UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑☒

Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~September~~June 30 ~~30, 2017~~, 2020

☐

Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File No. 000-24455

CURAEGIS TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

New York
(State or other jurisdiction of incorporation or organization)

16-1509512
(I.R.S. Employer Identification No.)

~~1999 Mt. Read Blvd. Building 3,~~350 Linden Oaks Rochester, New York ~~14615~~14625
(Address of principal executive offices and Zip Code)

(585) 254-1100
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and ~~posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☑☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “~~large~~“large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one).

Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☑☒
			Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	N/A	N/A

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the ~~issuer~~’sissuer’s classes of common stock, as of the latest practicable date:

Class		Number of Shares Outstanding at ~~November 13, 2017~~August 11, 2020
Common Stock, $0.01 par value		~~48,8~~~~03,~~~~265~~51,452,810

~~See notes to condensed consolidated financial statements.~~CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2020 (Unaudited)			December 31, 2019
ASSETS
Current Assets:
Cash	$	68,000		$	18,000
Prepaid expenses		9,000			2,000
Total current assets		77,000			20,000

Right to use asset (net)		169,000			193,000
Property and equipment (net)		32,000			38,000
Total non-current assets		201,000			231,000

Total Assets	$	278,000		$	251,000

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Liability for inventory	$	1,740,000		$	1,764,000
Demand notes		650,000			650,000
Promissory notes		425,000			425,000
Accounts payable		361,000			420,000
Accrued interest		735,000			509,000
Current right-to-use obligation		67,000			64,000
Other current liabilities		40,000			36,000
Accrued wages and benefits		127,000			50,000
Total current liabilities		4,145,000			3,918,000

Non-current right-to-use obligation		99,000			126,000
Paycheck Protection Program loan	228,000				-
Senior convertible notes (net)		9,514,000			8,410,000
Total Liabilities		13,986,000			12,454,000

Commitments and other matters

Stockholders' Deficiency:
Preferred stock, $.01 par value, 100,000,000 shares authorized
Series C, voting, convertible, no dividend, shares issued and outstanding at June 30, 2020 and December 31, 2019: 15,687,500 and 15,687,500, respectively		157,000			157,000
Series C-2, voting, convertible, no dividend, shares issued and outstanding at June 30, 2020 and December 31, 2019: 24,500,000 and 24,500,000, respectively		245,000			245,000
Series C-3, voting, convertible, no dividend, shares issued and outstanding at June 30, 2020 and December 31, 2019: 3,238,000 and 3,238,000, respectively		32,000			32,000
Class A, non-voting, convertible, cumulative dividend $.40 per share per annum, shares issued and outstanding at June 30, 2020 and December 31, 2019: 468,221 and 468,221, respectively		5,000			5,000
Class B, non-voting, convertible, cumulative dividend $.50 per share per annum, shares issued and outstanding at June 30, 2020 and December 31, 2019: 67,500 and 67,500, respectively		1,000			1,000
Common stock, $.01 par value, 400,000,000 shares authorized; shares issued and outstanding at June 30, 2020 and December 31, 2019: 51,415,310 and 50,979,964 respectively		514,000			510,000
Additional paid-in capital		78,337,000			78,272,000
Accumulated deficit		(92,999,000	)		(91,425,000	)
Total Stockholders' Deficiency		(13,708,000	)		(12,203,000	)

Total Liabilities and Stockholders' Deficiency	$	278,000		$	251,000

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020			2019			2020			2019

Revenue and Cost of revenue:
CURA revenue	$	2,000		$	2,000		$	5,000		$	9,000
Cost of revenue		12,000			3,000			13,000			9,000
Loss on revenue		(10,000	)		(1,000	)		(8,000	)		-

Costs and expenses:
Recovery on inventory reserve		(7,000	)		-			(23,000	)		-
Engineering and development		65,000			218,000			156,000			549,000
General and administrative		313,000			443,000			656,000			987,000
Total costs and expenses		371,000			661,000			789,000			1,536,000
Loss from operations		(381,000	)		(662,000	)		(797,000	)		(1,536,000	)

Non-operating expense:
Interest expense		(341,000	)		(304,000	)		(678,000	)		(578,000	)
Other (expense) income		(99,000	)		1,000			(99,000	)		1,000
Non-operating expense		(440,000	)		(303,000	)		(777,000	)		(577,000	)

Loss before income taxes		(821,000	)		(965,000	)		(1,574,000	)		(2,113,000	)
Income taxes		-			-			-			-
Net loss		(821,000	)		(965,000	)		(1,574,000	)		(2,113,000	)

Preferred stock dividends		55,000			54,000			109,000			108,000
Net loss attributable to common stockholders	$	(876,000	)	$	(1,019,000	)	$	(1,683,000	)	$	(2,221,000	)

Net loss per common share attributable to common stockholders
Basic and Diluted	$	(0.02	)	$	(0.02	)	$	(0.03	)	$	(0.04	)
Weighted average number of shares of common stock
Basic and Diluted		51,379,000			50,478,000			51,263,000			50,456,000

									For the Three and Six Months Ended June 30. 2020


	Class C Preferred Stock				Class C-2 Preferred Stock				Class C-3 Preferred Stock				Class A Preferred Stock				Class B Preferred Stock				Common Stock				Additional Paid			Accumulated			Total Stockholders'
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		in Capital			Deficit			Deficiency

Balance At December 31, 2019		15,687,500	$	157,000		24,500,000	$	245,000		3,238,000	$	32,000		468,221	$	5,000		67,500	$	1,000		50,979,964	$	510,000	$	78,272,000		$	(91,425,000	)	$	(12,203,000	)

Stock-based compensation																									$	39,000						39,000
Common shares issued for interest																						94,772	$	1,000	$	16,000						17,000
Common shares issued with convertible notes																						112,500	$	1,000	$	9,000						10,000
Net Loss																												$	(753,000	)		(753,000	)

Balance at March 31, 2020		15,687,500		157,000		24,500,000		245,000		3,238,000		32,000		468,221		5,000		67,500		1,000		51,187,236		512,000		78,336,000			(92,178,000	)		(12,890,000	)

Stock-based compensation																										(28,000	)					(28,000	)
Common shares issued for interest																						123,074		1,000		20,000						21,000
Common shares issued with convertible notes																						105,000		1,000		9,000						10,000
Net Loss																													(821,000	)		(821,000	)

Balance at June 30, 2020		15,687,500	$	157,000		24,500,000	$	245,000		3,238,000	$	32,000		468,221	$	5,000		67,500	$	1,000		51,415,310	$	514,000	$	78,337,000		$	(92,999,000	)	$	(13,708,000	)

									For the Three and Six Months Ended June 30, 2019

Balance At December 31, 2018		15,687,500	$	157,000		24,500,000	$	245,000		3,268,000	$	33,000		468,221	$	5,000		67,500	$	1,000		50,364,549	$	504,000	$	77,725,000		$	(87,149,000	)	$	(8,479,000	)

Stock-based compensation																									$	59,000						59,000
Common shares issued for interest																						35,996			$	8,000						8,000
Warrants issued with convertible note																									$	63,000						63,000
Net Loss																												$	(1,148,000	)		(1,148,000	)

Balance at March 31, 2019		15,687,500		157,000		24,500,000		245,000		3,268,000		33,000		468,221		5,000		67,500		1,000		50,400,545		504,000		77,855,000			(88,297,000	)		(9,497,000	)

Stock-based compensation																										45,000						45,000
Common shares issued for interest																						39,156				10,000						10,000
Common shares issued with convertible notes																						90,000		1,000		11,000						12,000
Warrants issued with convertible note																										2,000						2,000
Net Loss																													(965,000	)		(965,000	)

Balance at June 30, 2019		15,687,500	$	157,000		24,500,000	$	245,000		3,268,000	$	33,000		468,221	$	5,000		67,500	$	1,000		50,529,701	$	505,000	$	77,923,000		$	(89,262,000	)	$	(10,393,000	)

~~Notes to Condensed Consolidated Financial Statements~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 —- THE COMPANY AND BASIS OF PRESENTATION

CurAegis Technologies, Inc. (“CurAegis”, “the Company”) was incorporated as a New York business corporation onin September ~~25,~~ 1996 under the name Torvec, Inc. The Company’s name was changed to CurAegis Technologies, Inc. in ~~September~~ 2016 in connection with the establishment of its two business divisions. The CURA division is engaged in the fatigue management business and the Aegis division is engaged in the development of technologies for the power and hydraulic ~~business.~~industry.

~~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 CURA ~~system and the myCadian watch)~~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 any significant revenue-producing operations.

The Company has created the CURA ~~system~~app to ~~market~~offer products that reduce fatigue risk in the workplace and help individuals manage their sleep and improve alertness. The CURA ~~system will include~~System consists of a real-time alertness measurement and the ~~following functions:~~Z-Coach wellness program.

●

~~the myCadian watch and app,~~

●

~~real-time alertness monitoring,~~

●

~~the Group Wellness Index, and~~

●

~~the Z-Coach wellness program.~~

~~Our goal with the~~The Aegis hydraulic pump technology ~~is to bring~~brings to the ~~marketplace~~hydraulic industry a unique ~~concept in hydraulic~~technology that is: smaller, lighter and less expensive, and more efficient than conventional pumps and ~~motors~~motors. During 2019, the Company initiated discussions with investment advisors and certain hydraulics companies to evaluate the possible monetization of the Aegis technologies. On April 8, 2020, the Company reported that ~~will be:~~it had initiated a temporary suspension of this evaluation process. This decision was linked to the COVID-19 pandemic which adversely impacted and is expected to continue to adversely impact the Company’s ability to generate industry interest in the Aegis technologies. Recent updates with interested parties have indicated that companies in the hydraulics industry are currently focused on internal processes, technology, and employees.

●

~~smaller and lighter than conventional pumps and motors,~~

●

~~more efficient,~~

●

~~as reliable,~~

●

~~price competitive, and~~

●

~~unique in its ability to scale larger, allowing more powerful pumps and motors.~~

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.~~developments.

Current Cash Outlook and Management Plans

As of ~~September~~June 30, ~~2017,~~2020, we ~~have~~had cash on hand of ~~$180,000,~~$68,000, negative working capital ~~deficit~~ of ~~$335,000, a deficit in stockholders’ equity of $1,193,000 and~~$4,296,000, an accumulated deficit of ~~$79,417,000.~~$92,999,000 and a stockholders' deficiency of $13,708,000. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020 we raised ~~gross~~$725,000 in proceeds ~~of $1,625,500~~ through the issuance of ~~6% senior~~ convertible notes and ~~warrants. These~~$235,000 from the Paycheck Protection Program (PPP) loan and US Small Business Administration - Economic Injury Disaster Loans (SBA EIDL) grant. The proceeds from these sources have been used to support the ongoing development and marketing of our core technologies and product initiatives.

Management estimates that the ~~2017~~2020 cash needs will ~~range from $4.0 to $4.6 million.~~run between $1.7 and $2 million, based upon the cash used in operations in the six months ended June 30, 2020. As of ~~September~~June 30, ~~2017,~~2020, the Company’s cash on hand is not sufficient to cover the Company’s future working capital requirements. This raises substantial doubt as to the Company’s ability to continue as a going concern. Management ~~continues~~will continue to use its best efforts to develop financing opportunities to fund the development and commercialization of the CURA and Aegis products.

During 2017, the board of directors authorized the issuance of up to $4 million in 6% Senior Convertible Promissory Notes and Warrants (the “2017 Convertible Notes”) in connection with the May 31, 2017 Securities Purchase Agreement (the “2017 SPA”). The 2017 Convertible Notes have a five year maturity and a fixed annual interest rate of 6%. The offering is available only to “accredited investors” as defined in Rule 501(a) of Regulation D under the Securities Act of 1933. During the nine month period ended September 30, 2017, the Company issued $1,625,500 in 2017 Convertible Notes.

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 ~~may~~will involve dilution to our shareholders or may require that we relinquish rights to certain of our technologies or products. In addition, we ~~may~~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~~’sCompany’s ability to fund its current and future commitments ~~out of~~from its available cash depends on ~~the Company’s~~its ability to launch and generate sales from the CURA ~~division.~~app. If ~~this factor is not met,~~ 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.

NOTE 2— - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation:The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U. S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8-03 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, the condensed consolidated financial statements do not include all ~~of the~~ information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation (consisting of normal recurring adjustments) have been included. The results for interim periods are not necessarily indicative of what the results will be for the fiscal year. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements ~~as of and~~ for the year ended December 31, ~~2016~~2019 contained in the Company’s ~~2016~~2019 Annual Report on Form 10-K filed with the SEC.

Consolidation: The condensed consolidated financial statements include the accounts of the Company, our ~~wholly-owned~~wholly owned subsidiary Iso-Torque Corporation, and our majority-owned subsidiary, Ice Surface Development, Inc. (56% ~~owned at September 30, 2017)~~owned). As of ~~September~~June 30, ~~2017,~~2020, each of the subsidiaries is non-operational.

Use of Estimates: The preparation of financial statements in conformity with ~~U.S.~~ generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates are subject to a high degree of judgment and potential change. Actual results could differ from those estimates.

Reclassifications: Certain reclassifications may have been made to prior year balances to conform to the current year’s presentation.

