promissory Note of Cicero Inc. among Cicero Inc. and Antony Castagno (incorporated by reference to exhibit 10.25 to Cicero Inc.’s Form 10-K filed March 31, 2014).
|
10.26
|
Amended Employment Agreement between John P. Broderick and the Company effective January 1, 2012 (incorporated by reference to exhibit 10.26 to Cicero Inc., Form 10-K filed April 15, 2013)*
|
10.27
|
Registration Rights Agreement, dated as of March 20, 2013, by and among Cicero Inc. and the Purchasers thereto (incorporated by reference to exhibit 10.27 to Cicero Inc.’s Form 10-K filed March 31, 2014).
|
10.28
|
Form of Securities Purchase Agreement by and among Cicero, Inc. and the Purchasers thereto (incorporated by reference to exhibit 10.28 to Cicero Inc.’s Form 10-K filed March 31, 2014).
|
10.29
|
Amended Employment Agreement between Antony Castagno and the Company effective July 3, 2013 (incorporated by reference to exhibit 10.29 to Cicero Inc.’s Form 10-K filed March 31, 2014)*.
|
10.30
|
Lease Agreement for Cary, N.C. offices, dated July 11, 2014, between Cicero Inc. and Regency Park Corporation (filed herewith).
|
10.31
|
Stock and Warrant Purchase Agreement, dated as of July 15, 2015, by and among Cicero Inc. and the purchasers named thereto (incorporated by reference to exhibit 10.1 to Cicero’s Form 8-K filed July 16, 2015)
|
10.32
|
Investor Rights Agreement, dated as of July 15, 2015, by and among Cicero Inc., Privet Fund LP and John L. Steffens (incorporated by reference to exhibit 10.2 to Cicero’s Form 8-K filed July 16, 2015)
|
10.33
|
Form of Indemnification Agreement for Directors of Cicero Inc. (incorporated by reference to exhibit 10.4 to Cicero’s Form 8-K filed July 16, 2015)
|
10.34
|
Form of Inventions and Non-Competition Agreement for Employees of Cicero Inc. (incorporated by reference to exhibit 10.5 to Cicero’s Form 8-K filed July 16, 2015)
|
14.1
|
Code of Ethics (incorporated by reference to exhibit 14.1 to Level 8’s Form 10-K/A, filed March 31, 2004).
|
List of subsidiaries of the Company (filed herewith).
|
Consent of Independent Registered Public Accounting Firm (filed herewith).
|
Certification of Chief Executive pursuant to Rule 13a-14(a) (filed herewith).
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith).
|
Certification of John P. Broderick pursuant to 18 USC § 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
|
CICERO INC. | |||
By:
|
/s/ John P. Broderick | ||
John P. Broderick | |||
Chief Executive Officer and Chief Financial Officer
Date: March 30, 2016
|
|||
Signature
|
Title
|
Date
|
|
/s/John L. Steffens
John L. Steffens
|
Chairman of the Board
|
March 30, 2016
|
|
/s/ John P. Broderick
John P. Broderick
|
Chief Executive Officer/Chief Financial Officer
(Principal Executive and Financial and Accounting Officer)
|
March 30, 2016
|
|
/s/ Antony Castagno
Antony Castagno
|
Chief Technology Officer
|
March 30, 2016
|
|
/s/ Ryan Levenson
Ryan Levenson
|
Director
|
March 30, 2016
|
|
/s/ Thomas Avery
Thomas Avery
|
Director
|
March 30, 2016
|
|
/s/ Mark Landis
Mark Landis
|
Director
|
March 30, 2016
|
|
/s/ Bruce D. Miller
Bruce D. Miller
|
Director
|
March 30, 2016
|
|
/s/ Don Peppers
Don Peppers
|
Director
|
March 30, 2016
|
Report of Independent Registered Public Accounting Firm
|
F-2
|
Financial Statements:
|
|
Consolidated Balance Sheets
|
F-3
|
Consolidated Statements of Operations
|
F-4
|
Consolidated Statements of Stockholders’ Deficit
|
F-5
|
Consolidated Statements of Cash Flows
|
F-6
|
Notes to Consolidated Financial Statements
|
F-7
|
December 31, 2015
|
December 31, 2014
|
|||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash
|
$ | 1,009 | $ | 20 | ||||
Trade accounts receivable
|
256 | 1,035 | ||||||
Prepaid expenses and other current assets
|
235 | 237 | ||||||
Total current assets
|
1,500 | 1,292 | ||||||
Property and equipment, net
|
11 | 14 | ||||||
Goodwill (Note 4)
|
1,658 | 1,658 | ||||||
Total assets
|
$ | 3,169 | $ | 2,964 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
||||||||
Current liabilities:
|
||||||||
Short-term debt less unamortized discount of $219 (Note 5)
|
$ | 2,098 | $ | 8,492 | ||||
Accounts payable
|
1,336 | 2,012 | ||||||
Accrued expenses:
|
||||||||
Salaries, wages, and related items
|
1,601 | 1,400 | ||||||
Interest payable
|
2,021 | 1,674 | ||||||
Other
|
653 | 573 | ||||||
Deferred revenue
|
605 | 1,399 | ||||||
Total current liabilities
|
8,314 | 15,550 | ||||||
Long-term debt
|
2,132 | -- | ||||||
Total liabilities
|
10,446 | 15,550 | ||||||
Commitments and contingencies (Notes 12 and 13)
|
||||||||
Stockholders’ deficit:
|
||||||||
Convertible preferred stock, $0.001 par value, 10,000,000 shares authorized Series A-1 – No shares issued and outstanding at December 31, 2015; 1,499.6 shares issued and outstanding at December 31, 2014; $500 per share liquidation preference
|
-- | -- | ||||||
Series B – No shares issued and outstanding at December 31, 2015; 10,400 shares issued and outstanding at December 31, 2014, $500 per share liquidation preference
|
-- | -- | ||||||
Common stock, $0.001 par value, 600,000,000 shares authorized at December 31, 2015; 215,000,000 shares authorized at December 31, 2014; 192,253,005 issued and outstanding at December 31, 2015 and 85,848,237 issued and outstanding at December 31, 2014 (Note 8)
|
192 | 86 | ||||||
Additional paid-in-capital
|
246,220 | 237,206 | ||||||
Accumulated deficit
|
(253,689 | ) | (249,878 | ) | ||||
Total stockholders’ deficit
|
(7,277 | ) | (12,586 | ) | ||||
Total liabilities and stockholders’ deficit
|
$ | 3,169 | $ | 2,964 |
Years Ended December 31,
|
||||||||
2015
|
2014
|
|||||||
Revenue:
|
||||||||
Software
|
$ | 391 | $ | 350 | ||||
Maintenance
|
1,479 | 1,461 | ||||||
Services
|
73 | 92 | ||||||
Total operating revenue
|
1,943 | 1,903 | ||||||
Cost of revenue:
|
||||||||
Software
|
-- | -- | ||||||
Maintenance
|
108 | 103 | ||||||
Services
|
579 | 660 | ||||||
Total cost of revenue
|
687 | 763 | ||||||
Gross margin
|
1,256 | 1,140 | ||||||
Operating expenses:
|
||||||||
Sales and marketing
|
1,080 | 1,098 | ||||||
Research and product development
|
1,445 | 1,227 | ||||||
General and administrative
|
1,151 | 980 | ||||||
Goodwill impairment charge
|
-- | 1,174 | ||||||
Total operating expenses
|
3,676 | 4,479 | ||||||
Loss from operations before other income (charges)
|
(2,420 | ) | (3,339 | ) | ||||
Other income (charges):
|
||||||||
Interest expense
|
(422 | ) | (772 | ) | ||||
Other (Note 1)
|
(1 | ) | 184 | |||||
(423 | ) | (588 | ) | |||||
Net loss
|
(2,843 | ) | (3,927 | ) | ||||
8% preferred stock Series B dividend
|
(86 | ) | (127 | ) | ||||
Deemed dividend applicable to warrant purchase
|
(882 | ) | -- | |||||
Net loss applicable to common stockholders
|
$ | (3,811 | ) | $ | (4,054 | ) | ||
Loss per share – basic and diluted
|
$ | (0.03 | ) | $ | (0.05 | ) | ||
Average shares outstanding – basic and diluted
|
152,076 | 85,816 |
|
Common Stock
Shares Amount
|
Preferred Stock
SharesAmount
|
Additional
Paid-in
Capital
|
Accumulated
(Deficit)
|
Total
|
|||||||||||||||||||||||
Balance at December 31, 2013
|
85,806,247 | $ | 86 | 11,941 | -- | $ | 237,135 | $ | (245,824 | ) | $ | (8,603 | ) | |||||||||||||||
Dividend for preferred B stock
|
(127 | ) | (127 | ) | ||||||||||||||||||||||||
Conversion of preferred stock
|
41,990 | (42 | ) | -- | ||||||||||||||||||||||||
Options issued as compensation
|
2 | 2 | ||||||||||||||||||||||||||
Restricted shares issued as compensation
|
69 | 69 | ||||||||||||||||||||||||||
Net loss
|
(3,927 | ) | (3,927 | ) | ||||||||||||||||||||||||
Balance at December 31, 2014
|
85,848,237 | 86 | 11,899 | -- | 237,206 | (249,878 | ) | (12,586 | ) | |||||||||||||||||||
Dividend for preferred B stock
|
(86 | ) | (86 | ) | ||||||||||||||||||||||||
Conversion of preferred stock
|
11,899,628 | 12 | (11,899 | ) | (12 | ) | -- | |||||||||||||||||||||
Issuance of stock for payment of debt
|
69,505,140 | 69 | 6,882 | 6,951 | ||||||||||||||||||||||||
Options issued as compensation
|
12 | 12 | ||||||||||||||||||||||||||
Issuance of common stock
|
25,000,000 | 25 | 1,857 | (882 | ) | 1,000 | ||||||||||||||||||||||
Debt discount due to imputed interest
|
275 | 275 | ||||||||||||||||||||||||||
Net loss
|
(2,843 | ) | (2,843 | ) | ||||||||||||||||||||||||
Balance at December 31, 2015
|
192,253,005 | $ | 192 | -- | -- | $ | 246,220 | $ | (253,689 | ) | $ | (7,277 | ) |
Years Ended December 31,
|
||||||||
2015
|
2014
|
|||||||
Cash flows from operating activities:
|
||||||||
Net loss
|
$ | (2,843 | ) | $ | (3,927 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Depreciation
|
13 | 22 | ||||||
Stock compensation expense
|
12 | 71 | ||||||
Amortization of debt discount
|
56 | -- | ||||||
Bad debt expense
|
-- | 40 | ||||||
Goodwill impairment charge
|
-- | 1,174 | ||||||
Gain on write down of accrued liability
|
-- | (208 | ) | |||||
Changes in assets and liabilities:
|
||||||||
Trade accounts receivable
|
779 | 50 | ||||||
Prepaid expenses and other assets
|
2 | (29 | ) | |||||
Accounts payable and accrued expenses
|
709 | 910 | ||||||
Deferred revenue
|
(794 | ) | 17 | |||||
Net cash used in operating activities
|
(2,066 | ) | (1,880 | ) | ||||
Cash flows from investing activities:
|
||||||||
Purchases of property and equipment
|
(10 | ) | (7 | ) | ||||
Net cash used in investing activities
|
(10 | ) | (7 | ) | ||||
Cash flows from financing activities:
|
||||||||
Issuance of common stock
|
1,000 | -- | ||||||
Borrowings under short and long-term debt
|
2,275 | 2,296 | ||||||
Repayments of short and long-term debt
|
(210 | ) | (394 | ) | ||||
Net cash provided by financing activities
|
3,065 | 1,902 | ||||||
Net increase in cash
|
989 | 15 | ||||||
Cash at beginning of year
|
20 | 5 | ||||||
Cash at end of year
|
$ | 1,009 | $ | 20 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||
Cash paid during the year for:
|
||||||||
Income taxes
|
$ | 10 | $ | 12 | ||||
Interest
|
$ | 20 | $ | 56 |
NOTE 1.
