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 30, 2018March 31, 2019
OR
☐ | 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 | 16-1509512 |
1999 Mt. Read Blvd. Building 3, Rochester, New York 14615
(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 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 ☑ |
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| 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’s classes of common stock, as of the latest practicable date:
Class |
| Number of Shares Outstanding at |
Common Stock, $0.01 par value |
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INDEX
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Item 1. | ||
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| Condensed Consolidated Balance Sheets as of March 31, 2019 (Unaudited) and December 31, 2018 | 3 |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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EXHIBITS |
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| Exhibit 31.1 |
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| Exhibit 31.2 |
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| Exhibit 32 |
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CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2018 (Unaudited) | December 31, 2017 | March 31, (Unaudited) | December 31, 2018 | |||||||||||||
ASSETS | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash | $ | 95,000 | $ | 194,000 | $ | 51,000 | $ | 53,000 | ||||||||
Accounts receivable | - | 8,000 | ||||||||||||||
Inventory (net) | - | 1,744,000 | - | - | ||||||||||||
Prepaid expenses and other current assets | 45,000 | 27,000 | 13,000 | 25,000 | ||||||||||||
Total current assets | 140,000 | 1,973,000 | 64,000 | 78,000 | ||||||||||||
Right to use building asset (net) | 230,000 | - | ||||||||||||||
Property and equipment (net) | 55,000 | 62,000 | ||||||||||||||
Software (net) | 17,000 | 102,000 | 6,000 | 10,000 | ||||||||||||
Property and equipment (net) | 70,000 | 125,000 | ||||||||||||||
Total non-current assets | 87,000 | 227,000 | 291,000 | 72,000 | ||||||||||||
Total Assets | $ | 227,000 | $ | 2,200,000 | $ | 355,000 | $ | 150,000 | ||||||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||||||||||
LIABILITIES AND STOCKHOLDERS' DEFICIENCY | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Liability for inventory held at vendor | $ | 1,462,000 | $ | 1,462,000 | ||||||||||||
Accounts payable | $ | 231,000 | $ | 167,000 | 535,000 | 323,000 | ||||||||||
Accrued interest | 219,000 | 166,000 | ||||||||||||||
Promissory notes payable | 125,000 | - | ||||||||||||||
Current right-to-use obligation | 109,000 | - | ||||||||||||||
Other current liabilities | 139,000 | 103,000 | 64,000 | 40,000 | ||||||||||||
Accrued interest | 161,000 | 87,000 | ||||||||||||||
Liability for inventory held at vendor | 1,462,000 | 1,678,000 | ||||||||||||||
Deferred revenue | 14,000 | 5,000 | ||||||||||||||
Capital lease obligation - current | 2,000 | 2,000 | ||||||||||||||
Accrued wages and benefits | 61,000 | 35,000 | ||||||||||||||
Total current liabilities | 2,009,000 | 2,042,000 | 2,575,000 | 2,026,000 | ||||||||||||
Capital lease obligation, non-current | 1,000 | 3,000 | ||||||||||||||
Non-current right-to-use obligation | 122,000 | - | ||||||||||||||
Senior convertible notes (net) | 5,905,000 | 3,563,000 | 7,155,000 | 6,603,000 | ||||||||||||
Total Liabilities | 7,915,000 | 5,608,000 | 9,852,000 | 8,629,000 | ||||||||||||
Commitments | - | - | ||||||||||||||
Commitments and other matters | - | - | ||||||||||||||
Stockholders' Deficit: | ||||||||||||||||
Stockholders' Deficiency: | ||||||||||||||||
Preferred stock, $.01 par value, 100,000,000 shares authorized | ||||||||||||||||
Series C, voting, convertible, no dividend, shares issued and outstanding at September 30, 2018 and December 31, 2017: 15,687,500 and 15,937,500, respectively | 157,000 | 159,000 | ||||||||||||||
Series C-2, voting, convertible, no dividend, shares issued and outstanding at September 30, 2018 and December 31, 2017: 24,500,000 and 25,000,000, respectively | 245,000 | 250,000 | ||||||||||||||
Series C-3, voting, convertible, no dividend, shares issued and outstanding at September 30, 2018 and December 31, 2017: 3,268,000 and 3,388,000, respectively | 33,000 | 34,000 | ||||||||||||||
Class A, non-voting, convertible, cumulative dividend $.40 per share per annum, shares issued and outstanding at September 30, 2018 and December 31, 2017: 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 September 30, 2018 and December 31, 2017: 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, 2018 and December 31, 2017: 50,308,149 and 48,979,546 respectively | 503,000 | 490,000 | ||||||||||||||