Cash: We maintain cash at financial institutions that periodically may exceed federally insured amounts. We have a corporate credit card program through ~~our primary financial institution,~~ JPMorgan Chase Bank, N.A. In connection with this, the Company granted a security interest to the bank ~~in our money market account~~ to act as collateral for the activity within the corporate card program, up to ~~$25,000.~~$5,000.

Inventory: Inventory is stated at the lower of cost or ~~market~~net realizable value with cost determined ~~under~~using the average cost method. ~~We record provisions for excess, obsolete or slow-moving inventory based~~Inventory on ~~changes in customer demand, technology developments or other economic factors. The allowance for excess, obsolete or slow-moving inventory was zero~~hand at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016.~~2019 has been fully reserved.

~~Accounts Receivable~~Depreciation and amortization: ~~: We carry our accounts receivable at invoice amount less an allowance~~Depreciation and amortization are computed using the straight-line method. Depreciation and amortization expense for ~~doubtful accounts. On a periodic basis, we evaluate our accounts receivable~~the three and ~~establish an allowance for doubtful accounts, based on a history of past write-offs~~six months ended June 30, 2020 and ~~collections and current credit conditions. We do not accrue interest on past due invoices. The allowance for doubtful accounts was zero at September 30, 2017 and December 31, 2016.~~2019 are as follows:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2020		2019		2020		2019
Right-to use building	$	17,000	$	25,000	$	33,000	$	52,000
Software amortization		-		2,000		-		6,000
Property and equipment		3,000		7,000		6,000		14,000
	$	20,000	$	34,000	$	39,000	$	72,000

Right to use building asset: ASU No. 2016-02, “Leases,” requires a lessee to recognize on its balance sheet the assets and liabilities related to long-term leases that were classified as operating leases under previous guidance. An asset is recognized when the Company can retain the economic benefits and control of the underlying asset. A corresponding liability is recognized related to the Company's obligation to make lease payments over the term of the lease. The standard became effective for the Company on January 1, 2019. The Company utilized the modified retrospective approach to measure the right to use operating lease agreement associated with the office building used for our business operations. The adoption of this accounting standard did not impact our consolidated loss from operations and had no impact on cash flows.

Software, Property and Equipment: Capitalized software, property and equipment are stated at cost. Estimated useful lives ~~are as follows:~~

Software (in years)

3

Office equipment (in years)

5
-
7

Leasehold improvements

lesser of useful life or lease term

~~Depreciation~~for capitalized software is 3 years and ~~amortization are computed using the straight-line method.~~for property and equipment is 5 to 7 years. Betterments, renewals and significant repairs that extend the life of the assets are capitalized. Other repairs and maintenance costs are expensed when incurred. When disposed, the cost and accumulated depreciation applicable to assets retired are removed from the accounts and the gain or loss on disposition is recognized in ~~other~~non-operating income (expense). ~~Depreciation and software amortization expense for the three months ended~~ September 30, 2017 and 2016 amounted to $44,000 and $45,000, respectively. Depreciation and software amortization expense for the nine months ended September 30, 2017 and 2016 amounted to $136,000 and $129,000, respectively.

Whenever events or circumstances indicate, our long-lived assets including any intangible assets with finite useful lives are tested for impairment by using the estimated future cash flows directly associated with, and that are expected to arise as a direct result of, the use of the assets. If the carrying amount exceeds the estimated undiscounted cash flows, impairment may be indicated. The carrying amount is compared to the estimated discounted cash flows and if there is an excess such amount is recorded as impairment. ~~During the~~ ~~nine months ended September 30, 2017 and 2016, we recorded no impairment charges.~~

Fair Value of Financial Instruments: As defined by U.S. GAAP, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A hierarchy for ranking the quality and reliability of the information is used to determine fair values. Assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities

Level 2: Observable ~~market based~~market-based inputs or unobservable inputs that are corroborated by market data

Level 3: Unobservable inputs that are not corroborated by market data

Table of Contents

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The Financial Accounting Standards Board’s (“FASB”) guidance for the disclosure about fair value of financial instruments requires disclosure of an estimate of the fair value of certain financial instruments. The fair value of financial instruments pursuant to FASB’s guidance for the disclosure about fair value of financial instruments approximated their carrying values at ~~September~~June 30, ~~2017.~~2020 and December 31, 2019. The carrying amount of cash, prepaid expenses, ~~and other current assets,~~ accounts payable, ~~and~~ accrued expenses, demand and promissory notes approximates their fair value due to their short maturity. The ~~carrying amount of capital lease obligations~~senior convertible and ~~notes payable approximates fair value because stated or implied interest rates approximate current interest rates that are available for debt with similar terms. The 6% senior convertible~~demand notes can be converted into common stock ~~which had~~with an underlying value of ~~$9,393,000~~$3,345,000 as of June 30, 2020 based on the trading price on ~~September 30, 2017.~~ that date.

Revenue Recognition and Deferred Revenue:The Company ~~began offering~~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 ~~Aviation program~~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.

The Company's revenue is derived primarily from domestic customers. For the three- and six-month periods ended June 30, 2020 net revenue from products transferred over time amounted to $2,000 and $5,000 respectively. One customer accounted for 100% of total Z-Coach subscription sales made during the three- and six-month periods ended June 30, 2020. Our collection terms provide customers standard terms of net 30 days. Future performance obligations are reflected in deferred revenue.

CURA revenue is recognized (a) upon receipt of payment at the ~~first quarter~~point of ~~2016.~~sale of the CURA app, (b) upon the delivery of myCadian products and (c) upon the Company’s performance of all obligations as described in customer agreements. The Z-Coach program provides fatigue ~~safety~~ training over aan annual subscription period of twelve ~~months. The Z-Coach program~~months and 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.~~

Engineering and ~~Development and Patents:~~Development: Engineering and development costs ~~including~~and patent expenses are charged to operations as incurred. Engineering and development ~~includes~~include personnel-related costs, materials and supplies, depreciation and consulting services. ~~After technology feasibility has been achieved, software development costs are capitalized until the product is ready for release to customers.~~

General and Administrative:Patent costs for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 amounted to ~~$46,000~~$14,000 and ~~$31,000,~~$11,000 respectively and are included in general and administrative expenses. Patent costs for ~~nine~~the six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 amounted to ~~$120,000~~$17,000 and ~~$55,000,~~$21,000 respectively ~~and are included in general and administrative expenses.~~

Stock-based Compensation: FASB Accounting Standards Codification (“ASC”) 718-10 requires all share-based payments ~~to employees, including grants of employee stock options, to~~ be recognized as ~~compensation~~ expense over the service period (generally the vesting period) ~~in the consolidated financial statements~~ based on ~~their~~the fair ~~values~~value on the grant date. ~~The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount recognized.~~ The realization of tax benefits in excess of amounts recognized for financial reporting purposes ~~will be~~are recognized as a financing activity in accordance with 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 generally over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black-Scholes valuation model, we quarterly revalue the fair value of non-employee options until 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.~~

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 ~~September~~June 30, ~~2017,~~2020, and December 31, ~~2016,~~2019, there were no accrued interest or penalties related to uncertain tax positions.

Loss per Common Share: FASB’s ASC 260-10 (“Earnings Per Share”) requires the presentation of basic earnings per share, which is based on weighted average common stock outstanding, and dilutive earnings per share, which gives effect to options, warrants and convertible securities in periods when they are dilutive. At ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, we excluded ~~74,645,000~~111,296,260 and ~~60,268,000~~99,159,056 potential common shares, respectively, relating to convertible preferred stock, convertible notes, future share rights issued with the demand notes, options and warrants outstanding from the diluted net loss per common share calculation because their inclusion would be anti-dilutive. ~~In addition, we~~We excluded 625,000 warrants from the diluted net loss per common share calculation at ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 as the conditions for their vesting are not time-based.

NOTE 4 - DEMAND NOTE

On July 23, 2019, the Company entered into a credit facility with a commercial bank for up to $1,500,000 in advances to support working capital needs of the business. The demand notes issued in connection with this commercial bank are supported by individual co-borrowing agreements from ~~Contracts~~certain accredited investors. In connection with ~~Customers (Topic 606)~~this credit agreement, the Company entered into a general security agreement that provides the bank a continuing security interest in all the Company's personal property and fixtures.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” which supersedes nearly all existing revenue recognition guidance under U.S. GAAP.

The ~~core principle~~co-borrowers participating in this credit facility received 30,000 common shares for each $100,000 in principal co-borrowed. The fair market value of ASU 2014-09 recognizes revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.~~In May 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers” extending~~these shares was estimated on the date of ~~implementation~~the note issuance and is reflected as debt issuance costs. The co-borrowers were also granted the right to purchase common shares up to the amount co-borrowed, at a price per share determined based on the closing price of ~~this guidance~~the Company’s common stock one day prior to the agreement. The fair market value of these future rights is reflected as debt issuance costs in the results of operations. The price per share for ~~public companies~~these future share purchase rights is fixed at the higher of the closing price of the Company’s common stock one day prior to ~~reporting periods beginning~~the co-borrowing arrangement or $0.15 per share. Each co-borrower has the right to purchase these common shares until the indebtedness is paid in full or within five business days after ~~December 15, 2017. In April 2016,~~ the ~~FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers" to further clarify identifying performance obligations and licensing in Topic 606. In May, 2016,~~consummation of the ~~FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers” to addressed narrow-scope improvements and practical expedients relative to certain aspects~~sale of ~~Topic 606.~~ the Company’s Aegis division.

~~These standards are effective for annual periods beginning after December 15, 2017,~~As of June 30, 2020, the Company had issued $650,000 in demand notes and ~~interim periods therein, using either~~issued 195,000 shares of ~~the following transition methods: (i) a full retrospective approach reflecting the application of the standard~~common stock in ~~each prior reporting period~~connection with the ~~option to elect certain practical expedients, or (ii) a retrospective approach~~co-borrowing demand notes. The common shares issued in connection with the ~~cumulative effect recognized~~co-borrowing demand notes were valued at $21,000 on the date of adoption (which includes additional footnote disclosures). The Company continues to evaluate the impact of the adoption of FASB accounting pronouncements related to revenue from Contracts with Customers (Topic 606)issuance and ~~believes this pronouncement will not have a material effect on our consolidated financial statements and related disclosures.~~

~~Other FASB Accounting Pronouncements~~

~~In May 2017, the FASB issued ASU No. 2017-09~~ Compensation -Stock Compensation (Topic 718) "Scope of Modification Accounting." This update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. This amendment is effective for annual periods beginning after December 15, 2017 and interim periods within those fiscal years. The Company believes this pronouncement will not have a material effect on our consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows: “Classification of Certain Cash Receipts and Cash Payments (Topic 230).” There is diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. This pronouncement addresses eight specific cash flow issueswere reported as debt issuance costs. Coincident with the ~~objective~~issuance of ~~reducing the existing diversity in practice. The amendments are effective for public entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.~~ ~~The Company believes this pronouncement will not have a material effect on our consolidated financial statements and related disclosures.~~

In September 2016, the FASB issued ASU No. 2016-13 Financial Instruments - Credit Losses (Topic 326) “Measurement of Credit Losses on Financial Instruments.” The pronouncement affects entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets that have the contractual right to receive cash. This pronouncement will affect an entity to varying degrees depending on the credit quality of the assets held, their duration, and how the entity applies current GAAP. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company believes this pronouncement will not have a material effect on our consolidated financial statements and related disclosures.

~~On February 25, 2016, the FASB issued ASU No.~~ 2016-02, “Leases,” a comprehensive new lease standard which will supersede previous lease guidance. The standard requires a lessee to recognize in its balance sheet assets and liabilities related to long-term leases that were classified as operating leases under previous guidance. An asset will be recognized related tothese notes, these co-borrowers also received the right to ~~use the underlying asset and a liability will be recognized related~~purchase up to ~~the obligation to make lease payments over the term~~4,333,333 shares of the ~~lease.~~Company’s common stock at a fixed price of $0.15 per share. The ~~standard also requires expanded disclosures surrounding leases. The standard is effective for fiscal periods beginning after December 15, 2018,~~fair market value of these future share rights was estimated at $276,000 on the date of the issuance of the notes utilizing the Black Scholes valuation model and ~~requires modified retrospective adoption,~~were reported as debt issuance costs.

Advances drawn under this facility have been issued as demand notes with ~~early adoption permitted.~~an adjustable interest rate set at the bank’s prime rate, which was 3.25% as of June 30, 2020. The Company ~~believes this pronouncement will not have a material effect~~recognized $5,000 in interest expense on ~~our consolidated financial statements and related disclosures.~~

~~NOTE 3 - 6% SENIOR CONVERTIBLE NOTES AND WARRANTS~~the demand notes during the three months ended June 30, 2020. The Company recognized $13,000 in interest expense on the demand notes during the six months ended June 30, 2020.

The ~~following~~common shares issued with these demand notes are being offered and sold in a private placement exempt from registration under Section 4(a)(2) of the Securities Act of 1933 (“Securities Act”), as amended, and Rule 506 of Regulation D as promulgated by the United States Securities and Exchange Commission thereunder. The shares of the Company’s Common Stock will not be registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

NOTE 6 - SENIOR CONVERTIBLE NOTES

At June 30, 2020, the Company had $11,035,000 in convertible notes outstanding which have been presented net of unamortized debt discounts of $1,521,000, resulting in a ~~summary~~carrying value of ~~Senior Convertible Notes outstanding.~~$9,514,000. As of December 31, 2019, the Company had $10,310,000 in convertible notes outstanding, presented net of unamortized debt discounts of $1,900,000 resulting in a carrying value of $8,410,000.