|
SUMMARY OF OPERATIONS, SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS
|
December 31,
2015
|
December 31,
2014
|
|||||||
Fair Value
|
$ | 2,061,598 | -- | |||||
Carrying Value
|
$ | 2,132,457 | -- |
2015
|
2014
|
|||||||
Stock options
|
3,657,110 | 3,150,110 | ||||||
Warrants
|
207,959,113 | 5,281,333 | ||||||
Preferred stock
|
-- | 11,899,628 | ||||||
211,616,223 | 20,331,071 |
2015
|
2014
|
|||||||
Fair value of common stock
|
$ | 0.05 | $ | 0.02 | ||||
Expected life (in years)
|
9.99 years
|
9.99 years
|
||||||
Expected volatility
|
160 | % | 181 | % | ||||
Risk free interest rate
|
2.33 | % | 0.86 | % | ||||
Expected dividend yield
|
0 | % | 0 | % |
2015
|
2014
|
|||||||
Current trade accounts receivable
|
$ | 256 | $ | 1,035 |
2015
|
2014
|
|||||||
Computer equipment
|
$ | 160 | $ | 150 | ||||
Furniture and fixtures
|
24 | 24 | ||||||
Office equipment
|
35 | 35 | ||||||
219 | 209 | |||||||
Less: accumulated depreciation
|
(208 | ) | (195 | ) | ||||
$ | 11 | $ | 14 |
Goodwill
|
||||
Balance at December 31, 2013
|
$ | 2,832,000 | ||
Additions
|
-- | |||
Impairment
|
1,174,000 | |||
Balance at December 31, 2014
|
1,658,000 | |||
Additions
|
-- | |||
Impairment
|
-- | |||
Balance at December 31, 2015
|
$ | 1,658,000 |
December 31,
2015
|
December 31,
2014
|
|||||||
Note payable – asset purchase agreement (a)
|
$ | 1,518 | $ | 700 | ||||
Note payable – related parties (b)
|
1,845 | 6,706 | ||||||
Notes payable (c)
|
1,086 | 1,086 | ||||||
Unamortized debt discount (b)
|
(219 | ) | -- | |||||
Total debt
|
4,230 | 8,492 | ||||||
Less current portion
|
(2,098 | ) | (8,492 | ) | ||||
Total long term debt
|
$ | 2,132 | $ | -- |
(a)
|
In January 2010, the Company entered into an unsecured convertible promissory note with SOAdesk for $700,000 with an annual interest rate of 5%. The note was originally scheduled to mature on March 31, 2010 but was subsequently amended and through a series of amendments, the maturity date was extended to June 30, 2015. In June 2015, the note was amended and the maturity date was extended to June 30, 2017. In July 2015, the Company paid $25,000 toward the principal amount of the note. At December 31, 2014, the Company was indebted to SOAdesk in the amount of $700,000 in principal and $175,000 in interest. At December 31, 2015, the Company was indebted to SOAdesk in the amount of $675,000 in principal and $208,000 in interest.
|
(b)
|
During 2013, the Company entered into a $15,000 short-term note payable with Antony Castagno, the Chief Technology Officer, for various working capital needs. The note was non-interest bearing and unsecured. In March 2014, Mr. Castagno amended the note extending the maturity date until December 31, 2014 and the note bore interest at 10%. At December 31, 2014, the Company was indebted to Mr. Castagno in the approximate amount of $15,000 and approximately $1,400 in interest. No interest was paid in fiscal 2014. In March 2015, the debt of $15,000 and approximate interest of $1,700 was paid in full.
|
(c)
|
The Company has issued a series of short-term unsecured promissory notes with private lenders, which provide for short term borrowings. The notes in the aggregate principal amount of $50,000 of principal and $41,000 of interest and $50,000 of principal and $53,000 of interest, respectively, as of December 31, 2014 and December 31, 2015, bear interest between 10% and 36% per annum.
|
2015
|
2014
|
|||||||
Expected income tax benefit at statutory rate (34%)
|
$ | (967 | ) | $ | (1,335 | ) | ||
State taxes, net of federal tax benefit
|
(170 | ) | (235 | ) | ||||
Effect of change in valuation allowance
|
(5,860 | ) | (6,994 | ) | ||||
Non-deductible expenses
|
3 | 1 | ||||||
Expiration of net operating loss deductions
|
6,994 | 8,563 | ||||||
Total
|
$ | -- | $ | -- |
2015
|
2014
|
|||||||
Accrued expenses, non-tax deductible
|
$ | 7 | $ | 153 | ||||
Deferred revenue
|
242 | 560 | ||||||
Contingent payments
|
(831 | ) | (831 | ) | ||||
Stock compensation expense
|
621 | 616 | ||||||
Loss carryforwards
|
56,583 | 54,765 | ||||||
Depreciation and amortization
|
966 | 1,191 | ||||||
57,588 | 56,454 | |||||||
Less: valuation allowance
|
(57,588 | ) | (56,454 | ) | ||||
$ | -- | $ | -- |
1.
|
An amendment to the Company’s Amended and Restated Certificate of Incorporation (“Charter”) to increase the number of authorized shares of common stock, par value $0.001 per share, from 215,000,000 to 600,000,000;
|
2.
|
An amendment to the Company’s Charter to allow stockholders to be able to act by written consent only while Privet Fund LP and its affiliates (a “Privet Stockholder”) own an aggregate of at least 30% of the Company’s outstanding voting stock;
|
3.
|
An amendment to the Company’s Charter to provide that only the Board of Directors may call a special meeting of stockholders of the Company;
|
4.
|
An amendment to the Company’s Charter to renounce the Company’s expectancy regarding certain corporate opportunities presented to a Privet Stockholder;
|
5.
|
An amendment to the Company’s Charter to not be governed by the provisions of Section 203 of the Delaware General Corporation Law;
|
6.
|
An amendment to the Company’s Charter establishing the courts located within the State of Delaware as the exclusive forum for the adjudication of certain legal actions by the stockholders; and
|
7.
|
An amendment to the Company’s Charter to authorize 10,000,000 shares of “blank check” preferred stock, par value $0.001 per share.
|
|
Number of Options
|
Option Price
Per Share
|
Weighted Average
Exercise Price
|
Aggregate Intrinsic Value
|
|||||||||||
Balance at December 31, 2013
|
3,396,210 | 0.05-46.00 | $ | 0.31 | |||||||||||
Granted
|
15,000 | 0.02 | $ | 0.02 | |||||||||||
Forfeited
|
(255,000 | ) | 0.06-0.51 | $ | 0.38 | ||||||||||
Expired
|
(6,100 | ) | 31.00 | $ | 31.00 | ||||||||||
Balance at December 31, 2014
|
3,150,110 | 0.02-0.51 | $ | 0.24 | |||||||||||
Granted
|
525,000 | 0.05 | $ | 0.05 | |||||||||||
Forfeited
|
(10,000 | ) | 0.09 | $ | 0.09 | ||||||||||
Expired
|
(8,000 | ) | 0.51 | $ | 0.51 | ||||||||||
Balance at December 31, 2015
|
3,657,110 | 0.03-0.51 | $ | 0.21 | $ |
0.00
|
|
Number of Options
|
Option Price
Per Share
|
Weighted Average
Exercise Price
|
|||||||||
Balance at December 31, 2013
|
125,000 | 0.05-0.19 | $ | 0.08 | ||||||||
Granted
|
15,000 | 0.02 | $ | 0.02 | ||||||||
Vested
|
(121,667 | ) | 0.02-0.19 | $ | 0.07 | |||||||
Forfeited
|
-- | --- | -- | |||||||||
Balance at December 31, 2014
|
18,333 | 0.02-0.05 | $ | 0.04 | ||||||||
Granted
|
525,000 | 0.05 | $ | 0.05 | ||||||||
Vested
|
(188,332 | ) | 0.05 | $ | 0.05 | |||||||
Forfeited
|
-- | --- | -- | |||||||||
Balance at December 31, 2015
|
355,001 | 0.05 | $ | 0.05 |
Exercise Price
|
Number
Outstanding
|
Remaining Contractual Life for Options Outstanding
|
Number Exercisable
|
Weighted Average
Exercise Price
|
||||||||||||||
$ | 0.02-0.06 | 745,000 | 8.5 | 389,999 | $ | 0.05 | ||||||||||||
0.07-0.09 | 1,437,750 | 5.0 | 1,437,750 | 0.08 | ||||||||||||||
0.10-0.37 | 360,000 | 3.4 | 360,000 | 0.15 | ||||||||||||||
0.38-0.51 | 1,114,360 | 1.6 | 1,114,360 | 0.51 | ||||||||||||||
3,657,110 | 4.5 | 3,302,109 | $ | 0.21 |
Number of Warrants
|
Warrant Price
Per Share
|
Weighted Average
Exercise Price
|
||||||||||
Balance at December 31, 2013
|
6,281,333 | $ | 0.08-$0.25 | $ | 0.22 | |||||||
Issued
|
-- | -- | -- | |||||||||
Exercised
|
-- | -- | -- | |||||||||
Forfeited
|
(1,000,000 | ) | $ | 0.20 | $ | 0.20 | ||||||
Balance at December 31, 2014
|
5,281,333 | $ | 0.08-$0.25 | $ | 0.22 | |||||||
Issued
|
205,277,780 | $ | 0.04-$0.05 | $ | 0.05 | |||||||
Exercised
|
-- | -- | -- | |||||||||
Forfeited
|
(2,600,000 | ) | $ | 0.25 | $ | 0.25 | ||||||
Balance at December 31, 2015
|
207,959,113 | $ | 0.04-$0.20 | $ | 0.05 |
Lease
Commitments
|
||||
2016
|
$ | 103 | ||
2017
|
106 | |||
2018
|
89 | |||
$ | 298 |
Name
|
Jurisdiction
|
|
Level 8 Technologies, Inc.
|
Delaware
|
|
Cicero Strategic Investments LLC.
|
Delaware
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;
|
|
c)
|
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and
|
|
d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date: March 30, 2016 | |||
|
/s/ John P. Broderick | ||
John P. Broderick | |||
Chief Executive Officer | |||
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;
|
|
c)
|
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and
|
|
d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date: March 30, 2016 | |||
|
/s/ John P. Broderick | ||
John P. Broderick | |||
Chief Financial Officer | |||
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented in the Report.
|
By: /s/ John P. Broderick
|
|
John P. Broderick
|
|
Chief Executive and Financial Officer
|
|
(Principal Financial and Accounting Officer)
|
|
March 30, 2016
|
Document and Entity Information - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Mar. 22, 2016 |
Jun. 30, 2015 |
|
Document And Entity Information | |||
Entity Registrant Name | CICERO INC | ||
Entity Central Index Key | 0000945384 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2015 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity a Voluntary Filer? | No | ||
Is Entity's Reporting Status Current? | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 7,612,315 | ||
Entity Common Stock, Shares Outstanding | 192,253,005 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2015 |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Stockholders deficit: | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock shares authorized | 10,000,000 | 10,000,000 |
Preferred stock shares series A issued | 0 | 1,499.6 |
Preferred stock shares series A outstanding | 0 | 1,499.6 |
Preferred stock shares series B issued | 0 | 10,400 |
Preferred stock shares series B outstanding | 0 | 10,400 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock shares authorized | 600,000,000 | 215,000,000 |
Common stock shares issued | 192,253,005 | 85,848,237 |
Common stock shares outstanding | 192,253,005 | 85,848,237 |
1. SUMMARY OF OPERATIONS, SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUMMARY OF OPERATIONS, SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS | Cicero Inc., (Cicero or the Company), is a provider of business integration software which enables organizations to integrate new and existing information and processes at the desktop. Business integration software addresses the emerging need for a companys information systems to deliver enterprise-wide views of the companys business information processes. Cicero Inc. was incorporated in New York in 1988 as Level 8 Systems, Inc. and re-incorporated in Delaware in 1999.