Series C, voting, convertible, no dividend, shares issued and outstanding at March 31, 2019 and December 31, 2018: 15,687,500 and 15,687,500, respectively | 157,000 | 157,000 | ||||||||||||||
Series C-2, voting, convertible, no dividend, shares issued and outstanding at March 31, 2019 and December 31, 2018: 24,500,000 and 24,500,000, respectively | 245,000 | 245,000 | ||||||||||||||
Series C-3, voting, convertible, no dividend, shares issued and outstanding at March 31, 2019 and December 31, 2018: 3,268,000 and 3,268,000, respectively | 33,000 | 33,000 | ||||||||||||||
Class A, non-voting, convertible, cumulative dividend $.40 per share per annum, shares issued and outstanding at March 31, 2019 and December 31, 2018: 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 March 31, 2019 and December 31, 2018: 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 March 31, 2019 and December 31, 2018: 50,400,545 and 50,364,549, respectively | 504,000 | 504,000 | ||||||||||||||
Additional paid-in capital | 77,454,000 | 76,494,000 | 77,855,000 | 77,725,000 | ||||||||||||
Accumulated deficit | (86,086,000 | ) | (80,841,000 | ) | (88,297,000 | ) | (87,149,000 | ) | ||||||||
Total Stockholders' Deficit | (7,688,000 | ) | (3,408,000 | ) | ||||||||||||
Total Stockholders' Deficiency | (9,497,000 | ) | (8,479,000 | ) | ||||||||||||
Total Liabilities and Stockholders' Deficit | $ | 227,000 | $ | 2,200,000 | ||||||||||||
Total Liabilities and Stockholders' Deficiency | $ | 355,000 | $ | 150,000 |
See notes to condensed consolidated financial statements.
Condensed Consolidated Statements of OperationsCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30, 2018 | Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2018 | Nine Months Ended September 30, 2017 | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |||||||||||||||||||
Revenue | ||||||||||||||||||||||||
Revenue and Cost of revenue: | ||||||||||||||||||||||||
CURA revenue | $ | 10,000 | $ | 6,000 | $ | 26,000 | $ | 23,000 | $ | 7,000 | $ | 8,000 | ||||||||||||
Cost of revenue | 27,000 | 37,000 | 97,000 | 111,000 | 6,000 | 37,000 | ||||||||||||||||||
Loss on Revenue | (17,000 | ) | (31,000 | ) | (71,000 | ) | (88,000 | ) | ||||||||||||||||
Margin (loss) on revenue | 1,000 | (29,000 | ) | |||||||||||||||||||||
Costs and expenses: | ||||||||||||||||||||||||
Provision for inventory reserve | 1,741,000 | - | 1,741,000 | - | ||||||||||||||||||||
Impairment loss | 17,000 | - | 17,000 | - | ||||||||||||||||||||
Engineering and development | 278,000 | 211,000 | 1,012,000 | 1,171,000 | 331,000 | 405,000 | ||||||||||||||||||
General and administrative | 484,000 | 662,000 | 1,638,000 | 2,217,000 | 544,000 | 625,000 | ||||||||||||||||||
Total costs and expenses | 2,520,000 | 873,000 | 4,408,000 | 3,388,000 | 875,000 | 1,030,000 | ||||||||||||||||||
Loss from operations | (2,537,000 | ) | (904,000 | ) | (4,479000 | ) | (3,476,000 | ) | (874,000 | ) | (1,059,000 | ) | ||||||||||||
Non-operating expense: | ||||||||||||||||||||||||
Interest expense | (271,000 | ) | (204,000 | ) | (767,000 | ) | (525,000 | ) | (274,000 | ) | (237,000 | ) | ||||||||||||
Other income | - | - | 1,000 | 2,000 | - | 1,000 | ||||||||||||||||||
Non-operating (expense) | (271,000 | ) | (204,000 | ) | (766,000 | ) | (523,000 | ) | ||||||||||||||||
(274,000 | ) | (236,000 | ) | |||||||||||||||||||||
Loss before income taxes | (2,808,000 | ) | (1,108,000 | ) | (5,245,000 | ) | (3,999,000 | ) | (1,148,000 | ) | (1,295,000 | ) | ||||||||||||
Income taxes | - | - | - | - | - | - | ||||||||||||||||||
Net Loss | (2,808,000 | ) | (1,108,000 | ) | (5,245,000 | ) | (3,999,000 | ) | ||||||||||||||||
Net loss | (1,148,000 | ) | (1,295,000 | ) | ||||||||||||||||||||
Preferred stock dividends | 55,000 | 62,000 | 163,000 | 186,000 | 54,000 | 54,000 | ||||||||||||||||||
Net Loss attributable to common stockholders | $ | (2,863,000 | ) | $ | (1,170,000 | ) | $ | (5,408,000 | ) | $ | (4,185,000 | ) | ||||||||||||
Net loss attributable to common stockholders | $ | (1,202,000 | ) | $ | (1,349,000 | ) | ||||||||||||||||||
Net Loss per common share attributable to common stockholders | ||||||||||||||||||||||||
Net loss per share attributable to common stockholders | ||||||||||||||||||||||||
Basic and Diluted | $ | (0.06 | ) | $ | (0.02 | ) | $ | (0.11 | ) | $ | (0.09 | ) | $ | (0.02 | ) | $ | (0.03 | ) | ||||||
Weighted average number of shares of common stock: | ||||||||||||||||||||||||
Weighted average number of shares of common stock | ||||||||||||||||||||||||
Basic and Diluted | 49,646,000 | 48,321,000 | 50,189,000 | 47,768,000 | 50,401,000 | 49,031,000 |
See notes to condensed consolidated financial statements.