September 30,
2017

December 31,
2016

2016 Convertible Notes
$ 3,000,000 $ 3,000,000
2017 Convertible Notes
1,625,000 -
Debt Discount at issuance
(3,611,000
)
(2,551,000
)
Amortization of debt discount (cumulative)
468,000 94,000
6% Senior Convertible Notes (net)
$ 1,482,000 $ 543,000

Table of Contents

Scheduled maturities on the Company’s convertible notes is as follows: $2,990,000 in the twelve months ending December 31, 2021, $2,775,000 in the twelve months ending in December 31, 2022; $3,395,000 in the twelve months ending December 31, 2023, $1,150,000 in the twelve months ending December 31, 2024 and $725,000 thereafter.

~~During 2017,~~Included in the face value of convertible notes outstanding at June 30, 2020 and December 31, 2019, is $2,402,000 and $2,477,000 respectively in convertible notes payable to various directors of the Company. Also included in the face value of the convertible notes are $1,795,000 and $1,170,000 as of June 30, 2020 and December 31, 2019, respectively, in convertible notes payable to an investor that is deemed an affiliate.

	Total			2019 6% Notes			JULY 2018 Notes			2018 Notes			2017 6% Notes			2016 6% Notes
Face value December 31, 2019	$	10,310,000		$	650,000		$	1,675,000		$	625,000		$	4,370,000		$	2,990,000
Notes issued		725,000			725,000			-			-			-			-
Face value June 30, 2020	$	11,035,000		$	1,375,000		$	1,675,000		$	625,000		$	4,370,000		$	2,990,000

Debt discount December 31, 2019	$	(1,900,000	)	$	(3,000	)	$	(353,000	)	$	(185,000	)	$	(362,000	)	$	(997,000	)
Debt discount issued		(21,000	)		(21,000	)		-			-			-			-
Amortization reported as interest		400,000			13,000			41,000			23,000			55,000			268,000
Debt discount June 30, 2020	$	(1,521,000	)	$	(11,000	)	$	(312,000	)	$	(162,000	)	$	(307,000	)	$	(729,000	)

Senior Convertible Notes (net)	$	9,514,000		$	1,364,000		$	1,363,000		$	463,000		$	4,063,000		$	2,261,000

2019 Convertible Notes

In April 2019, the board of directors authorized the issuance of up to $4$2.5 million in 6% Convertible Promissory Notes (the “2019 Convertible Notes”) in connection with the May 28, 2019 Securities Purchase Agreement (the “2019 SPA”). The 2019 Convertible Notes mature on the earlier of: five days after the sale of substantially all the assets of the Aegis division or five years from the date of issuance.

The conversion rate of the notes is fixed at the greater of: $0.15 per share and the closing market price of the Company’s common stock on the trading day immediately prior to the issuance of the note. Investors receive 30,000 shares of common stock for each $100,000 investment in the 2019 Convertible Notes. The notes were offered in a private placement exempt from registration under Section 4(a)(2) of the Securities Act of 1933 as amended (the "Securities Act") and Rule 506(c) of Regulation D as promulgated by the Securities and Exchange Commission. The offering was available only to “accredited investors” as defined in Rule 501(a) of Regulation D under the Securities Act.

During the three- and six- month periods ended June 30, 2020, the Company issued $165,000 and $725,000, respectively, in new notes and allocated $5,000 and $21,000, respectively, of the proceeds to debt discount based on the estimated fair value of the common shares issued on the date of investment. During the three- and six-month periods ended June 30, 2020, the Company recorded $24,000 and $46,000 in interest expense which includes amortization of debt discount. During the three- and six-month periods ended June 30, 2019; the Company recorded $23,000 and $46,000, respectively which includes amortization of debt discount.

JULY 2018 Convertible Notes

In July 2018, the board of directors authorized the issuance of up to $2.5 million in non-interest bearing Senior Convertible Promissory Notes and Warrants (the ~~“2017~~“JULY 2018 Convertible Notes”) in connection with the ~~May 31, 2017~~July 24, 2018 Securities Purchase Agreement (the ~~“2017~~“JULY 2018 SPA”). The ~~2017~~JULY 2018 Convertible Notes have a ~~five year maturity and~~five-year maturity. In April 2019, the Company’s board approved a ~~fixed annual interest rate of 6%. The initial year of interest expense will be paid~~resolution to ~~the note holders on the first anniversary of each note's issuance and quarterly thereafter. Principal is due in full on each note's maturity date.~~ complete this offering.

The conversion rate of the notes was fixed at ~~$0.50~~$0.25 per share as determined at the close of business on ~~May 31, 2017. Investments of $500,000 or greater are~~July 24, 2018. Investors in this offering were granted warrants to purchase common shares equal to 10% or 25% of the number of shares issuable upon the conversion of the ~~notes. Investments below this threshold are granted warrants equal to 10% of the number of shares issuable~~notes based upon the ~~conversion~~amount of ~~the notes.~~their investment. The warrants have a fixed exercise price of ~~$0.50~~$0.25 and a ten-year term from the date of issuance. The notes were offered in a private placement exempt from registration under Section 4(a)(2) of the Securities Act of ~~1934,~~1933 as amended (the "Securities Act") and Rule 506(c) of Regulation D as promulgated by the Securities and Exchange Commission. The offering iswas available only to “accredited investors” as defined in Rule 501(a) of Regulation D under the Securities ~~Act of 1933.~~Act.

During the three and six month ~~period~~periods ended ~~September~~June 30, 2017, the Company issued $1,225,000 in 2017 Convertible Notes and 395,100 warrants. During the nine month period ended September 30, 2017, the Company issued $1,625,000 in 2017 Convertible Notes and 475,100 warrants.

~~The Company allocated~~ $1,060,000 of the proceeds from the 2017 SPA to debt discount based on the computed fair value of the warrants issued, the beneficial conversion feature and the debt issuance costs. During the three months ended September 30, 20172020 the Company recorded ~~$15,000~~$21,000 and $41,000 respectively in interest expense ~~and~~which reflects the amortization of debt ~~discount of $28,000.~~discount. During the ~~nine months~~three- and six-month periods ended ~~September~~June 30, ~~2017~~2019 the Company recorded ~~$16,000~~$19,000 and $32,000 respectively in interest expense ~~and~~which reflects the amortization of debt ~~discount of $34,000 related to the 2017 Convertible Notes.~~

~~As of~~ September 30, 2017, the 2017 Convertible Notes have a face value of $1,625,000 and are presented net of unamortized debt discount related to warrants, beneficial conversion feature and debt issuance costs resulting in a carrying value of $599,000.discount.

Table of Contents

~~During 2016,~~2018 Convertible Notes

In May 2018, the board of directors authorized the issuance of up to $1 million in non-interest bearing Senior Convertible Promissory Notes and Warrants (the “2018 Convertible Notes”) in connection with the May 8, 2018 Securities Purchase Agreement (the “2018 SPA”). The 2018 Convertible Notes have five-year maturity. On July 19, 2018, the Company’s board approved a resolution to complete this offering.

The conversion rate of the notes was fixed at $0.25 per share as determined at the close of business on May 8, 2018. Investors in this offering were granted warrants to purchase common stock equal to 10% or 25% of the number of shares issuable upon the conversion of the notes based upon the amount of their investment. The warrants have a fixed exercise price of $0.25 and a ten-year term from the date of issuance. The notes were offered in a private placement exempt from registration under Section 4(a)(2) of the Securities Act of 1933 as amended (the "Securities Act") and Rule 506(c) of Regulation D as promulgated by the Securities and Exchange Commission. The offering was available only to “accredited investors” as defined in Rule 501(a) of Regulation D under the Securities Act.

During the three and six month periods ended June 30, 2020 the Company recorded $12,000 and $23,000 respectively in interest expense which reflects the amortization of debt discount. During the three-and six-month periods ended June 30, 2019 the Company recorded $11,000 and $22,000 respectively in interest expense which reflects the amortization of debt discount.

2017 Convertible Notes

The board of directors authorized the issuance of up to $5 million in 6% Senior Convertible Promissory Notes and Warrants (the “2017 Convertible Notes”) in connection with the May 31, 2017 Securities Purchase Agreement (as amended, the “2017 SPA”). The 2017 Convertible Notes have a five-year maturity and a fixed annual interest rate of 6%. Investors in this offering were granted warrants to purchase warrants equal to 10% or 25% of the number of shares issuable upon the conversion of the notes based upon the amount of their investment.

The conversion rate of the 2017 Notes was originally set at $0.50 per share and subsequently modified in November 2018 to $0.333 per share. The exercise price of related warrants issued in connection with the 2017 Notes was also subsequently modified in November 2018 to $0.333 per share. The 2017 Convertible Notes were offered in a private placement exempt from registration under Section 4(a)(2) of the Securities Act and Rule 506(c) of Regulation D as promulgated by the Securities and Exchange Commission. The offering was available only to “accredited investors” as defined in Rule 501(a) of Regulation D under the Securities Act.

During the three-and six- month periods ended June 30, 2020 the Company recorded $93,000 and $185,000, respectively, in interest expense including amortization of debt discount. During the three-and six- month periods ended June 30, 2019 the Company recorded $91,000 and $171,000, respectively, in interest expense including amortization of debt discount.

2016 Convertible Notes

During 2016, the board of directors authorized, and the Company issued, $3 million in 6% Senior Convertible Promissory Notes and Warrants (the “2016 Convertible Notes”) in connection with the August 25, 2016 Securities Purchase Agreement (the “2016 SPA”). The 2016 Convertible Notes have ~~five year~~ five-year maturity dates ranging from August 2021 through December 2021 and a fixed annual interest rate of 6%. ~~The initial year of interest expense will be paid to the note holders on the first anniversary of each note's issuance and quarterly thereafter. Principal is due in full on each note's maturity date.~~

The conversion rate of the notes was fixed at $0.25 per share as determined at the close of business on August 25, 2016. The investors were granted warrants to purchase an aggregate number of shares of common stock equal to 10% of the number of shares issuable upon the conversion of the notes. The warrants have a fixed exercise price of $0.25 and a ten-year term from the date of issuance. The notes were offered in a private placement exempt from registration under Section 4(a)(2) of the Securities Act of 1934, as amended and Rule 506(c) of Regulation D as promulgated by the Securities and Exchange Commission. The offering was available only to “accredited investors” as defined in Rule 501(a) of Regulation D under the Securities Act of 1933.

During the three-and six- month periods ended June 30, 2020 the Company recorded $180,000 and $357,000, respectively, in interest expense including amortization of debt discount. During the three-and six- month periods ended June 30, 2019 the Company recorded $172,000 and $342,000, respectively, in interest expense including amortization of debt discount.

NOTE 7-10 - BUSINESS SEGMENTS

The Company has two operating business segments. The CURA business operates in the fatigue management industry and the Aegis business is focused in the power and hydraulic industry.

Segment information for the three months ~~ended~~ ~~September~~ending June 30, 20 ~~30, 2017~~20 for the Company’s business segments follows:

	CURA			Aegis			Corporate			Total			CURA			Aegis			Corporate			Total

Revenue	$	6,000		$	-		$	-		$	6,000		$	2,000		$	-		$	-		$	2,000
Loss on revenue		(31,000	)		-			-			(31,000	)		(10,000	)		-			-			(10,000	)
Total operating expenses		381,000			134,000			358,000			873,000
Total costs and expenses														129,000			(13,000	)		255,000			371,000
Loss from operations		(412,000	)		(134,000	)		(358,000	)		(904,000	)		(139,000	)		13,000			(255,000	)		(381,000	)
Other (expense)		-			-			(204,000	)		(204,000	)
Non-operating expense														-			-			(440,000	)		(440,000	)
Net loss	$	(412,000	)	$	(134,000	)	$	(562,000	)	$	(1,108,000	)	$	(139,000	)	$	13,000		$	(695,000	)	$	(821,000	)

Stock compensation expense	$	2,000		$	2,000		$	24,000		$	28,000
Stock based compensation													$	17,000		$	(37,000	)	$	(8,000	)	$	(28,000	)
Depreciation and amortization	$	38,000		$	4,000		$	2,000		$	44,000		$	-		$	2,000		$	18,000		$	20,000
Capital expenditures	$	263,000		$	14,000		$	-		$	277,000
Assets at September 30, 2017	$	609,000		$	80,000		$	229,000		$	918,000
Assets at June 30, 2020													$	-		$	32,000		$	246,000		$	278,000

Segment information for the ~~nine~~six months ending June 30, 20 ~~months ended~~ 20~~September~~ ~~30, 2017~~ for the Company’s business segments follows:

	CURA			Aegis			Corporate			Total

Revenue	$	5,000		$	-		$	-		$	5,000
Loss on revenue		(8,000	)		-			-			(8,000	)
Total costs and expenses		183,000			52,000			554,000			789,000
Loss from operations		(191,000	)		(52,000	)		(554,000	)		(797,000	)
Non-operating expense		-			-			(777,000	)		(777,000	)
Net loss	$	(191,000	)	$	(52,000	)	$	(1,331,000	)	$	(1,574,000	)

