Attached files
| file | filename |
|---|---|
| EX-31.2 - CFO SECTION 302 CERTIFICATION - iSign Solutions Inc. | cfo_302cert.htm |
| EX-32.2 - CFO SECTION 906 CERTIFICATION - iSign Solutions Inc. | cfo_906cert.htm |
| EX-10.71 - FORM OF SUBSCRIPTION AGREEMENT DATED 7/23/2015 - iSign Solutions Inc. | sub_agmt7232015.htm |
| EX-31.1 - CEO SECTION 302 CERTIFICATION - iSign Solutions Inc. | ceo_302cert.htm |
| EX-32.1 - CEO SECTION 906 CERTIFICATION - iSign Solutions Inc. | ceo_906cert.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: September 30, 2015
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 000-19301
COMMUNICATION INTELLIGENCE CORPORATION
(Exact name of registrant as specified in its charter)
|
Delaware
|
94-2790442
|
|||
|
(State or other jurisdiction of
|
(I.R.S. Employer
|
|||
|
incorporation or organization)
|
Identification No.)
|
275 Shoreline Drive, Suite 500, Redwood Shores, CA 94065-1413
(Address of principal executive offices) (Zip Code)
(650) 802-7888
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Yes
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X
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No
|
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
|
Yes
|
X
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No
|
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
|
large accelerated filer
|
accelerated filer
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non-accelerated filer
|
X
|
Smaller reporting Company
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Indicate by check mark whether the registrant is a shell company (as defined in Section 12b-2 of the exchange Act)
|
Yes
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No
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X
|
Number of shares outstanding of the issuer's Common Stock as of November 13, 2015: 234,307,542.
INDEX
|
Page No.
|
|
|
PART I. FINANCIAL INFORMATION
|
|
|
Item 1. Financial Statements
|
|
|
Condensed Consolidated Balance Sheets at September 30, 2015 (unaudited) and
December 31, 2014
|
3
|
|
Condensed Consolidated Statements of Operations for the Three- and Nine-Month
Periods Ended September 30, 2015 and 2014 (unaudited)
|
4
|
|
Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods
Ended September 30, 2015 and 2014 (unaudited)
|
5
|
|
Notes to Unaudited Condensed Consolidated Financial Statements
|
7
|
|
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
|
14
|
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk
|
19
|
|
Item 4. Controls and Procedures
|
19
|
|
PART II. OTHER INFORMATION
|
|
|
Item 1. Legal Proceedings
|
20
|
|
Item 1A. Risk Factors
|
20
|
|
Item 2. Unregistered Sale of Securities and Use of Proceeds
|
20
|
|
Item 3. Defaults Upon Senior Securities
|
20
|
|
Item 4. Mine Safety Disclosures
|
20
|
|
Item 5. Other Information
|
20
|
|
Item 6. Exhibits
|
|
|
(a) Exhibits
|
21
|
|
Signatures
|
24
|
2
PART I–FINANCIAL INFORMATION
Item 1. Financial Statements
Communication Intelligence Corporation
Condensed Consolidated Balance Sheets
(In thousands)
|
September 30,
|
December 31,
|
|||||||
|
2015
|
2014
|
|||||||
|
Assets
|
(Unaudited)
|
|||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$
|
358
|
$
|
775
|
||||
|
Accounts receivable, net of allowance of $86 at September 30, 2015 and $22 at December 31, 2014
|
159
|
122
|
||||||
|
Prepaid expenses and other current assets
|
125
|
80
|
||||||
|
Total current assets
|
642
|
977
|
||||||
|
Property and equipment, net
|
17
|
11
|
||||||
|
Patents, net
|
673
|
933
|
||||||
|
Other assets
|
29
|
29
|
||||||
|
Total assets
|
$
|
1,361
|
$
|
1,950
|
||||
|
Liabilities and Equity (Deficit)
|
||||||||
|
Current liabilities:
|
||||||||
|
Short-term debt
|
|
250
|
˗
|
|||||
|
Accounts payable
|
420
|
328
|
||||||
|
Accrued compensation
|
272
|
293
|
||||||
|
Other accrued liabilities
|
477
|
338
|
||||||
|
Deferred revenue
|
353
|
257
|
||||||
|
Total current liabilities
|
1,772
|
1,216
|
||||||
|
Deferred revenue long-term
|
490
|
700
|
||||||
|
Deferred rent
|
2
|
41
|
||||||
|
Derivative liability
|
-
|
18
|
||||||
|
Other long-term liabilities
|
21
|
28
|
||||||
|
Total liabilities
|
2,285
|
2,003
|
||||||
|
Commitments and contingencies
|
||||||||
|
Equity (Deficit):
|
||||||||
|
Series A-1 Preferred Stock
|
929
|
875
|
||||||
|
Series B Preferred Stock
|
11,320
|
10,381
|
||||||
|
Series C Preferred Stock
|
5,934
|
5,553
|
||||||
|
Series D-1 Preferred Stock
|
6,724
|
5,139
|
||||||
|
Series D-2 Preferred Stock
|
5,115
|
4,671
|
||||||
|
Common stock
|
2,407
|
2,407
|
||||||
|
Treasury stock
|
(325
|
)
|
(325
|
)
|
||||
|
Additional paid in capital
|
93,604
|
94,995
|
||||||
|
Accumulated deficit
|
(126,082
|
)
|
(123,199
|
)
|
||||
|
Accumulated other comprehensive loss
|
(14
|
)
|
(14
|
)
|
||||
|
Total CIC stockholders' deficit
|
(388
|
)
|
483
|
|||||
|
Non-controlling interest
|
(536
|
)
|
(536
|
)
|
||||
|
Total deficit
|
(924
|
)
|
(53
|
)
|
||||
|
Total liabilities and equity (deficit)
|
$
|
1,361
|
$
|
1,950
|
||||
3
Communication Intelligence Corporation
Condensed Consolidated Statements of Operations
Unaudited
(In thousands, except per share amounts)
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
September 30,
|
September 30,
|
|||||||||||||||
|
2015
|
2014
|
2015
|
2014
|
|||||||||||||
|
Revenue:
|
||||||||||||||||
|
Product
|
$
|
127
|
$
|
85
|
$
|
510
|
$
|
491
|
||||||||
|
Maintenance
|
224
|
200
|
654
|
568
|
||||||||||||
|
Total revenue
|
351
|
285
|
1,164
|
1,059
|
||||||||||||
|
Operating costs and expenses:
|
||||||||||||||||
|
Cost of sales:
|
||||||||||||||||
|
Product
|
40
|
26
|
185
|
69
|
||||||||||||
|
Maintenance
|
29
|
20
|
102
|
111
|
||||||||||||
|
Research and development
|
446
|
476
|
1,467
|
1,549
|
||||||||||||
|
Sales and marketing
|
216
|
303
|
756
|
942
|
||||||||||||
|
General and administrative
|
470
|
410
|
1,551
|
1,325
|
||||||||||||
|
Total operating costs and expenses
|
1,201
|
1,235
|
4,061
|
3,996
|
||||||||||||
|
Loss from operations
|
(850
|
)
|
(950
|
)
|
(2,897
|
)
|
(2,937
|
)
|
||||||||
|
Other income, net
|
−
|
49
|
−
|
51
|
||||||||||||
|
Interest expense
|
(4
|
)
|
(13
|
)
|
(4
|
)
|
(258
|
)
|
||||||||
|
Gain on derivative liability
|
1
|
2
|
18
|
5
|
||||||||||||
|
Net loss
|
(853
|
)
|
(912
|
)
|
(2,883
|
)
|
(3,139
|
)
|
||||||||
|
Accretion of beneficial conversion feature: Preferred Stock:
|
||||||||||||||||
|
Related party
|
−
|
(103
|
)
|
(458
|
)
|
(186
|
)
|
|||||||||
|
Other
|
−
|
(68
|
)
|
(69
|
)
|
(416
|
)
|
|||||||||
|
Preferred stock dividends:
|
||||||||||||||||
|
Related party
|
(408
|
)
|
(345
|
)
|
(1,154
|
)
|
(1,014
|
)
|
||||||||
|
Other
|
(411
|
)
|
(363
|
)
|
(1,181
|
)
|
(975
|
)
|
||||||||
|
Net loss attributable to common stockholders
|
$
|
(1,672
|
)
|
$
|
(1,791
|
)
|
$
|
(5,745
|
)
|
$
|
(5,730
|
)
|
||||
|
Basic and diluted loss per common share
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
$
|
(0.02
|
)
|
||||
|
Weighted average common shares outstanding, basic and diluted
|
234,308
|
232,646
|
234,308
|
232,588
|
||||||||||||