Consolidated Statement of Changes in Stockholders' EquityCONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY
(Unaudited)
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, 2017 | 15,937,500 | $ | 159,000 | 25,000,000 | $ | 250,000 | 3,388,000 | $ | 34,000 | 468,221 | $ | 5,000 | 67,500 | $ | 1,000 | 48,979,546 | $ | 490,000 | $ | 76,494,000 | $ | (80,841,000 | ) | $ | (3,408,000 | ) | ||||||||||||||||||||||||||||||||||
Conversion Preferred C-3 to common stock | (80,000 | ) | (1,000 | ) | 80,000 | 1,000 | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 2,000 | 2,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of warrants with convertible notes | 208,000 | 208,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Beneficial conversion feature on convertible note | 11,000 | 11,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss | (1,295,000 | ) | (1,295,000 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2018 | 15,937,500 | $ | 159,000 | 25,000,000 | $ | 250,000 | 3,308,000 | $ | 33,000 | 468,221 | $ | 5,000 | 67,500 | $ | 1,000 | 49,059,546 | $ | 491,000 | $ | 76,715,000 | $ | (82,136,000 | ) | $ | (4,482,000 | ) | ||||||||||||||||||||||||||||||||||
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 | ) | ||||||||||||||||||||||||||||||||||
Issuance of warrants with convertible note | 63,000 | 63,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 59,000 | 59,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common Shares issued for interest | 35,996 | 8,000 | 8,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | ) |
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 |
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Paid in Capital | Accumulated Deficit | Stockholders' Deficit | ||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2017 | 15,937,500 | $ | 159,000 | 25,000,000 | $ | 250,000 | 3,388,000 | $ | 34,000 | 468,221 | $ | 5,000 | 67,500 | $ | 1,000 | 48,979,546 | $ | 490,000 | $ | 76,494,000 | $ | (80,841,000 | ) | $ | (3,408,000 | ) | ||||||||||||||||||||||||||||||||||
Conversion of C3 Preferred Shares to common stock | (80,000 | ) | (1,000 | ) | 80,000 | 1,000 | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 2,000 | 2,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of warrants with convertible note | 208,000 | 208,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Beneficial conversion feature on convertible note | 11,000 | 11,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss | (1,295,000 | ) | (1,295,000 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance At March 31, 2018 | 15,937,500 | 159,000 | 25,000,000 | 250,000 | 3,308,000 | 33,000 | 468,221 | 5,000 | 67,500 | 1,000 | 49,059,546 | 491,000 | 76,715,000 | (82,136,000.00 | ) | (4,482,000 | ) | |||||||||||||||||||||||||||||||||||||||||||
Conversion of C Preferred Shares to common stock | (250,000 | ) | (2,000 | ) | 250,000 | 2,000 | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of C2 Preferred Shares to common stock | (500,000 | ) | (5,000 | ) | 500,000 | 5,000 | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of C3 Preferred Shares to common stock | (40,000 | ) | - | 40,000 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 35,000 | 35,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of warrants with convertible note | 223,000 | 223,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Beneficial conversion feature on convertible note | 48,000 | 48,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss | (1,142,000 | ) | (1,142,000 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance At June 30, 2018 | 15,687,500 | 157,000 | 24,500,000 | 245,000 | 3,268,000 | 33,000 | 468,221 | 5,000 | 67,500 | 1,000 | 49,849,546 | 498,000 | 77,021,000 | (83,278,000 | ) | (5,318,000 | ) | |||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 42,000 | 42,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of warrants with convertible note | 119,000 | 119,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Beneficial conversion feature on convertible note | 161,000 | 161,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common Shares Issued for Interest | 264,453 | 3,000 | 63,000 | 66,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common Shares issued upon Note Conversions | 190,150 | 2,000 | 47,000 | 49,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of common stock warrant | 4,000 | - | 1,000 | 1,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss | (2,808,000 | ) | (2,808,000 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance At September 30, 2018 | 15,687,500 | $ | 157,000 | 24,500,000 | $ | 245,000 | 3,268,000 | $ | 33,000 | 468,221 | $ | 5,000 | 67,500 | $ | 1,000 | 50,308,149 | $ | 503,000 | $ | 77,454,000 | $ | (86,086,000 | ) | $ | (7,688,000 | ) |
