[X]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
Delaware
|
11-2920559
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S
Employer Identification Number)
|
1433
State Highway 34, Building C, Farmingdale, New
Jersey
|
07727
|
(Address
of principal executive offices)
|
(Zip
Code)
|
PART
I. Financial
Information
|
Page
Number
|
Item
1. Financial Statements
|
|
Consolidated
balance sheets as of June 30, 2007 (unaudited) and December 31,
2006
|
3
|
Consolidated
statements of operations for the three and six months ended June
30, 2007
and 2006 (unaudited)
|
4
|
Consolidated
statements of cash flows for the six months ended June 30, 2007
and 2006 (unaudited)
|
5
|
Consolidated
statements of comprehensive loss for the three and six months ended
June
30, 2007 and 2006 (unaudited)
|
6
|
Notes
to consolidated financial
statements (unaudited)
|
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
|
23
|
Item
4. Controls and Procedures
|
23
|
PART
II. Other
Information
|
|
Item
1. Legal Proceedings
|
23
|
Item
1A. Risk Factors
|
24
|
Item
2. Unregistered Sales of Equity Securities
and Use of Proceeds
|
24
|
Item
3. Defaults Upon Senior
Securities
|
24
|
Item
4. Submission of Matters to a
Vote of Security Holders
|
24
|
Item
5. Other Information
|
24
|
Item
6. Exhibits
|
25
|
SIGNATURE
|
26
|
June
30,
2007
|
December
31,
2006
|
|
|||||||
ASSETS | |||||||||
Current assets: | |||||||||
Cash
and cash equivalents
|
$ | 181 | $ | 310 | |||||
Assets
of operations to be abandoned
|
76 | 80 | |||||||
Trade
accounts receivable, net
|
134 | 170 | |||||||
Prepaid
expenses and other current assets
|
65 | 22 | |||||||
Total
current
assets
|
456
|
582
|
|||||||
Property
and equipment,
net
|
19
|
15
|
|||||||
Total
assets
|
$ |
475
|
$ |
597
|
|||||
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|||||||||
Current
liabilities:
|
|||||||||
Short-term
debt
|
$ |
2,913
|
$ |
2,899
|
|||||
Accounts
payable
|
2,329
|
2,360
|
|||||||
Accrued
expenses:
|
|||||||||
Salaries,
wages, and related
items
|
1,036
|
1,012
|
|||||||
Other
|
1,867
|
1,732
|
|||||||
Liabilities
of operations to be
abandoned
|
436
|
435
|
|||||||
Deferred
revenue
|
230
|
38
|
|||||||
Total
current
liabilities
|
8,811
|
8,476
|
|||||||
Non-current
liabilities
|
1
|
33
|
|||||||
Total
liabilities
|
8,812
|
8,509
|
|||||||
Stockholders' (deficit):
|
|||||||||
Preferred
stock
|
--
|
--
|
|||||||
Common
stock
|
39
|
35
|
|||||||
Additional
paid-in
capital
|
226,960
|
226,407
|
|||||||
Accumulated
deficit
|
(235,326 | ) | (234,345 | ) | |||||
Accumulated
other comprehensive
loss
|
(10 | ) | (9 | ) | |||||
Total
stockholders' (deficit)
|
(8,337 | ) | (7,912 | ) | |||||
Total
liabilities and
stockholders' (deficit)
|
$ |
475
|
$ |
597
|
Three
Months Ended June 30,
|
Six
Months Ended June 30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Revenue:
|
||||||||||||||||
Software
|
$ |
--
|
$ |
--
|
$ |
--
|
$ |
107
|
||||||||
Maintenance
|
77
|
38
|
118
|
78
|
||||||||||||
Services
|
239
|
282
|
430
|
416
|
||||||||||||
Total
operating
revenue
|
316
|
320
|
548
|
601
|
||||||||||||
Cost
of revenue
|
||||||||||||||||
Software
|
--
|
1
|
--
|
5
|
||||||||||||
Maintenance
|
54
|
39
|
107
|
113
|
||||||||||||
Services
|
102
|
166
|
216
|
294
|
||||||||||||
Total
cost of
revenue
|
156
|
206
|
323
|
412
|
||||||||||||
Gross
margin
|
160
|
114
|
225
|
189
|
||||||||||||
Operating
expenses:
|
||||||||||||||||
Sales
and
marketing
|
194
|
101
|
331
|
197
|
||||||||||||
Research
and product
development
|
120
|
96
|
258
|
243
|
||||||||||||
General
and
administrative