4
Communication Intelligence Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited
(In thousands)
|
Nine Months Ended
September 30,
|
||||||||
|
2015
|
2014
|
|||||||
|
Cash flows from operating activities:
|
||||||||
|
Net loss
|
$
|
(2,883
|
)
|
$
|
(3,139
|
)
|
||
|
Adjustments to reconcile net loss to net cash
used in operating activities:
|
||||||||
|
Depreciation and amortization
|
267
|
278
|
||||||
|
Stock-based compensation
|
487
|
242
|
||||||
|
Warrant cost issued as interest expense
|
−
|
258
|
||||||
|
Gain on derivative liability
|
(17
|
)
|
(5
|
)
|
||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable
|
(37
|
)
|
195
|
|||||
|
Prepaid expenses and other assets
|
(45
|
)
|
(31
|
)
|
||||
|
Accounts payable
|
92
|
(106
|
)
|
|||||
|
Accrued compensation
|
(21
|
)
|
(50
|
)
|
||||
|
Other accrued and long-term liabilities
|
93
|
15
|
||||||
|
Deferred revenue
|
(114
|
)
|
(165
|
)
|
||||
|
Net cash used in operating activities
|
(2,178
|
)
|
(2,508
|
)
|
||||
|
Cash flows from investing activities:
Acquisition of property and equipment
|
(14
|
)
|
(4
|
)
|
||||
|
Net cash used in investing activities
|
(14
|
)
|
(4
|
)
|
||||
|
Cash flows from financing activities:
|
||||||||
|
Proceeds from issuance of short-term debt
|
250
|
−
|
||||||
|
Proceeds from issuance of Series D-1 Preferred Stock,
net of issuance costs of $37 and $84, respectively
|
1,525
|
1,828
|
||||||
|
Proceeds from issuance of Series D-2 Preferred Stock,
net of issuance costs of $17
|
−
|
380
|
||||||
|
Net cash provided by financing activities
|
1,775
|
2,208
|
||||||
|
Net decrease in cash and cash equivalents
|
(417
|
)
|
(304
|
)
|
||||
|
Cash and cash equivalents at beginning of period
|
775
|
945
|
||||||
|
Cash and cash equivalents at end of period
|
$
|
358
|
$
|
641
|
||||
5
Communication Intelligence Corporation
Condensed Consolidated Statements of Cash Flows (Continued)
Unaudited
(In thousands)
|
Nine Months Ended
September 30,
|
||||||||
|
2015
|
2014
|
|||||||
|
Supplementary disclosure of cash flow information
|
||||||||
|
Interest paid
|
$
|
3
|
$
|
−
|
||||
|
Income tax paid
|
$
|
−
|
$
|
−
|
||||
|
Non-cash financing and investing transactions
|
||||||||
|
Dividends on Preferred Stock
|
$
|
2,335
|
$
|
1,989
|
||||
|
Accretion of beneficial conversion feature on issuance of Preferred
Stock
|
$
|
498
|
$
|
337
|
||||
|
Accretion of beneficial conversion feature on issuance of Preferred Stock dividends
|
$
|
29
|
$
|
265
|
||||
|
Conversion of Series C Preferred Stock into Common Stock
|
$
|
−
|
$
|
1
|
||||
6
Communication Intelligence Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
FORM 10-Q
|
1.
|
Nature of business and summary of significant accounting policies
|
Nature of Business
Communication Intelligence Corporation and its subsidiary (the "Company" or "CIC") is a leading provider of digital transaction management (DTM) software enabling fully digital (paperless) business processes. The Company's solutions encompass a wide array of functionality and services, including electronic signatures, biometric authentication and simple-to-complex workflow management. These solutions are available across virtually all enterprise, desktop and mobile environments as a seamlessly integrated platform for both ad-hoc and fully automated transactions. The Company's software platform can be deployed both on-premise and as a cloud-based service, with the ability to easily transition between deployment models. To date, the Company primarily has delivered its solutions to channel partners and end-user customers in the financial services industry. The Company's products include SignatureOne® Ceremony™ Server, the iSign® suite of products and services, including iSign® Enterprise and iSign® Console™, and Sign-it® programs.
Basis of Presentation
The financial information contained herein should be read in conjunction with the Company's consolidated audited financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2014.
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America ("GAAP") for complete consolidated financial statements. In the opinion of management, the unaudited condensed consolidated financial statements included in this quarterly report reflect all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for a fair presentation of its financial position at the dates presented and the Company's results of operations and cash flows for the periods presented. The Company's interim results are not necessarily indicative of the results to be expected for the entire year.
Going Concern
The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant cumulative losses since its inception and, at September 30, 2015, the Company's accumulated deficit was $126,082. The Company has primarily met its working capital needs through the sale of debt and equity securities. As of September 30, 2015, the Company's cash balance was $358. These factors raise substantial doubt about the Company's ability to continue as a going concern.
There can be no assurance that the Company will be successful in securing adequate capital resources to fund planned operations or that any additional funds will be available to the Company when needed, or if available, will be available on favorable terms or in amounts required by the Company. If the Company is unable to obtain adequate capital resources to fund operations, it may be required to delay, scale back or eliminate some or all of its operations, which may have a material adverse effect on the Company's business, results of operations and ability to operate as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
7
Communication Intelligence Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
FORM 10-Q
|
1.
|
Nature of business and summary of significant accounting policies (continued)
|
Accounting Changes and Recent Accounting Pronouncements
Accounting Standards Issued But Not Yet Adopted
Accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company's financial position, results of operations and cash flows.
| 2. | Concentrations |
The following table summarizes accounts receivable and revenue concentrations:
|
Accounts Receivable
As of September 30,
|
Total Revenue
for the three months
ended September 30,
|
Total Revenue
for the nine months
ended September 30,
|
||||
|
2015
|
2014
|
2015
|
2014
|
2015
|
2014
|
|
|
Customer #1
|
38%
|
46%
|
−
|
17%
|
12%
|
11%
|
|
Customer #2
|
24%
|
−
|
17%
|
−
|
−
|
−
|
|
Customer #3
|
−
|
−
|
10%
|
12%
|
−
|
10%
|
|
Customer #4
|
−
|
12%
|
−
|
−
|
−
|
−
|
|
Customer #5
|
−
|
19%
|
−
|
−
|
−
|
−
|
|
Customer #6
|
−
|
−
|
−
|
10%
|
16%
|
−
|
|
Customer #7
|
−
|
−
|
−
|
−
|
17%
|
14%
|
|
Total concentration
|
62%
|
77%
|
27%
|
39%
|
45%
|
35%
|
|
3.
|
Patents
|
The Company performs an intangible asset impairment analysis at least annually or whenever circumstances or events indicate such assets might be impaired. The Company would recognize an impairment charge in the event the net book value of such assets exceeded the future undiscounted cash flows attributable to such assets.