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ((Unaudited) |
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Nine Months Ended September 30, 2018 | Nine Months Ended September 30, 2017 | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Cash flows used in operating activities: | ||||||||||||||||
Net loss | $ | (5,245,000 | ) | $ | (3,999,000 | ) | $ | (1,148,000 | ) | $ | (1,295,000 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Amortization of debt discount reported as interest | 165,000 | 139,000 | ||||||||||||||
Depreciation and amortization | 123,000 | 136,000 | 11,000 | 44,000 | ||||||||||||
Amortization of discount reported as interest | 448,000 | 373,000 | ||||||||||||||
Stock-based compensation | 79,000 | 160,000 | 59,000 | 2,000 | ||||||||||||
Provision for inventory reserve | 1,741,000 | - | ||||||||||||||
Impairment of capitalized shop equipment | 17,000 | - | ||||||||||||||
Interest paid in common stock | 9,000 | - | ||||||||||||||
Changes in working capital items: | ||||||||||||||||
Accounts receivable | 8,000 | 9,000 | - | (6,000 | ) | |||||||||||
Inventory | 3,000 | (52,000 | ) | - | 3,000 | |||||||||||
Prepaid expenses and other current assets | (18,000 | ) | 14,000 | 12,000 | - | |||||||||||
Accounts payable and other current liabilities | 22,000 | 332,000 | 315,000 | (89,000 | ) | |||||||||||
Deferred revenue | 9,000 | (10,000 | ) | |||||||||||||
Net cash used in operating activities | (2,813,000 | ) | (3,037,000 | ) | (577,000 | ) | (1,202,000 | ) | ||||||||
Cash flows from investing activities: | ||||||||||||||||
Purchase of property, equipment and software | - | (419,000 | ) | |||||||||||||
Net cash used in investing activities | - | (419,000 | ) | |||||||||||||
Cash flows from financing activities: | ||||||||||||||||
Proceeds from issuance of senior convertible note (net) | 2,713,000 | 1,617,000 | 450,000 | 1,200,000 | ||||||||||||
Proceeds from exercise of common stock warrant | 1,000 | 10,000 | ||||||||||||||
Proceeds from issuance of unsecured subordinated notes | 125,000 | - | ||||||||||||||
Net cash provided by financing activities | 2,714,000 | 1,627,000 | 575,000 | 1,200,000 | ||||||||||||
Net decrease in cash | (99,000 | ) | (1,829,000 | ) | (2,000 | ) | (2,000 | ) | ||||||||
Cash at beginning of period | 194,000 | 2,009,000 | 53,000 | 194,000 | ||||||||||||
Cash at end of period | $ | 95,000 | $ | 180,000 | $ | 51,000 | $ | 192,000 | ||||||||
Supplemental Disclosures: | ||||||||||||||||
Cash used for payment of interest | $ | 219,000 | $ | 66,000 | ||||||||||||
Interest expense paid in common shares | $ | 66,000 | $ | - | ||||||||||||
Right to use asset | $ | 230,000 | $ | - | ||||||||||||
Cash used for payment of interest expense | $ | 47,000 | $ | 80,000 | ||||||||||||
Debt discount related to warrants and beneficial conversion feature | $ | 770,000 | $ | 1,050,000 | $ | 63,000 | $ | 219,000 | ||||||||
Common stock issued in payment of interest expense | $ | 8,000 | $ | - |
See 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 in September 1996 under the name Torvec, Inc. The Company’s name was changed to CurAegis Technologies, Inc. in 2016 in connection with the establishment of its two business divisions. The CURA (Circadian User Risk Assessment) division is engaged in the fatigue management business and the Aegis division is engaged in the power and hydraulic business.
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 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 consists of the following capabilities:
● | real-time alertness |
● | the Group Wellness Index and |
● | the Z-Coach wellness program. |
Our goal with theThe Aegis hydraulic pump technology ishas been designed to bring to the marketplace a unique concept in hydraulic pumps and motors that will be:
● | smaller, lighter and |
● | more efficient, |
● | as reliable, |
● | 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.
