The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This report contains certain forward-looking statements that are based on the beliefs of management as well as assumptions made by and information currently available to management. The statements contained in this report relating to matters that are not historical facts are forward-looking statements that involve risks and uncertainties, including, but not limited to, future demand for our products and services, the successful commercialization of our products, general domestic and global economic conditions, government and environmental regulations, competition and customer strategies, changes in our business strategy or development plans, capital deployment, business disruptions, including those caused by fires, raw material supplies, technical failures, environmental regulations, and other risks and uncertainties, certain of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ materially from those forward-looking statements set forth herein. When used in this report, the words "anticipate", "believe", "estimate" or "expect" or words of similar import are intended to identify forward-looking statements. For further discussion of certain of the matters described above and other risks and uncertainties, see "Risk Factors" in Item 1A of this annual report.
Undue reliance should not be placed on our forward-looking statements. Except as required by law, we disclaim any obligation to update any factors or to publicly announce the results of any revisions to any of the forward-looking statements contained in this annual report on Form 10-K to reflect new information, future events or other developments.
The following discussion and analysis should be read in conjunction with the accompanying Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-K.
Impact of COVID-19 Outbreak
Subsequent to year-end 2019, the
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Table of Contents Overall Business Strategy
The Company develops and markets advanced technologies in the areas of safety, wellness and power. The Company is focused on the commercialization of a wellness and safety system (the myCadian system) and a uniquely designed hydraulic pump that will be smaller, lighter, less expensive and more efficient than current technology. The Company has not had significant revenue-producing operations.
It is important to note, regarding both the CURA and Aegis products, that the cycle time from the initiation of the sales process to revenue realization can be highly variable especially as a start-up entity. In addition to the activities to be undertaken to implement our plan of operations, we may expand and/or refocus our activities depending upon future circumstances and developments.
CURA Division: the myCadian system
The Company's CURA division has developed a proprietary technology designed to (i) measure the decrease in a person's alertness and (ii) to train individuals on how to improve alertness levels. The myCadian system will enable the user to anticipate and avert undesired or disastrous situations caused by the degradation of alertness. With the information provided from the myCadian software analytics, employees can work with Z-Coach our proprietary sleep training and education solution to correct sleep issues and improve overall wellness.
The myCadian platform is designed to predict and detect a degradation of alertness in a user. The myCadian platform will support multiple wearable technology including IOS and android devices. The myCadian system will include:
? a risk assessment that identifies the degradation of alertness that may affect a wearer's ability to perform tasks, ? real-time reporting that distills complex user data into actionable information on mobile devices, ? predictive reporting for a user to take action when alertness begins to wane, before fatigue becomes dangerous, ? flexible settings to provide employers a customized tool using their defined safety criteria and to create protocols for action, ? pricing that makes it affordable across a broad-based workforce, and ? the Z-Coach wellness program.
The Z-Coach wellness program is a key component of the myCadian system. Z-Coach learning topics include: Risks and Costs of Fatigue, Fundamentals of Sleep, Fatigue Mitigation and Countermeasures. Z-Coach participants gain an awareness of the dangers inherent in the lack of sleep and learn to utilize lifestyle tools to make changes to improve their health, mood, productivity and safety.
Aegis Division: Hydraulic Pump
During 2019, the Company initiated discussions with investment bankers and certain hydraulics companies to evaluate the possible monetization of the AEGIS technologies. Management believes these technologies have the potential to fundamentally shift the design and manufacture of future products in the hydraulics pump and motor industries.
The Aegis hydraulic pump technology has been designed to bring to the marketplace a unique concept in hydraulic pumps and motors that will be:
? smaller, lighter and less expensive than conventional pumps and motors, ? more efficient, and ? unique in its ability to scale larger, allowing more powerful pumps and motors.
The Company has completed a production prototype and is working to align the prototype capability with specific customer applications. The Company achieved significant milestones in the design and testing of this prototype. Engineering testing and design of the pump and motor functionality is continuing. Our engineering team has progressively made adjustments to traditional valve and piston technologies which have resulted in improvement in the measured efficiency of the pump. We have filed for patent protection for our novel non-rotating group pump concept and continue to file patents as a engineering breakthroughs in our design are identified.
In addition to the activities to be undertaken to implement our plan of operation detailed above, we may expand and/or refocus our marketing activities depending upon future circumstances and developments. Information regarding the Company and all of our inventions, including regular updates on technological and business developments, can be found on our website, www.CurAegis.com. The website and its contents are not incorporated by reference into this report.
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Results of Operations for the years ended
Revenue, Cost of Revenue and Loss on Revenue
For the year ended December 31, Variance 2019 2018 Incr (decr) CURA revenue$ 15,000 $ 37,000 $ (22,000 ) Cost of revenue 13,000 110,000 (97,000 ) Earnings (loss) on revenue$ 2,000 $ (73,000 ) $ 75,000
The Company recorded
During the year ended
The Company recorded
The Z-Coach modules have been designed for a range of industry professionals, including aviation, trucking and busing industry and for corporate workers. The Z-Coach training module provides fatigue safety training over a twelve-month subscription period. The user has unlimited access to this tool during the subscription period. Customers are billed at the acceptance of the subscription and revenue is recognized ratably over the subscription period as our performance obligations are satisfied and when collection is reasonably assured.