Going Concern and Management Plans:
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred an operating loss of approximately $2,843,000 for the year ended December 31, 2015, and has a history of operating losses. Management believes that its repositioned strategy of leading with its Discovery product to measure how work happens and then follow with its integration capabilities through its Discovery Automation product will shorten the sales cycle and allow for value based selling to our customers and prospects. The Company anticipates success in this regard based upon current discussions with active customers and prospects. Should the Company be unable to secure customer contracts that will drive sufficient cash flow to sustain operations, the Company will be forced to seek additional capital in the form of debt or equity financing; however, there can be no assurance that such debt or equity financing will be available. These factors raise substantial doubt about the Companys ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All of the Companys subsidiaries are wholly owned for the periods presented.
All significant inter-company accounts and transactions are eliminated in consolidation.
Use of Estimates:
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from these estimates. Significant estimates include the recoverability of long-lived assets, valuation and recoverability of goodwill, stock based compensation, revenue recognition, deferred taxes and related valuation allowances and valuation of equity instruments.
Financial Instruments:
The carrying amount of the Companys financial instruments, representing accounts receivable, accounts payable and short-term debt approximate their fair value due to their short-term nature.
The fair value and carrying amount of long-term debt were as follows:
Valuations for long-term debt are determined based on borrowing rates currently available to the Company for loans with similar terms and maturities. These loans have been determined to be Level 3 within the fair value hierarchy and use a discounted cash flow model to determine their valuation. There have been no changes to the valuation technique.
Cash:
The Company places substantially all cash with various financial institutions. The Federal Deposit Insurance Corporation (FDIC) covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits. As of December 31, 2015, the Company did exceed these insured amounts.
Trade Accounts Receivable:
Trade accounts receivable are stated in the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to the allowance of doubtful accounts based on its assessment of the current status of individual accounts. Balances still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance of doubtful accounts and a credit to trade accounts receivable. Changes in the allowance for doubtful accounts have not been material to the consolidated financial statements.
Property and Equipment:
Property and equipment purchased in the normal course of business is stated at cost, and property and equipment acquired in business combinations is stated at its fair market value at the acquisition date. All property and equipment is depreciated using the straight-line method over estimated useful lives.
Expenditures for repairs and maintenance are charged to expense as incurred.
The cost and related accumulated depreciation of property and equipment are removed from the accounts upon retirement or other disposition and any resulting gain or loss is reflected in the Consolidated Statements of Operations.
Software Development Costs:
The Company capitalizes certain software costs after technological feasibility of the product has been established. Generally, an original estimated economic life of three years is assigned to capitalized software costs, once the product is available for general release to customers. Costs incurred prior to the establishment of technological feasibility are charged to research and product development expense.
Capitalized software costs are amortized over related sales on a product-by-product basis using the straight-line method over the remaining estimated economic life of the product.
The establishment of technological feasibility and the ongoing assessment of recoverability of capitalized software development costs require considerable judgment by management with respect to certain external factors, including, but not limited to, technological feasibility, anticipated future gross revenue, estimated economic life and changes in software and hardware technologies.
Long-Lived Assets:
The Company reviews the recoverability of long-lived intangible assets when circumstances indicate that the carrying amount of assets may not be recoverable. This evaluation is based on various analyses including undiscounted cash flow projections. In the event undiscounted cash flow projections indicate impairment, the Company would record an impairment based on the fair value of the assets at the date of the impairment. The Company accounts for impairments under the Financial Accounting Standards Board (FASB) guidance now codified as Accounting Standards Codification (ASC) 360 Property, Plant and Equipment.
Accrued Other:
Accrued other is primarily comprised of accrued dividends of $447,000 and $359,000 at December 31, 2015 and 2014, respectively, and the remaining balance is comprised of accrued tax, royalty, consulting and other.
Revenue Recognition:
We derive revenue from three sources: license fees, maintenance and support revenue and professional services. Maintenance and support consists of technical support. Professional services primarily consists of consulting, implementation services and training. Significant management judgments and estimates are made and used to determine the revenue recognized in any accounting period. Material differences may result in changes to the amount and timing of our revenue for any period if different conditions were to prevail. We present revenue, net of taxes collected from customers and remitted to governmental authorities.
We apply the provisions of ASC 985-605, Software Revenue Recognition, to all transactions involving the licensing of software products. In the event of a multiple element arrangement for a license transaction, we evaluate the transaction as if each element represents a separate unit of accounting taking into account all factors following the accounting standards. When such estimates are not available, the completed contract method is utilized. Under the completed contract method, revenue is recognized only when a contract is completed or substantially complete.
When licenses are sold together with system implementation and consulting services, license fees are recognized upon delivery, provided that (i) payment of the license fees is not dependent upon the performance of the consulting and implementation services, (ii) the services are available from other vendors, (iii) the services qualify for separate accounting as we have sufficient experience in providing such services, have the ability to estimate cost of providing such services, and have vendor-specific objective evidence of fair value, and (iv) the services are not essential to the functionality of the software.
We use signed software license and services agreements and order forms as evidence of an arrangement for sales of software, maintenance and support. We use signed engagement letters to evidence an arrangement for professional services.
License Revenue We recognize license revenue when persuasive evidence of an arrangement exists, the product has been delivered, no significant obligations remain, the fee is fixed or determinable, and collection of the resulting receivable is probable. In software arrangements that include rights to multiple software products and/or services, we use the residual method under which revenue is allocated to the undelivered elements based on vendor-specific objective evidence of the fair value of such undelivered elements. The residual amount of revenue is allocated to the delivered elements and recognized as revenue, assuming all other criteria for revenue recognition have been met. Such undelivered elements in these arrangements typically consist of software maintenance and support, implementation and consulting services.
Software is delivered to customers electronically. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction. We have standard payment terms included in our contracts. We assess collectability based on a number of factors, including the customers past payment history and its current creditworthiness. If we determine that collection of a fee is not reasonably assured, we defer the revenue and recognize it at the time collection becomes reasonably assured, which is generally upon receipt of cash payment. If an acceptance period is required, revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance period. We consider a software element to exist when we determine that the customer has the contractual right to take possession of our software. Professional services are recognized as described below under Professional Services Revenue. If vendor-specific evidence of fair value cannot be established for the undelivered elements of an agreement, the entire amount of revenue from the arrangement is recognized ratably over the period that these elements are delivered.
Maintenance Revenue We use vendor-specific objective evidence of fair value for maintenance and support to account for the arrangement using the residual method, regardless of any separate prices stated within the contract for each element. Maintenance and support revenue is recognized ratably over the term of the maintenance contract, which is typically one year. Maintenance and support is renewable by the customer on an annual basis. Maintenance and support rates, including subsequent renewal rates, are typically established based upon a specified percentage of net license fees as set forth in the arrangement.
Professional Services Revenue Included in professional services revenue is revenue derived from system implementation, consulting and training. For software transactions, the majority of our consulting and implementation services and accompanying agreements qualify for separate accounting. We use vendor-specific objective evidence of fair value for the services to account for the arrangement using the residual method, regardless of any separate prices stated within the contract for each element. Our consulting and implementation service contracts are bid on a fixed-fee basis. For fixed fee contracts, where the services are not essential to the functionality, we recognize revenue as services are performed. If the services are essential to functionality, then both the product license revenue and the service revenue are deferred until the services are performed.
Training revenue that meets the criteria to be accounted for separately is recognized when training is provided.
Cost of Revenue:
The primary component of the Companys cost of revenue for maintenance and services is compensation expense.
Advertising Expenses:
The Company expenses advertising costs as incurred. Advertising expenses were approximately $217,000 and $218,000 for the years ended December 31, 2015 and 2014, respectively.
Research and Product Development:
Research and product development costs are expensed as incurred unless such costs meet the software capitalization criteria. Research and development expenses were approximately $1,445,000 and $1,227,000 for the years ended December 31, 2015 and 2014, respectively.
Goodwill impairment charge:
In 2014, we recorded a non-cash goodwill impairment charge of $1,174,000. We test goodwill for impairment annually on December 31 using a discounted cash flow methodology with a peer-based, risk-adjusted weighted average cost of capital, guideline public company methodology and industry transaction methodology. Our goodwill impairment test as of December 31, 2014, indicated that the carrying value of our SOA acquisition goodwill exceeded its estimated fair value. Accordingly, we recorded a non-cash, non-tax deductible goodwill impairment charge of $1,174,000 in fiscal year 2014, reducing our goodwill from $2,832,000 to $1,658,000. No impairment of goodwill was identified as of December 31, 2015.
Other Income/(Charges):
Other income/(charges) in fiscal 2014 consists primarily of a write off of certain liabilities deemed no longer payable of $208,000 partially offset by $24,000 of expense for a prior year matching contribution to its defined contribution plan.
Income Taxes:
The Company uses FASB guidance now codified as ASC 740 Income Taxes to account for income taxes. This statement requires an asset and liability approach that recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Companys consolidated financial statements or tax returns. In estimating future tax consequences, all expected future events, other than enactments of changes in the tax law or rates, are generally considered. A valuation allowance is recorded when it is more likely than not that recorded deferred tax assets will not be realized. (See Note 6.)
Loss Per Share:
Basic loss per share is computed based upon the weighted average number of common shares outstanding. Diluted loss per share is computed based upon the weighted average number of common shares outstanding and any potentially dilutive securities. During 2015 and 2014, potentially dilutive securities included stock options, warrants to purchase common stock, and preferred stock.
The following table sets forth the potential shares that are not included in the diluted net loss per share calculation because to do so would be anti-dilutive for the periods presented:
$86,000 and $127,000 was accrued for dividends on the Series B Preferred Stock in fiscal year 2015 and 2014, respectively.
Stock-Based Compensation:
The Company accounts for stock-based compensation to employee under ASC 718 Compensation Stock Compensation, which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprises equity instruments or that may be settled by the issuance of such equity instruments. The Company granted 525,000 options in fiscal year 2015 at an exercise price of $0.05 per share and recognized approximately $12,000 of stock-based compensation. The Company granted 15,000 options in fiscal year 2014 at an exercise price of $0.02 per share and recognized approximately $2,000 of stock-based compensation. The Company recognized as stock-based compensation approximately $0 and $27,000 in fiscal 2015 and 2014, respectively, for the restricted shares issued in 2007 to John Broderick, the Chief Executive Officer. Additionally, the Company recognized as stock based compensation approximately $0 and $43,000 in fiscal year 2015 and 2014, respectively, for the 1,500,000 restricted shares issued in 2012 to John Broderick.