Current Cash Outlook and Management Plans
As of September 30, 2018,March 31, 2019, we have cash on hand of $95,000,$51,000, negative working capital of $1,869,000,$2,511,000, a stockholders’ deficitdeficiency of $7,688,000$9,497,000 and an accumulated deficit of $86,086,000.$88,297,000. During the ninethree months ended September 30, 2018March 31, 2019 we sold $2,720,000raised $575,000 in gross proceeds through the issuance of promissory notes, convertible notes and warrants,warrants. The proceeds of which havefrom this private placement has been used to support the ongoing development and marketing of our core technologies and product initiatives.
Management estimates that the fiscal 2018 year2019 cash needs will be $3 to $3.5 million, based on its current development and product plans, will approximate $4.0 million.upon the cash used in operations in the fourth quarter of 2018. As of September 30, 2018,March 31, 2019, 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 to use its best efforts to develop financing opportunities to fund the development and commercialization of the CURA and Aegis products.
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 maywill involve dilution to our stockholdersshareholders or may require that we relinquish rights to certain of our technologies or products. In addition, we maywill experience operational difficulties and delays due to working capital restrictions. If adequate funds are not available from additional sources of financing, we will have to delay or scale back our growth plans.
The Company’s ability to fund its current and future commitments from its available cash depends on a number of factors. These factors include the Company’s ability to (i) launch and generate sales from the CURA division; (ii) generate revenue from the licensing or salemonetization of our hydraulic technologies; andtechnologies or; (iii) decrease engineering and development and administrative expenses. If these and other factors are not met, the Company willwould 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 (“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 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, 20172018 contained in the Company’s 20172018 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 subsidiary Iso-Torque Corporation, and our majority-owned subsidiary, Ice Surface Development, Inc. (56% owned). As of September 30, 2018,March 31, 2019, each of the subsidiaries is non-operational. All material intercompany transactions and account balances have been eliminated in consolidation.
Use of Estimates: The preparation of financial statements in conformity with (GAAP)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 which 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 $15,000.$5,000.
Inventory: Inventory is stated at the lower of cost or net realizable value with cost determined usingunder the average cost method. A reserveWe have recorded provisions for excess, obsolete or slow-moving inventory is evaluated and determined based on changes in customer demand and technology developments or other economic factors. During the quarter ended September 30,developments. Inventory on hand at March 31, 2019 and December 31, 2018 the Company recordedhas been fully reserved reflecting a reserve of $1,741,000 in connection with a review of inventory on-hand. This amount recognizes a reserve for the myCadian watch related components and finished goods on hand at September 30, 2018. This inventory may be used in a CURA medical product under development but not yet offered by the Company. The CURA app, currently offered by the Company, does not use these inventory components. The Company will continue to evaluate the adequacy of this reserve in future reporting periods. The allowance for excess, obsolete or slow-moving inventory was $1,741,000 and $6,000 at September 30, 2018 and December 31, 2017.$1,747,000.
Accounts ReceivableRight to use building asset: We carry our accounts receivable at invoice amount less an allowance for doubtful accounts. On
The FASB issued ASU No. 2016-02, “Leases,” which requires a periodic basis, we evaluate our accounts receivablelessee to recognize on its balance sheet the assets and establish an allowance for doubtful accounts, based on a historyliabilities related to long-term leases that were classified as operating leases under previous guidance. An asset is recognized related to the Company's ability to retain the economic benefits and control of past write-offs 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, 2018 and December 31, 2017.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 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 located in Rochester, New York and utilized the practical expedient to not separate lease components from non-lease components. 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 |
| 3 |
| ||||
Office equipment (in years) | 5 | - | 7 | 5 | - | 7 | ||
Leasehold improvements | lesser of useful life or lease term | lesser of useful life or lease term |
Depreciation and amortization are computed using the straight-line method. 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 income. Depreciation and software amortization expense for the nine months ended September 30, 2018 and 2017 amounted to $123,000 and $136,000, respectively.other income (expense). Depreciation and software amortization expense for the three months ended September 30,March 31, 2019 and 2018 and 2017 amounted to $35,000$11,000 and $44,000, 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, 2018 the Company recorded $17,000 in impairment charges resulting from the reduction of estimated useful life on certain capitalized equipment from five years to three years. The Company did not record any impairment charge in the nine-month period ended September 30, 2017.
