Cicero, Inc. (the "Company") provides desktop activity intelligence, process
intelligence and automation software to help organizations isolate issues and
automate employee tasks in the contact center and back office. The Company
provides an innovative and unique combination of application and process
integration, automation, and desktop analytics capabilities, all without
changing the underlying applications or requiring costly application
development. The Company's software collects desktop activity and application
performance data and tracks business objects across time and multiple users, as
well as measures against defined expected business process flows, for either
analysis or to feed a third-party application. In addition to software
solutions, the Company also provides technical support, training and consulting
services as part of its commitment to providing customers with industry-leading
solutions. The Company's consulting team has in-depth experience in developing
successful enterprise-class solutions as well as valuable insight into the
business information needs of customers in the largest Fortune 500 corporations
worldwide.
The Company focuses on the activity intelligence, process intelligence and
customer experience management market with emphasis on desktop analytics and
automation with its Intelligent Analytics Platform (IAP). Activity intelligence
captures what employees are doing, what resources they are using and how long an
activity may take. Process intelligence captures the workflows that are being
utilized and identifies any bottlenecks that exist within those workflows.
Cicero collects desktop activity leveraging a suite of sensors. Cicero IAP is a
lightweight and configurable tool to collect activity and application
performance data and track business objects across time and across multiple
users as well as measure against a defined "expected" business process flow,
either for analysis or to feed a third-party application.
Cicero's IAP is a measurement and analytics solution that collects and presents
high value information about quality, productivity, compliance, and revenue from
frontline activity to target areas for improvement. Powered by Cicero's Deep
Sensor Technology including our System Sensors, our Session Sensors, our
Activity Sensors and our Process Sensors, Cicero Insight collects activity data
about the applications and workflows being used and makes it readily available
for analysis and action to the business community.
Cicero Automation delivers all the features of the Cicero IAP product as well as
desktop automation for enterprise contact center and back office employees.
Leveraging existing IT investments Cicero Automation integrates applications,
automates workflow, and provides control and adaptability at the end user
desktop.
Cicero Automation also provide Single Sign-On (SSO) and stay signed on
capability. The software maintains a secure credential store that facilitates
single sign-on. Passwords can be reset but are non-retrievable. Stored
interactions can be selectively encrypted based on the needs of the enterprise.
All network communications are compressed and encrypted for transmission.
The Company provides an intuitive configuration toolkit for each product, which
simplifies the process of deploying and managing the solutions in the
enterprise. The Company provides a unique way of capturing untapped desktop
activity data using sensors, combining it with other data sources, and making it
readily available for analysis and action to the business community. The Company
also provides a unique approach that allows companies to organize functionality
of their existing applications to better align them with tasks and operational
processes. In addition, the Company's software solutions can streamline end-user
tasks and enable automatic information sharing among line-of-business siloed
applications and tools. It is ideal for deployment in organizations that need to
provide access to enterprise applications on desktops to iteratively improve
business performance, the user experience, and customer satisfaction. By
leveraging desktop activity data, integrating disparate applications, automating
business processes and delivering a better user experience, the Company's
products are ideal for the financial services, insurance, healthcare,
governmental and other industries requiring a cost-effective, proven business
performance and user experience management solution for enterprise desktops.
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In addition to software products, the Company also provides technical support,
training and consulting services as part of its commitment to providing its
customers industry-leading integration solutions. The Company's consulting team
has in-depth experience in developing successful enterprise-class solutions as
well as valuable insight into the business information needs of customers in the
Global 5000. We offer services around our integration software products.
This Quarterly Report on Form 10-Q contains forward-looking statements relating
to such matters as anticipated financial performance, business prospects,
technological developments, new products, research and development activities,
liquidity and capital resources and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the Company
notes that a variety of factors could cause its actual results to differ
materially from the anticipated results or other expectations expressed in the
Company's forward-looking statements. These risk and uncertainties include,
among others, the following:
?
An inability to obtain sufficient capital either through internally generated
cash or through the use of equity or debt offerings could impair the growth of
our business;
?
Economic conditions could adversely affect our revenue growth and cause us not
to achieve desired revenue;
?
The so-called "penny stock rule" could make 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;
?