Stock based compensation	$	40,000		$	(33,000	)	$	3,000		$	11,000
Depreciation and amortization	$	-		$	5,000		$	34,000		$	39,000
Assets at June 30, 2020	$	-		$	32,000		$	246,000		$	278,000

CURA

Aegis

Corporate

Total

Revenue
$ 23,000 $ - $ - $ 23,000
Loss on revenue
(88,000 ) - - (88,000 )
Total operating expenses
1,807,000 402,000 1,179,000 3,388,000
Loss from operations
(1,895,000 ) (402,000 ) (1,179,000 ) (3,476,000 )
Other (expense)
- - (523,000 ) (523,000 )
Net loss
$ (1,895,000 ) $ (402,000 ) $ (1,702,000
)
$ (3,999,000 )

Stock compensation expense
$ 80,000 $ 6,000 $ 74,000 $ 160,000
Depreciation and amortization
$ 113,000 $ 15,000 $ 8,000 $ 136,000
Capital expenditures
$ 372,000 $ 47,000 $ - $ 419,000
Assets at September 30, 2017
$ 609,000 $ 80,000 $ 229,000 $ 918,000

Table of Contents

Segment information for the three months ~~ended~~ ~~September~~ending June 30, 201 ~~30, 2016~~9 for the Company’s business segments follows:

CURA

Aegis

Corporate

Total

Revenue
$ 14,000 - - $ 14,000
Loss on revenue
(21,000
)
- - (21,000
)
Total operating expenses
407,000 $ 136,000 362,000 905,000
Loss from operations
(428,000
)
(136,000 ) (362,000
)
(926,000
)
Other (expense)
- - (21,000 (21,000
)
Net loss
$ (428,000 ) $ (136,000 ) $ (383,000 ) $ (947,000 )

Stock compensation expense
$ 6,000 $ 6,000 $ 12,000 $ 24,000
Depreciation and amortization
$ 32,000 $ 10,000 $ 3,000 $ 45,000
Capital expenditures
$ 33,000 $ - $ - $ 33,000
Assets at September 30, 2016
$ 289,000 $ 86,000 $ 1,155,000 $ 1,530,000

	CURA			Aegis			Corporate			Total

Revenue	$	2,000		$	-		$	-		$	2,000
Loss on revenue		(1,000	)		-			-			(1,000	)
Total costs and expenses		(176,000	)		(150,000	)		(335,000	)		(661,000	)
Loss from operations		(177,000	)		(150,000	)		(335,000	)		(662,000	)
Non-operating expense		-			-			(303,000	)		(303,000	)
Net loss	$	(177,000	)	$	(150,000	)	$	(638,000	)	$	(965,000	)

Stock based compensation	$	6,000		$	5,000		$	34,000		$	45,000
Depreciation and amortization	$	3,000		$	5,000		$	26,000		$	34,000
Assets at June 30, 2019	$	6,000		$	45,000		$	246,000		$	297,000

Segment information for the ~~nine~~six months ending June 30, 20 ~~months ended~~ 19~~September~~ ~~30, 2016~~ for the Company’s business segments follows:

CURA

Aegis

Corporate

Total

Revenue
$ 20,000 - - $ 20,000
Loss on revenue
(72,000
)
- - (72,000
)
Total operating expenses
1,324,000 $ 512,000 1,030,000 2,866,000
Loss from operations
(1,396,000 ) (512,000 ) (1,030,000 ) (2,938,000 )
Other (expense)
- - (19,000
)
(19,000
)
Net loss
$ (1,396,000 ) $ (512,000 ) $ (1,049,000 ) $ (2,957,000 )

Stock compensation expense
$ 11,000 $ 9,000 $ 80,000 $ 100,000
Depreciation and amortization
$ 90,000 $ 31,000 $ 8,000 $ 129,000
Capital expenditures
$ 60,000 $ - $ 8,000 $ 68,000
Assets at September 30, 2016
$ 289,000 $ 86,000 $ 1,155,000 $ 1,530,000

	CURA			Aegis			Corporate			Total

Revenue	$	9,000		$	-		$	-		$	9,000
Margin (loss on revenue)		-			-			-			-
Total costs and expenses		(515,000	)		(319,000	)		(702,000	)		1,536,000
Loss from operations		(515,000	)		(319,000	)		(702,000	)		(1,536,000	)
Non-operating expense		-			-			(577,000	)		(577,000	)
Net loss	$	(515,000	)	$	(319,000	)	$	(1,279,000	)	$	(2,113,000	)

Stock based compensation	$	14,000		$	13,000		$	77,000		$	104,000
Depreciation and amortization	$	9,000		$	10,000		$	53,000		$	72,000
Assets at June 30, 2019	$	6,000		$	45,000		$	246,000		$	297,000

NOTE 8—11 - PREFERRED and COMMON STOCK

Common Stock

We have authorized 400,000,000 shares of common stock, with a par value of $0.01 per share.

During the ~~nine months~~three- and six-month periods ended ~~September~~June 30, ~~2017 we~~2020 the Company issued ~~1,494,000~~123,074 and 217,846 shares of common stock in ~~connection with conversion notices received from Series C-3 convertible preferred shareholders, 62,500~~payment of interest on the Company’s 2016, 2017 and 2019 Convertible Notes. During the three- and six-month periods ended June 30, 2019 the Company issued 39,156 and 75,152 shares of common stock in ~~connection with a conversion notice received from a Series C preferred shareholder~~payment of interest on the Company’s 2016, 2017 and 40,000 shares of common upon the exercise of a common stock warrant. During the nine months ended September 30, 2016, the Company issued 760,000 shares of common stock in connection with conversion notices received from Series C-3 convertible preferred shareholders.2019 Convertible Notes.

Preferred Stock

Our certificate of incorporation permits the Company to issue up to 100,000,000 shares of $.01 par value preferred stock.

Class A Preferred Stock

At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019 there were ~~543,221~~468,221 outstanding shares of Class A Preferred stock, of which 8,709 shares resulted from the settlement of dividends due to conversion, and those shares no longer accrue dividends. The value of dividends payable upon the conversion of the remaining ~~534,521~~459,512 outstanding shares of Class A Preferred stock was ~~$2,699,000~~$2,805,000 at ~~September~~June 30, ~~2017~~2020 and ~~$2,538,000~~$2,713,000 at December 31, ~~2016.~~ 2019.

In the event of a liquidation, dissolution and winding up of the Company, and subject to the liquidation rights and privileges of our Class C Preferred ~~shareholders,~~stockholders, Class A Preferred ~~shareholders~~stockholders and Class B stockholders have a liquidation preference with respect to all accumulated and unsettled dividends. The value of the Class A Preferred ~~shareholders~~’stockholders’ liquidation preference was ~~$2,699,000~~$2,805,000 and ~~$2,538,000~~$2,713,000 at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. In the event of liquidation, dissolution or winding up of the Company, unpaid accumulated dividends on the Class A Preferred are payable in Class A Preferred at a rate of 1 share of Class A Preferred for each $4.00 of dividends.

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Class B Preferred Stock

At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, there were 67,500 outstanding shares of Class B Preferred stock. The value of dividends payable upon the conversion of the outstanding shares of Class B Preferred stock was ~~$412,000~~$504,000 at ~~September~~June 30, ~~2017~~2020 and ~~$386,000~~$488,000 at December 31, ~~2016.~~ 2019.

In the event of liquidation, dissolution and winding up of the Company, and subject to the liquidation rights and privileges of our Class C Preferred ~~shareholders and~~stockholders, our Class A Preferred ~~shareholders,~~stockholders and our Class B Preferred ~~shareholders~~stockholders have a liquidation preference with respect to all accumulated and unsettled dividends. ~~The value of the Class B Preferred shareholders’ liquidation preference was $412,000 and $386,000 at September 30, 2017 and December 31, 2016, respectively.~~ In the event of a liquidation, dissolution or winding up of the Company, unpaid accumulated dividends on the Class B Preferred are payable in Class B Preferred shares at a rate of 1 share of Class B Preferred for each $5.00 of dividends.

Series C Preferred Stock

At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, there were ~~15,937,500 and 16,000,000~~15,687,500 shares of Series C Preferred stock ~~outstanding, respectively. During 2017, one Series C Preferred shareholder converted 62,500 shares of Series C Preferred into common stock.~~outstanding. The value of the Series C Preferred ~~shareholders’~~stockholders’ liquidation preference was ~~$6,375,000~~$6,275,000 at ~~September~~June 30, ~~2017~~2020 and ~~$6,400,000~~ at December 31, ~~2016.~~2019.

The Series C Preferred shares have a liquidation preference at their stated value per share of $0.40 that is senior to our common stock, and the ~~Company~~’sCompany’s Class A Non-Voting Cumulative Convertible Preferred Shares and Class B Non-Voting Cumulative Convertible Preferred Shares. The liquidation preference is payable upon a liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, or upon a deemed liquidation of the Company.

The Series C Preferred shares have no right to receive dividends and have no redemption right. The Series C Preferred shares vote with the common stock on an as-converted basis.

Series ~~C-2~~C-2 Preferred Stock

At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, there were ~~25,000,000~~24,500,000 shares of Preferred C-2 stock outstanding. The value of the Series C-2 Preferred ~~shareholders’~~stockholders’ liquidation preference was ~~$5,000,000~~$4,900,000 at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016.~~ 2019.

The Series C-2 Preferred Shares are not entitled to receive preferred dividends and have no redemption right, but are entitled to participate, on an as converted basis; with holders of outstanding shares of common stock in dividends and distributions on liquidation after all preferred shares have received payment in full of any preferred dividends or liquidation preferences. The Series C-2 Preferred Shares vote with the common stock on an as-converted basis. We may not, without approval of the holders of at least two-thirds of the Series C-2 Preferred Shares, (i) create any class or series of stock that is pari passu or senior to the Series C-2 Preferred Shares, (ii) create any class or series of stock that would share in the liquidation preference of the Series C-2 Preferred Shares or that is entitled to dividends payable other than in common stock or Series C-2 Preferred Shares of its own series, (iii) acquire any equity security or pay any dividend, except dividends on a class or series of stock that is junior to the Series C Preferred Shares, payable in such junior stock, (iv) reissue any Series C-2 Preferred Shares, (v) declare or pay any dividend that would impair the payment of the liquidation preference of the Series C-2 Preferred Shares, (vi) authorize or issue any additional Preferred Shares, (vii) change the Certificate of Incorporation to adversely affect the rights of the holders of the Series C-2 Preferred Shares, or (viii) authorize, commit to or consummate any liquidation, dissolution or winding up in which the liquidation preference of the Series C-2 Preferred Shares would not be paid in full.

Series ~~C-3~~C-3 Preferred Stock

~~During 2016, the Company issued a total of~~ ~~6,042,000~~At June 30, 2020 and December 31, 2019, there were 3,238,000 shares of ~~Series~~Preferred C-3 ~~Voting Convertible Preferred Stock in a private placement transaction, generating net proceeds of $1,495,000 after related legal costs.~~ stock outstanding.

In connection with the issuance of the Series C-3 Preferred stock, we computed the value of the non-cash beneficial conversion feature associated with the right to convert the shares into common stock on a one-for-one basis. We compared the fair value of our common stock on the date of issuance with the effective conversion price, and determined that the value of the non-cash beneficial conversion feature, for the nine months ended September 30, 2016, was $600,000, and is reflected in our condensed consolidated statements of operations as an adjustment to arrive at the net loss attributable to common stockholders.

~~During~~ the nine months ended September 30, 2017 we issued 1,494,000 shares of common stock in connection with conversion notices received from Series C-3 convertible preferred shareholders. During the nine months ended September 30, 2016, the Company issued 760,000 shares of common stock in connection with conversion notices received from Series C-3 convertible preferred shareholders.

NOTE 9 —12 - STOCK OPTIONS

2016~~2011 and 2016~~ Stock Option Plan

The shareholders approved the 2016 Stock Option Plan (the “2016 Plan”) which provides for the grant of up to 3,000,000 common stock options asto provide equity incentives to directors, officers, employees and consultants. Two types of options may be granted under the 2016 Plan: non-qualified stock options and incentive stock options. NoAs of June 30, 2020, there are 342,500 options ~~have been granted~~available for future grant under the 2016 ~~plan as of~~ ~~September 30, 2017.~~Plan.

2011 Stock Option PlanThe shareholders approved the 2011 Stock Option Plan (the “2011 Plan”) which provides for the grant of up to 3,000,000 common stock options asto provide equity incentives to directors, officers, employees and consultants. Two types of options may be granted under the 2011 Plan: non-qualified stock options and incentive stock options.

On occasion, we have granted non-qualified stock options to certain officers, directors and employees that have been outside of established Company Stock Option Plans. All such option grants have been authorized by shareholder approval.

~~During the~~ nine months ended September 30, 2017, we granted a total of 235,000 stock options to new and existing employees and advisors. The options granted had exercise prices ranging from $0.65 to $1.00 per share, exercisable for 10 years. These options vest in four tranches at a rate of 25% per year on each of the four anniversary dates from the date of grant.