Management completed an analysis of the Company's patents as of December 31, 2014. Based on that analysis, the Company concluded that no impairment of the carrying value of the patents existed. The Company believes that no events or circumstances changed during the three and nine months ended September 30, 2015 that would impact this conclusion.
Amortization of patent costs was $87 and $260 for the three and nine-month periods ended September 30, 2015 and $90 and $270 for the three- and nine-month periods ended September 30, 2014.
The following table summarizes the amortizable intangible assets:
|
September 30, 2015
|
December 31, 2014
|
|||||||||||||||||||||||
|
Carrying Amount
|
Accumulated Amortization
|
Net Value
|
Carrying Amount
|
Accumulated Amortization
|
Net Value
|
|||||||||||||||||||
|
Patents
|
$
|
6,745
|
$
|
(6,072
|
)
|
$
|
673
|
$
|
6,745
|
$
|
(5,812
|
)
|
$
|
933
|
||||||||||
8
Communication Intelligence Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
FORM 10-Q
|
4.
|
Short-term note payable
|
On September 29, 2015, the Company issued a demand note for an aggregate amount of $250 to an affiliate of the Company. This note bears interest at the rate of 10% per annum and both the principal and interest accrued are payable on demand.
|
5.
|
Net loss per share
|
The Company calculates basic net loss per share based on the weighted average number of shares outstanding, and when applicable, diluted income per share, which is based on the weighted average number of shares and potential dilutive shares outstanding.
The following table lists shares and warrants that were excluded from the calculation of dilutive earnings per share as the exercise of such options and warrants and the conversion of such preferred shares would be anti-dilutive:
|
For the Nine Months Ended
|
||
|
September 30, 2015
|
September 30, 2014
|
|
|
Stock options
|
106,495
|
70,960
|
|
Warrants
|
237,822
|
173,814
|
|
Preferred shares as if converted
|
||
|
Series A-1 Preferred Stock
|
6,633
|
7,818
|
|
Series B Preferred Stock
|
304,430
|
275,888
|
|
Series C Preferred Stock
|
238,056
|
215,668
|
|
Series D-1 Preferred Stock
|
350,127
|
251,435
|
|
Series D-2 Preferred Stock
|
124,470
|
112,737
|
6. Equity
Stock-based compensation expense is based on the estimated grant date fair value of the portion of stock-based payment awards that are ultimately expected to vest during the period. The grant date fair value of stock-based awards to employees and directors is calculated using the Black-Scholes-Merton valuation model.
Forfeitures of stock-based payment awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The estimated average forfeiture rate for the three months ended September 30, 2015 and 2014, was approximately 7.89% and 9.75%, respectively, based on historical data.
Valuation and Expense Information:
The weighted-average fair value of stock-based compensation is based on the Black-Scholes-Merton valuation model. Forfeitures are estimated and it is assumed no dividends will be declared. The estimated fair value of stock-based compensation awards to employees is amortized using the accrual method over the vesting period of the options. The fair value calculations are based on the following assumptions:
|
Nine Months Ended
September 30, 2015
|
Nine Months Ended
September 30, 2014
|
||
|
Risk free interest rate
|
0.04% - 3.28%
|
0.04% - 3.73%
|
|
|
Expected life (years)
|
3.26 – 6.33
|
2.82 – 7.00
|
|
|
Expected volatility
|
120.74% – 198.38%
|
93.63% – 198.38%
|
|
|
Expected dividends
|
None
|
None
|
9
Communication Intelligence Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
FORM 10-Q
6. Equity (continued)
There were no stock options granted during the three month period ended September 30, 2015. The Company granted 36,633 stock options during the nine months ended September 30, 2015 at a weighted average exercise price of $0.0224 per share. There were no stock options exercised during the three- and nine-months ended September 30, 2015.
There were no stock options granted during the three months ended September 30, 2014. The Company granted 2,500 stock options during the nine months ended September 30, 2014 at a weighted average exercise price of $0.0273 per share. There were no stock options exercised during the three- and nine-months ended September 30, 2014.
The following table summarizes the allocation of stock-based compensation expense related to stock option grants for the three- and nine-month periods ended September 30, 2015 and 2014.
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
|
2015
|
2014
|
2015
|
2014
|
|||||||||||||
|
Research and development
|
$
|
35
|
$
|
16
|
$
|
148
|
$
|
64
|
||||||||
|
Sales and marketing
|
26
|
17
|
112
|
54
|
||||||||||||
|
General and administrative
|
47
|
29
|
192
|
112
|
||||||||||||
|
Director options
|
8
|
3
|
35
|
12
|
||||||||||||
|
Stock-based compensation expense
|
$
|
116
|
$
|
65
|
$
|
487
|
$
|
242
|
||||||||
A summary of option activity under the Company's plans as of September 30, 2015 and 2014 is as follows:
|
2015
|
2014
|
|||||||||||||||||||||||||||||||
|
Options
|
Shares
|
Weighted Average Exercise Price Per Share
|
Weighted Average Remaining Contractual Term(Years)
|
Aggregate Intrinsic Value
|
Shares
|
Weighted Average Exercise Price Per Share
|
Weighted Average Remaining Contractual Term(Years)
|
Aggregate Intrinsic Value
|
||||||||||||||||||||||||
|
Outstanding at January 1,
|
72,012
|
$
|
0.04
|
$
|
-
|
69,537
|
$
|
0.05
|
$
|
-
|
||||||||||||||||||||||
|
Granted
|
36,633
|
$
|
0.02
|
$
|
-
|
2,500
|
$
|
0.03
|
$
|
-
|
||||||||||||||||||||||
|
Forfeited or expired
|
(2,150
|
)
|
$
|
0.03
|
$
|
-
|
(1,077
|
)
|
$
|
0.05
|
$
|
-
|
||||||||||||||||||||
|
Outstanding at September 30
|
106,495
|
$
|
0.04
|
4.39
|
$
|
-
|
70,960
|
$
|
0.05
|
4.30
|
$
|
-
|
||||||||||||||||||||
|
Vested and expected to vest at September 30
|
103,820
|
$
|
0.03
|
3.21
|
$
|
-
|
63,996
|
$
|
0.05
|
4.30
|
$
|
-
|
||||||||||||||||||||
|
Exercisable at September 30
|
69,757
|
$
|
0.04
|
3.53
|
$
|
-
|
55,102
|
$
|
0.05
|
3.98-
|
$
|
-
|
||||||||||||||||||||
10
Communication Intelligence Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
FORM 10-Q
|
6.
|
Equity (continued)
|
The following table summarizes significant ranges of outstanding and exercisable options as of September 30, 2015:
|
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||||
|
Range of Exercise Prices
|
Number Outstanding
|
Weighted Average Remaining Contractual Life (in years)
|
Weighted Average Exercise Price Per Share
|
Number Outstanding
|
Weighted Average Exercise Price Per Share
|
|||||||||||||||||
|
$
|
0.01 – $0.02
|
3,000
|
6.23
|
$
|
0.02
|
584
|
$
|
0.02
|
||||||||||||||
|
$
|
0.02 – $0.03
|
53,170
|
5.21
|
$
|
0.02
|
23,107
|
$
|
0.02
|
||||||||||||||
|
$
|
0.03 – $0.06
|
31,416
|
4.06
|
$
|
0.05
|
27,157
|
$
|
0.05
|
||||||||||||||
|
$
|
0.06 – $0.20
|
18,909
|
2.32
|
$
|
0.07
|
18,909
|
$
|
0.07
|
||||||||||||||
|
106,495
|
4.39
|
$
|
0.04
|
69,757
|
$
|
0.04
|
||||||||||||||||
The following table summarizes the Company's non-vested option shares as of September 30, 2015:
|
Non-vested Option Shares
|
Shares
|
Weighted Average
Grant-Date
Fair Value
|
||||||
|
Non-vested at January 1, 2015
|
14,954
|
$
|
0.04
|
|||||
|
Granted
|
36,633
|
$
|
0.02
|
|||||
|
Forfeited
|
(1,020
|
)
|
$
|
0.02
|
||||
|
Vested
|
(13,829
|
)
|
$
|
0.03
|
||||
|
Non-vested at September 30, 2015
|
36,738
|
$
|
0.02
|
|||||
As of September 30, 2015, there was $363 of total unrecognized compensation expense related to non-vested stock-based compensation arrangements granted under the plans. The unrecognized compensation expense is expected to be realized over a weighted average period of 3.2 years.