A loss of key personnel associated with Cicero Discovery and Cicero Discovery
Automation 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 Discovery and Cicero
Discovery Automation;
?
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; and
?
Our business may be adversely impacted if we do not provide professional
services to implement our solutions.
Reference should be made to such factors and all forward-looking statements are
qualified in their entirety by the above cautionary statements. Although we
believe that these forward-looking statements are based upon reasonable
assumptions, we can give no assurance that our goals will be achieved. Given
these uncertainties, readers of this Quarterly Report on Form 10-Q are cautioned
not to place undue reliance on these forward-looking statements. These
forward-looking statements are made as of the date of this quarterly report. We
assume no obligation to update or revise them or provide reasons why actual
results may differ.
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RESULTS OF OPERATIONS
The table below presents information for the three months ended March 31, 2020
and 2019 (in thousands):
Three months ended March 31,
2020 2019
Total revenue $118 $282
Total cost of revenue 126 167
Gross margin/(loss) (8) 115
Total operating expenses 498 564
Income/(loss) from operations $(506) $(449)
Revenue. The Company has three categories of revenue: software products,
maintenance, and services. Software products revenue is comprised primarily of
fees from licensing the Company's proprietary software products. Maintenance
revenue is comprised of fees for maintaining, supporting, and providing periodic
upgrades to the Company's software products. Services revenue is comprised of
fees for consulting and training services related to the Company's software
products.
The Company's revenues vary from quarter to quarter, due to market conditions,
the budgeting and purchasing cycles of customers and the effectiveness of the
Company's sales force. The Company typically does not have any material backlog
of unfilled software orders and product revenue in any quarter is substantially
dependent upon orders received in that quarter. Because the Company's operating
expenses are relatively fixed over the short term, variations in the timing of
the recognition of revenue can cause significant variations in operating results
from quarter to quarter.
On January 1, 2018, we adopted the new accounting standard Accounting Standards
Codification ("ASC") 606, Revenue from Contracts with Customers and all the
related amendments ("the new revenue standard") and applied it to all contracts
using the modified retrospective method. 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. We completed our review of
contracts with our customers and did not need to record a cumulative effect
adjustment to accumulated deficit upon adoption of the new revenue standard as
of January 1, 2018. Based on the evaluation the Company performed on its
customer contracts, the adoption has not and will not have a material impact on
the Company's financial position, results of operations, cash flow, accounting
policies, business processes, internal controls or disclosures.
THREE MONTHS ENDED MARCH 31, 2020 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
2019.
Total Revenues. Total revenues decreased $164,000, or 58.2%, from $282,000 to
$118,000, for the three months ended March 31, 2020 as compared with the three
months ended March 31, 2019. The decrease is primarily due to a decrease in
software product and services revenue.
Total Cost of Revenue. Total cost of revenue decreased $41,000 or 24.6%, from
$167,000 for the three months ended March 31, 2019 to $126,000 for the three
months ended March 31, 2020. The decrease in cost of revenue is primarily due to
a decrease in personnel costs and outside consulting expenses.
Total Gross Margin/Loss. Gross margin loss was $8,000, or 6.8%, for the three
months ended March 31, 2020, as compared to the gross margin of $115,000, or
40.8%, for the three months ended March 31, 2019. The decrease in gross margin
is primarily due to the decrease in sales.
Total Operating Expenses. Total operating expenses decreased $66,000, or 11.7%,
from $564,000 to $498,000 for the three months ended March 31, 2020, as compared
with the three months ended March 31, 2019. The decrease is primarily
attributable to a decrease in headcount partially offset by higher marketing
expense.
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Software Products:
Software Product Revenue. The Company did not have any software product revenue
for the three months ended March 31, 2020 as compared to $112,000 in software
revenue for the three months ended March 31, 2019, a decrease of $112,000. The
decrease is primarily due to timing of expected software sales.
Software Product Gross Margin. The Company had no gross margin on software
products for the three months ended March 31, 2020. The Company had 100% gross
margin on software products for the three months ended March 31, 2019.