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 basedmarket-based inputs or unobservable inputs that are corroborated by market data
Level 3: Unobservable inputs that are not corroborated by market data
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 30, 2018March 31, 2019 and December 31, 2017.2018. The carrying amount of cash, accounts receivable, prepaid expenses and other current assets, accounts payable, deferred revenue and accrued expenses approximates their fair value due to their short maturity. The carrying amount of capital lease obligations approximates fair value because stated or implied interest rates approximate current interest rates that are available for debt with similar terms. The senior convertible notes can be converted into 29,584,625 shares of common stock with an underlying value of $7,692,000$5,454,000 as of September 30, 2018March 31, 2019 based on the closing trading price on September 30, 2018.March 31, 2019.
Revenue Recognition and Deferred Revenue:On January 1, 2018, the Company adopted FASB ASC 606, "Revenue from Contracts with Customers" and all related amendments for all contracts using the modified retrospective method. There was no impact upon the adoption of ASC 606. The Company has determined that the adoption of this standard did not require a cumulative effect adjustment. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. For contracts where performance obligations are satisfied at a point in time, the Company recognizes revenue when the product is shipped to the customer. For contracts where the performance obligation is satisfied over time, as in the Z-Coach sales, the Company recognizes revenue over the subscription period. Revenue from the sale of the Company's products is recognized net of cash discounts, sales returns and allowances. The Company has two sources of revenue: (i) from the sale of CURA System products and (ii) from stand-alone Z-Coach subscriptions.
The Company's net revenue is derived primarily from domestic customers. For the ninethree months ended September 30, 2018March 31, 2019 net revenue from products transferred over time amounted to $19,000$7,000 and netthere was no revenue from products transferred at a point in time amounted to $7,000. Fortime. One customer accounted for 89% of total Z-Coach subscription sales made during the three months ended SeptemberMarch 31, 2019. Our collection terms provide customers standard terms of net 30 2018 and 2017, net revenue from products transferred over time amounted to $ 7,000 and $6,000days. Future performance obligations are reflected in each quarter, respectively. For products transferred at a point in time during the third quarter of 2018 and 2017 net revenue amounted to $3,000 and zero respectively. deferred revenue.
CURA revenue is recognized (a) upon receipt of payment at the point of sale of the CURA app, (b) upon the shipmentdelivery of myCadian devicesproducts and (c) upon the company’s satisfaction of all performance obligations as described in customer agreements. The Z-Coach Program provides fatigue training over an annual subscription period of twelve months. The Z-Coach Program allows the user unlimited access during the annual subscription period. Customers are billed at the acceptance of the subscription, and revenue is recognized ratably over the subscription period as our performance obligations are satisfied and when collection is reasonably assured. Our collection terms provide customers standard terms of net 30 days. Future performance obligations are reflected in deferred revenue. The Company recognized $7,000 during the nine months ended September 30, 2018 from the sale of the CURA app and devices. Two customers accounted for 93% of these CURA app and device sales in 2018.
One customer accounted for 76% of total Z-Coach subscription sales made during the nine months ended September 30, 2018 and that customer also accounted for 44% of the sales made in the three months ended September 30, 2018. During the three month period ended September 30, 2017, one customer accounted for 94% and another during the nine months ended September 30, 2017 another accounted for 42%. Our collection terms provide customers standard terms of net 30 days. Future performance obligations are reflected in deferred revenue.
Engineering and Development and Patents: Engineering and development costs and patent expenses are charged to operations as incurred. Engineering and development costs include personnel-related costs, materials and supplies, depreciation and consulting services. Patent costs for the three months ended September 30,March 31, 2019 and 2018 and September 30, 2017 amounted to $44,000$10,000 and $46,000, respectively, and are included in general and administrative expenses. Patent costs for the nine months ended September 30, 2018 and September 30, 2017 amounted to $100,000 and $120,000,$31,000, 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 fair values on the grant date. The impact of actual 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 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.
During the third quarter of 2018, the Company adopted FASB ASU 2018-07, “Equity-Based Payments to Non-Employees,” which requires all share-based payments to non-employees, including grants of stock options, to be recognized in the consolidated financial statements as expense generally over the service period of the consulting arrangement or as performance conditions are expected to be met. 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. The Company utilized a modified retrospective approach effective as of January 1, 2018 in the adoption of this accounting guidance which resulted in a reduction of $10,000 in stock compensation expense previously recorded costs for options outstanding to non-employees.
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 30, 2018,March 31, 2019, and December 31, 2017,2018, 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 30,March 31, 2019 and 2018, and 2017 we excluded 91,575,15796,927,383 and 74,644,85884,560,427 potential common shares, respectively, relating to convertible preferred stock, convertible notes, options and warrants outstanding from the diluted net loss per common share calculation because their inclusion would be anti-dilutive. In addition, we excluded 625,000 warrants from the diluted net loss per common share calculation at September 30,March 31, 2019 and 2018 and 2017 as the conditions for their vesting are not probable. time-based.