Preferred Stock
Information with respect to the class of Preferred Stock at September 30, 2015 is as follows:
|
Class of Preferred Stock
|
Annual Dividend
|
Annual Dividend Payable, in Cash or In Kind
|
Liquidation Preference
|
Conversion Price
|
Total Preferred Shares Outstanding
|
Common Shares to be issued if Fully Converted
|
|||||||||||||||
|
Series A-1
|
8
|
%
|
Quarterly in Arrears
|
$
|
1.00
|
$
|
0.1400
|
929
|
6,633
|
||||||||||||
|
Series B
|
10
|
%
|
Quarterly in Arrears
|
$
|
1.50
|
$
|
0.0433
|
13,191
|
304,430
|
||||||||||||
|
Series C
|
10
|
%
|
Quarterly in Arrears
|
$
|
1.50
|
$
|
0.0225
|
5,356
|
238,056
|
||||||||||||
|
Series D-1
|
10
|
%
|
Quarterly in Arrears
|
$
|
1.00
|
$
|
0.0225
|
7,878
|
350,127
|
||||||||||||
|
Series D-2
|
10
|
%
|
Quarterly in Arrears
|
$
|
1.00
|
$
|
0.0500
|
6,223
|
124,470
|
||||||||||||
11
Communication Intelligence Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
FORM 10-Q
|
6.
|
Equity (continued)
|
Information with respect to in-kind dividends issued on the Company's Preferred Stock for the three and nine-month periods ended September 30, 2015 and September 30, 2014 is as follows:
|
Dividends
|
Beneficial Conversion Feature Related to Dividends
|
|||||||||||||||||||||||||||||
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||||||||||||||
|
2015
|
2014
|
2015
|
2014
|
2015
|
2014
|
2015
|
2014
|
|||||||||||||||||||||||
|
Series A-1
|
$
|
18
|
$
|
22
|
$
|
53
|
$
|
63
|
$ |
─
|
$ ─
|
$
|
−
|
$
|
−
|
|||||||||||||||
|
Series B
|
324
|
294
|
939
|
852
|
─
|
─
|
−
|
−
|
||||||||||||||||||||||
|
Series C
|
132
|
119
|
382
|
345
|
─
|
64
|
13
|
114
|
||||||||||||||||||||||
|
Series D-1
|
192
|
128
|
516
|
329
|
─
|
107
|
16
|
151
|
||||||||||||||||||||||
|
Series D-2
|
153
|
145
|
445
|
400
|
─
|
─
|
─
|
─
|
||||||||||||||||||||||
|
Total
|
$
|
819
|
$
|
708
|
$
|
2,335
|
$
|
1,989
|
$ |
─
|
$
|
171
|
$
|
29
|
$
|
265
|
||||||||||||||
Series D Preferred Stock
On February 7, 2014, the Company sold for $733 in cash, net of a $47 administrative fee paid in cash to SG Phoenix and a nonrelated third party, 520 shares of Series D-1 Preferred Stock and 260 shares of Series D-2 Preferred Stock. The investors received one hundred percent (100%) warrant coverage. These warrants have an exercise price of $0.0225 per share, are immediately exercisable and expire December 31, 2016. The warrants are exercisable in whole or in part and contain a cashless exercise provision.
On March 6, 2014, the Company sold for $406 in cash, net of $4 in administrative fees paid in cash to an unrelated third party, 273 shares of Series D-1 Preferred Stock and 137 shares of Series D-2 Preferred Stock. The investors received one hundred percent (100%) warrant coverage. These warrants have an exercise price of $0.0275 per share, are immediately exercisable and expire December 31, 2016. The warrants are exercisable in whole or in part and contain a cashless exercise provision.
SG Phoenix received warrants to purchase 3,000 shares of common stock, and two unrelated parties received warrants to purchase an aggregate of 1,600 shares of common stock in payment of administrative and related fees associated with the financings, in addition to the cash payments discussed above. These warrants have an exercise price of $0.0275 per share, are immediately exercisable and expire three (3) years from the date of issuance. The warrants are exercisable in whole or in part and contain a cashless exercise provision.
On March 24, 2015, the Company sold for $1,200 in cash, net of $33 in administrative fees paid in cash to SG Phoenix, 1,233 shares of Series D-1 Preferred Stock. The investors received 27,400 warrants, immediately exercisable into common stock of the Company at an exercise price of $0.0225 per share. The warrants expire March 23, 2018. The Company ascribed a relative fair value of $366 to the warrants using the Black-Scholes-Merton pricing model and are classified as Additional Paid in Capital on the balance sheet. See the warrant table below for more detail. The warrants are exercisable in whole or in part and contain a cashless exercise provision.
On July 23, 2015, the Company sold for $325 in cash, net of $4 in administrative fees paid in cash to SG Phoenix, 329 Shares of Series D-1 Preferred Stock. The investors received 13,160 warrants, immediately exercisable into common stock of the Company at $0.0125 per share. The warrants expire July 22, 2018. The Company ascribed a relative fair value of $91 to the warrants using the Black-Scholes-Merton pricing mode and are classified as Additional Paid in Capital on the balance sheet. See the warrant table below for more detail. The warrants are exercisable in whole or in part and contain a cashless exercise provision.
12
Communication Intelligence Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
FORM 10-Q
|
6.
|
Equity (continued)
|
Warrants
On February 23, 2015, the Company and Venture Champion Asia Limited, an affiliate of IGC Global Limited, mutually agreed to terminate the $2,000 Credit Agreement signed in May 2014. At the time of the termination of the Credit Agreement, no amount was owed by the Company under the Credit Agreement, and contemporaneously with the termination of the Credit Agreement, the 10,909 warrants were likewise terminated.