As of ~~September~~June 30, ~~2017,~~2020, there ~~were 2,782,000 stock~~are 316,000 options ~~outstanding under the 2011 Plan, 1,611,500 of which were vested. At September 30, 2017, there were 218,000 options remaining~~ available for future grant under the 2011 Plan. No

Under the 2016 and 2011 Stock Option Plans, non-qualified stock options ~~expired or were cancelled during~~may be granted to our officers, directors, employees and outside consultants. Incentive stock options may be granted only to our employees, including officers and directors who are also employees. In the ~~nine month~~case of incentive stock options, the exercise price may not be less than such fair market value and in the case of an employee who owns more than 10% of our common stock, the exercise price may not be less than 110% of such market price. Options generally are exercisable for ten years from the date of grant, except that the exercise period ~~ended September 30, 2017. During the nine month period ended September 30, 2016, 3,000 options were cancelled.~~for an incentive stock option granted to an employee who owns more than 10% of our stock may not be greater than five years.

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~~The expense recognized for options that are granted to consultants (i.e., non-employees) reflect fair value, based on updated valuation assumptions using~~During the Black-Scholes valuation model at each measurement period. Such expense is apportioned over the requisite service period of the consultant, which is concurrent with the vesting dates of the various tranches.

~~As of~~ ~~September 30, 2017, there were a total of 6,900,000 non-plan options outstanding, of which 4,750,000 were fully vested. In the nine~~six months ended ~~September~~June 30, ~~2017 and 2016, no non-plan~~2020 the Company granted 2,100,000 stock options to certain employees, board members and a consultant. No stock option grants were ~~vested, cancelled, or forfeited.~~made during the six months ended June 30, 2019.

Summary For the ~~three~~three- month period ended June 30, 2020, the Company recognized a net credit to stock compensation of $28,000 and for the six months ended ~~September~~June 30, ~~2017~~2020, the Company recognized stock compensation expense of $11,000. The Company recorded $80,000 in forfeitures in the second quarter of 2020 and ~~2016, compensation cost related to all stock options amounted to $28,000 and $24,000, respectively. For~~$106,000 in forfeitures during the ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016, compensation cost related to all stock options amounted to $160,000 and $100,000, respectively.~~ 2020 reflecting employee turnover during these periods.

As of ~~September~~June 30, ~~2017,~~2020, there was ~~$306,000~~$154,000 of total unrecognized compensation costs related to outstanding stock options, which are expected to be recognized over a weighted average ~~1.4~~of 1 year.

The weighted average grant date fair value of ~~all~~ stock options ~~granted~~issued during the ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016~~2020 was ~~$0.76 and $0.44, respectively.~~$0.10 per share. The ~~total~~weighted average grant date fair value of stock options vested during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~June 30, 2019 was ~~$3,000~~$64,000 and ~~$39,000,~~$74,000, respectively.

The fair value of ~~options~~each option granted ~~during the~~ ~~nine months ended September 30, 2017 and 2016 were measured~~was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

2017

2016

Expected Term (years)
6.6 % 5.1 %
Expected forfeiture rate
0.0 % 0.0 %
Risk-free rate
2.1 % 2.1 %
Volatility
130 % 132 %
Dividend yield
0.0 % 0.0 %

Included in the 2016 assumptions above, is the impact of 327,000 stock options that were granted under the 2011 Plan, that will vest based on certain market conditions, specifically these options will fully vest upon the first day the trading price of the common stock of the Company shall be $5.00 per share.

	2020			2019
Expected term (years)		6.3			-
Expected forfeiture rate		0	%		-
Risk-free rate		1.3	%		-
Volatility		179	%		-
Dividend yield		0.0	%		-

The average risk-free interest rate is based on the U.S. treasury security rate in effect as of the grant date. We determined expected volatility using the historical closing stock price. The expected life was generally determined using the simplified method as we do not believe we have ~~sufficient~~enough historical stock option exercise experience on which to base the expected term.

The following summarizes the activity of ~~all of~~ our outstanding stock options for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~ 2020:

					Average							Weighted		Average
			Weighted		Remaining							Average		Remaining		Aggregate
			Average		Contractual		Aggregate					Exercise		Contractual		Intrinsic
	Shares		Exercise Price		Term (years)		Intrinsic Value		Shares			Price		Term (years)		Value
Outstanding at January 1, 2017		9,447,000	$	.53		4.8	$	2,016,000

Outstanding at January 1, 2020										10,740,500		$	0.50		2.6	$	-
Granted		235,000		.76						2,100,000			.10
Exercised		-		-						-			-
Canceled or expired		-		-						(1,099,000	)		.57

Outstanding at September 30, 2017		9,682,000	$	.54		4.2	$	1,832,000
Outstanding at June 30, 2020										11,741,500		$	0.42		3.1	$	-

Exercisable at September 30, 2017		6,361,500	$	.61		3.7	$	942,000
Exercisable at June 30, 2020										7,415,000		$	0.52		2.3	$	-

During the six months ended June 30, 2020, 1,099,000 options were canceled due to employee turnover, no options expired unexercised and no options were exercised. During the six months ended June 30, 2019, no options expired unexercised, and no options were canceled, or exercised. As of ~~September~~June 30, ~~2017,~~2020, the exercise prices ~~of all~~on outstanding stock options ranged from ~~$.20~~$.07 per share to ~~$5.00~~$1.58 per share.

NOTE 1013 - WARRANTS

The following ~~table~~ summarizes the activity of ~~the~~our outstanding warrants ~~as of~~ ~~September~~for the six months ended June 30, ~~2017:~~2020:

Weighted

Weighted

Average

Average

Remaining

Aggregate

Exercise

Contractual

Intrinsic

Shares

Price

Term

Value

Outstanding at January 1, 2017
4,218,500 $ .95
(a)
6.1 (b)
Granted
475,100 .50
Exercised
(40,000
)
$ .25
Expired
(150,000
)
$ 5.00
Outstanding at September 30, 2017
4,503,600 $ .66
(a)
6.2 (d) $ 804,000

Exercisable at September 30, 2017
3,878,600 $ .63
(d)
6.0 (c) $ 802,000

	Shares			Weighted Average Exercise Price			Weighted Average Remaining Contractual Term			Aggregate Intrinsic Value

Outstanding at January 1, 2020		7,731,707			0.45	(A)		6.2	(B)	$	33,000
Granted		-			-
Exercised		-			-
Canceled or expired		(100,000	)		2.50

Outstanding at June 30, 2020		7,631,707			0.42	(A)		6.1	(B)	$	41,000

Exercisable at June 30, 2020		7,006,707		$	0.46			6.1	(C)	$	40,000

	~~(a)~~(A)	The weighted average exercise price for warrants outstanding as of ~~September~~June 30, ~~2017~~2020 and 2019 excludes 1,750,000 warrants in each period with no determined exercise price.
	~~(b)~~(B)	The weighted average remaining contractual term for warrants outstanding as of ~~September~~June 30, ~~2017~~2020 and 2019 excludes 743,500 warrants with no expiration date.
	~~(c)~~(C)	The weighted average remaining contractual term for warrants exercisable as of ~~September~~June 30, ~~2017~~2020, and 2019 excludes 118,500 warrants with no expiration date.
	~~(d)~~	~~The weighted average exercise price for warrants exercisable as of~~ ~~September 30, 2017 excludes 1,625,000~~ ~~warrants with no determined exercise price.~~

~~Item~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~The following discussion should be read in conjunction with the Company~~’s condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016 and the related condensed consolidated statements of operations for the three and nine months ended September 30, 2017 and 2016 and the related condensed consolidated statements of cash flows for the nine months ended September 30, 2017 and 2016, included elsewhere in this report. This discussion contains forward-looking statements, the accuracy of which involves risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons including, but not limited to, those discussed under the heading "Safe Harbor" below and elsewhere in this report. We disclaim any obligation to update information contained in any forward-looking statements.

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"~~below and in “Risk Factors” in Item 1A of our ~~periodic~~2019 annual report on Form ~~8K filed with the Securities and Exchange Commission on October 18, 2017.~~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.

During the first quarter of 2020, the World Health Organization declared a novel coronavirus (COVID-19) outbreak as a public health emergency. There have been mandates from international, federal, state and local authorities requiring forced closures of various businesses, schools and other facilities and organizations. While the closures and limitations on movement, domestically and internationally, are expected to be temporary, if the outbreak continues on its current trajectory the duration of the supply chain disruption could reduce the availability, or result in delays, of material or supplies to or from the Company, which in turn could materially interrupt the Company's business operations. Given the speed and frequency of continuously evolving developments with respect to this pandemic, the Company cannot reasonably estimate the magnitude of the impacts to its results of operations.

~~CurAegis Technologies, Inc. (“CurAegis”, “the Company”) was incorporated as a New York business corporation in September~~ ~~1996 under the name Torvec, Inc.~~ The ~~Company’s name was changed to CurAegis Technologies, Inc. in September 2016 in connection with the establishment of its~~Company has two business ~~divisions. The~~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 ~~business.~~

~~The Company develops and markets advanced technologies in the areas of safety, wellness and power.~~industry. The Company is focused on the commercialization of a wellness and safety system (the ~~CURA System and the~~ myCadian ~~watch)~~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 ~~any~~ significant revenue-producing operations.

~~The Company has created the CURA System to market products that reduce fatigue risk in the workplace and help individuals manage their sleep and improve alertness. The CURA System~~ ~~will include the following functions:~~

~~The Aegis hydraulic pump technology has been designed to bring to the marketplace a unique concept in hydraulic pumps and motors that will be:~~

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 ~~for~~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.

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 usthe 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 initially supports IOS devices and over time will be expanded to include android based devices. The myCadian system will include:

During 2019, the Company initiated discussions with investment advisors to evaluate the possible monetization of the Aegis technologies. On April 8, 2020, the Company reported that it had initiated a temporary suspension of this evaluation process. This decision was linked to the COVID-19 pandemic which adversely impacted and is expected to continue to adversely impact the Company’s ability to generate industry interest in the Aegis technologies. Recent updates with interested parties have indicated that companies in the hydraulics industry are currently focused on internal processes, technology, and employees.

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 ~~below,~~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.~~www.CurAegis.com. The website and its contents are not incorporated by reference into this report.

~~CURA Division: the myCadian ™ watch, the CURA System, and Z-Coach e-learning~~

~~The Company~~’s CURA division is developing a proprietary technology and suite of products designed to (i) measure the decrease in a person’s alertness and (ii) train individuals on how to improve alertness levels. The CURA System and the myCadian watch is designed to enable the user and third parties to anticipate, identify and avert undesired or disastrous situations caused by the degradation of alertness. With the information provided from the CURA software analytics, employees can work with Z-Coach, our proprietary sleep training and education solution, to correct sleep issues and improve overall wellness.

~~CurAegis has engaged~~ a Scientific Advisory Board including sleep experts and neurologists to assist with the analysis and validation of our new technologies. The Company believes a solutions approach can be created to indicate a “degradation of alertness” and thus give immediate and important information to the user and other parties. Action taken upon a warning of a change in alertness will lead to a better and safer environment. The myCadian watch paired with the CURA software is designed to be a real time alertness system that addresses sleep and fatigue management solutions. This is especially important when an individual’s alertness is essential in properly performing tasks, fulfilling responsibilities and averting disasters. The Company has filed for patent protection for these inventions.

The myCadian watch is a wearable device developed using physiological monitoring hardware and our proprietary CURA (Circadian User Risk Assessment) software and is designed to predict and detect a degradation of alertness in a user and reveal sleep and fatigue problems. The CURA System will include:

The Company has nine pilots scheduled for fourth quarter shipment in multiple industry verticals including: Trucking, Aviation, and Mining. Management will monitor the customer experience throughout the 30-60 day pilot program with the intent to convert the pilot experiences to sales upon the completion of the pilot. The initiation of these pilot programs is dependent on the Company's product testing and functionality.

~~The Company has invested in controlled clinical studies at the Sleep and Chronobiology Laboratory~~ at the University of Colorado-Boulder and at the University of Rochester Medical Center. These studies have been used to validate our actigraphy data collection as well as calibrate our proprietary technologies and algorithms.

The Z-Coach e-learning tool is a critical component of the CURA System and was originally created by highly respected fatigue management scientists. We acquired the Z-Coach e-learning tool in September 2015. 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.

The first Z-Coach e-learning module, Z-Coach Aviation, was originally designed for aviation professionals, from flight and ground crews, to scheduling, dispatch, administration and management. Z-Coach Aviation was offered for sale in the first quarter of 2016. During 2016, the Company completed the design of the Z-Coach Pro module which will be marketed to a broad range of industries for fatigue learning and mitigation including modules tailored to the trucking and busing industry. Industry-specific Z-Coach modules will be included in the launch of the CURA™ System and the myCadian watch.

~~The Aegis engineers~~ did significant internal testing on the fixed displacement hydraulic motor/pump during the third quarter which will continue throughout the fourth quarter of 2017. We are designing specifications for a variable displacement pump which we hope will be ready by mid-2018. Our current plan is to license our technology to a major manufacturer. We anticipate scheduling meetings with these manufacturers in the first quarter of 2018.

The development of our hydraulic pump has taken on added significance in light of U.S. government emissions regulations for off road diesel engines. To help achieve these standards, companies are attempting to run diesel engines, and their hydraulic pumps, at lower rotational speeds. This requires larger displacement hydraulic pumps to be installed to compensate for the decrease in rotational speed. Among other advantages, the Aegis hydraulic pump technology allows a larger displacement pump to fit into the same or smaller footprint than that of existing pumps (“power density”). This enables manufacturers to keep the current equipment layout without the need for expensive modifications to accommodate larger hydraulic pumps.