|
265
|
226
|
523
|
449
|
||||||||||||
(Gain)
on disposal of
asset
|
--
|
--
|
--
|
(1 | ) | |||||||||||
Total
operating
expenses
|
579
|
423
|
1,112
|
888
|
||||||||||||
Loss
from operations
|
(419 | ) | (309 | ) | (887 | ) | (699 | ) | ||||||||
Other
income (expense):
|
||||||||||||||||
Interest
expense
|
(60 | ) | (198 | ) | (122 | ) | (380 | ) | ||||||||
Other
income/(expense)
|
27
|
(8 | ) |
28
|
(12 | ) | ||||||||||
Loss
before provision for income taxes
|
(452 | ) | (515 | ) | (981 | ) | (1,091 | ) | ||||||||
Income
tax provision
|
--
|
--
|
--
|
--
|
||||||||||||
Net
loss
|
$ | (452 | ) | $ | (515 | ) | $ | (981 | ) | $ | (1,091 | ) | ||||
Net
loss per share applicable to common shareholders—basic and
diluted
|
$ | (0.01 | ) | $ | (1.07 | ) | $ | (0.03 | ) | $ | (2.27 | ) | ||||
Weighted
average common shares outstanding -- basic and
diluted
|
38,978
|
480
|
32,633
|
480
|
Six
Months Ended June 30,
|
||||||||
2007
|
2006
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (981 | ) | $ | (1,091 | ) | ||
Adjustments
to reconcile net loss
to net cash used in operating activities:
|
||||||||
Depreciation
and
amortization
|
2
|
6
|
||||||
Changes
in assets and
liabilities, net of assets acquired andliabilities
assumed:
|
||||||||
Trade
accounts receivable and
related party receivables
|
36
|
(208 | ) | |||||
Assets
and liabilities –
discontinued operations
|
5
|
10
|
||||||
Prepaid
expenses and other
assets
|
(43 | ) |
6
|
|||||
Accounts
payable and accrued
expenses
|
10
|
415
|
||||||
Deferred
revenue
|
192
|
(11 | ) | |||||
Net
cash used in operating
activities
|
(779 | ) | (873 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Purchases
of
equipment
|
(6 | ) | (7 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from the issuance of
common stock
|
500
|
--
|
||||||
Borrowings
under credit facility,
term loans, notes payable
|
180
|
950
|
||||||
Repayments
of term loans, credit
facility and notes payable
|
(23 | ) | (55 | ) | ||||
Net
cash provided by financing
activities
|
657
|
895
|
||||||
Effect
of exchange rate changes on cash
|
(1 | ) | (1 | ) | ||||
Net
increase (decrease) in cash and cash equivalents
|
(129 | ) |
14
|
|||||
Cash
and cash equivalents:
|
||||||||
Beginning
of
period
|
310
|
29
|
||||||
End
of period
|
$ |
181
|
$ |
43
|
Three
Months Ended
June
30,
|
Six
Months Ended
June
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Net
loss
|
$ | (452 | ) | $ | (515 | ) | $ | (981 | ) | $ | (1,091 | ) | ||||
Other
comprehensive income, net of tax:
|
||||||||||||||||
Foreign
currency translation adjustment
|
--
|
(2 | ) | (1 | ) | (4 | ) | |||||||||
Comprehensive
loss
|
$ | (452 | ) | $ | (517 | ) | $ | (982 | ) | $ | (1,095 | ) |
Shares
|
||||
Outstanding
on January 1, 2007
|
45,315
|
|||
Granted
|
--
|
|||
Exercised
|
--
|
|||
Forfeited
|
--
|
|||
Outstanding
on June 30, 2007
|
45,315
|
|||
Weighted
average exercise price of outstanding options
|
$ |
120.16
|
||
Shares
available for future grants on June 30, 2007
|
4,537,830
|
(dollars
in thousands)
|
June
30,
2007
|
December
31,
2006
|
||||||
Term
loan (a)
|
$ |
1,971
|
$ |
1,971
|
||||
Note
payable; related party (b)
|
159
|
9
|
||||||
Notes
payable (c)
|
783
|
919
|
||||||
$ |
2,913
|
$ |
2,899
|
(a)
|
The
Company has a $1,971,000 term loan bearing interest at LIBOR plus
1.5%
(approximately 6.35% on June 30, 2007). Interest is payable
quarterly. There are no financial covenants and the term loan
is guaranteed by Liraz Systems Ltd., the Company’s former principal
shareholder. The loan matures on October 31,
2007.