A summary of the warrant activity is as follows:
|
September 30, 2015
|
September 30, 2014
|
|||||||||||||||
|
Warrants
|
Weighted Average Exercise Price Per Share
|
Warrants
|
Weighted Average Exercise Price Per Share
|
|||||||||||||
|
Outstanding at beginning of period
|
213,521
|
$
|
0.0289
|
77,155
|
$
|
0.0289
|
||||||||||
|
Issued
|
40,560
|
0.0193
|
124,711
|
0.0275
|
||||||||||||
|
Expired/Cancelled
|
(16,259
|
)
|
0.0500
|
(28,052
|
)
|
0.0225
|
||||||||||
|
Outstanding at end of period
|
237,822
|
$
|
0.0264
|
173,814
|
$
|
0.0286
|
||||||||||
|
Exercisable at end of period
|
237,822
|
$
|
0.0264
|
173,814
|
$
|
0.0286
|
||||||||||
A summary of the status of the warrants outstanding and exercisable as of September 30, 2015 is as follows:
|
Number of Warrants
|
Weighted Average Remaining Life (Years)
|
Weighted Average Exercise Price Per Share
|
||||||
|
Warrants 27,400
|
2.52
|
$
|
0.0225
|
|||||
|
Warrants 193,968
|
1.26
|
$
|
0.0275
|
|||||
|
Warrants 3,294
|
0.13
|
$
|
0.0500
|
|||||
|
Warrants 13,160
|
2.83
|
$
|
0.0125
|
|||||
|
237,822
|
1.48
|
$
|
0.0264
|
|||||
13
Communication Intelligence Corporation
(In thousands, except per share amounts)
FORM 10-Q
Forward Looking Statements
Certain statements contained in this quarterly report on Form 10-Q, including, without limitation, statements containing the words "believes", "anticipates", "hopes", "intends", "expects", and other words of similar import, constitute "forward looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors which may cause actual events to differ materially from expectations. Such factors include those set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, including the following:
|
·
|
Technological, engineering, manufacturing, quality control or other circumstances that could delay the sale or shipment of products;
|
|
·
|
Economic, business, market and competitive conditions in the software industry and technological innovations that could affect the Company's business;
|
|
·
|
The Company's inability to protect its trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company; and
|
|
·
|
General economic and business conditions and the availability of sufficient financing.
|
Except as otherwise required by applicable laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, as a result of new information, future events or otherwise.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the Company's unaudited condensed consolidated financial statements and notes thereto included in Part 1, Item 1 of this quarterly report on Form 10-Q and "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in the Company's Annual report on Form 10-K for the fiscal year ended December 31, 2014.
Overview
The Company is a leading supplier of digital transaction management (DTM) software enabling the paperless, secure and cost-effective management of document-based transactions. CIC's solutions encompass a wide array of functionality and services, including electronic signatures, biometric authentication and simple-to-complex workflow management. These solutions are available across virtually all enterprise, desktop and mobile environments as a seamlessly integrated platform for both ad-hoc and fully automated transactions. CIC's software can be deployed both on-premise and as a cloud-based service, with the ability to easily transition between deployment models.
The Company was incorporated in Delaware in October 1986. Except for the year ended December 31, 2004, in each year since its inception the Company has incurred losses. For the two-year period ended December 31, 2014, net losses attributable to common stockholders aggregated approximately $15,478, and, at September 30, 2015, the Company's accumulated deficit was approximately $126,082.
During the nine months ended September 30, 2015, the Company completed two private placements of its Series D-1 Preferred Stock receiving an aggregate amount of $1,525 in net proceeds. The Company also issued a demand note for an aggregate amount of $250. The proceeds from these capital raising activities are being used for general working capital purposes (See Liquidity and Capital Resources).
For the three months ended September 30, 2015, total revenue was $351, an increase of $66, or 23%, compared to total revenue of $285 in the prior year period. For the nine months ended September 30, 2015, total revenue was $1,164, an increase of $105, or 10%, compared to total revenue of $1,059 in the prior year period. The increase in total revenue for the three-month period ended September 30, 2015 was primarily due to an increase of $42, or 49%, in product revenue. The increase in total revenue for the nine months ended September 30, 2015 was primarily due to an increase of $86, or 15%, in maintenance revenue.
14
Communication Intelligence Corporation
(In thousands, except per share amounts)
FORM 10-Q
For the three months ended September 30, 2015, the loss from operations was an expense of$850, a decrease of $100, or 11%, compared with a loss from operations of $950 in the prior year period. For the nine months ended September 30, 2015, the loss from operations was $2,897, a decrease of $40, or 1%, compared with a loss from operations of $2,937 in the prior year period. The decrease in the loss from operations for the three months ended September 30, 2015 is primarily attributable to the above mentioned increase in sales and the decrease of $34, or 3%, in operating expenses including cost of sales compared to the prior year period. The decrease in the loss from operations for the nine months ended September 30, 2015 is primarily attributable to the above mentioned increase in sales, partially offset by an increase of $65, or 2%, in operating expenses including cost of sales compared to the prior year period.
Other income, net, for the three months ended September 30, 2015 was $3, a decrease of $41, or 108%, compared to other income, net, of $38 in the prior year period. The decrease in other income for the three-months ended September 30, 2015 was primarily due to the sale for $50 of one of the Company's unused trademarks to a third party in the prior year period. Other income, net, for the nine months ended September 30, 2015 was $14, an increase of $216, or 107%, compared to other expense of $202 in the prior year period. The decrease in other expenses for the nine months ended September 30, 2015 was primarily due to the valuation of warrants issued to a third party in connection with the closing of a $2,000 line of credit in the prior year period (See Liquidity and Capital Resources).
Critical Accounting Policies and Estimates
Refer to Item 7, "Management Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2014 Form 10-K.
Results of Operations
Revenue
For the three months ended September 30, 2015, product revenue was $127, an increase of $42, or 49%, compared to product revenue of $85 in the prior year period. The increase in product revenue is primarily attributable to the timing of the Company's sales during the quarter and the timing of the revenue recognition for certain recurring revenue contracts. For the three months ended September 30, 2015, maintenance revenue was $224, an increase of $24, or 12%, compared to maintenance revenue of $200 in the prior year period. The increase in maintenance revenue is primarily due to new maintenance contracts entered into during the last twelve months.
For the nine months ended September 30, 2015, product revenue was $510, an increase of $19, or 4%, compared to product revenue of $491 in the prior year period. The increase in product revenue is primarily due to the sale of new products. For the nine months ended September 30, 2015, maintenance revenue was $654, an increase of $86, or 15%, compared to maintenance revenue of $568 in the prior year period. The increase in maintenance revenue is primarily due to new maintenance contracts associated with the increase in product sales in the current and prior year.
Cost of Sales
For the three months ended September 30, 2015, cost of sales was $69, an increase of $23, or 50%, compared to cost of sales of $46 in the prior year period. The increase in cost of sales was due to an increase in direct labor related to maintenance and revenue generating contracts related to customer-specific customization requests recognized during the three months ended September 30, 2015, compared to the prior year period.
For the nine months ended September 30, 2015, cost of sales was $287, an increase of $107, or 59%, compared to cost of sales of $180 in the prior year period. The increase in cost of sales was due to an increase in direct labor related to maintenance and revenue generating contracts related to customer specific-customization requests recognized during the nine months ended September 30, 2015, compared to the prior year period.
15
Communication Intelligence Corporation
(In thousands, except per share amounts)
FORM 10-Q
Operating expenses
Research and Development Expenses
For the three months ended September 30, 2015, research and development expense was $446, a decrease of $30, or 6%, compared to research and development expense of $476 in the prior year period. Research and development expenses consist primarily of salaries and related costs, outside engineering, maintenance items, and allocated facilities expenses. The most significant factors in the $30 decrease were the allocations to cost of sales and other general expenses of $49, or 82%, more than the prior year period resulting from the above mentioned increase in revenue generating contracts related to customer specific customization requests and from general operating requirements. Total expenses, before allocations for the three months ended September 30, 2015, was $555, an increase of $19, or 4%, compared to $536 in the prior year period. The increase in gross expenses is primarily due to an increase in non-cash stock-based compensation, partially offset by reductions in general engineering overhead expense. Research and development expenses are expected to remain at current levels in the near term.
For the nine months ended September 30, 2015, research and development expense was $1,467, a decrease of $82, or 5%, compared to research and development expense of $1,549 in the prior year period. The most significant factors in the $82 decrease were the allocations to cost of sales and other general expenses of $136, or 65%, more than the prior year period resulting from the above mentioned increase in revenue generating contracts related to customer specific customization requests and from general operating requirements. The increase in allocated engineering expense was offset by the same factors discussed above. Total expenses, before allocations, for the nine months ended September 30, 2015, were $1,810, an increase of $54, or 3%, compared to $1,756 in the prior year period. The increase was due to an increase in outside engineering expense and to the general overhead expense related to the increase in allocated facilities expense.