The fair value of the Companys stock-based awards to employees was estimated as of the date of the grant using the Black-Scholes option-pricing model, using the following weighted-average assumptions:
Recent Accounting Pronouncements:
The FASB's new leases standard ASU 2016-02 Leases (Topic 842) was issued on February 25, 2016. ASU 2016-02 is intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets referred to as Lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. An organization is to provide disclosures designed to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements concerning additional information about the amounts recorded in the financial statements. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP which requires only capital leases to be recognized on the balance sheet the new ASU will require both types of leases (i.e. operating and capital) to be recognized on the balance sheet. The FASB lessee accounting model will continue to account for both types of leases. The capital lease will be accounted for in substantially the same manner as capital leases are accounted for under existing GAAP. The operating lease will be accounted for in a manner similar to operating leases under existing GAAP, except that lessees will recognize a lease liability and a lease asset for all of those leases. The leasing standard will be effective for calendar year-end public companies beginning after December 15, 2018. Public companies will be required to adopt the new leasing standard for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption will be permitted for all companies and organizations upon issuance of the standard. For calendar year-end public companies, this means an adoption date of January 1, 2019 and retrospective application to previously issued annual and interim financial statements for 2018. See Note 11 for the Companys current lease commitments. The Company is currently in the process of evaluating the impact that this new leasing ASU will have on its financial statements.
In August 2014, the FASB issued a new accounting standard update which provides guidance on determining when and how to disclose going-concern uncertainties in the consolidated financial statements. The new standard requires management to perform interim and annual assessments of an entitys ability to continue as a going concern within one year of the date the consolidated financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entitys ability to continue as a going concern. The guidance applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company is evaluating the impact of adopting this new accounting standard update on the consolidated financial statements and related disclosures.
In May 2014, the FASB issued a new accounting standard update on revenue recognition from contracts with customers. The new guidance will replace most current U.S. GAAP guidance on this topic and eliminate most industry-specific guidance. According to the new guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration for which the Company expects to be entitled in exchange for those goods or services. This guidance will be effective for the Company beginning January 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption is not permitted. The Company has not yet selected a transition method and is evaluating the impact of adopting this new accounting standard update on the consolidated financial statements and related disclosures. |
2. ACCOUNTS RECEIVABLE |
12 Months Ended | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | ||||||||||||||||||||||||||||
Receivables [Abstract] | ||||||||||||||||||||||||||||
ACCOUNTS RECEIVABLE | Trade accounts receivable was composed of the following at December 31 (in thousands):
|
3. PROPERTY AND EQUIPMENT |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY AND EQUIPMENT | Property and equipment was composed of the following at December 31 (in thousands):
Depreciation expense of property and equipment was $13,000 and $22,000 for the years ended December 31, 2015 and 2014, respectively. |
4. INTANGIBLE ASSET, NET AND GOODWILL |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||
INTANGIBLE ASSET, NET AND GOODWILL |
The Company accounts for goodwill in accordance ASC Topic 350 Intangibles Goodwill and Other which requires that goodwill and intangible assets with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value.
Goodwill includes the excess of the purchase price over the fair value of net assets acquired of $2,832,000 in connection with the SOAdesk LLC acquisition in 2010. ASC Topic 350 requires that goodwill be tested for impairment at the reporting unit level. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value.
Pursuant to accounting guidance, the Company may elect to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The Company is not required to calculate the fair value of a reporting unit unless the Company determines that it is more likely than not that its fair value is less than its carrying amount. If the Company determines that it is more likely than not that its fair value is less than its carrying amount, then the two-step goodwill impairment test is performed. The first step, identifying a potential impairment, compares the fair value of the reporting unit with its carrying amount. If the carrying value exceeds its fair value, the second step would need to be conducted; otherwise, no further steps are necessary as no potential impairment exists. The second step, measuring the impairment loss, compares the implied fair value of the goodwill with the carrying amount of that goodwill. Any excess of the goodwill carrying value over the respective implied fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value.
Upon completion of the fiscal year 2014 test, the goodwill of our SOA acquisition was determined to be impaired. This goodwill impairment charge of $1,174,000 also represented our accumulated goodwill impairment as of December 31, 2014. There was no impairment of goodwill in year 2015.
|
5. DEBT |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DEBT | Debt and notes payable to related party consist of the following (in thousands):
In June 2015, the note was amended so that the note is convertible into shares of the Companys common stock at the rate of one share for every $0.15 of principal and interest due under the note from the original conversion to shares of Series B Convertible Preferred Stock at the rate of one share per every $150 of principal and interest due under the note. The note was further amended that should the Companys earnings before interest, taxes, depreciation and amortization (EBITDA) exceed $1,000,000 in either 12 month period beginning June 30, 2015 and June 30, 2016, respectively, then the Company shall repay, in cash, a portion of the outstanding principal of the note at the rate of $0.50 for each $1.00 that exceeds the EBITDA threshold. The note is convertible at the holders option at any time or at maturity.
As part of a prior acquisition, the Company was obligated to certain earn-out obligation payments of up to $2,410,000 over an 18 month period from January 15, 2010 through July 31, 2011, based upon the achievement of certain revenue performance targets. The earn-out was payable fifty percent in cash and fifty percent in common stock of the Company at the rate of one share for every $0.15 earn-out payable. The Company had recorded $842,606 in its accounts payable as of December 31, 2014 due to a portion of earn-out obligations being met. In June 2015, the Company entered into a promissory note with SOAdesk for fifty percent of the earn-out payable ($421,303) to SOAdesk. The maturity date of the note is December 31, 2015 with an annual interest rate of 10%. In December 2015, the maturity date was extended to December 31, 2016. At December 31, 2015, the Company was indebted to SOAdesk for $421,303 in principal and approximately $21,000 in interest. The Company also entered into a convertible promissory note with SOAdesk for fifty percent of the earn-out payable ($421,303) with a maturity date of June 30, 2017 that was non-interest bearing. The note is only convertible into shares of the Companys common stock at the rate of one share for every $0.15 of principal due under the note. The note is convertible at the holders option at any time or at maturity. At December 31, 2015 the Company was indebted to SOAdesk for $421,303 in principal.
From time to time during 2012 through 2015, the Company entered into several short-term notes payable with John L. (Launny) Steffens, the Chairman of the Board of Directors, for various working capital needs. The notes bear interest at 12% per year, are unsecured and mature on June 30, 2015. At December 31, 2014, the Company was indebted to Mr. Steffens in the approximate amount of $6,691,000 of principal and $1,139,000 in interest. On April 8, 2015, the Company entered into an Exchange Agreement with Mr. Steffens to convert an aggregate of $6,950,514 of principal amount of debt into 69,505,140 shares of the Companys common stock at a conversion rate of $0.10 per share.
Subsequent to the exchange agreement, the Company entered into several short term notes payable with Mr. Steffens for various working capital needs. The notes vary from non-interest bearing to interest rate of 12% with a maturity date of December 31, 2015. The Company is obligated to repay the notes with the collection of any accounts receivables. The Company had repaid $170,000 in principal as of December 31, 2015. In December 2015, the maturity dates were extended to December 31, 2016. At December 31, 2015, the Company was indebted to Mr. Steffens in the approximate amount of $1,845,000 of principal and $1,362,000 of interest. At December 31, 2015, the Company recorded $275,000 of unamortized discount on debt on the non-interest bearing notes with Mr. Steffens. Imputed interest was calculated based on a 12% interest rate based on historical notes with Mr. Steffens and comparative non-related party loans with the Company. The Company has recorded $56,000 of amortization of the debt discount in interest expense through December 31, 2015.
In March 2014, the Company reclassified to short-term debt its unsecured convertible promissory note with SOAdesk that was entered into as part of the Asset Purchase Agreement with SOAdesk for $1,000,000 with an annual interest rate of 5% and a maturity date of January 14, 2015. In March 2012, SOAdesk elected to convert $300,000 of the outstanding note balance into 2,000,000 shares of the Companys Common Stock. Through a series of amendments, the note was amended to extend the maturity date until June 30, 2015. In June 2015, the note was amended to extend the maturity date until June 30, 2017. The note was further amended that should the Companys earnings before interest, taxes, depreciation and amortization (EBITDA) exceed $1,000,000 in either 12 month period beginning June 30, 2015 and June 30, 2016, respectively, then the Company shall repay, in cash, a portion of the outstanding principal of the note at the rate of $0.50 for each $1.00 that exceeds the EBITDA threshold. At December 31, 2014, the Company was indebted to SOAdesk in the amount of $700,000 in principal and $207,000 in interest. At December 31, 2015, the Company was indebted to SOAdesk in the amount of $700,000 in principal and $242,000 in interest. The note is only convertible into shares of the Companys common stock at the rate of one share for every $0.15 of principal and interest due under the note.
In June 2014, the Company reclassified to short-term debt its unsecured promissory note with a private lender that was originally entered into in March 2012 for $336,000 at an interest rate of 12% and a maturity date of March 31, 2013. In March 2013, the maturity date of the note was extended to June 30, 2015. In June 2015, the maturity date of the note was extended to June 30, 2017, a repayment schedule of quarterly principal and interest payments of $12,000 beginning on September 30, 2015 and two milestone payments of $125,000 on February 28, 2016 and 2017, respectively were added. In February 2016, the note was amended that the first milestone payment due on February 29, 2016, was now payable quarterly beginning February 29, 2016 through November 29, 2016. At December 31, 2014, the Company was indebted to this private lender in the amount of $336,000 in principal and $112,000 in interest. At December 31, 2015, the Company was indebted to this private lender in the amount of $336,000 in principal and $134,000 in interest. |
6. INCOME TAXES |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES | The Company follows the provisions of ASC Topic 740, Income Taxes, and recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon settlement with the relevant tax authority. The Company applies ASC Topic 740 to all tax positions for which the statute of limitations remains open.
The Company has identified its federal tax return and its state tax return in North Carolina as major tax jurisdictions. Based on the Companys evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Companys consolidated financial statements. The evaluation was performed for the tax years 2013 through 2015, and may be subject to audits for amounts related to net operating loss carryforwards generated in periods prior to December 31, 2012. The Company believes that its income tax positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position. The tax returns for the prior three years are generally subject to review by federal and state taxing authorities.
The Companys policy for recording interest and penalties associated with audits is to record such items as a component of income tax expense. There were no amounts accrued for penalties and interest as of or during the period for the tax years 2014 and 2015. The Company does not expect its uncertain tax position to change during the next twelve months. Management is currently unaware of any issues under review that could result in significant payment, accruals or material deviations from its position.
A reconciliation of expected income tax at the statutory federal rate with the actual income tax provision is as follows for the years ended December 31 (in thousands):
Significant components of the net deferred tax asset at December 31 were as follows:
At December 31, 2015, the Company had net operating loss carryforwards of approximately $141,458,000, which may be applied against future taxable income. These carryforwards will expire at various times between 2019 and 2035. Net operating loss carryforwards include tax deductions for the disqualifying dispositions of incentive stock options. When the Company utilizes the net operating losses related to these deductions, the tax benefit will be reflected in additional paid-in capital and not as a reduction of tax expense. The total amount of these deductions included in the net operating loss carryforwards is $21,177,000.