|
(b)
|
From
time to time the Company entered into promissory notes with the Company's
Chief Information Officer, Anthony Pizi. The notes bear
interest at 12% annum. As of June 30, 2007, the Company is
indebted to Mr. Pizi in the amount of $9,000. In June 2007, the
Company entered into a short-term promissory note with interest at
6% per
annum with Mr. John L. (Launny) Steffens, the Company’s Chairman of the
Board, in the amount of $150,000.
|
(c)
|
The
Company does not have a revolving credit facility and from time to
time
has issued a series of short-term promissory notes to private lenders,
which provide for short-term borrowings both unsecured and secured
by
accounts receivable. In addition, the Company has settled
certain litigation and agreed to issue a series of promissory notes
to
support its obligations in the aggregate principal amount of $192,000.
The
notes bear interest between 10% and 12% per
annum.
|
June
30,
|
||||||||
2007
|
2006
|
|||||||
Stock
options, common share equivalent
|
45,315
|
50,753
|
||||||
Warrants,
common share equivalent
|
302,172
|
193,761
|
||||||
Preferred
stock, common share equivalent
|
1,688,287
|
85,046
|
||||||
2,035,774
|
329,560
|
Three
Months Ended June 30, 2007
|
Three
Months Ended June 30, 2006
|
|||||||||||||||||||||||
Desktop
Integration
|
Messaging
and Application Engineering
|
Total
|
Desktop
Integration
|
Messaging
and Application Engineering
|
Total
|
|||||||||||||||||||
Total
revenue
|
$ |
315
|
$ |
1
|
$ |
316
|
$ |
318
|
$ |
2
|
$ |
320
|
||||||||||||
Total
cost of revenue
|
156
|
--
|
156
|
206
|
--
|
206
|
||||||||||||||||||
Gross
margin
|
159
|
1
|
160
|
112
|
2
|
114
|
||||||||||||||||||
Total
operating expenses
|
552
|
27
|
579
|
400
|
23
|
423
|
||||||||||||||||||
Segment
profitability (loss)
|
$ | (393 | ) | $ | (26 | ) | $ | (419 | ) | $ | (288 | ) | $ | (21 | ) | $ | (309 | ) |
Six
Months Ended June 30, 2007
|
Six
Months Ended June 30, 2006
|
|||||||||||||||||||||||
Desktop
Integration
|
Messaging
and Application Engineering
|
Total
|
Desktop
Integration
|
Messaging
and Application Engineering
|
Total
|
|||||||||||||||||||
Total
revenue
|
$ |
546
|
$ |
2
|
$ |
548
|
$ |
596
|
$ |
5
|
$ |
601
|
||||||||||||
Total
cost of revenue
|
323
|
--
|
323
|
412
|
--
|
412
|
||||||||||||||||||
Gross
margin (loss)
|
223
|
2
|
225
|
184
|
5
|
189
|
||||||||||||||||||
Total
operating expenses
|
1,060
|
52
|
1,112
|
844
|
45
|
889
|
||||||||||||||||||
Segment
profitability (loss)
|
$ | (837 | ) | $ | (50 | ) | $ | (887 | ) | $ | (660 | ) | $ | (40 | ) | $ | (700 | ) |
Three
Months Ended June 30,
|
Six
Months Ended
June
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Total
segment operating expenses
|
$ |
579
|
$ |
423
|
$ |
1,112
|
$ |
889
|
||||||||
(Gain)
on disposal of asset
|
--
|
--
|
--
|
(1 | ) | |||||||||||
Total
operating expenses
|
$ |
579
|
$ |
423
|
$ |
1,112
|
$ |
888
|
Three
Months Ended
June
30,
|
Six
Months Ended
June
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Total
segment profitability (loss)
|
$ | (419 | ) | $ | (309 | ) | $ | (887 | ) | $ | (700 | ) | ||||
Gain
on disposal of asset
|
--
|
--
|
--
|
1
|
||||||||||||
Interest
and other income/(expense), net
|
(33 | ) | (206 | ) | (94 | ) | (392 | ) | ||||||||
Total
loss before income taxes
|
$ | (452 | ) | $ | (515 | ) | $ | (981 | ) | $ | (1,091 | ) |
June
30,
|
||||||||
2007
|
2006
|
|||||||
Desktop
Integration
|
$ |
19
|
$ |
11
|
||||
Messaging
and Application Engineering
|
--
|
--
|
||||||
Total
assets
|
$ |
19
|
$ |
11
|
|
·
|
We
had no software sales and only limited revenues which have been
insufficient to cover operating expenses, therefore, there is substantial
doubt as to whether we can continue as a going
concern;
|
|
·
|
We
have a history of losses and expect that we will continue to experience
losses at least through 2007;
|
|
·
|
We
require additional capital to fund our operations and funding may
