SHORT TERM DEBT

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

SHORT TERM DEBT

NOTE 4. SHORT TERM DEBT

Short-term debt, and notes payable to related party consist of the following (in thousands):

	March 31, 2012	December 31, 2011
Term loan (a)	$     553	$        753
Note payable – asset purchase agreement (b)	1,121	1,121
Note payable – related party (c)	1,008	2,959
Other short-term debt (d)	802	1,304
	$  3,484	$  6,137

a) In October 2007, the Company agreed to restructure the note payable to Bank Hapoalim and guaranty by BluePhoenix Solutions. Under a new agreement with BluePhoenix, the Company made a principal reduction payment to Bank Hapoalim in the amount of $300,000. Simultaneously, BluePhoenix paid $1,671,000 to Bank Hapoalim, thereby discharging that indebtedness. The Company and BluePhoenix entered into a new note in the amount of $1,021,000, bearing interest at LIBOR plus 1.0% and maturing on December 31, 2011. In addition, BluePhoenix acquired 2,546,149 shares of the Company’s common stock in exchange for $650,000 paid to Bank Hapoalim to retire that indebtedness. Of the new note payable to BluePhoenix, approximately $350,000 was due on January 31, 2009 and the balance was due on December 31, 2011. During 2008, the Company paid $200,000 against the principal and BluePhoenix converted $50,000 of principal into 195,848 shares of Cicero common stock. In January 2009, the Company paid $100,000 against the principal. In January 2012, the Company entered into an addendum to the original note to extend the maturity of all outstanding principal and interest of $752,594 to December 31, 2012. At the time of the extension, the Company paid $150,000 towards principal and interest on this note. The unpaid principal and accumulated interest shall bear interest at a rate of LIBOR (3 months $ LIBOR, 0.518%) plus 6.7% per annum calculated quarterly. In March 2012, the Company made a $50,000 principal reduction payment. In April 2012, the Company paid off the note at a discount in the amount of $380,000 and recognized approximately $172,000 as a gain.

(b) In January 2010, per the Asset Purchase Agreement, the Company entered into an unsecured convertible promissory note with SOAdesk for $700,000 with an annual interest rate of 5%. The note was originally scheduled to mature on March 31, 2010 but was subsequently amended to extend the maturity date to September 30, 2010 and was secured with shares of the Company’s Series B Preferred Stock. As of September 30, 2010, the maturity date was extended to March 31, 2011. In March 2011, the Company and SOAdesk LLC agreed to extend the maturity on the note to March 31, 2012. In March 2012, the Company and SOAdesk LLC agreed to extend the maturity on the note to December 31, 2012. At March 31, 2012 and December 31, 2011, the Company was indebted to SOAdesk in the amount of $700,000.

The note is convertible into shares of Series B Convertible Preferred Stock at the rate of one share per every $150 of principal and interest due under the note. The Company is obligated to repay any principal of the loan with fifty percent of any gross proceeds of any Series B Preferred capital raise through maturity of the note. The note is convertible at the holder’s option at any time or at maturity.

Also, as part of the Asset Purchase Agreement, the Company was to pay to the shareholders of SOAdesk LLC the sum of $525,000 on March 31, 2010. In March 2010, the terms of the Asset Purchase Agreement were amended and the Company issued a $525,000 convertible promissory note to SOAdesk in lieu of the $525,000 payment originally due on March 31, 2010. This note, which carries an annual interest rate of 5%, is secured by shares of the Company’s Series B Preferred Stock. The note was to mature on June 30, 2010 but was subsequently amended to extend the maturity date to September 30, 2010. As of September 30, 2010, the maturity date was further extended to March 31, 2011. In March 2011, the Company and SOAdesk LLC agreed to extend the maturity on the note until March 31, 2012. In March 2012, the Company and SOAdesk LLC agreed to extend the maturity on the note until December 31, 2012. In April 2010 and May 2011, the Company paid $100,000 and $4,000, respectively, against the principal. At March 31, 2012 and December 31, 2011, the Company was indebted to SOAdesk in the amount of $421,000. In April 2012, the note was paid in full.

(c) From 2010 through first quarter 2012, the Company entered into several short term notes payable with John L. (Launny) Steffens, the Chairman of the Board of Directors, for various working capital needs. The notes bear interest at 12% per year and are unsecured. At December 31, 2011, the Company was indebted to Mr. Steffens in the amount of $3,065,000 of which $1,665,000 was reclassified from long term debt. (See Note 5) In March 2012, Mr. Steffens converted $3,000,000 of his debt, which included $350,000 which was lent to the Company in the first quarter of 2012, into 20,000,000 shares of common stock of the Company at a price of $0.15 per share. In March 2012, Mr. Steffens agreed to refinance $465,000 of debt, of which only $115,000 was outstanding as of December 31, 2011, and $417,000 of accrued interest at an interest rate of 12% and a maturity date of March 31, 2013. As such this amount has been reclassified to long term debt as of December 31, 2011. The amount has been reclassified as short term debt as of March 31, 2012.

From time to time the Company entered into promissory notes with one of the Company’s former directors and the former Chief Information Officer, Anthony Pizi. The notes bear interest at 12% per annum. As of December 31, 2011, the Company was indebted to Anthony Pizi in the amount of $8,502. In March 2012, Mr. Pizi converted his indebtedness of $8,502 in debt and $17,222 of interest into 171,487 shares of common stock of the Company.

(d) In March 2009, the Company entered into several secured Promissory Notes with certain investors in the aggregate amount of $750,000. The notes bear interest at 15% and mature on January 31, 2012. The notes were secured by the amount due under the Company’s support contract with Merrill Lynch. In addition, each investor was issued a warrant to purchase common stock of the Company. Under the terms of the warrant, which expires in five years, each note holder is entitled to purchase 1,000 shares of Cicero common stock for every $1,000 of principal due under the note. The exercise price on the warrant is $0.20 per share. The shares of common stock underlying the warrants have registration rights and a cashless exercise provision in the event no registration statement is effective for resale, if required. The Company has allocated the proceeds received from the Note and Warrant Offering based on relative fair value and is amortizing such amount under the terms of the notes as additional interest expense in the amount of $50,349. In February 2010, the Company reduced the principal indebtedness by $100,000. At December 31, 2011, the Company was indebted to these investors in the amount of $650,000. In March 2012, these notes were paid in full.

The Company does not have a revolving credit facility and from time to time has issued a series of short term promissory notes with private lenders and employees, which provide for short term borrowings, both secured by accounts receivable and unsecured. The notes in the amount of $802,000 bear interest between 10% and 36% per annum and are payable on demand.

A note for $300,000 in principal, which is included in the $802,000 above, was due and outstanding under the Note agreement. The Company has contacted the lender to discuss a payment plan regarding the accrued interest payable under the Note or possible termination of the Note. The Company paid $200,000 against the principal of this note in May 2012.