Recent Accounting Pronouncements:
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 on 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 to the right to use the underlying asset and a liability will be recognized related to the obligation to make lease payments over the term of the lease. The standard also requires expanded disclosures surrounding leases. The standard is effective for fiscal periods beginning after December 15, 2018, and allows modified retrospective adoption, with early adoption permitted. The Company continues to evaluate the impact of the adoption of this standard on our consolidated financial statements and related disclosures.
In July 2018, the FASB issued ASU 2018-11 and ASU 2018-10 “Codification Improvements to Topic 842, Leases” and “Targeted Improvements” guidance. The Company is reviewing the guidance in these standards but does not believe the new standards will have a significant effect on the Company’s consolidated financial statements as we have limited long term lease contracts in effect. The standard is effective for fiscal periods beginning after December 15, 2018, and allows modified retrospective adoption, with early adoption permitted. The Company continues to evaluate the impact of the adoption of this standard on our consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-15 “Intangibles – Goodwill and Other- Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” This guidance was issued to assist in the evaluation of the accounting for fees paid by a customer in a cloud computing (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. If a hosting arrangement includes a license to internal-use-software, then the software license is accounted for by the customer in accordance with Subtopic 350-40, as an intangible asset and to the extent that the payments are made over time, a liability is also recognized. If the agreement does not include a license, the arrangement is treated as a service contract. This guidance is effective for years beginning after December 15, 2019. The Company is reviewing this guidance and does not believe it will have a significant effect on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13 “Fair Value Measurement (Topic 820)” related to changes in disclosure requirements for fair value measurement. The Company does not believe this guidance will have a material effect on the Company’s consolidated financial statements. This guidance is effective for fiscal years beginning after December 15, 2019.
NOTE 3 – INVENTORY AND RELATED VENDOR LIABILITY
The Company had the following inventory held at our manufacturing vendor and on hand as of September 30, 2018March 31, 2019 and December 31, 2017:2018:
September 30, | December 31, | |||||||||||||||
2018 | 2017 | March 31, 2019 | December 31, 2018 | |||||||||||||
Raw materials | $ | 1,678,000 | $ | 1,681,000 | $ | 1,678,000 | $ | 1,678,000 | ||||||||
Finished goods | 69,000 | 69,000 | 69,000 | 69,000 | ||||||||||||
1,747,000 | 1,750,000 | 1,747,000 | 1,747,000 | |||||||||||||
Less: Reserve for quality | (1,747,000 | ) | (6,000 | ) | (1,747,000 | ) | (1,747,000 | ) | ||||||||
Inventory (net) | $ | - | $ | 1,744,000 | $ | - | $ | - | ||||||||
Liability for inventory held at vendor | $ | 1,462,000 | $ | 1,678,000 | $ | 1,462,000 | $ | 1,462,000 |
During 2017, the Company initiated an agreementa purchase order with a third-party vendor to manufacture and assemble the myCadian watch. In connection with this agreement, the Company agreed to a cancellation charge for products purchased on behalf of the Company in the instance that the purchase order is subsequently modified, delayed or cancelled. As of September 30, 2018, theThe Company has recorded $1,678,000 in raw material inventory and components which were purchased by the vendor on our behalf and a related liability of $1,462,000 for amounts payable in connection with this agreement.
During the quarter ended September 30, 2018, the Company recorded aan additional reserve of $1,741,000 in connection with a review of inventory on-hand. This recognizes a reserve for myCadian related components and finished goods on hand at September 30, 2108. Management is developing a CURA medical product that could use this inventory, but that product offering has not been finalized or offered to this potential market.date. Management will continue to evaluate this reserve in future reporting periods.
NOTE 4 - SENIOR CONVERTIBLE NOTES AND WARRANTS
At September 30, 2018,March 31, 2019, the Company had $8,486,000$9,610,000 in convertible notes outstanding which have been presented net of unamortized debt discounts of $2,581,000,$2,455,000, resulting in a carrying value of $5,905,000.$7,155,000. As of December 31, 2017,2018, the Company had $5,825,000$9,160,000 in convertible notes outstanding, presented net of unamortized debt discounts of $2,262,000$2,557,000 resulting in a carrying value of $3,563,000 as of$6,603,000. Scheduled maturities on the Company’s convertible note are: none in the twelve months ending December 31, 2017.2019 and 2020; $2,990,000 in the twelve months ending December 31, 2021; $2,775,500 in the twelve months ending in December 31, 2022; $3,395,000 in the twelve months ending December 31, 2023 and $450,000 thereafter.