Maintenance:
Maintenance Revenue. Maintenance revenue for the three months ended March 31,
2020 decreased by approximately $6,000, or 5.0%, from $120,000 to $114,000 as
compared to the three months ended March 31, 2019. The decrease in maintenance
revenue is primarily due to the decrease of new sales to customers in fiscal
2020.
Maintenance Gross Margin. Gross margin on maintenance products for the three
months ended March 31, 2020 was $85,000 or 74.6% compared with $78,000 or 65.0%
for the three months ended March 31, 2019. Cost of maintenance is comprised of
personnel costs and related overhead for the maintenance and support of the
Company's software products. The decrease in gross margin is due to the decrease
in maintenance revenue partially offset by a decrease in cost of maintenance
expenses.
Services:
Services Revenue. Services revenue for the three months ended March 31, 2020
decreased by approximately $46,000, or 92.0%, from $50,000 to $4,000 as compared
with the three months ended March 31, 2019. The decrease is primarily due to a
decrease in paid services engagements.
Services Gross Margin Loss. Services gross margin loss was $93,000 or 2,325.0%
for the three months ended March 31, 2020 compared with gross margin loss of
$70,000 or 140.0% for the three months ended March 31, 2019. The decrease in
gross margin loss was primarily attributable to a decrease in service revenue
partially offset by a decrease in consulting expenses.
Operating Expenses:
Sales and Marketing. Sales and marketing expenses primarily include personnel
costs for salespeople, marketing personnel, travel and related overhead, as well
as trade show participation and promotional expenses. Sales and marketing
expenses for the three months ended March 31, 2020 decreased by approximately
$48,000, or 49.5%, from $97,000 to $49,000 as compared with the three months
ended March 31, 2019. The decrease is primarily attributable to a decrease in
headcount and lower outside consulting expenses.
Research and Development. Research and product development expenses primarily
include personnel costs for product developers and product documentation and
related overhead. Research and development expense decreased by approximately
$12,000, or 4.5%, from $268,000 to $256,000 for the three months ended March 31,
2020 as compared to the three months ended March 31, 2019. The decrease in
research and development costs for the quarter is primarily due to a decrease in
headcount partially offset by higher outside consulting expenses.
General and Administrative. General and administrative expenses consist of
personnel costs for the legal, financial, human resources, and administrative
staff, related overhead, and all non-allocable corporate costs of operating the
Company. General and administrative expenses for the three months ended March
31, 2020 decreased by approximately $6,000, or 3.0%, from $199,000 to $193,000
as compared to the three months ended March 31, 2019. The decrease is primarily
due to a decrease in personnel costs and lower corporate insurance expenses.
Provision for Taxes. The Company's effective income tax rate differs from the
statutory rate primarily because an income tax expense/benefit was not recorded
as a result of the losses in the first quarter of 2020 and 2019, respectively.
As a result of the Company's recurring losses, the deferred tax assets have been
fully offset by a valuation allowance.
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Net Loss. The Company recorded net loss of $574,000 for the three months ended
March 31, 2020 as compared to a net loss of $563,000 for the three months ended
March 31, 2019. The increase in net loss is primarily due to the decrease in
total revenue partially offset by a decrease in operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
Cash
Cash and cash equivalents increased $37,000 to $54,000 at March 31, 2020 from
$17,000 at December 31, 2019. The increase is primarily attributable to the
revenue generated in the first nine months of 2020 and short term borrowings
partially offset by the expenses in the first three months of 2020.
Net cash used by Operating Activities. Cash used by operations for the three
months ended March 31, 2020 was $528,000 compared to $514,000 for the three
months ended March 31, 2019. Cash used by operations for the three months ended
March 31, 2020 was primarily due to the net loss from operations of $574,000, an
increase in accounts receivable of $262,000 and an increase of prepaid expenses
of $27,000 partially offset by depreciation expense of $1,000, an increase of
accounts payable and accrued expenses of $127,000 and an increase in deferred
revenue of $207,000.
Net cash used in Investing Activities. The Company had no purchases of equipment
for the three months ended March 31, 2020 and had $2,000 in purchases of
equipment in the three months ended March 31, 2019.