not be
available or if available on terms that are
acceptable;
|
|
·
|
We
may sell additional securities from time to time that may result
in
subsequent dilution of our equity or impose covenants that we may
find
burdensome or difficult to meet;
|
|
·
|
We
depend on an unproven strategy for ongoing
revenue;
|
|
·
|
Economic
conditions could adversely affect our revenue growth and cause us
not to
achieve desired revenue;
|
|
·
|
The
“penny stock rule” makes it cumbersome for brokers and dealers to trade in
our common stock, making the market for our common stock less liquid
which
could cause the price of our stock to
decline;
|
|
·
|
Because
we cannot accurately predict the amount and timing of individual
sales,
our quarterly operating results may vary significantly, which could
adversely impact our stock price;
|
|
·
|
Loss
of key personnel associated with Cicero® development could adversely
affect our business;
|
|
·
|
Different
competitive approaches or internally developed solutions to the same
business problem could delay or prevent adoption of
Cicero®;
|
|
·
|
Our
ability to compete may be subject to factors outside our
control;
|
|
·
|
The
markets for our products are characterized by rapidly changing
technologies, evolving
|
|
industry
standards, and frequent new product
introductions;
|
|
·
|
We
may face damage to the reputation of our software and a loss of revenue
if
our software products fail to perform as intended or contain significant
defects;
|
|
·
|
We
may be unable to enforce or defend our ownership and use of proprietary
and licensed technology;
|
|
·
|
Our
business may be adversely impacted if we do not provide professional
services to implement our
solutions;
|
|
·
|
Because
our software could interfere with the operations of customers, we
may be
subject to potential product liability and warranty claims by these
customers;
|
|
·
|
We
have not paid any cash dividends on our common stock and it is likely
that
no cash dividends will be paid in the future;
and
|
|
·
|
Provisions
of our charter and bylaws and Delaware law could deter takeover
attempts.
|
Three
Months Ended June 30, 2007
|
Three
Months Ended June 30, 2006
|
|||||||||||||||||||||||
Desktop
Integration
|
Messaging
and Application Engineering
|
Total
|
Desktop
Integration
|
Messaging
and Application Engineering
|
Total
|
|||||||||||||||||||
Total
revenue
|
$ |
315
|
$ |
1
|
$ |
316
|
$ |
318
|
$ |
2
|
$ |
320
|
||||||||||||
Total
cost of revenue
|
156
|
--
|
156
|
206
|
--
|
206
|
||||||||||||||||||
Gross
margin
|
159
|
1
|
160
|
112
|
2
|
114
|
||||||||||||||||||
Total
operating expenses
|
552
|
27
|
579
|
400
|
23
|
423
|
||||||||||||||||||
Segment
profitability (loss)
|
$ | (393 | ) | $ | (26 | ) | $ | (419 | ) | $ | (288 | ) | $ | (21 | ) | $ | (309 | ) |
Six
Months Ended June 30, 2007
|
Six
Months Ended June 30, 2006
|
|||||||||||||||||||||||
Desktop
Integration
|
Messaging
and Application Engineering
|
Total
|
Desktop
Integration
|
Messaging
and Application Engineering
|
Total
|
|||||||||||||||||||
Total
revenue
|
$ |
546
|
$ |
2
|
$ |
548
|
$ |
596
|
$ |
5
|
$ |
601
|
||||||||||||
Total
cost of revenue
|
323
|
--
|
323
|
412
|
--
|
412
|
||||||||||||||||||
Gross
margin (loss)
|
223
|
2
|
225
|
184
|
5
|
189
|
||||||||||||||||||
Total
operating expenses
|
1,060
|
52
|
1,112
|
844
|
45
|
889
|
||||||||||||||||||
Segment
profitability (loss)
|
$ | (837 | ) | $ | (50 | ) | $ | (887 | ) | $ | (660 | ) | $ | (40 | ) | $ | (700 | ) |
Exhibit
No.
|
Description
|
10.1
|
Promissory
Note dated June 28, 2007 by Cicero Inc. with Mr. John L. Steffens
(filed
herewith).
|
31.1
|
Certification
of Chief Executive Officer/Chief Financial Officer pursuant to Rule
13a-14(a) (filed herewith).
|
32.1
|
Certification
of John P. Broderick pursuant to 18 USC § 1350, as adopted pursuant to
§906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
|