We have invested in software, test equipment and personnel to enhance our development efforts and began a design of the hydraulic pump to improve the overall performance while maintaining the advantages we have in size and weight. We have built our own testing facility, which would have otherwise taken place at a third party testing facility. Our engineer and design team has progressively made adjustments to the sealing technology and each change has resulted in an improvement in the measured efficiency of the pump. We have filed for patent protection for our novel non-rotating group pump concept, and we are also working on additional patents as a result of engineering breakthroughs in our design process.

Results of Operations for the three months ended ~~September~~June 30, ~~30, 2017~~2020 and ~~2016~~2019

The Company recorded ~~$6,000~~zero and $1,000 in Z-Coach sales during the three months ended June 30, 2020 and 2019, respectively resulting in revenue of $2,000 in each period. As of each of June 30, 2020, and December 31, 2019, the Company has deferred revenue of $4,000 attributed to Z-Coach subscription revenue that will be recognized ratably as our performance obligations are satisfied. The 2019 cost of revenue recorded for three-month period included software amortization, which is fully amortized and no longer expensed. The 2020 cost of revenue recorded for the ~~quarter ended September 30, 2017 reflecting revenue from subscription sales of the~~three-month period includes $1,000 for Z-Coach ~~Aviation program.~~and $12,000 related to promotion and design for app development. The Z-Coach training module provides fatigue safety training over a ~~twelve month~~twelve-month subscription ~~period. The~~period and the user has unlimited access to ~~this e-learning~~the 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.

~~During the quarter ended~~ September 30, 2017 thirty-six Z-Coach Aviation subscriptions were sold to three customers resulting in total customer sales of $6,000. As of September 30, 2017, and December 31, 2016, the Company has deferred revenue of $12,000 and $22,000, respectively attributed to Z-Coach subscription revenue that will be recognized ratably as our performance obligations are satisfied.

~~The Company~~ recorded $37,000 and $35,000 in cost of revenue during the quarters ended September 30, 2017 and September 30, 2016, respectively, related to Z-Coach Aviation subscriptions. The costs of revenue include software amortization and hosting fees incurred to provide the Z-Coach product to subscribers. Software amortization is based upon the straight-line amortization of the capitalized software over an estimated useful life of 36 months.

Engineering and development expenses ~~for~~decreased during the ~~quarter~~three months ended ~~September~~June 30, ~~2017 amounted to $211,000 as~~2020 compared to ~~$365,000~~the three months ended June 30, 2019 reflecting the reduction in the quarter ended September 30, 2016. Non-cash stock-based compensation expense attributable to stock options for the quarter ended September 30, 2017 was $9,000, compared with $7,000 for the quarter ended September 30, 2016. During the third quarter of 2017, the Company capitalized $264,000 of engineering laborheadcount, professional fees, and computer and software ~~development costs~~expenses. These cost reductions reflect the temporary suspension of the Company’s efforts to monetize the Aegis technologies, as ~~management deemed that technological feasibility has been achieved for~~previously reported, as a result of the ~~CURA System.~~ Covid-19 pandemic. Engineering headcount was six and seven professionals as of June 30, 2020 and June 30, 2019, respectively.

General and administrative expense ~~for~~decreased during the ~~quarter~~three months ended ~~September~~June 30, ~~2017 amounted to $662,000~~2020 compared to ~~$540,000 during~~ the three months ended June 30, 2019 primarily due to staff reductions and the recognition of stock compensation forfeitures related to employee turnover. The second quarter ~~ended September 30, 2016. Non-cash stock-based compensation expense for~~of 2020 includes $41,000 in outside marketing efforts related to the ~~quarter ended September 30, 2017 was $19,000 compared to $17,000 for~~software development of the ~~quarter ended September 30, 2016. Excluding the non-cash stock-based compensation expense, general~~fatigue management product. General and administrative ~~expense for the quarter ended September~~headcount was three and eight at June 30, ~~2017 amounted to $643,000 compared to $523,000 in 2016. The increase of $120,000 of spending in 2017 is attributed to headcount increases in our sales~~2020 and ~~operations teams and increases in professional fees and advisors reflecting the growth of the company.~~ 2019, respectively.

Interest expense increased by $37,000 for the three months ended June 30, 2020 compared to the prior year quarter. The Company has $11,035,000 in face value of convertible notes outstanding compared to $10,310,000 at December 31, 2019. During the ~~third quarter of 2017,~~three months ended June 30, 2020, the Company recognized ~~$61,000~~$341,000 in interest expense on the 6%convertible, demand and promissory notes which includes $200,000 of amortization on debt discount that is classified as interest expense. The increase in interest expense since 2019 reflects $725,000 of new 2019 convertible notes with an interest rate of 6% per annum, interest on $650,000 of demand notes with a variable interest rate of 3.25% that were issued in the third quarter of 2019, and ~~$143,000~~amortization of debt discount ~~amortization related to~~on the 2018 and July 2018 convertible notes issued ~~during 2016 and 2017. (See Note 3.)~~in the first half of 2019. The 2020 interest expense also reflects $6,000 in interest recognized on 6% unsecured promissory notes. During the three months ended June 30, 2019 the Company recognized $304,000 in interest expense on the convertible notes including $186,000 of amortization on debt discount classified as interest expense related to the convertible notes.

In accordance with ASC 420, the Company recognized accrual for one-time termination benefit costs in connection with two employees whose employment with the Company will terminate at the beginning of third quarter of 2020. These costs will be paid over the coming six-month period through January 2021.

Net Loss ~~Attributed to Common Shareholders~~for the three months ended June 30, 2020 and 2019~~September~~ ~~30, 2017 and 2016~~

The net loss for the ~~quarter~~three months ended ~~September~~June 30, ~~2017~~2020 was ~~$1,108,000,~~$821,000, compared with a net loss in the ~~quarter~~three months ended ~~September~~June 30, ~~2016~~2019 of ~~$947,000.~~

~~Preferred stock dividends amounted to $62,000 in each of the quarters ended~~ September 30, 2017 and 2016. During 2016, in connection with the issuance of Series C-3 Preferred stock, the Company valued the non-cash beneficial conversion feature associated with the right to convert the shares into common stock on a one-for-one basis. The fair value of our common stock on the date of issuance was compared to the effective conversion price, and in order to measure the value of the non-cash beneficial conversion feature inherent to the convertible preferred shares. This beneficial conversion feature of $285,000 is reflected in the condensed consolidated statements of operations for the quarter ended September 30, 2016.

$965,000. The net loss attributable to common stockholders for the second quarter ~~ended~~ ~~September 30, 2017~~of 2020 was ~~$1,170,000~~$876,000 as compared to ~~a net loss attributable to common stockholders of $1,294,000~~$1,019,000 for the second quarter ~~ended September 30, 2016.~~ of 2019.

The weighted average basic and diluted common shares outstanding for the three month periods ended June 30, 2020 and 2019 amounted to ~~48,321,000~~51,379,000 and ~~46,108,000 for each of the quarters ended September 30, 2017 and 2016,~~50,478,000, respectively.

Basic and diluted loss per common share for ~~each of~~ the ~~quarters~~three-month periods ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 was $0.02 in each period. Preferred stock dividends of $55,000 and ~~$0.03,~~$54,000 was recorded in the three-month periods ended June 30, 2020 and 2019, respectively.

Results of Operations for the ~~nine~~six months ended June 30, 2020 and 2019~~September~~ ~~30, 2017 and 2016~~

The Company recorded ~~$23,000~~$5,000 and $1,000 in Z-Coach sales during the six months ended June 30, 2020 and 2019, respectively resulting in revenue ~~during~~of $5,000 and $9,000, respectively. The 2019 cost of revenue recorded for three-month period included software amortization, which is fully amortized and no longer expensed. The 2020 cost of revenue recorded for the ~~nine months ended September 30, 2017.~~three-month period includes $1,000 for Z-Coach and $12,000 related to promotion and design for app development. The ~~Company began offering the~~ Z-Coach ~~Aviation program in the first quarter of 2016. Z-Coach~~training module provides fatigue safety training over a ~~twelve month~~twelve-month subscription ~~period. The~~period and the user has unlimited access to ~~this e-learning~~the 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.

~~During the~~ nine months ended September 30, 2017, one hundred and forty seven Z-Coach Aviation subscriptions were sold to eight customers resulting in total customer sales of $23,000. As of September 30, 2017, and December 31, 2016, the Company has deferred revenue of $12,000 and $22,000, respectively attributed to Z-Coach subscription revenue that will be recognized ratably as our performance obligations are satisfied.

~~The Company recorded~~ $111,000 and $92,000 in cost of revenue during the quarters ended September 30, 2017 and September 30, 2016, respectively related to Z-Coach Aviation subscriptions. The costs of revenue include software amortization and hosting fees incurred to provide the Z-Coach product to subscribers. Software amortization is based upon the straight-line amortization of the capitalized software over an estimated useful life of 36 months.

Engineering and development expenses ~~for~~decreased during the ~~nine~~six months ended ~~September~~June 30, ~~2017 amounted to $1,171,000 as~~2020 compared to ~~$1,331,000 in~~ the ~~nine~~six months ended ~~September~~June 30, ~~2016. Non-cash stock-based compensation expense attributable~~2019 primarily due to ~~stock options for~~ the ~~nine months ended September 30, 2017 was $25,000, compared to $20,000 for the nine months ended September 30, 2016. The Company continues to invest~~decrease in ~~the CURA~~headcount, professional fees, and ~~Aegis product development efforts in 2017. During the nine months ended September 30, 2017, the Company capitalized $358,000 of engineering labor~~computer and software ~~development costs,~~expenses. These cost reductions reflect the temporary suspension of the Company’s efforts to monetize the Aegis technologies, as ~~management deemed that technological feasibility has been achieved for~~previously reported, as a result of the ~~CURA System.~~

Covid-19 pandemic. Engineering headcount was six and seven professionals as of June 30, 2020 and June 30, 2019, respectively.

General and administrative expense ~~for~~decreased during the ~~nine-months~~six months ended ~~September~~June 30, ~~2017 amounted to $2,217,000~~2020 compared to ~~$1,535,000~~the six months ended June 30, 2019 primarily due to: headcount decreases, lower facility costs resulting from the relocation of office space in the ~~nine months ended September 30, 2016. Non-cash stock-based compensation expense~~third quarter of 2019 and reduced spending for patent and travel costs. The first half of 2019 included $62,000 in outside marketing efforts related to the ~~nine months ended September 30, 2017 was $135,000 compared to $80,000 for the nine months ended September 30, 2016. Excluding the non-cash stock-based compensation expense, general~~CURA product. General and administrative ~~expense for the nine months ended September~~headcount was three and eight at June 30, ~~2017 amounted to $2,082,000 compared to $1,455,000 in the nine month period ended September 30, 2016. The increase~~2020 and 2019, respectively.

Interest expense increased by $100,000 for the six months ended June 30, 2020 compared to the prior year period. The Company has $11,035,000 in face value of convertible notes outstanding compared to $10,310,000 at December 31, 2019. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, the Company recognized ~~$151,000~~$678,000 in interest expense on the 6%convertible, demand and promissory notes which includes $400,000 of amortization on debt discount that is classified as interest expense. The increase in interest expense since 2019 reflects the issuance of $725,000 face value of new 2019 convertible notes with an interest rate of 6% per annum, interest on $650,000 of demand notes with a variable interest rate of 3.25% at quarter-end which were issued in the third quarter of 2019, and ~~$374,000~~amortization of debt discount ~~amortization related to convertible~~on the 2019 and July 2018 notes issued in the ~~second~~first half of ~~2016.~~2019. The 2020 interest expense includes $13,000 in interest recognized on 6% unsecured promissory notes. During the six months ended June 30, 2019 the Company recognized $304,000 in interest expense on the convertible notes including $186,000 of amortization on debt discount classified as interest expense related to the convertible notes.

In accordance with ASC 420, as of June 30, 2020 the Company recognized accrual for one-time termination benefits costs in connection with two employees whose employment with the Company will terminate at the beginning of third quarter of 2020. These costs will be paid over the coming six-month period through January 2021.

Net Loss ~~Attributed to Common Shareholders~~for the ~~nine~~six months ended ~~September~~June 30, ~~30, 2017~~2020 and ~~2016~~2019

The net loss for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 was ~~$3,999,000,~~$1,574,000, compared with a net loss in the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2019 of ~~$2,957,000.~~$2,113,000. The net loss attributable to common stockholders for the ~~nine months ended September 30, 2017~~first half of 2020 was ~~$4,185,000~~$1,683,000 as compared to ~~$4,028,000~~$2,221,000 for the ~~nine months ended September 30, 2016.~~ first half of 2019.

The weighted average basic and diluted common shares outstanding for the six months ended June 30, 2020 amounted to ~~47,768,000~~51,263,000 and ~~45,901,000 for each of the nine-month periods ended September 30, 2017 and 2016,~~50,456,000, respectively.