Sales and Marketing Expense
For the three months ended September 30, 2015, sales and marketing expense was $216, a decrease of $87, or 29%, compared to sales and marketing expense of $303 in the prior year period. For the nine months ended September 30, 2015, sales and marketing expense was $756, a decrease of $186, or 20%, compared to sales and marketing expense of $942 in the prior year period. The decreases in each period were primarily attributable to decreases in salaries and related expenses resulting from the elimination of two sales persons, decreases in travel and related expenses and reductions in advertising and promotions and other overhead expenses compared to the prior year periods.
General and Administrative Expense
For the three months ended September 30, 2015, general and administrative expense was $470, an increase of $60, or 15%, compared to general and administrative expense of $410 in the prior year period. The increase was primarily due to an increase of $45, or 54%, in salaries and related expense due to the addition of one finance employee and an increase in stock option expense. In addition, other general corporate expenses increased $15, or 4%, compared to the prior year period.
For the nine months ended September 30, 2015, general and administrative expense was $1,551, an increase of $226, or 17%, compared to general and administrative expense of $1,325 in the prior year period. The increase was primarily due to the same factors discussed for the three-month period above.
Other income and expenses
For the three months ended September 30, 2015, interest expense was $3, a decrease of $10, or 77%, compared to interest expense of $13 in the prior year period. For the nine months ended September 30, 2015, interest expense
16
Communication Intelligence Corporation
(In thousands, except per share amounts)
FORM 10-Q
was $4, a decrease of $254, or 98%, compared to interest expense of $258 in the prior year period. The decreases resulted from expensing the valuation of warrants issued to third parties in May 2014 related to a $2,000 line of credit.
For the three months ended September 30, 2015, the gain on derivative liability was $0, a decrease of $2, or 100%, compared to the gain on derivative liability of $2 in the prior year period. For the nine months ended September 30, 2015, the gain on derivative liability was $18, an increase of $13, or 260%, compared to a gain on derivative liability of $5 in the prior year period. The changes between periods in the gains on derivative liability are primarily due to the exercise and expiration of warrants and the change in the closing price of the Company's Common Stock at September 30, 2015.
For the three months ended September 30, 2015, accretion of the beneficial conversion feature on the Company's Preferred Stock with a conversion price less than the closing market price of the Company's Common Stock on September 30, 2015 was $0, a decrease of $171, or 100%, compared to $171 in the prior year period. The decrease is primarily due to the closing price of the Company's Common Stock on September 30, 2015 being less than the conversion price of the shares of Series D Preferred Stock issued in July 2015.
For the nine months ended September 30, 2015, accretion of the beneficial conversion feature on the Company's Preferred Stock with a conversion price less than the closing market price of the Company's Common Stock on the issuance date for new issuances of Preferred Stock was $527, a decrease of $75, or 12%, compared to $602 in the prior year period. The decrease is primarily due to the same factors discussed above (see Liquidity and Capital Resources).
The Company recorded dividends in kind on shares of its Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock. For the three months ended September 30, 2015, dividends on shares of Preferred Stock were $819, an increase of $111, or 16%, compared to $708 in the prior year period. The increase was primarily due to the issuances of shares of Series D Preferred Stock discussed above.
For the nine months ended September 30, 2015, dividends on shares of Preferred Stock were $2,335, an increase of $346, or 17%, compared to $1,989 in the prior year period. The increase was primarily due to the issuances of shares of Series D Preferred Stock discussed above.
Liquidity and Capital Resources
At September 30, 2015, cash and cash equivalents totaled $358, compared to cash and cash equivalents of $775 at December 31, 2014. The decrease in cash was primarily due to net cash used in operating activities of $2,178 and investing activities of $14. These uses of cash were partially offset by $1,775 in cash provided by financing activities. At September 30, 2015, total current assets were $642, compared to total current assets of $977 at December 31, 2014. At September 30, 2015, the Company's principal source of funds was its aggregated cash and cash equivalents of $358.
At September 30, 2015, accounts receivable net, were $159, an increase of $37, or 30%, compared to accounts receivable net of $122 at December 31, 2014. The increase is due primarily to the timing of billings during the three months ended September 30, 2015.
At September 30, 2015, prepaid expenses and other current assets were $125, an increase of $45, or 56%, compared to prepaid expenses and other current assets of $80 at December 31, 2014. The increase is due primarily to the timing of annual D&O insurance premium payments.
At September 30, 2015, short-term debt was $250, an increase of $250, compared to the balance of $0 at December 31, 2014. The increase was due to a demand note issued in September 2015 in the aggregate principal amount of $250 to an affiliate of the Company.
At September 30, 2015, accounts payable were $420, an increase of $92, or 28%, compared to accounts payable
17
Communication Intelligence Corporation
(In thousands, except per share amounts)
FORM 10-Q
of $328 at December 31, 2014. The increase is due primarily to the timing of the Company's funding rounds. At September 30, 2015, accrued compensation was $272, a decrease of $21, or 7%, compared to accrued compensation of $293 at December 31, 2014. The decrease is due primarily to the payment of accrued sales commissions from the timely receipt of outstanding accounts receivable and reduction of accrued vacation expense.
At September 30, 2015, total current liabilities were $1,772, an increase of $556, or 46%, compared to total current liabilities of $1,216 at December 31, 2014. At September 30, 2015, current deferred revenue was $353, an increase of $96, or 37%, compared to current deferred revenue of $257 at December 31, 2014. Deferred revenue is recorded when the Company receives advance payment from its customers and primarily reflects advance payments for maintenance fees from the Company's licensees that are generally recognized as revenue by the Company when all obligations are met or over the term of the maintenance agreement, whichever is longer.
For the three and nine months ended September 30, 2015, the Company exercised its option to pay in kind the accrued dividends on Preferred Stock as follows:
|
Three Months
|
Nine Months
|
|||||||
|
2015
|
2015
|
|||||||
|
Series A-1
|
$
|
18
|
$
|
53
|
||||
|
Series B
|
324
|
939
|
||||||
|
Series C
|
132
|
382
|
||||||
|
Series D-1
|
192
|
516
|
||||||
|
Series D-2
|
153
|
445
|
||||||
|
Total
|
$
|
819
|
$
|
2,335
|
||||
On February 23, 2015, the Company and Venture Champion Asia Limited, an affiliate of IGC Global Limited, mutually agreed to terminate the $2,000 Credit Agreement signed in May 2014. At the time of the termination of the Credit Agreement, no amount was owed by the Company under the Credit Agreement, and contemporaneously with the termination of the Credit Agreement, warrants to purchase 10,909 shares of Common Stock were likewise terminated.
On March 24, 2015, the Company sold for $1,200 in cash, net of $33 in administrative fees paid in cash to SG Phoenix, 1,233 shares of Series D-1 Preferred Stock. Investors received warrants to purchase 27,400 shares of Common Stock, immediately exercisable at $0.0225 per share. The warrants expire March 23, 2018. The Company ascribed a value of $366 to the warrants using the Black-Scholes-Merton pricing model. The warrants are exercisable in whole or in part and contain a cashless exercise provision.
On July 23, 2015, the Company sold for $325 in cash, net of $4 in administrative fees paid in cash to SG Phoenix, 329 shares of Series D-1 Preferred Stock. The investors received 13,160 warrants, immediately exercisable into common stock of the Company at $0.0125 per share. The warrants expire July 22, 2018. The Company ascribed a value of $91 to the warrants using the Black-Scholes-Merton pricing model. The warrants are exercisable in whole or in part and contain a cashless exercise provision.