The Company provided a full valuation allowance on the total amount of its deferred tax assets at December 31, 2015 and 2014 since management does not believe that it is more likely than not that these assets will be realized.
In accordance with Section 382 of the Internal Revenue Code of 1986, as amended, a change in equity ownership of greater than 50% of the Company within a three-year period can result in an annual limitation on the Companys ability to utilize its NOL carryforwards that were created during tax periods prior to the change in ownership. In December 2014, the Company completed a Section 382 study which concluded that an ownership change occurred for the three year testing period ended March 2000 but that no other ownership change occurred through December 2014 leaving our NOL carryforwards balance at December 31, 2014 at approximately $136,914,000. The study further concluded that the NOL limitation would not affect the three years in question as the total NOLs for those years is less than the calculated limitation. Subsequent analysis after the study determined that the debt conversion by Mr. Steffens and equity financing of $1 million in fiscal 2015 would not trigger a Section 382 limitation.
|
7. STOCKHOLDER'S EQUITY |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCKHOLDER'S EQUITY | At the Companys Annual Meeting held on September 11, 2015, the shareholders approved the following proposals:
Also at the Annual Meeting, the holders of the Companys Series A-1 Convertible Preferred Stock approved an amendment to Article IV (Conversion) of the Series A-1 Convertible Preferred Stock Certificate of Designations to the effect that the Series A-1 Preferred Stock automatically converted into common stock as a result of the Company consummation of an equity financing of at least $1,000,000 on July 15, 2015; and the holders of the Companys Series B Convertible Preferred Stock approved an amendment to Section 6 (Automatic Conversion) of the Series B Convertible Preferred Stock Certificate of Designations to the effect that the Series B Preferred Stock automatically converted into common stock as a result of the Company consummation of an equity financing of at least $1,000,000 on July 15, 2015 (see below).
On July 15, 2015, the Company entered into a Stock and Warrant Purchase Agreement (the Purchase Agreement) with investors named therein, including Privet Fund LP (Privet), five directors of the Company, including John L. Steffens, Donald Peppers, Bruce D. Miller, Mark Landis, and Thomas Avery, and three other persons (collectively the nine investors are referred to as the Purchasers), pursuant to which the Purchasers severally purchased, in the aggregate, 25,000,000 shares of the Companys common stock and warrants to purchase up to an aggregate of 205,277,778 shares of the Companys common stock (Warrants) for an aggregate consideration of $1,000,000.
The Warrants are exercisable for a period of three years beginning at any time after 60 days of issuance. The exercise prices of the Warrants are as follows: (i) Warrants to purchase up to 87,500,000 shares of the Companys common stock are exercisable at a price of $0.04 per share (Tranche I); (ii) Warrants to purchase up to 77,777,778 shares of the Companys common stock are exercisable at a price of $0.045 per share (Tranche II); and (iii) Warrants to purchase up to 40,000,000 shares of the Companys common stock are exercisable at a price of $0.05 per share (Tranche III). The Warrants are exercisable only for cash, as the exercise price paid is intended to increase the funding of the Company. All the exercise prices and numbers of shares are subject to customary anti-dilution provisions. The Warrants contain an exercise limitation provision that prohibits exercise of the Warrants to the extent that the exercise would result in the issuance of shares of the Companys common stock that would cause either (a) the Company to be deemed an investment company under the Investment Company Act of 1940, as amended, or (b) an ownership change within the meaning of Internal Revenue Code Section 382 (and applicable U.S. Treasury regulations pursuant to such section) limiting the use of the Companys net operating losses, carryforwards and other tax attributes. The Company is obligated to reserve a sufficient number of shares of the Companys common stock to enable the exercise of the Warrants.
The use of proceeds from this transaction are for general corporate purposes, as approved from time to time by the Board of Directors (the Board), which approval must include approval by a majority of the directors that have been designated by Privet.
In connection with the execution of the Purchase Agreement, the Company entered into an Investor Rights Agreement with Privet and Mr. Steffens (the Investors), granting the Investors the right to require the Company to file with the Securities and Exchange Commission up to four requested registration statements to register for resale the Investors shares of common stock purchased under the Purchase Agreement and purchased upon exercise of any of the Warrants (the Registrable Securities). The Investors also are granted unlimited piggy-back registration rights with respect to the Registrable Securities. The obligation to register the Registrable Securities continues until those securities have been sold or transferred by the holders of the registration rights or may be sold without limitation under Rule 144 or otherwise may be sold without restriction.
As a result of the transaction, (i) Privet became the record holder of approximately 10.1% of the outstanding and issued shares of common stock, and has the right to purchase under the Warrants an additional 149,852,778 shares of common stock which would correspondingly increase its percentage of ownership and it has the right to appoint directors, and (ii) Mr. Steffens decreased his current 65.5% ownership of the common stock of the Company to 59.3%, while retaining his current control position in the common stock. Together Privet and Mr. Steffens, excluding the exercise of the Warrants, have a majority of the voting control of the Company.
Preferred Stock:
In April 2010, the Company issued to a certain accredited investor 1,333 shares of Series B Convertible Preferred Stock at $150 per share for a total of $200,000. The Series B Convertible Preferred Stock bore an annual dividend of 8%. The Series B stock would have converted into common stock at a conversion rate of $0.15 per share. Additionally, the Series B stock provided 333,333 warrants to purchase common stock of the Company at a strike price of $0.25 per share. The warrants expired in April 2015. In January 2010, the Company issued to certain accredited investors 9,067 shares of Series B Convertible Preferred Stock at $150 per share for a total of $1,360,000, including $500,000 in cash, the cancellation of $710,000 of existing indebtedness. The Series B Convertible Preferred Stock bore an annual dividend of 8%. The Series B would have converted into common stock at a conversion rate of $0.15 per share. Additionally, the Series B stock investors were issued 2,266,667 warrants to purchase common stock of the Company at a strike price of $0.25 per share. The warrants expired in January 2015. All shares of the Companys Series B Preferred Stock were automatically converted into shares of the common stock as a result of an amendment to the Companys Series B Convertible Preferred Stock Certificate of Designations approved by the holders of the Series B preferred stock at Companys Annual Meeting held on September 11, 2015.
Common Stock:
On April 8, 2015, the Company entered into agreement with John L. Steffens, the Chairman of the Board of Directors, to convert $6,950,514 of principal amount of debt into 69,505,140 share of the Companys common stock. (See Note 5) The Company accounted for the transaction pursuant to Topic ASC 470-50, Modification and Extinguishment of Debt. Due to the fact that the transaction was with Mr. Steffens, the Companys Chairman of the Board, the Company determined that this was not an arms length agreement and as such has recorded the entire transaction through additional paid in capital. We had no such transactions in 2014.
Stock Grants:
In November 2012, the Company issued Mr. John P. Broderick, our Chief Executive Officer, a restricted stock award in the amount of 1,500,000 shares which will vest to him upon his termination, or change in control. The Company valued the award at the fair market value of the date of the award and is amortizing the total expense of $75,000 over the implicit service period of 2 years. The Company recorded expense of approximately $43,000 in fiscal 2014. The Company has recognized all compensation expense associated with this grant as of December 31, 2014.
In August 2007, the Company issued Mr. John P. Broderick, our Chief Executive Officer, a restricted stock award in the amount of 549,360 shares which will vest to him upon his resignation or termination. The Company used the Black-Scholes method to value these shares and assumed a life of 7 years. The Company recorded compensation expense of approximately $27,000 for fiscal 2014. The Company has recognized all compensation expense associated with this grant as of December 31, 2014.
Stock Options:
In 2007, the Board of Directors approved the 2007 Cicero Employee Stock Option Plan which permits the issuance of incentive and nonqualified stock options, stock appreciation rights, performance shares, and restricted and unrestricted stock to employees, officers, directors, consultants, and advisors. The aggregate number of shares of common stock which may be issued under this Plan shall not exceed 4,500,000 shares upon the exercise of awards and provide that the term of each award be determined by the Board of Directors. The Company also has a stock incentive plan for outside directors and the Company has set aside 1,200 shares of common stock for issuance under this plan.
Under the terms of the Plans, the exercise price of the stock options may not be less than the fair market value of the stock on the date of the award and the options are exercisable for a period not to exceed ten years from date of grant. Stock appreciation rights entitle the recipients to receive the excess of the fair market value of the Company's stock on the exercise date, as determined by the Board of Directors, over the fair market value on the date of grant. Performance shares entitle recipients to acquire Company stock upon the attainment of specific performance goals set by the Board of Directors. Restricted stock entitles recipients to acquire Company stock subject to the right of the Company to repurchase the shares in the event conditions specified by the Board are not satisfied prior to the end of the restriction period. The Board may also grant unrestricted stock to participants at a cost not less than 85% of fair market value on the date of sale. Options granted vest at varying periods up to five years and expire in ten years.
Activity for stock options issued under these plans for the years ending December 31, 2015 and 2014 was as follows:
Activity for non-vested stock options under these plans for the fiscal year ending December 31, 2015 and 2014 was as follows:
There were 525,000 options granted during 2015 and 15,000 options granted during 2014. The weighted average grant date fair value of options issued during the years ended December 31, 2015 and 2014 was equal to $0.05 and $0.02 per share, respectively. There were no option grants issued below fair market value during 2015 and 2014.
At December 31, 2015, there was unrecognized compensation cost of $12,000 related to stock options which is expected to be recognized over a weighted-average amortization period of two years.
At December 31, 2015 and 2014, options to purchase 3,302,109 and 3,131,777 shares of common stock were exercisable, respectively, pursuant to the plans at prices ranging from $0.02 to $0.51. The following table summarizes information about stock options outstanding at December 31, 2015:
Preferred Stock:
As of July 15, 2015, all preferred shares for Series A-1 and Series B converted to common stock.
Series A-1
The holders of the Series A-1 preferred stock would have the rights and preferences set forth in the Certificate of Designations filed with the Secretary of State of the State of Delaware. The Series A-1 preferred stock was convertible at any time at the option of the holder into an initial conversion ratio of 1,000 shares of common stock for each share of Series A-1 preferred stock. The initial conversion ratio shall be adjusted in the event of any stock splits, stock dividends and other recapitalizations. The Series A-1 preferred stock was also convertible on an automatic basis in the event that (i) the Company closes on an additional $5,000,000 equity financing from strategic or institutional investors, or (ii) the Company has four consecutive quarters of positive cash flow as reflected on the Companys consolidated financial statements prepared in accordance with generally accepted accounting principles (GAAP) and filed with the Securities Exchange Commission. The holders of Series A-1 preferred stock were entitled to receive equivalent dividends on an as-converted basis whenever the Company declares a dividend on its common stock, other than dividends payable in shares of common stock. The holders of the Series A-1 preferred stock were entitled to a liquidation preference of $500 per share of Series A-1 preferred stock upon the liquidation of the Company. The Series A-1 preferred stock was not redeemable.
The holders of Series A-1 preferred stock also possessed the following voting rights. Each share of Series A-1 preferred stock would represent that number of votes equal to the number of shares of common stock issuable upon conversion of a share of Series A-1 preferred stock. The holders of Series A-1 preferred stock, the series B preferred stock (see below) and the holders of common stock would vote together as a class on all matters except: (i) regarding the election of the Board of Directors of the Company (as set forth below); (ii) as required by law; or (iii) regarding certain corporate actions to be taken by the Company (as set forth below).