Basic and diluted loss per common share for ~~each of~~ the ~~quarters~~six-month periods ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 was $0.03 and ~~$0.09 in each period.~~

$0.04, respectively. Preferred stock dividends ~~amounted to~~ ~~$186,000~~of $109,000 and $108,000 was recorded in ~~each of~~ the ~~nine month~~six-month periods ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~

~~During the~~ nine months ended September 30, 2016, in connection with the issuance of the 6,042,000 shares of Series C-3 Preferred stock, the Company valued the non-cash beneficial conversion feature associated with the right to convert the shares into common stock on a one-for-one basis. The fair value of our common stock on the date of issuance was compared to the effective conversion price, and in order to measure the value of the non-cash beneficial conversion feature inherent to the convertible preferred shares. This beneficial conversion feature of $885,000 is reflected in the condensed consolidated statements of operations for the nine months ended September 30, 2016. 2019, respectively.

~~As of~~ ~~September 30, 2017, cash totaled $180,000, a net decrease of $1,829,000 since the beginning of the year.~~ During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 we used ~~$3,037,000~~$903,000 of cash in operating activities. A net loss of ~~$3,999,000~~$1,574,000 was adjusted for ~~$669,000~~$488,000 in non-cash expenses ~~for~~for: amortization of debt discount, depreciation and amortization, ~~and~~the non-cash expense recognized for stock-based compensation and ~~$293,000~~common shares issued in connection with interest expense associated with convertible notes issued in the quarter. The Company reported $168,000 in changes in working capital ~~components.~~components during the six months ended June 30, 2020. The ~~change~~decrease in cash used in operations in ~~2017~~the first half of 2020 compared to ~~2016~~the first half of 2019 was driven primarily by the ~~increase~~decrease in the net ~~loss. In 2016, the net~~ loss ~~of $2,957,000 was adjusted for $243,000 in non-cash expenses for depreciation, amortization and stock-based compensation and $129,000 in changes in components of working capital.~~

~~The Company~~ ~~invested $419,000 in capitalized software and property and equipment in the nine months ended September 30, 2017 compared to the investment of $68,000 in the nine months ended September 30, 2016.~~from operations.

During the ~~nine~~second quarter of 2020, the Company received the proceeds from two federally funded programs offered to small businesses as a result of the Covid-19 pandemic. On April 20, 2020 the Company received a $227,700 loan under the Small Business Administration Paycheck Protection Program (the “PPP”). The Company also received a $7,000 grant from the U. S. Small Business Administration in connection with its Economic Injury Disaster Loan (EIDL) program.

During the six months ended ~~September~~June 30, ~~2017,~~2020, the Company ~~generated $1,627,000 in cash from financing activities resulting~~received proceeds of $725,000 from the issuance of ~~$1,617,000 in 2017~~senior convertible ~~notes and $10,000 in proceeds received upon the exercise of a common stock warrant.~~notes. During the ~~nine-months~~six months ended ~~September~~June 30, ~~2016, net~~2019, the Company received proceeds of ~~$1,498,000 were generated~~$800,000 from the issuance of ~~Series C-3~~senior convertible ~~preferred shares~~debt and ~~$983,000~~$425,000 in proceeds from the issuance of ~~2016 Convertible Notes and Warrants.~~ unsecured promissory notes.

As of ~~September~~June 30, ~~2017,~~2020, we ~~have~~had cash on hand of ~~$180,000,~~$68,000, negative working capital of ~~negative $335,000, a deficit in stockholders’ equity~~$4,281,000, stockholders' deficiency of ~~$1,193,000~~$13,708,000 and an accumulated deficit of ~~$79,417,000.~~$92,999,000. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020 we raised ~~gross~~$725,000 in proceeds ~~of $1,625,000~~ through the issuance of ~~6% senior~~ convertible ~~notes and warrants. These~~notes. The proceeds from these private placements have been used to support the ongoing development and marketing of our core technologies and product initiatives.

Management estimates that the ~~2017~~2020 cash needs will run between $1.7 and $2.0 million, based ~~on its current development and product plans, will range~~ ~~from $4.0 to $4.6 million.~~upon the cash used in operations in the three months ended June 30, 2020. As of ~~September~~June 30, ~~2017,~~2020, the Company’s cash ~~and cash equivalents~~ on hand is not sufficient to cover the Company’s future working capital requirements. This raises substantial doubt as to the Company’s ability to continue as a going concern. Management ~~continues~~will continue to use its best efforts to develop financing opportunities to fund the development and commercialization of the CURA and Aegis products.

~~During 2017, the board of directors~~ authorized the issuance of up to $4 million in 6% Senior Convertible Promissory Notes and Warrants (the “2017 Convertible Notes”) in connection with the May 31, 2017 Securities Purchase Agreement (the “2017 SPA”). The 2017 Convertible Notes have a five year maturity and a fixed annual interest rate of 6%. The offering is available only to “accredited investors” as defined in Rule 501(a) of Regulation D under the Securities Act of 1933. During the nine month period ended September 30, 2017, the Company issued $1,625,000 in 2017 Convertible Notes.

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 ~~may~~will involve dilution to our shareholders or may require that we relinquish rights to certain of our technologies or products. In addition, we ~~may~~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~~’sCompany’s ability to fund its current and future commitments ~~out of~~from its available cash depends on ~~the Company’s~~its ability to launch and generate sales from the CURA ~~division.~~app. If ~~this is not met,~~ 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.

The Company ~~began offering the Z-Coach Aviation Wellness Program~~accounts for revenue in ~~the first quarter of 2016. The Z-Coach~~ Program provides fatigue safety 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,accordance with FASB ASC 606, "Revenue from Contracts with Customers" and ~~revenue is recognized ratably over the subscription period as our~~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 ~~when collection is reasonably assured.~~allowances. Our collection terms provide customers standard terms of net 30 days. Future performance obligations are reflected in deferred revenue.

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 ~~September~~June 30, ~~2017,~~2020 and December 31, ~~2016,~~2019, there were no accrued interest or penalties related to uncertain tax positions.

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. We elected to adopt the alternative method of calculating the historical pool of windfall tax benefits as permitted by FASB ASC 718-10-65. This is a simplified method to determine the pool of windfall tax benefits that is used in determining the tax effects of stock compensation in the results of operations and cash flow reporting for awards that were outstanding as of the adoption of FASB ASC 718-10.

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 until 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.

~~See Note~~ ~~2 to the Company’s condensed consolidated financial statements for discussion of recently issued, but not yet effective, accounting pronouncements.~~

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.

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.

~~Our management evaluated, with the participation of our~~The Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded, as of ~~September~~June 30, ~~2017,~~2020, that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ~~Exchange Act)~~"Exchange Act")), as of the end of such period, are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

There have been no significant changes in our internal control over financial reporting during the ~~quarter~~three months ended ~~September~~June 30, ~~2017~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~We have updated~~In addition to the ~~risk~~other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors ~~previously disclosed~~discussed in Part I, ~~Item A of our~~"Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016, which was filed~~2019. There have been no material changes in the Company's risk factors from those disclosed in Part I, Item 1A. of the Company's Annual Report on for 10-K for the fiscal year ended December 31, 2019 with the ~~Securities~~exception of the following item:

The results of engineering and ~~Exchange Commission on March 21, 2017, as set forth in Item 1A~~development efforts may be uncertain and there can be no assurance of the commercial success of our ~~periodic report~~technology or future products.

The development of our products and services is complex and costly. Some products currently under development or future product developments, including specific product features or functions, may not technologically successful. In addition, the cost and length of our product development may be greater than we anticipate, and we may experience delays in future product development or problems in the design or quality of our products. Unanticipated problems in developing products or services could also divert substantial research and development resources, which may impair our ability to develop products and services and could substantially increase our costs. If new or enhanced product or service introductions are delayed or not successful, we may not be able to achieve an acceptable return, if any, on ~~Form 8-K filed~~our product development efforts. Even if our resulting products are technologically successful, they may not achieve market acceptance or compete effectively with our competitor's products. Our efforts to develop the ~~Securities~~CURA software platform, designed to measure a degradation of alertness in a person's ability to perform a task or job, may not be technologically successful. We continue to design and ~~Exchange Commission~~refine the myCadian software focused on ~~October 18, 2017.~~optimizing the user experience.

Our efforts to develop and monetize our Aegis hydraulic pump, an innovative hydraulic pump that is smaller, lighter, and more efficient and cost-competitive than other such pumps in the market, may not be successful. We have experienced and expect to continue to experience a decrease in industry interest in the Aegis technologies as a result of the COVID-19 pandemic, which has caused, among other things, companies in the hydraulics industry to shift focus to their internal processes, technologies, and employees during the pandemic-related pause in the worldwide economy. As a result, we initiated a temporary suspension of our pursuit of the monetization of our Aegis pump and motor technologies.

The timetable for our product development may be longer than we anticipate and we may experience delays in future product development or may elect not to pursue such development. Even if one or more of our resulting product features is technologically successful, it may not achieve market acceptance or compete effectively with our competitors' technologies. In addition, there can be no assurance that our patent applications will result in patents being issued or that current or additional patents will afford protection against competitors.

The Company issued ~~and sold $1,325,500~~$125,000 of ~~the 2017~~2019 Convertible Notes during the period from ~~August 10, 2017~~July 1, 2020 through ~~November 6, 2017.~~

~~The 2017 Convertible Notes were offered in a private placement exempt from registration under Section 4(a)(2)~~the filing of the Securities Act of 1934, as amended and Rule 506(c) of Regulation D as promulgated by the Securities and Exchange Commission. The offering was available only to “accredited investors” as defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as disclosed in the Company's Current Reportthis quarterly report on Form ~~8K filed with the SEC on July 14, 2017.~~10-Q.

On August 4, 2017, we entered into an amendment to the Securities Purchase Agreement, dated as of May 31, 2017 (the " Securities Purchase Agreement"), by and between us and the investors signatory thereto, increasing the number of warrants to be issued in connection with individual investments in our 2017 Convertible Notes of greater than $500,000 from 10% of the number of shares issuable upon conversion of the 2017 Convertible Notes to 25% of the number of shares issuable upon conversion of the 2017 Convertible Notes. The foregoing description of the amendment does not purport to be complete and is qualified in its entirety by reference to the complete text of the amendment, which is filed as an exhibit to this Form 10-Q and incorporated by reference in this Item 5 in its entirety.

On November 10, 2017, we entered into an amendment to the Employment Agreement, dated as of October 4, 2010 (the " Employment Agreement"), by and between us and Richard A. Kaplan, our Chief Executive Officer, reducing the base amount of Mr. Kaplan's expense allowance and adding an automobile allowance, with effectiveness retroactive to January 1, 2017. The other terms and conditions of the Employment Agreement remain unchanged. The foregoing description of the amendment does not purport to be complete and is qualified in its entirety by reference to the complete text of the amendment, which is filed as an exhibit to this Form 10-Q and incorporated by reference to this Item 5 in its entirety.None.

The following Exhibits, as applicable, are attached to this Quarterly Report (Form 10-Q). The Exhibit Index is found on the page immediately succeeding the signature page and the Exhibits follow on the pages immediately succeeding the Exhibit Index.

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements

	~~Condensed Consolidated Balance Sheets as of~~ ~~September 30, 2017 (Unaudited) and December 31, 2016~~	3

	Condensed Consolidated ~~Statements~~Balance Sheets as of June 30, 2020 (Unaudited) and December 31, 2019	3

	Condensed Consolidated Statement of Operations – ~~Three~~Three- and ~~Nine Month~~Six-Month Periods Ended ~~September~~June 30, ~~2017~~ 2020 and ~~2016~~June 30, 2019 (Unaudited)	4

	Condensed Consolidated ~~Statements~~Statement of Changes in ~~Stockholders’ (Deficiency) Equity~~Stockholders’ Deficiency – ~~Nine Month Period~~Three- andSix-Month Periods Ended ~~September~~June 30 ~~2017~~, 2020 and June 30, 2019 (Unaudited)	5

	Condensed Consolidated ~~Statements~~Statement of Cash Flows – ~~Nine~~ Three-and Six- Month Periods Ended ~~September~~June 30 ~~2017~~, 2020 and ~~2016~~June 30, 2019 (Unaudited)	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	~~Management~~’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2624

Item 4.	Controls and Procedures	2624

PART II –- OTHER INFORMATION

Item 1.	Legal Proceedings	2624

Item 1A.	Risk Factors	2624

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2624

Item 3.	Defaults Upon Senior Securities	2624
	��
Item 4.	Mine Safety Disclosures	26 24

Item 5.	Other Information	26 24

Item 6.	Exhibits	2725

SIGNATURE PAGE		2826

EXHIBITS

	Exhibit 31.1
	Exhibit 31.2
	Exhibit 32

	Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016

Cash flows from operating activities:
Net loss	$	(3,999,000	)	$	(2,957,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		136,000			129,000
Amortization of discount reported as interest		373,000			14,000
Stock-based compensation		160,000			100,000
Changes in working capital items:
Accounts receivable		9,000			-
Inventory		(52,000	)		(6,000	)
Prepaid expenses and other current assets		14,000			(16,000	)
Accounts payable and other accrued expenses		332,000			14,000
Deferred revenue		(10,000	)		137,000
Net cash used in operating activities		(3,037,000	)		(2,585,000	)

Cash flows from investing activities:
Investment in property, equipment and software		(419,000	)		(68,000	)
Net cash used in investing activities		(419,000	)		(68,000	)