Engineering and Development Costs and Expenses
For the year ended December 31, Variance 2019 2018 Incr (decr) Wages and benefits$ 502,000 $ 731,000 $ (229,000 ) Professional fee and advisors 242,000 305,000 (63,000 ) Parts and shop supplies 12,000 102,000 (90,000 ) Computer and software maintenance 13,000 45,000 (32,000 ) Depreciation and amortization 22,000 38,000 (16,000 ) Other costs and expenses 11,000 11,000 - 802,000 1,232,000 (430,000 ) Stock based compensation 7,000 30,000 (23,000 )
Total Engineering and Development
Engineering and development expenses decreased during the year ended
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General and Administrative Costs and Expenses
For the year ended December 31, Variance 2019 2018 Incr (decr) Wages and benefits$ 838,000 $ 1,195,000 $ (357,000 ) Professional fees and advisors 210,000 199,000 11,000 Facilities and occupancy 137,000 153,000 (16,000 ) Insurance 87,000 87,000 - Sales and marketing 62,000 30,000 32,000 Patents 45,000 150,000 (105,000 ) Travel 31,000 44,000 (13,000 ) Computer and software maintenance 29,000 37,000 (8,000 ) Shareholder 36,000 53,000 (17,000 ) Depreciation and amortization 2,000 8,000 (6,000 ) Other costs and expenses 40,000 53,000 (13,000 ) 1,517,000 2,009,000 (492,000 ) Stock based compensation 119,000 150,000 (31,000 )
Total General and Administrative
General and administrative expense decreased during the year ended
Provision for Inventory and Impairment Loss
The Company recorded a provision for excess inventory during the year ended
During the year ended
Non-operating Expense For the year ended December 31, Variance 2019 2018 Incr/decr Interest expense$ (1,233,000 ) $ (1,057,000 ) $ 176,000 Debt issuance cost (333,000 ) - 333,000 Vendor penalty (300,000 ) - 300,000 Other income 18,000 1,000 (17,000 )$ (1,848,000 ) $ (1,056,000 ) $ 792,000
Interest expense increased by
The increase in interest expense since 2018 reflects
During 2019, the Company and the third-party vendor agreed to a
During the year ended
Net Loss for the years ended
The net loss for the year ended
Preferred stock dividends of
Liquidity and Capital Resources
During the year ended
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During the year ended
During the year ended
Current Cash Outlook and Management Plans
As of
Management estimates that the 2020 cash needs will be approximately
Since inception, we have financed our operations by the sale of our securities and debt financings. We need to raise additional funds to meet our working capital needs, to fund expansion of our business, to complete development, testing and marketing of our products, or to make strategic acquisitions or investments. No assurance can be given that necessary funds will be available for us to finance our development on acceptable terms, if at all. Furthermore, such additional financings will involve dilution to our shareholders or may require that we relinquish rights to certain of our technologies or products. In addition, we will experience operational difficulties and delays due to working capital restrictions. If adequate funds are not available from additional sources of financing, we will have to delay or scale back our growth plans.
The Company's ability to fund its current and future commitments from its available cash depends on a number of factors. These factors include the Company's ability to (i) launch and generate sales from the CURA products or (ii) generate proceeds from the monetization of our hydraulic technologies. If these and other factors are not met, the Company would need to raise funds in order to meet its working capital needs and pursue its growth strategy. Although there can be no such assurances, management believes that sources for these additional funds will be available through either current or future investors.
Critical Accounting Policies
Revenue Recognition
The Company has two sources of revenue: (i) from the sale of CURA products and (ii) from stand-alone Z-Coach subscriptions. Revenue from the sale of CURA products is recognized upon the shipment to a customer and upon the company's satisfaction of all performance obligations as described in customer agreements. The Z-Coach Program provides fatigue training over an annual subscription period of twelve months. The Z-Coach Program allows the user unlimited access during the annual subscription period. Customers are billed at the acceptance of the subscription, and revenue is recognized ratably over the subscription period as our performance obligations are satisfied and when collection is reasonably assured. Our collection terms provide customers standard terms of net 30 days. Future performance obligations are reflected in deferred revenue.
Income Taxes
We account for income taxes using the asset and liability method, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting and the tax basis of our assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
We account for uncertain tax positions using a more-likely-than-not recognition
threshold based on the technical merits of the tax position taken. Tax benefits
that meet the more-likely-than-not recognition threshold should be measured as
the largest amount of tax benefits, determined on a cumulative probability
basis, which is more likely than not to be realized upon ultimate settlement in
the financial statements. It is our policy to recognize interest and penalties
related to income tax matters as general and administrative expenses. As of
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FASB ASC 718-10 requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense over the requisite service period (generally the vesting period) in the consolidated financial statements based on their fair values on the grant date. The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount recognized. In addition, the realization of tax benefits in excess of amounts recognized for financial reporting purposes will be recognized as a financing activity in accordance with FASB ASC 718-10.
No tax benefits were attributed to the stock-based compensation expense because a valuation allowance was maintained for substantially all net deferred tax assets.
FASB ASC 505-50, "Equity-Based Payments to Non-Employees," requires all share-based payments to non-employees, including grants of stock options, to be recognized in the consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black-Scholes valuation model, we periodically reassess the fair value of non-employee options as service conditions are met, which generally aligns with the vesting period of the options, and we adjust the expense recognized in the consolidated financial statements accordingly.
FASB ASC 718-20 requires that modifications of the terms or conditions of equity awards be treated as an exchange of the original award for a new award. Incremental compensation cost is measured as the excess, if any, of the fair value of the modified award over the fair value of the original award immediately before its terms are modified.
Impact of Inflation
Inflation has not had a significant impact on our operations to date and we are currently unable to determine the extent inflation may impact our operations in future periods.
Quarterly Fluctuations
Since we are currently focused on developing our technologies for commercialization and we have not yet engaged in significant revenue producing operations, we do not have any meaningful quarterly fluctuations that impact our financial performance.
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