The approval of at least two-thirds of the holders of Series A-1 preferred stock voting together as a class, would be required in order for the Company to: (i) merge or sell all or substantially all of its assets or to recapitalize or reorganize; (ii) authorize the issuance of any equity security having any right, preference or priority superior to or on parity with the Series A-1 preferred stock; (iii) redeem, repurchase or acquire indirectly or directly any of its equity securities, or to pay any dividends on the Companys equity securities; (iv) amend or repeal any provisions of its certificate of incorporation or bylaws that would adversely affect the rights, preferences or privileges of the Series A-1 preferred stock; (v) effectuate a significant change in the principal business of the Company as conducted at the effective time of the Recapitalization; (vi) make any loan or advance to any entity other than in the ordinary course of business unless such entity is wholly owned by the Company; (vii) make any loan or advance to any person, including any employees or directors of the Company or any subsidiary, except in the ordinary course of business or pursuant to an approved employee stock or option plan; and (viii) guarantee, directly or indirectly any indebtedness or obligations, except for trade accounts of any subsidiary arising in the ordinary course of business. In addition, the unanimous vote of the Board of Directors is required for any liquidation, dissolution, recapitalization or reorganization of the Company. The voting rights of the holders of Series A-1 preferred stock set forth in this paragraph shall be terminated immediately upon the closing by the Company of at least an additional $5,000,000 equity financing from strategic or institutional investors.
In addition to the voting rights described above, the holders of a majority of the shares of Series A-1 preferred stock were entitled to appoint two observers to the Companys Board of Directors who would be entitled to receive all information received by members of the Board of Directors, and would attend and participate without a vote at all meetings of the Companys Board of Directors and any committees thereof. At the option of a majority of the holders of Series A-1 preferred stock, such holders may elect to temporarily or permanently exchange their board observer rights for two seats on the Companys Board of Directors, each having all voting and other rights attendant to any member of the Companys Board of Directors. There are two current members of the Board of Directors that are holders of the Series A-1 preferred stock. As part of the Recapitalization, the right of the holders of Series A-1 preferred stock to elect a majority of the voting members of the Companys Board of Directors shall be terminated.
Series B
The Series B Preferred Stock ranks senior to the common stock and on parity with the Companys outstanding Series A-1 Preferred Stock. As required by the Certificate of Designations applicable to the Series A-1 Preferred Stock, the Company obtained the consent of a holder representing in excess of two-thirds of the outstanding shares of Series A-1 Preferred Stock to authorize and issue the shares of Series B Preferred Stock.
Dividends would accrue on each share of Series B Preferred Stock at the rate per annum of eight percent (8%). Dividends would accrue from the date on which a share of Series B Preferred Stock was issued by the Company until paid, whether or not declared, and shall be cumulative; provided, however, that except as set forth in the Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock (the Series B Certificate), such dividends will be payable only when, as, and if declared by the Board of Directors, and the Company will be under no obligation to pay such dividends.
Each share of Series B Preferred Stock is convertible, at the option of the holder, into that number of shares of common stock equal to $150.00 (the Series B Original Issue Price) divided by the conversion price of the Series B Preferred Stock then in effect, which is initially $0.15, subject to adjustment under certain circumstances as set forth in the Series B Certificate.
In the event of certain specified liquidation events, the holders of Series B Preferred Stock would be entitled to receive an amount per share equal to the Series B Original Issue Price plus any dividends accrued or declared but unpaid thereon before the payment of any amount to the holders of common stock and other junior securities.
The holders of Series B Preferred Stock would be entitled to vote, on an as-converted basis, on all matters submitted to a vote of the stockholders of the Company, and the holders of Series B Preferred Stock, Series A-1 Preferred Stock and common stock will vote together as a single class. In addition, until such time as the Company consummates at least an additional $5,000,000 equity financing from institutional or strategic investors, the approval of the holders of at least 2/3 of the outstanding shares of the Series B Preferred Stock voting together separately as a class will be required for the Company to take certain specified actions set forth in the Series B Certificate.
Stock Warrants:
The Company values warrants based on the Black-Scholes pricing model. In accordance with ASC 815, these warrants are classified as equity. The warrants were issued in conjunction with certain promissory notes and the private investment in the Companys shares. At December 31, 2015, there were 207,959,113 exercisable warrants at an exercise price between $0.04 and $0.20 per share.
|
8. EMPLOYEE BENEFIT PLANS |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Earnings Per Share [Abstract] | |
EMPLOYEE BENEFIT PLANS | The Company sponsors one defined contribution plan for its employees - the Cicero Inc. 401(K) Plan. Under the terms of the Plan, the Company, at its discretion, provides a 50% matching contribution up to 6% of an employees salary. Participants must be eligible and employed at December 31 of each calendar year to be eligible for employer matching contributions. The Company opted not to make any matching contributions for 2015 and 2014. |
9. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Fair Value Disclosures [Abstract] | |
SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK | In 2015, two customers accounted for 51% and 16%, respectively, of operating revenues and one customer accounted for 98% of accounts receivable at December 31, 2015. In 2014, two customers accounted for 53% and 17%, respectively, of operating revenues and one customer accounted for 97% of accounts receivable at December 31, 2014. |
10. RELATED PARTY INFORMATION |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Summary of Investments, Other than Investments in Related Parties [Abstract] | |
RELATED PARTY INFORMATION | From time to time during 2012 through 2015, the Company entered into several short-term notes payable with John L. (Launny) Steffens, the Chairman of the Board of Directors, for various working capital needs. The notes bear interest at 12% per year and are unsecured. In March 2014, Mr. Steffens agreed to extend the maturity date of all outstanding short-term notes until June 30, 2015. At December 31, 2014, the Company was indebted to Mr. Steffens in the approximate amount of $6,691,000 of principal and $1,139,000 in interest. In April 2015, the Company entered into agreement with Mr. Steffens to convert $6,950,514 of principal amount of debt into 69,505,140 share of the Companys common stock. Subsequent to the exchange agreement, the Company entered into several short term notes payable with Mr. Steffens for various working capital needs. The notes vary from non-interest bearing to interest rate of 12% with a maturity date of December 31, 2015. The Company is obligated to repay the notes with the collection of any accounts receivables. The Company had repaid $170,000 in principal as of December 31, 2015. In December 2015, the maturity dates were extended to December 31, 2016. At December 31, 2015, the Company was indebted to Mr. Steffens in the approximate amount of $1,845,000 of principal and $1,362,000 of interest.
Antony Castagno, the Companys Chief Technology Officer, is part-owner of SOAdesk LLC which was acquired by the Company in 2010. During 2013, the Company entered into a short term note payable with Mr. Castagno for various working capital needs. The note bears interest of 10% and was unsecured. At December 31, 2014, the Company was indebted to Mr. Castagno in the approximate amount of $15,000 in principal and $1,400 in interest. In March 2015, the debt of $15,000 and approximate interest of $1,700 was paid in full. In January 2016, the Company entered into a short term note payable for $3,500 with Mr. Castagno for various working capital needs. The note bears interest of 10% and was unsecured. The note and interest was repaid in full in February 2016. |
11. COMMITMENTS AND EMPLOYMENT AGREEMENTS |
12 Months Ended | |||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||
COMMITMENTS AND EMPLOYMENT AGREEMENTS | In June 2014, the Company entered into an amendment with its landlord and renewed its lease through 2018. Future minimum lease commitments on operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2015 consisted of only one lease as follows (in thousands):
Rent expense was $93,000 and $100,000 for each years ended December 31, 2015 and 2014, respectively.
Per the Asset Purchase Agreement with SOAdesk LLC in 2010, the Company was obligated to make additional payments of up to $2,410,000 over an 18 month period from January 15, 2010 through July 31, 2011, based upon the achievement of certain revenue performance targets. At December 31, 2014 the Company had recorded approximately $843,000 in accounts payable for the earn-out earned through July 31, 2011. In June 2015, the Company entered into two debt agreements with SOAdesk LLC, each approximately $421,000, for the earn-out. As such this obligation has been reclassed to debt as of December 31, 2015. (See Note 5)
Under the employment agreement between the Company and Mr. Broderick effective January 1, 2015, we agreed to pay Mr. Broderick an annual base salary of $175,000 and performance bonuses in cash of up to $275,000 per annum based upon exceeding certain revenue goals and operating metrics, as determined by the Compensation Committee, at its discretion. Upon termination of Mr. Brodericks employment by the Company without cause, we agreed to pay Mr. Broderick a lump sum payment of one year of Mr. Brodericks then current base salary within 30 days of termination and any unpaid deferred salaries and bonuses. In the event there occurs a substantial change in Mr. Brodericks job duties, there is a decrease in or failure to provide the compensation or vested benefits under the employment agreement or there is a change in control of the Company, we agreed to pay Mr. Broderick a lump sum payment of one year of Mr. Brodericks then current base salary within thirty (30) days of termination. Additionally, as part of his employment agreement for fiscal 2012, Mr. Broderick will be entitled to receive 1,500,000 shares of the Companys common stock in the event of the termination, with or without cause, of his employment by the Company or his resignation from the Company with or without cause or in the event of a change of control (as that term is defined in the Employment Agreement) of the Company. Mr. Broderick will have thirty (30) days from the date written notice is given about either a change in his duties or the announcement and closing of a transaction resulting in a change in control of the Company to resign and execute his rights under this agreement. If Mr. Brodericks employment is terminated for any reason, Mr. Broderick has agreed that, for two (2) years after such termination, he will not directly or indirectly solicit or divert business from us or assist any business in attempting to do so or solicit or hire any person who was our employee during the term of his employment agreement or assist any business in attempting to do so.
Under the employment agreement between the Company and Mr. Castagno effective January 1, 2015, we agreed to pay Mr. Castagno an annual base salary of $150,000. Upon termination of Mr. Castagnos employment by the Company without cause, we agreed to pay Mr. Castagno an amount of $75,000 which is equivalent to six (6) months of Mr. Castagnos then current base salary in equal semi-monthly installments over the six (6) month period following the termination. If Mr. Castagnos employment is terminated for any reason, Mr. Castagno has agreed that, for two (2) years after such termination, he will not directly or indirectly solicit or divert business from us or assist any business in attempting to do so or solicit or hire any person who was our employee during the term of his employment agreement or assist any business in attempting to do so. During 2013 the Company amended Mr. Castagnos employment agreement to provide that Mr. Castagno could engage in consulting services on behalf of the Company and would be compensated for any revenues in excess of his base salary as a bonus. |
12. CONTINGENCIES |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | The Company, from time to time, is involved in legal matters arising in the ordinary course of its business including matters involving proprietary technology. While management believes that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is or could become involved in litigation, will not have a material adverse effect on its business, financial condition or results of operations.
Under the indemnification clause of the Companys standard reseller agreements and software license agreements, the Company agrees to defend the reseller/licensee against third-party claims asserting infringement by the Companys products of certain intellectual property rights, which may include patents, copyrights, trademarks or trade secrets, and to pay any judgments entered on such claims against the reseller/licensee. There were no claims against the Company as of December 31, 2015 and 2014.
|
13. SUBSEQUENT EVENTS |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS |
In first quarter of fiscal 2016, the Company entered into various note payables totaling $449,000 with Mr. Steffens. The notes are non-interest bearing. They are unsecured and mature on December 31, 2016.