Net cash generated by Financing Activities. Net cash generated by financing
activities for the three months ended March 31, 2020 was approximately $565,000,
compared to $460,000 for the three months ended March 31, 2019. Cash generated
by financing activities for the three months ended March 31, 2020 was comprised
primarily from short term borrowings of $565,000.
Liquidity
The Company funded its cash needs during the three months ended March 31, 2020
with cash on hand from December 31, 2019, the revenue generated in the first
three months of 2020, and short term borrowings.
From time to time during 2017 through 2020, the Company entered into several
short term notes payable with John Steffens, the Company's Chairman of the
Board, for various working capital needs. The notes bear an interest rate of 10%
with a maturity date of December 31, 2018. In December 2018, all outstanding
notes were amended to a new maturity date of June 30, 2020. The Company is
obligated to repay the notes with the collection of any accounts receivable. In
March 2019, the Company issued 4,250 shares of its Series A preferred stock and
warrants to purchase up to 17,007,787 shares of the Company's common stock at an
excise price of $0.05 per share to convert the total obligation of $3,891,500 of
principal and $358,697 of interest. At December 31, 2019, the Company was
indebted to Mr. Steffens in the approximate amount of $1,575,000 of principal
and $97,000 of interest. At March 31, 2020, the Company was indebted to Mr.
Steffens in the approximate amount of $2,140,000 of principal and $143,000 of
interest.
Although the Company has incurred a net loss of approximately $574,000 for the
three months ended March 31, 2020, and has a history of operating losses,
management believes that the functionality of the Company's products resonates
in the marketplace as both "analytics" and "automation" are topics often
discussed and written about. Further, the Company believes that its repositioned
strategy of leading with a no cost, short, "proof of concept" evaluation of the
software's capabilities will shorten the sales cycle and allow for value based
selling to our customers and prospects. The Company has borrowed approximately
$565,000 and $1,955,000 in 2020 and 2019, respectively. 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 on terms acceptable to the Company or
at all. As a result of these factors, the report of our independent auditors
dated March 27, 2020, on our consolidated financial statements for the period
ended December 31, 2019 included an emphasis of matter paragraph indicating that
there is a substantial doubt about the Company's 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 as a going concern.
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The coronavirus (COVID-19) that was reported to have surfaced in Wuhan, China in
December 2019 and that has now spread to other countries throughout the world
could adversely impact our operations or those of our third-party partners.
Additionally, the continued spread of the virus could negatively impact the
development, distribution and sale of our products and our financial results.
The extent to which the coronavirus impacts our operations or those of our
third-party partners will depend on future developments, which are highly
uncertain and cannot be predicted with confidence, including the duration of the
outbreak, new information that may emerge concerning the severity of the
coronavirus and the actions to contain the coronavirus or treat its impact,
among others. Such developments could have a material adverse effect on our
financial results and our ability to conduct business as expected.
On May 4, 2020 we entered into an unsecured promissory note under the Paycheck
Protection Program (the "PPP"), with a principal amount of $283,917. The PPP was
established under the recently congressional approved Coronavirus Aid, Relief,
and Economic Security Act (the "CARES Act") and is administered by the U.S.
Small Business Administration (the "SBA"). The term of the PPP loan is two
years. The interest rate on this loan is 1.0% per annum, which shall be deferred
for the first six months of the term of the loan. After the initial six-month
deferral period, the loan requires monthly payments of principal and interest
until maturity with respect to any portion of the PPP loan which is not forgiven
as described below. The Company is permitted to prepay or partially prepay the
PPP loan at any time with no prepayment penalties. Under the terms of the CARES
Act, PPP loan recipients can apply for, and be granted, forgiveness for all or a
portion of loans granted under the PPP. Such forgiveness will be determined,
subject to limitations and ongoing rulemaking by the SBA, based on the use of
loan proceeds for payroll costs and mortgage interest, rent or utility costs and
the maintenance of employee and compensation levels. While there is no assurance
the Company will obtain forgiveness of the PPP loan in whole or in part, it
expects most of this loan to be forgiven by the SBA as the Company anticipates
all loan covenants to be met.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements. We have no
unconsolidated subsidiaries or other unconsolidated limited purpose entities,
and we have not guaranteed or otherwise supported the obligations of any other
entity.
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