Cash flows from financing activities:
Net proceeds from issuance of convertible notes		1,617,000			983,000
Net proceeds from sales of preferred stock		-			1,498,000
Proceeds from exercise of common stock warrant		10,000			-
Net cash provided by financing activities		1,627,000			2,481,000

Net (decrease) in cash		(1,829,000	)		(172,000	)

Cash at beginning of period		2,009,000			1,241,000

Cash at end of period	$	180,000		$	1,069,000


Supplemental Disclosures:
Cash used for payment of interest	$	66,000		$	-
Debt discount related to warrants and beneficial conversion feature	$	1,050,000		$	990,000

	June 30, 2020			December 31, 2019
Raw materials	$	1,641,000		$	1,665,000
Finished goods		69,000			69,000
		1,710,000			1,734,000
Less: Reserve		(1,710,000	)		(1,734,000	)
Inventory (net)	$	-		$	-

Liability for inventory	$	1,740,000		$	1,764,000

	September 30, 2017		December 31, 2016
Office equipment	$	247,000	$	244,000
Shop equipment		231,000		173,000
Leasehold improvements		253,000		253,000
		731,000		670,000
Less accumulated depreciation		595,000		553,000
Net property and equipment	$	136,000	$	117,000

	June 30, 2020			December 31, 2019
Office equipment	$	199,000		$	199,000
Shop equipment		132,000			132,000
Gross Property and equipment		331,000			331,000
Less accumulated depreciation		(299,000	)		(293,000	)
Net property and equipment	$	32,000		$	38,000

	September 30, 2017 (Unaudited)			December 31, 2016
ASSETS
Current Assets:
Cash	$	180,000		$	2,009,000
Accounts receivable		1,000			10,000
Inventory		76,000			24,000
Prepaid expenses and other current assets		34,000			48,000
Total current assets		291,000			2,091,000

Software (net)		491,000			227,000
Property and equipment (net)		136,000			117,000
Total non-current assets		627,000			344,000

Total Assets	$	918,000		$	2,435,000

LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY
Current Liabilities:
Accounts payable	$	283,000		$	143,000
Other current liabilities		209,000			103,000
Accrued interest		120,000			35,000
Deferred revenue		12,000			22,000
Capital lease obligation - current		2,000			2,000
Total current liabilities		626,000			305,000

Capital lease obligation - non-current		3,000			4,000
Senior convertible notes (net)		1,482,000			543,000

Total Liabilities		2,111,000			852,000

Commitments and Contingencies (Note 11)		-			-

Stockholders' (Deficiency) Equity:
Preferred stock, $.01 par value, 100,000,000 shares authorized
Series C, voting, convertible, no dividend, shares issued and outstanding at September 30, 2017 and December 31, 2016: 15,937,500 and 16,000,000, respectively		159,000			160,000
Series C-2, voting, convertible, no dividend, shares issued and outstanding at September 30, 2017 and December 31, 2016: 25,000,000 and 25,000,000, respectively		250,000			250,000
Series C-3, voting, convertible, no dividend, shares issued and outstanding at September 30, 2017 and December 31, 2016: 3,528,000 and 5,022,000, respectively		35,000			50,000
Class A, non-voting, convertible, cumulative dividend $.40 per share per annum, shares issued and outstanding at September 30, 2017 and December 31, 2016: 543,221 and 543,221, respectively		5,000			5,000
Class B, non-voting, convertible, cumulative dividend $.50 per share per annum, shares issued and outstanding at September 30, 2017 and December 31, 2016: 67,500 and 67,500, respectively		1,000			1,000
Common stock, $.01 par value, 400,000,000 shares authorized; shares issued and outstanding at September 30, 2017 and December 31, 2016: 48,663,265 and 47,066,765, respectively		487,000			470,000
Additional paid-in capital		77,287,000			76,065,000
Accumulated deficit		(79,417,000	)		(75,418,000	)

Total Stockholders' (Deficiency) Equity		(1,193,000	)		1,583,000

Total Liabilities and Stockholders' (Deficiency) Equity	$	918,000		$	2,435,000

	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016

Revenue	$	6,000		$	14,000		$	23,000		$	20,000
Cost of Revenue		37,000			35,000			111,000			92,000
Loss on Revenue		(31,000	)		(21,000	)		(88,000	)		(72,000	)

Operating expenses:
Engineering and development:
E&D costs, excluding stock-based compensation		202,000			358,000			1,146,000			1,311,000
Stock-based compensation		9,000			7,000			25,000			20,000
Total engineering and development		211,000			365,000			1,171,000			1,331,000
General and administrative:
G&A costs, excluding stock-based compensation		643,000			523,000			2,082,000			1,455,000
Stock-based compensation		19,000			17,000			135,000			80,000
Total general and administrative		662,000			540,000			2,217,000			1,535,000

Total operating expenses		873,000			905,000			3,388,000			2,866,000
Loss from operations		(904,000	)		(926,000	)		(3,476,000	)		(2,938,000	)

Interest expense		(204,000	)		(20,000	)		(525,000	)		(20,000	)
Other income (expense)		-			(1,000	)		2,000			1,000
Non-operating (expense)		(204,000	)		(21,000	)		(523,000	)		(19,000	)

Loss before income taxes		(1,108,000	)		(947,000	)		(3,999,000	)		(2,957,000	)
Income taxes		-			-			-			-
Net Loss		(1,108,000	)		(947,000	)		(3,999,000	)		(2,957,000	)

Preferred stock beneficial conversion feature		-			285,000			-			885,000
Preferred stock dividends		62,000			62,000			186,000			186,000

Net Loss attributable to common stockholders	$	(1,170,000	)	$	(1,294,000	)	$	(4,185,000	)	$	(4,028,000	)

Net Loss per common share attributable to common stockholders
Basic and Diluted	$	(0.02	)	$	(0.03	)	$	(0.09	)	$	(0.09	)

Weighted average number of shares of common stock:
Basic and Diluted		48,321,000			46,108,000			47,768,000			45,901,000

	For the Six Months Ended June 30,
	2020			2019
Cash flows from operating activities:
Net loss	$	(1,574,000	)	$	(2,113,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount reported as interest		400,000			351,000
Depreciation and amortization		39,000			72,000
Stock-based compensation		11,000			104,000
Interest paid in shares		38,000			18,000
Changes in working capital items:
Prepaid expenses		(7,000	)		21,000
Liability for inventory		(24,000	)		15,000
Accounts payable		(55,000	)		134,000
Accrued interest		188,000			144,000
Other current liabilities		4,000			-
Accrued wages and benefits		77,000			12,000
Net cash used in operating activities		(903,000	)		(1,242,000	)

Cash flows from financing activities:
Proceeds from issuance of senior convertible notes		725,000			800,000
Proceeds from Paycheck Protection Program loan		228,000			-
Proceeds from issuance of unsecured promissory notes		-			425,000
Net cash provided by financing activities		953,000			1,225,000

Net increase (decrease) in cash		50,000			(17,000	)
Cash at January 1		18,000			53,000
Cash at June 30	$	68,000		$	36,000

Supplemental Disclosures:

Cash used for payment of interest expense	$	13,000		$	64,000
Debt discount related to issuance of convertible notes	$	21,000		$	65,000
Common shares issued in payment of interest expense	$	38,000		$	18,000
Right to used asset	$	-		$	257,000

Software (in years)		3
Office equipment (in years)	5	-	7
Leasehold improvements	lesser of useful life or lease term

	September 30, 2017			December 31, 2016

2016 Convertible Notes	$	3,000,000		$	3,000,000
2017 Convertible Notes		1,625,000			-
Debt Discount at issuance		(3,611,000	)		(2,551,000	)
Amortization of debt discount (cumulative)		468,000			94,000
6% Senior Convertible Notes (net)	$	1,482,000		$	543,000

	2017			2016
Expected Term (years)		6.6	%		5.1	%
Expected forfeiture rate		0.0	%		0.0	%
Risk-free rate		2.1	%		2.1	%
Volatility		130	%		132	%
Dividend yield		0.0	%		0.0	%

							Weighted
				Weighted			Average
				Average			Remaining		Aggregate
				Exercise			Contractual		Intrinsic
	Shares			Price			Term		Value

Outstanding at January 1, 2017		4,218,500		$	.95	(a)		6.1 (b)
Granted		475,100			.50
Exercised		(40,000	)	$	.25
Expired		(150,000	)	$	5.00
Outstanding at September 30, 2017		4,503,600		$	.66	(a)		6.2 (d)	$	804,000

Exercisable at September 30, 2017		3,878,600		$	.63	(d)		6.0 (c)	$	802,000

	●	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 act 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.

	For the three months ended September 30,						Variance			For the three months ended June 30,						Variance
	2017			2016						2020			2019			Incr (decr)
Revenue	$	6,000		$	14,000		$	(8,000	)
CURA revenue										$	2,000		$	2,000		$	-
Cost of revenue		37,000			35,000			2,000			12,000			3,000			9,000
Loss on revenue	$	(31,000	)	$	(21,000	)	$	(10,000	)	$	(10,000	)	$	(1,000	)	$	9,000

	For the nine months ended September 30,						Variance		For the six months ended June 30,					Variance
	2017			2016					2020			2019		Incr (decr)
Revenue	$	23,000		$	20,000		$	3,000
CURA revenue									$	5,000		$	9,000	$	(4,000	)
Cost of revenue		111,000			92,000			19,000		13,000			9,000		4,000
Loss on revenue	$	(88,000	)	$	(72,000	)	$	16,000	$	(8,000	)	$	-	$	(8,000	)

3.1	Certificate of Incorporation, incorporated by reference to Form 10-SB/A, Registration Statement, registering Company’s $.01 par value common stock under section 12(g) of the Securities Exchange Act of 1934.
~~10.1~~
3.2	Certificate of Amendment to the Certificate of Incorporation dated August 30, 2000, incorporated by reference to Form SB-2 filed October 19, 2000.

3.3	Certificate of Correction dated March 22, 2002, incorporated by reference to Form 10-KSB filed for fiscal year ended December 31, 2002.

3.4	By-laws as amended on January 24, 2002, incorporated by reference to Form 10-KSB filed for fiscal year ended December 31, 2002.

3.5	Certificate of Amendment to the Certificate of Incorporation dated October 21, 2004 setting forth terms and conditions of Class B Preferred, incorporated by reference to Form 10-QSB filed for fiscal quarter ended December 31, 2004.

3.6	Certificate of Amendment to the Certificate of Incorporation dated January 26, 2007 increasing authorized common shares from 40,000,000 to 400,000,000, incorporated by reference to Form 10-K filed for fiscal year ended December 31, 2006.

3.7	Certificate of Amendment to the Certificate of Incorporation dated September 21, 2011 setting forth terms and conditions of Class C Preferred, incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on September 26, 2011.

3.8	Certificate of Amendment to the Certificate of Incorporation of CurAegis, Inc., dated March 28, 2014 setting forth terms and conditions of Series C-2 Preferred, incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on March 28, 2014.

3.9	Certificate of Amendment to the Certificate of Incorporation of CurAegis, Inc., dated February 29, 2016 setting forth terms and conditions of Series C-3 Preferred, incorporated by reference to Exhibit 3.9 of Form 10-K filed for the fiscal year ended December 31, 2015.

10.1	Form of Securities Purchase Agreement ~~dated August 4, 2017, between~~made and entered into as of May 28, 2019, incorporated by reference to Exhibit 4.1 to CurAegis Technologies, Inc. Current Report on Form 8-K filed with the Securities and ~~the investors listed herein.~~Exchange Commission on June 3, 2019.

10.2	~~Amendment~~Form of 6% Senior Convertible Promissory Note, incorporated by reference to ~~Employment Agreement, dated November 10, 2017, between~~Exhibit 4.2 to CurAegis Technologies, Inc. Current Report on Form 8-K filed with the Securities and ~~Richard A. Kaplan.~~Exchange Commission on June 3, 2019.

10.3	Employment Letter Agreement, dated March 24, 2020, incorporated by reference to Exhibit 10.1 to CurAegis Technologies, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on March 25, 2020.

10.4	Consulting Agreement, Outsourced Finance Services, dated June 1, 2020

31.1	Rule 13a-14(a)/15d-14(a) Certifications – CEO

31.2	Rule 13a-14/15d-14 Certifications – CFO

32	Section 1350 Certifications

100	XBRL-related documents
	None.

101	The following materials from CurAegis Technologies, Inc.’s Quarterly Report on Form 10-Q for the six month period ended ~~September~~June 30, ~~2017,~~2020, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (ii) Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, (iii) Condensed Consolidated Statements of Cash Flows for the ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, (iv) Condensed Consolidated Statements of Stockholders’ Deficiency for the six month periods ended June 30, 2020 and ~~(iv)~~2019 and (v) Notes to Condensed Consolidated Financial Statements*

	* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

	CURAEGIS TECHNOLOGIES, INC.
Dated: August 11, 2020	By:	/s/ James R. Donnelly


~~Dated:~~ ~~November 13, 2017~~	~~By:~~	~~/s/~~ ~~Richard A. Kaplan~~
		~~Richard A. Kaplan,~~	James R. Donnelly
		Chief Executive Officer

Dated: August 11, 2020	By:	/s/ Jason Burke


~~Dated:~~ ~~November 13, 2017~~	~~By:~~	~~/s/ Kathleen A. Browne~~
		~~Kathleen A. Browne~~	Jason Burke
		Chief Financial and Accounting Officer