On January 11, 2016, the subsidiary Cicero Strategic Investments, LLC was created in the state of Delaware.
|
1. SUMMARY OF OPERATIONS, SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS (Policies) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Going Concern and Management Plans | The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred an operating loss of approximately $2,843,000 for the year ended December 31, 2015, and has a history of operating losses. Management believes that its repositioned strategy of leading with its Discovery product to measure how work happens and then follow with its integration capabilities through its Discovery Automation product will shorten the sales cycle and allow for value based selling to our customers and prospects. The Company anticipates success in this regard based upon current discussions with active customers and prospects. Should the Company be unable to secure customer contracts that will drive sufficient cash flow to sustain operations, the Company will be forced to seek additional capital in the form of debt or equity financing; however, there can be no assurance that such debt or equity financing will be available. These factors raise substantial doubt about the Companys ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Principles of Consolidation | The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All of the Companys subsidiaries are wholly owned for the periods presented.
All significant inter-company accounts and transactions are eliminated in consolidation. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Use of Estimates | The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from these estimates. Significant estimates include the recoverability of long-lived assets, valuation and recoverability of goodwill, stock based compensation, revenue recognition, deferred taxes and related valuation allowances and valuation of equity instruments. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Instruments | The carrying amount of the Companys financial instruments, representing accounts receivable, accounts payable and short-term debt approximate their fair value due to their short-term nature.
The fair value and carrying amount of long-term debt were as follows:
Valuations for long-term debt are determined based on borrowing rates currently available to the Company for loans with similar terms and maturities. These loans have been determined to be Level 3 within the fair value hierarchy and use a discounted cash flow model to determine their valuation. There have been no changes to the valuation technique. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash | The Company places substantially all cash with various financial institutions. The Federal Deposit Insurance Corporation (FDIC) covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits. As of December 31, 2015, the Company did exceed these insured amounts. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Trade Accounts Receivable | Trade accounts receivable are stated in the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to the allowance of doubtful accounts based on its assessment of the current status of individual accounts. Balances still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance of doubtful accounts and a credit to trade accounts receivable. Changes in the allowance for doubtful accounts have not been material to the consolidated financial statements. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment | Property and equipment purchased in the normal course of business is stated at cost, and property and equipment acquired in business combinations is stated at its fair market value at the acquisition date. All property and equipment is depreciated using the straight-line method over estimated useful lives.
Expenditures for repairs and maintenance are charged to expense as incurred.
The cost and related accumulated depreciation of property and equipment are removed from the accounts upon retirement or other disposition and any resulting gain or loss is reflected in the Consolidated Statements of Operations. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Software Development Costs | The Company capitalizes certain software costs after technological feasibility of the product has been established. Generally, an original estimated economic life of three years is assigned to capitalized software costs, once the product is available for general release to customers. Costs incurred prior to the establishment of technological feasibility are charged to research and product development expense.
Capitalized software costs are amortized over related sales on a product-by-product basis using the straight-line method over the remaining estimated economic life of the product.
The establishment of technological feasibility and the ongoing assessment of recoverability of capitalized software development costs require considerable judgment by management with respect to certain external factors, including, but not limited to, technological feasibility, anticipated future gross revenue, estimated economic life and changes in software and hardware technologies. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-Lived Assets | The Company reviews the recoverability of long-lived intangible assets when circumstances indicate that the carrying amount of assets may not be recoverable. This evaluation is based on various analyses including undiscounted cash flow projections. In the event undiscounted cash flow projections indicate impairment, the Company would record an impairment based on the fair value of the assets at the date of the impairment. The Company accounts for impairments under the Financial Accounting Standards Board (FASB) guidance now codified as Accounting Standards Codification (ASC) 360 Property, Plant and Equipment. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Other | Accrued other is primarily comprised of accrued dividends of $447,000 and $359,000 at December 31, 2015 and 2014, respectively, and the remaining balance is comprised of accrued tax, royalty, consulting and other. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue Recognition | We derive revenue from three sources: license fees, maintenance and support revenue and professional services. Maintenance and support consists of technical support. Professional services primarily consists of consulting, implementation services and training. Significant management judgments and estimates are made and used to determine the revenue recognized in any accounting period. Material differences may result in changes to the amount and timing of our revenue for any period if different conditions were to prevail. We present revenue, net of taxes collected from customers and remitted to governmental authorities.
We apply the provisions of ASC 985-605, Software Revenue Recognition, to all transactions involving the licensing of software products. In the event of a multiple element arrangement for a license transaction, we evaluate the transaction as if each element represents a separate unit of accounting taking into account all factors following the accounting standards. When such estimates are not available, the completed contract method is utilized. Under the completed contract method, revenue is recognized only when a contract is completed or substantially complete.
When licenses are sold together with system implementation and consulting services, license fees are recognized upon delivery, provided that (i) payment of the license fees is not dependent upon the performance of the consulting and implementation services, (ii) the services are available from other vendors, (iii) the services qualify for separate accounting as we have sufficient experience in providing such services, have the ability to estimate cost of providing such services, and have vendor-specific objective evidence of fair value, and (iv) the services are not essential to the functionality of the software.
We use signed software license and services agreements and order forms as evidence of an arrangement for sales of software, maintenance and support. We use signed engagement letters to evidence an arrangement for professional services.
License Revenue We recognize license revenue when persuasive evidence of an arrangement exists, the product has been delivered, no significant obligations remain, the fee is fixed or determinable, and collection of the resulting receivable is probable. In software arrangements that include rights to multiple software products and/or services, we use the residual method under which revenue is allocated to the undelivered elements based on vendor-specific objective evidence of the fair value of such undelivered elements. The residual amount of revenue is allocated to the delivered elements and recognized as revenue, assuming all other criteria for revenue recognition have been met. Such undelivered elements in these arrangements typically consist of software maintenance and support, implementation and consulting services.
Software is delivered to customers electronically. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction. We have standard payment terms included in our contracts. We assess collectability based on a number of factors, including the customers past payment history and its current creditworthiness. If we determine that collection of a fee is not reasonably assured, we defer the revenue and recognize it at the time collection becomes reasonably assured, which is generally upon receipt of cash payment. If an acceptance period is required, revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance period. We consider a software element to exist when we determine that the customer has the contractual right to take possession of our software. Professional services are recognized as described below under Professional Services Revenue. If vendor-specific evidence of fair value cannot be established for the undelivered elements of an agreement, the entire amount of revenue from the arrangement is recognized ratably over the period that these elements are delivered.
Maintenance Revenue We use vendor-specific objective evidence of fair value for maintenance and support to account for the arrangement using the residual method, regardless of any separate prices stated within the contract for each element. Maintenance and support revenue is recognized ratably over the term of the maintenance contract, which is typically one year. Maintenance and support is renewable by the customer on an annual basis. Maintenance and support rates, including subsequent renewal rates, are typically established based upon a specified percentage of net license fees as set forth in the arrangement.
Professional Services Revenue Included in professional services revenue is revenue derived from system implementation, consulting and training. For software transactions, the majority of our consulting and implementation services and accompanying agreements qualify for separate accounting. We use vendor-specific objective evidence of fair value for the services to account for the arrangement using the residual method, regardless of any separate prices stated within the contract for each element. Our consulting and implementation service contracts are bid on a fixed-fee basis. For fixed fee contracts, where the services are not essential to the functionality, we recognize revenue as services are performed. If the services are essential to functionality, then both the product license revenue and the service revenue are deferred until the services are performed.
Training revenue that meets the criteria to be accounted for separately is recognized when training is provided. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of Revenue | The primary component of the Companys cost of revenue for maintenance and services is compensation expense. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Advertising Expenses | The Company expenses advertising costs as incurred. Advertising expenses were approximately $217,000 and $218,000 for the years ended December 31, 2015 and 2014, respectively. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Research and Product Development | Research and product development costs are expensed as incurred unless such costs meet the software capitalization criteria. Research and development expenses were approximately $1,445,000 and $1,227,000 for the years ended December 31, 2015 and 2014, respectively. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill impairment charge. | In 2014, we recorded a non-cash goodwill impairment charge of $1,174,000. We test goodwill for impairment annually on December 31 using a discounted cash flow methodology with a peer-based, risk-adjusted weighted average cost of capital, guideline public company methodology and industry transaction methodology. Our goodwill impairment test as of December 31, 2014, indicated that the carrying value of our SOA acquisition goodwill exceeded its estimated fair value. Accordingly, we recorded a non-cash, non-tax deductible goodwill impairment charge of $1,174,000 in fiscal year 2014, reducing our goodwill from $2,832,000 to $1,658,000. No impairment of goodwill was identified as of December 31, 2015. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Income (net) | Other income/(charges) in fiscal 2014 consists primarily of a write off of certain liabilities deemed no longer payable of $208,000 partially offset by $24,000 of expense for a prior year matching contribution to its defined contribution plan. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | The Company uses FASB guidance now codified as ASC 740 Income Taxes to account for income taxes. This statement requires an asset and liability approach that recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Companys consolidated financial statements or tax returns. In estimating future tax consequences, all expected future events, other than enactments of changes in the tax law or rates, are generally considered. A valuation allowance is recorded when it is more likely than not that recorded deferred tax assets will not be realized. (See Note 6.) |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss Per Share | Basic loss per share is computed based upon the weighted average number of common shares outstanding. Diluted loss per share is computed based upon the weighted average number of common shares outstanding and any potentially dilutive securities. During 2015 and 2014, potentially dilutive securities included stock options, warrants to purchase common stock, and preferred stock.
The following table sets forth the potential shares that are not included in the diluted net loss per share calculation because to do so would be anti-dilutive for the periods presented:
$86,000 and $127,000 was accrued for dividends on the Series B Preferred Stock in fiscal year 2015 and 2014, respectively. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | The Company accounts for stock-based compensation to employee under ASC 718 Compensation Stock Compensation, which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprises equity instruments or that may be settled by the issuance of such equity instruments. The Company granted 525,000 options in fiscal year 2015 at an exercise price of $0.05 per share and recognized approximately $12,000 of stock-based compensation. The Company granted 15,000 options in fiscal year 2014 at an exercise price of $0.02 per share and recognized approximately $2,000 of stock-based compensation. The Company recognized as stock-based compensation approximately $0 and $27,000 in fiscal 2015 and 2014, respectively, for the restricted shares issued in 2007 to John Broderick, the Chief Executive Officer. Additionally, the Company recognized as stock based compensation approximately $0 and $43,000 in fiscal year 2015 and 2014, respectively, for the 1,500,000 restricted shares issued in 2012 to John Broderick.
The fair value of the Companys stock-based awards to employees was estimated as of the date of the grant using the Black-Scholes option-pricing model, using the following weighted-average assumptions:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recent Accounting Pronouncements |
The FASB's new leases standard ASU 2016-02 Leases (Topic 842) was issued on February 25, 2016. ASU 2016-02 is intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets referred to as Lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. An organization is to provide disclosures designed to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements concerning additional information about the amounts recorded in the financial statements. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP which requires only capital leases to be recognized on the balance sheet the new ASU will require both types of leases (i.e. operating and capital) to be recognized on the balance sheet. The FASB lessee accounting model will continue to account for both types of leases. The capital lease will be accounted for in substantially the same manner as capital leases are accounted for under existing GAAP. The operating lease will be accounted for in a manner similar to operating leases under existing GAAP, except that lessees will recognize a lease liability and a lease asset for all of those leases. The leasing standard will be effective for calendar year-end public companies beginning after December 15, 2018. Public companies will be required to adopt the new leasing standard for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption will be permitted for all companies and organizations upon issuance of the standard. For calendar year-end public companies, this means an adoption date of January 1, 2019 and retrospective application to previously issued annual and interim financial statements for 2018. See Note 11 for the Companys current lease commitments. The Company is currently in the process of evaluating the impact that this new leasing ASU will have on its financial statements.
