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, 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 below and in "Risk Factors" in Item 1A of our 2019 annual report on Form 10-K.
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 quarterly report on Form 10-Q to reflect new information, future events or other developments.
The following discussion and analysis should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q.
Impact of COVID-19 Outbreak
During the first quarter of 2020, the
Overall Business Strategy
The Company has two business divisions; the CURA (Circadian User Risk Assessment) division which is engaged in the fatigue management business and the Aegis division which is engaged in the development of technologies in the power and hydraulic industry. 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, 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 and algorithms designed to (i) identify and measure a user's individual circadian rhythm and (ii) to provide users with actionable information on alertness, wellness and overall health. 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 software analytics, users 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 initially support IOS devices and over time will be expanded to include android based 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, ? 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 and ? the Z-Coach wellness program. 17
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Aegis Division: Hydraulic Pump
During 2019, the Company initiated discussions with investment advisors to
evaluate the possible monetization of the AEGIS technologies. On
The Aegis hydraulic pump technology brings to the hydraulic pumps and motors industry a unique technology that is: smaller, lighter and less expensive, is more efficient and as reliable as conventional pumps and motors. The Company has completed a production prototype and had achieved significant milestones in the design and testing of this prototype. We have filed for patent protection for our novel non-rotating group pump concept.
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.
Results of Operations for the three months ended
Revenue, Cost of Revenue and Margin
For the three months ended March 31, Variance 2020 2019 Incr (decr)
CURA revenue$ 3,000 $ 7,000 $ (4,000 ) Cost of revenue 1,000 6,000 (5,000 ) Margin$ 2,000 $ 1,000 $ 1,000
The Company recorded
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 three months ended March 31, Variance 2020 2019 Incr (decr) Wages and benefits$ 72,000 $ 165,000 $ (93,000 ) Professional fee and advisors 1,000 129,000 (128,000 ) Computer and software maintenance 3,000 7,000 (4,000 ) Depreciation and amortization 3,000 7,000 (4,000 ) Other costs and expenses 8,000 12,000 (4,000 ) 87,000 320,000 (233,000 ) Stock based compensation 4,000 11,000 (7,000 )
Total Engineering and Development
Engineering and development expenses decreased during the three months ended
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General and Administrative Costs and Expenses
For the three months ended March 31, Variance 2020 2019 Incr (decr) Wages and benefits$ 163,000 $ 250,000 $ (87,000 ) Professional fees and advisors 85,000 87,000 (2,000 ) Facilities and occupancy 22,000 41,000 (19,000 ) Insurance 18,000 20,000 (2,000 ) Sales and marketing - 62,000 (62,000 ) Patents 3,000 10,000 (7,000 ) Travel 6,000 7,000 (1,000 ) Computer and software maintenance 5,000 8,000 (3,000 ) Shareholder 6,000 6,000 - Other costs and expenses - 5,000 (5,000 ) 308,000 496,000 (188,000 ) Stock based compensation 35,000 48,000 (13,000 )
Total General and Administrative
General and administrative expense decreased during the three months ended
Non-operating Expense For the three months ended March 31, Variance 2020 2019 Incr/decr Interest expense$ (337,000 ) $ (274,000 ) $ (63,000 )
Interest expense increased by
The increase in interest expense since 2019 reflects
During the three months ended
Net Loss for the three months ended
The net loss for the quarter ended
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Liquidity and Capital Resources
During the three months ended
During the three months ended
During the three months ended
Current Cash Outlook and Management Plans
As of
Management estimates that the 2020 cash needs will run between
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, 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 plans.
The Company's ability to fund its current and future commitments from its available cash depends on its ability to launch and generate sales from the CURA app. If the Company cannot generate revenue from the CURA app, it 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 and Deferred Revenue: The Company accounts for revenue in accordance with FASB ASC 606, "Revenue from Contracts with Customers" and all related amendments. For contracts where performance obligations are satisfied at a point in time, the Company recognizes revenue when the product is shipped to the customer. For contracts where the performance obligation is satisfied over time, as in the Z-Coach sales, the Company recognizes revenue over the subscription period. Revenue from the sale of the Company's products is recognized net of cash discounts, sales returns and allowances. 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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