On September 29, 2015, the Company issued a demand note in the aggregate principal amount of $250 to an affiliate of the Company. This note bears interest at the rate of 10% per annum and both the principal and interest accrued are payable on demand.
The Company is using the funds received from the above financings for working capital and general corporate purposes.
The Company incurred $3 of interest expense for the three and nine months ended September 30, 2015. For the nine months ended September 30, 2014, non-cash interest expense was $258 and was primarily related to the valuation of warrants issued in conjunction with the Credit Agreement mentioned above.
18
Communication Intelligence Corporation
(In thousands, except per share amounts)
FORM 10-Q
The Company had the following material commitments as of September 30, 2015:
|
Contractual obligations
|
Total
|
2015
|
2016
|
Thereafter
|
||||||||||||
|
Operating lease commitments (1, 2)
|
$
|
227
|
$
|
66
|
$
|
161
|
$
|
−
|
||||||||
|
1.
|
The Company extended the lease on its offices in April 2010. The base rent decreased by approximately 6% in November 2011 and will increase by approximately 3% per annum over the term of the new lease, which expires on October 31, 2016.
|
|
2.
|
The Company sublet approximately 3,000 feet of unutilized office space in August 2015. The sub-lease will expire on October 31, 2016. The operating lease commitments are net of the sub lease amounts of $97 through 2016.
|
The Company has experienced recurring losses from operations that raise a substantial doubt about its ability to continue as a going concern. There can be no assurance that the Company will have adequate capital resources to fund planned operations or that any additional funds will be available to it when needed, or if available, will be available on favorable terms or in amounts required by it. If the Company is unable to obtain adequate capital resources to fund operations, it may be required to delay, scale back or eliminate some or all of its operations, which may have a material adverse effect on the Company's business, results of operations and ability to operate as a going concern.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
The Company did not enter into any short-term security investments during the three and nine months ended September 30, 2015.
Foreign Currency Risk
From time to time, the Company makes certain capital equipment or other purchases denominated in foreign currencies. As a result, the Company's cash flows and earnings are exposed to fluctuations in interest rates and foreign currency exchange rates. The Company attempts to limit these exposures through operational strategies and generally has not hedged currency exposures. During the three and nine months ended September 30, 2015 and 2014, foreign currency translation gains and losses were insignificant.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
As of the end of the period covered by this report, we conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to paragraph (b) of Rule 13a-15 and 15d-15 under the Exchange Act of 1934 (the "Exchange Act"). Based on that evaluation our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that the information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all error or fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedures are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The Company considered these
19
Communication Intelligence Corporation
(In thousands, except per share amounts)
FORM 10-Q
limitations during the development of its disclosure controls and procedures, and will continually reevaluate them to ensure they provide reasonable assurance that such controls and procedures are effective.
Changes in Internal Control over Financial Reporting
As previously reported in our Annual Report on Form 10-K for the Year Ended December 31, 2014, we had material weaknesses in our internal control over financial reporting related to the employment of an insufficient number of staff in our finance department to possess an optimal segregation of duties or to provide optimal levels of oversight. With the oversight of senior management, we have taken steps to remediate the underlying causes of these material weaknesses, primarily through hiring additional finance personnel and engaging accounting experts to review complex accounting matters when required. We believe we have taken the necessary steps to remediate the material weaknesses in our internal controls.
Except for the remediation efforts described herein there has been no change in our internal control over financial reporting during the quarter ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting..
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sale of Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
20
Communication Intelligence Corporation
(In thousands, except per share amounts)
FORM 10-Q
Item 6. Exhibits.
|
(a)
|
Exhibits.
|
|
Exhibit Number
|
Document
|
|
3.1
|
Certificate of Incorporation of the Company, as amended, incorporated herein by reference to Exhibits 3.1, 3.2, 3.3 and 3.4 to the Company's Registration Statement on Form 10 (File No. 0‑19301).
|
|
3.2
|
Certificate of Amendment to the Company's Certificate of Incorporation (authorizing the reclassification of the Class A Common Stock and Class B Common Stock into one class of Common Stock) as filed with the Delaware Secretary of State's office on November 1, 1991, incorporated herein by reference to Exhibit 3 to Amendment 1 on Form 8 to the Company's Form 8‑A (File No. 0‑19301).
|
|
3.3
|
By‑laws of the Company adopted on October 6, 1986, incorporated herein by reference to Exhibit 3.5 to the Company's Registration Statement on Form 10 (File No. 0‑19301).
|
|
3.4
|
By‑laws of the Company adopted on October 6, 1986, incorporated herein by reference to Exhibit 3.5 to the Company's Registration Statement on Form 10 (File No. 0‑19301).
|
|
3.5
|
Certificate of Amendment to the Company's Amended and Restated Certificate of Incorporation dated January 24, 2001, incorporated herein by reference to Exhibit 3.5 to the Company's Registration Statement on Form S/1, filed December 28, 2007.
|
|
3.6
|
Certificate of Elimination of the Company's Certificate of Designation of the Series A Preferred Stock dated August 17, 2001, incorporated herein by reference to Exhibit 3.6 to the Company's Registration Statement on Form S/1, filed December 28, 2007.
|
|
3.7
|
Certificate of Amendment to the Company's Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State August 17, 2007, incorporated herein by reference to Exhibit 3.7 to the Company's Registration Statement on Form S/1 filed on December 28, 2007.
|
|
3.8
|
Amended and Restated Certificate of Incorporation of the Company filed with the Delaware Secretary of State on May 18, 1995, incorporated herein by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed on August 14, 2008.
|
|
3.9
|
Certificate of Designations, Powers, Preferences and Rights of the Series A Cumulative Convertible Preferred Stock filed with the Delaware Secretary of State on June 4, 2008, incorporated herein by reference to Exhibit 4.23 to the Company's Quarterly Report on Form 10-Q filed on August 14, 2008.
|
|
3.10
|
Certificate of Amendment to the Company's Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on June 30, 2008, incorporated herein by reference to Exhibit 3.7 to the Company's Quarterly Report on Form 10-Q filed on August 14, 2008.
|
|
3.11
|
Certificate of Designations, Powers, Preferences and Rights of the Series A-1 Cumulative Convertible Preferred Stock filed with the Delaware Secretary of State on October 30, 2008, incorporated herein by reference to Exhibit 3.11 to the Company's Annual Report on Form 10-K filed on March 12, 2009.
|
|
3.12
|
Certificate of Elimination of the Company's Series A Cumulative Convertible Preferred Stock filed with the Delaware Secretary of State on December 30, 2008, incorporated herein by reference to Exhibit 3.12 to the Company's Annual Report on Form 10-K filed on March 12, 2009.
|
|
3.13
|
Certificate of Amendment to the Company's Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on June 30, 2009, incorporated herein by reference to Exhibit 3.13 to the Company's Quarterly Report on Form 10-Q filed on August 14, 2009.
|
|
3.14
|
Amendment No. 1 to By-laws dated June 17, 2010, incorporated herein by reference to Exhibit 3.14 to the Company's Quarterly Report on Form 10-Q filed on August 16, 2010.
|
|
3.15
|
Certificate of Amendment to the Company's Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on August 4, 2010, incorporated herein by reference to Exhibit 3.15 to the Company's Quarterly Report on Form 10-Q filed on November 12, 2010.
|
21
Communication Intelligence Corporation
(In thousands, except per share amounts)
FORM 10-Q
|
Exhibit Number
|
Document
|
|
3.16
|
Amended and Restated Certificate of Designation of Series A-1 Cumulative Convertible Preferred Stock filed with the Delaware Secretary of State on August 4, 2010, incorporated herein by reference to Exhibit 3.16 to the Company's Quarterly Report on Form 10-Q filed on November 12, 2010.