In August 2014, the FASB issued a new accounting standard update which provides guidance on determining when and how to disclose going-concern uncertainties in the consolidated financial statements. The new standard requires management to perform interim and annual assessments of an entitys ability to continue as a going concern within one year of the date the consolidated financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entitys ability to continue as a going concern. The guidance applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company is evaluating the impact of adopting this new accounting standard update on the consolidated financial statements and related disclosures.
In May 2014, the FASB issued a new accounting standard update on revenue recognition from contracts with customers. The new guidance will replace most current U.S. GAAP guidance on this topic and eliminate most industry-specific guidance. According to the new guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration for which the Company expects to be entitled in exchange for those goods or services. This guidance will be effective for the Company beginning January 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption is not permitted. The Company has not yet selected a transition method and is evaluating the impact of adopting this new accounting standard update on the consolidated financial statements and related disclosures. |
1. SUMMARY OF OPERATIONS, SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary Of Operations Significant Accounting Policies And Recent Accounting Pronouncements Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value and carrying amount of long-term debt |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Diluted net loss per share |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation |
|
2. ACCOUNTS RECEIVABLE (Tables) |
12 Months Ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||
Accounts Receivable Tables | |||||||||||||||||||
Trade accounts receivable |
|
3. PROPERTY AND EQUIPMENT (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property And Equipment Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and equipment |
|
4. INTANGIBLE ASSET, NET AND GOODWILL (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||
Intangible Asset Net And Goodwill Tables | |||||||||||||||||||||||||||||||||||||||||
Schedule of goodwill adjustments |
|
5. DEBT (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt and notes payable to related party |
|
6. INCOME TAXES (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of expected income tax at the statutory federal rate with the actual income tax provision |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net deferred tax asset (liability) |
|
7. STOCKHOLDER'S EQUITY (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders Equity Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Activity for stock options issued |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Activity for non-vested stock options |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock options outstanding |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock warrant activity |
|
11. COMMITMENTS AND EMPLOYMENT AGREEMENTS (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||
Commitments And Employment Agreements Tables | ||||||||||||||||||||||||||||||||||||
Future minimum lease commitments on operating leases |
|
1. SUMMARY OF OPERATIONS, SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS (Details) - shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Total | 211,616,223 | 20,331,071 |
Stock Options [Member] | ||
Total | 3,657,110 | 3,150,110 |
Warrant [Member] | ||
Total | 207,959,113 | 5,281,333 |
Preferred Stock | ||
Total | 0 | 11,899,628 |
1. SUMMARY OF OPERATIONS, SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS (Details 1) - $ / shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Notes to Financial Statements | ||
Fair value of common stock | $ .05 | $ .02 |
Expected life (in years) | 9 years 11 months 26 days | 9 years 11 months 26 days |
Expected volatility | 160.00% | 181.00% |
Risk free interest rate | 2.33% | 0.86% |
Expected dividend yield | 0.00% | 0.00% |
2. ACCOUNTS RECEIVABLE (Details) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Receivables [Abstract] | ||
Current trade accounts receivable | $ 256 | $ 1,035 |
3. PROPERTY AND EQUIPMENT (Details) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Computer equipment | $ 160 | $ 150 |
Furniture and fixtures | 24 | 24 |
Office equipment | 35 | 35 |
Property and equipment, gross | 219 | 209 |
Less: accumulated depreciation and amortization | (208) | (195) |
Property and equipment, net | $ 11 | $ 14 |
3. PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Depreciation and amortization | $ 13 | $ 22 |
4. INTANGIBLE ASSET, NET AND GOODWILL (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Intangible Asset Net And Goodwill Details | ||
Beginning Balance | $ 1,658 | $ 2,832 |
Impairment | 0 | 1,174 |
Ending Balance | $ 1,658 | $ 1,658 |
5. DEBT (Details) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Debt Details | ||
Note payable asset purchase agreement (a) | $ 1,518 | $ 700 |
Note payable - related party (b) | 1,845 | 6,706 |
Note payable (c) | 1,086 | 1,086 |
Unamortized debt discount (b) | (219) | 0 |
Total debt | 4,230 | 8,492 |
Less current portion | (2,098) | (8,492) |
Total long term debt | $ 2,132 | $ 0 |
6. INCOME TAXES (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Income Tax Disclosure [Abstract] | ||
Expected income tax benefit at statutory rate (34%) | $ (967) | $ (1,335) |
State taxes, net of federal tax benefit. | (170) | (235) |
Effect of change in valuation allowance | (5,860) | (6,994) |
Non-deductible expenses | 3 | 1 |
Expiration of net operating loss deductions | 6,994 | 8,563 |
Total | $ 0 | $ 0 |
6. INCOME TAXES (Details 1) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Current assets: | ||
Accrued expenses, non-tax deductible | $ 7 | $ 153 |
Deferred revenue | 242 | 560 |
Contingent payments | (831) | (831) |
Noncurrent assets: | ||
Stock compensation expense | 621 | 616 |
Loss carryforwards | 56,583 | 54,765 |
Depreciation and amortization | 966 | 1,191 |
Gross Deferred Tax | 57,588 | 56,454 |
Less: valuation allowance | (57,588) | (56,454) |
Net Deferred tax Assets | $ 0 | $ 0 |
6. INCOME TAXES (Details Narrative) $ in Thousands |
12 Months Ended |
---|---|
Dec. 31, 2015
USD ($)
| |
Income Tax Disclosure [Abstract] | |
Net operating loss carryforwards | $ 141,458,000 |
Net operating loss carryforwards expiration years | Between 2019 and 2035 |
Tax benefit reflected in additional paid-in capital | $ 21,177,000 |
7. STOCKHOLDER'S EQUITY (Details) - USD ($) $ / shares in Units, $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Number of Options | ||
Beginning Balance | 3,150,110 | 3,396,210 |
Granted | 525,000 | 15,000 |
Forfeited | (10,000) | (255,000) |
Expired | (8,000) | (6,100) |
Ending Balance | 3,657,110 | 3,150,110 |
Option Price Per Share | ||
Granted | $ .05 | $ .02 |
Forfeited | .09 | |
Expired | .51 | 31.00 |
Weighted Average Exercise Price | ||
Beginning Balance | .24 | .31 |
Granted | .05 | .02 |
Forfeited | .09 | .38 |
Expired | .51 | 31.00 |
Ending Balance | $ .21 | .24 |
Aggregate Intrinsic Value | ||
Aggregate Intrinsic Value | $ 0 | |
Minimum [Member] | ||
Option Price Per Share | ||
Beginning Balance | $ .02 | .05 |
Forfeited | .06 | |
Ending Balance | .03 | .02 |
Maximum [Member] | ||
Option Price Per Share | ||
Beginning Balance | .51 | 46.00 |
Forfeited | .51 | |
Ending Balance | $ .51 | $ .51 |
7. STOCKHOLDER'S EQUITY (Details 1) - $ / shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Unvested Number of Options | ||
Beginning Balance | 18,333 | 125,000 |
Granted | 525,000 | 15,000 |
Vested | (188,332) | (121,667) |
Forfeited | 0 | 0 |
Ending Balance | 355,001 | 18,333 |
Unvested Option Price Per Share | ||
Granted | $ .05 | $ .02 |
Vested | .05 | |
Forfeited | 0 | 0 |
Ending Balance | .05 | |
Weighted Average Exercise Price | ||
Beginning Balance | .04 | .08 |
Granted | .05 | .02 |
Vested | .05 | .07 |
Forfeited | 0 | 0 |
Ending Balance | .05 | .04 |
Minimum [Member] | ||
Unvested Option Price Per Share | ||
Beginning Balance | .02 | .05 |
Vested | .02 | |
Ending Balance | .02 | |
Maximum [Member] | ||
Unvested Option Price Per Share | ||
Beginning Balance | $ .05 | .19 |
Vested | .19 | |
Ending Balance | $ .05 |
7. STOCKHOLDER'S EQUITY (Details 3) - $ / shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Warrants Beginning | 5,281,333 | 6,281,333 |
Issued | 205,277,780 | 0 |
Exercised | 0 | 0 |
Forfeited | (2,600,000) | (1,000,000) |
Ending Balance | 207,959,113 | 5,281,333 |
Warrants Price Per Share | ||
Issued | 0 | |
Exercised | 0 | 0 |
Forfeited | 0.25 | 0.20 |
Weighted Average Exercise Price | ||
Beginning Balance | $ 0.22 | $ 0.22 |
Issued | .05 | 0 |
Exercised | $ 0 | $ 0 |
Forfeited | .25 | .20 |
Ending Balance | $ .05 | $ 0.22 |
Minimum [Member] | ||
Warrants Price Per Share | ||
Beginning Balance | 0.08 | 0.08 |
Issued | 0.04 | |
Ending Balance | 0.04 | 0.08 |
Maximum [Member] | ||
Warrants Price Per Share | ||
Beginning Balance | 0.25 | 0.25 |
Issued | 0.05 | |
Ending Balance | 0.20 | 0.25 |
11. COMMITMENTS AND EMPLOYMENT AGREEMENTS (Details) $ in Thousands |
Dec. 31, 2015
USD ($)
|
---|---|
Commitments and Contingencies Disclosure [Abstract] | |
2016 | $ 103 |
2017 | 106 |
2018 | 89 |
Total | $ 298 |
X&!))]UF'#VKU)>$T54D/U'?!"G/WHNK,2ZZW).R!IOO8]P^WO9A1
M+LI*.Y;15K]="[;Q6IN2-&,/$ '4$. &E"9YV&4==%F'7+8+EWO03PW+@R:YYZ_F'4]6"X_\
MKE]XM_RL:':/.G*&?T2=J=#121I[)?W%::0T8/62!QNZM0]_6C!HC)MN[%P-
M;V%8&-G=7O;T]U)^ 5!+ P04 " !N8'Y(G'/:%L]V #XJ@$ % 'AL
M+W-H87)E9%-T3=W_<[!-E7?]8W,,VW-C\OT05)4A1%$:5GE1+]:KH>QGLU[92U<6
MM?G9!.VEJO+F_XTI[?5I(18?!;^*XZES!>%Z%=[B]D5EZK:P=="8P]/B63QN
M9>0D@^*?PES;V7W@S+]8^^H>_MX_+2+GP91FU[DJ\O[R9K:F+%U-?<31ZW_V+$
M^I='!Z0Z5^F@:9394Y4)%;WD*'S,@HL6FC&%Q<0K3+0@ J6^I(A=*8KXCAY_
M3E#>(U#HSH"<12##1Y_X7]P"B5,@,0+)6B *-UVPF+W!#+8+Z6[3JO(>%#^B
MV&UEY[2R
D\=(5FZC%G6A]#N962=7WU=1&F?!NW)TP:Q[#!UAR( (I/A()X%L$IM-G!AL$BM.,HW3T[%AQ,TFA6Q2FTV:&FQ2*\P7,I?5
M,3<:X2A)TQDF-(.$9J \)J&9%FX6GYP