|
|
3.17
|
Certificate of Designation of Series B Participating Convertible Preferred Stock filed with the Delaware Secretary of State on August 4, 2010, incorporated herein by reference to Exhibit 3.17 to the Company's Quarterly Report on Form 10-Q filed on November 12, 2010.
|
|
3.18
|
Certificate of Amendment to Amended And Restated Certificate of Incorporation filed with the Delaware Secretary of State on December 31, 2010, incorporated herein by reference to Exhibit 3.18 to the Company's Annual Report on Form 10-K filed on March 30, 2011.
|
|
3.19
|
Second Amended and Restated Certificate of Designation of Series A-1 Cumulative Convertible Preferred Stock filed with the Delaware Secretary of State on December 31, 2010, incorporated herein by reference to Exhibit 3.19 to the Company's Annual Report on Form 10-K filed on March 30, 2011.
|
|
3.20
|
Second Amended and Restated Certificate of Designation of Series B Participating Convertible Preferred Stock filed with the Delaware Secretary of State on December 31, 2010, incorporated herein by reference to Exhibit 3.20 to the Company's Annual Report on Form 10-K filed on March 30, 2011.
|
|
3.21
|
Certificate of Designation of Series C Participating Convertible Preferred Stock filed with the Delaware Secretary of State on December 31, 2010, incorporated herein by reference to Exhibit 3.21 to the Company's Annual Report on Form 10-K filed on March 30, 2011.
|
|
3.22
|
Amendment to the Amended And Restated Certificate of Designation of the Series B Participating Convertible Preferred Stock, incorporated herein by reference to Exhibit 10.59 to the Company's Current Report on Form 8-K filed March 31, 2011.
|
|
3.23
|
Amendment to the Amended And Restated Certificate of Designation of the Series C Participating Convertible Preferred Stock, incorporated herein by reference to Exhibit 10.60 to the Company's Current Report on Form 8-K filed March 31, 2011.
|
|
3.24
|
Certificate of Amendment to Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on November 13, 2012, incorporated herein by reference to Appendix A to the Company's Definitive Proxy Statement filed on Schedule 14A on October 22, 2012.
|
|
3.25
|
Third Amended and Restated Certificate of Designation of Series A-1 Cumulative Convertible Preferred Stock filed with the Delaware Secretary of State on November 13, 2012, incorporated herein by reference to Exhibit 3.25 to the Company's Form 10-K filed March 31, 2014.
|
|
3.26
|
Second Amended and Restated Certificate of Designation of Series B Participating Convertible Preferred Stock filed with the Delaware Secretary of State on November 13, 2012, incorporated herein by reference to Exhibit 3.26 to the Company's Form 10-K filed March 31, 2014.
|
|
3.27
|
Amended and Restated Certificate of Designation of Series C Participating Convertible Preferred Stock filed with the Delaware Secretary of State on November 13, incorporated herein by reference to Exhibit 3.27 to the Company's Form 10-K filed March 31, 2014.
|
|
3.28
|
Certificate of Designation of Series D Convertible Preferred Stock filed with the Delaware Secretary of State on November 13, 2012, incorporated herein by reference to Exhibit 3.28 to the Company's Form 10-K filed March 31, 2014.
|
|
3.29
|
Certificate of Amendment to Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on December 10, 2013, incorporated herein by reference to Appendix A to the Company's Definitive Proxy Statement filed on Schedule 14A on November 1, 2013.
|
|
3.30
|
Certificate of Amendment to Certificate of Designation of Series D Convertible Preferred Stock filed with the Delaware Secretary of State on December 31, 2013, incorporated herein by reference to Exhibit 3.30 to the Company's Form 10-K filed March 31, 2014.
|
|
3.31
|
Certificate of Amendment to Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on December 16, 2014, incorporate herein by reference to Appendix A to the Company's Definitive Proxy Statement filed on Schedule 14A on October 17, 2014.
|
|
3.32
|
Certificate of Amendment to Certificate of Designation of Series D Convertible Preferred Stock filed with the Delaware Secretary of State on March 24, 2015, incorporated herein by reference to Exhibit 3.32 to the Company's Quarterly Report on Form 10-Q filed May 15, 2015.
|
22
Communication Intelligence Corporation
(In thousands, except per share amounts)
FORM 10-Q
|
Exhibit Number
|
Document
|
|
10.59
|
Amendment to the Amended And Restated Certificate of Designation of the Series B Participating Convertible Preferred Stock, incorporated herein by reference to Exhibit 10.59 to the Company's Current Report on Form 8-K filed March 31, 2011.
|
|
10.60
|
Amendment to the Amended And Restated Certificate of Designation of the Series C Participating Convertible Preferred Stock, incorporated herein by reference to Exhibit 10.60 to the Company's Current Report on Form 8-K filed March 31, 2011.
|
|
10.61
|
Form Of Subscription Agreement, incorporated herein by reference to Exhibit 10.61 to the Company's Current Report on Form 8-K filed on April 4, 2011.
|
|
10.62
|
Amendment No. 1 to the Registration Rights Agreement dated March 31, 2011, incorporated herein by reference to Exhibit 10.62 to the Company's Current Report on Form 8-K filed on April 4, 2011.
|
|
10.63
|
Note and Warrant Purchase Agreement dated April 23, 2012, incorporated herein by reference to Exhibit 10.63 to the Company's Quarterly Report on Form 10-Q filed on August 14, 2012.
|
|
10.64
|
Form of Subscription Agreement dated September 14, 2012, incorporated herein by reference to Exhibit 10.64 to the Company's Quarterly Report on Form 10-Q filed on November 14, 2012.
|
|
10.65
|
Form of Unsecured Convertible Promissory Note dated September 14, 2012, incorporated herein by reference to Exhibit 10.65 to the Company's Quarterly Report on Form 10-Q filed on November 14, 2012.
|
|
10.66
|
Form of Subscription Agreement dated May 17, 2013, incorporated herein by reference to Exhibit 10.66 to the Company's Quarterly Report on Form 10-Q filed on August 14, 2013.
|
|
10.67
|
Form of Subscription Agreement dated December 31, 2013, incorporated herein by reference to Exhibit 10.67 to the Company's Form 10-K filed March 31, 2014.
|
|
10.68
|
Credit Agreement with Venture Champion Asia Limited dated May 6, 2014, incorporated herein by reference to Exhibit 10.68 to the Company's Form 10-Q filed August 15, 2014.
|
|
10.69
|
Form of Subscription Agreement dated August 5, 2014, incorporated herein by reference to Exhibit 10.69 to the Company's Form 10-K filed March 31, 2015.
|
|
10.70
|
Form of Subscription Agreement dated March 24, 2015, incorporated herein by reference to Exhibit 10.70 to the Company's Quarterly Report on Form 10-Q filed May 15, 2015.
|
|
*10.71
|
Form of Subscription Agreement dated July 23, 2015.
|
|
*31.1
|
Certification of Company's Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
*31.2
|
Certificate of Company's Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
*32.1
|
Certification of Chief Executive Officer pursuant to 18 USC Section 1750, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
*32.2
|
Certification of Chief Financial Officer pursuant to 18 USC Section 1750, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
| * | Filed herewith. |
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
COMMUNICATION INTELLIGENCE CORPORATION
|
||
|
Registrant
|
||
|
November 16, 2015
|
/s/ Andrea Goren
|
|
|
Date
|
Andrea Goren
|
|
|
(Principal Financial Officer and Officer Duly Authorized to Sign on Behalf of the Registrant)
|
24