As
Included in the face value of convertible notes outstanding at March 31, 2019 and December 31, 2018, the Company had outstanding $2,027,500$2,252,500 in convertible notes payable to fivesix of our directors and $1,170,000 in convertible notes payable to an investor that is deemed an affiliate.
Total
|
JULY 2018 Convertible Notes |
2018 Convertible Notes | 2017 6% Convertible Notes | 2016 6% Convertible Notes | ||||||||||||||||
Face value December 31, 2018 | $ | 9,160,000 | $ | 1,175,000 | $ | 625,000 | $ | 4,370,000 | $ | 2,990,000 | ||||||||||
Notes issued in current period | 450,000 | 450,000 | - | - | - | |||||||||||||||
Face value March 31, 2019 | $ | 9,610,000 | $ | 1,625,000 | $ | 625,000 | $ | 4,370,000 | $ | 2,990,000 | ||||||||||
Debt discount December 31, 2018 | $ | (2,557,000 | ) | $ | (360,000 | ) | $ | (231,000 | ) | $ | (456,000 | ) | $ | (1,510,000 | ) | |||||
Debt discount on notes issued in current period | (63,000 | ) | (63,000 | ) | - | - | - | |||||||||||||
Amortization of discount reported as interest | 165,000 | 13,000 | 11,000 | 15,000 | 126,000 | |||||||||||||||
Debt discount March 31, 2019 | $ | (2,455,000 | ) | $ | (410,000 | ) | $ | (220,000 | ) | $ | (441,000 | ) | $ | (1,384,000 | ) | |||||
Senior Convertible Notes (net) | $ | 7,155,000 | $ | 1,215,000 | $ | 405,000 | $ | 3,929,000 | $ | 1,606,000 |
JULY 2018 Convertible Notes
Face value JULY 2018 Convertible Notes issued | $ | 500,000 | ||
Debt discount at issuance | (153,000 | ) | ||
Amortization of debt discount since inception | 3,000 | |||
JULY 2018 Senior Convertible Notes (net) | $ | 350,000 |
OnIn July 19, 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 “JULY 2018 Convertible Notes”) in connection with the July 24, 2018 Securities Purchase Agreement (the “JULY 2018 SPA”). The JULY 2018 Convertible Notes have a five-year maturity.
The conversion rate of the notes was fixed at $0.25 per share as determined at the close of business on July 24, 2018. Investors making cumulative investments in this offering of less than $500,000 were granted warrants to purchase an aggregate number of shares of common stockwarrants equal to 10% or 25% of the number of shares issuable upon the conversion of the notes and investors making cumulative investments in this offering of $500,000 and greater were granted warrants to purchase an aggregate number of shares of common stock equal to 25% of the number of shares issuablebased upon the conversionamount of the notes.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 nine months ended September 30, 2018,month period ending March 31, 2019, the Company issued $500,000 face value of JULY 2018 Convertible Notes$450,000 in new notes and granted 320,000 warrants with an exercise price of $0.25 per share and 10-year terms. The Company incurred approximately $3,000 in legal costs in connection with the issuanceallocated $63,000 of the 2018 convertible notes. In accordance with FASB ASU 2015-03 Interest-Imputation of Interest (Subtopic 835-30), these debt issuance costs have been presented as a direct deduction from the carrying amount of the Convertible Note liability and reflected as a component of debt discount which is amortized and included in interest expense over the five-year term of the JULY 2018 Convertible Notes.
The Company allocated $153,000 of the proceeds from the JULY 2018 Convertible Notes to debt discount based on the computed fair value of the warrants and the debt issuance costs on the date of investment. As of September 30, 2018, these notes have a face value of $500,000 and are presented net of unamortized debt discount of $150,000 related to warrants, beneficial conversion feature and debt issuance costs resulting in a carrying value of $350,000.
During the nine months ended September 30,three month periods ending March 31, 2019 and March 31, 2018, the Company recorded $3,000$13,000 and $0 respectively, in interest expense which includesreflects the amortization of debt discount.
2018 Convertible Notes
Face value 2018 Convertible Notes issued | $ | 625,000 | ||
Debt discount at issuance | (250,000 | ) | ||
Amortization of debt discount since inception | 8,000 | |||
2018 Senior Convertible Notes (net) | $ | 383,000 |
OnIn May 8, 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. As of July 19, 2018, investmentsInvestments received on the 2018 SPA totaled $625,000 and included the issuance of 400,000460,000 common stock warrants.
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 making cumulative investments, in this offering of less than $500,000 were granted warrants to purchase an aggregate number of shares of common stockwarrants equal to 10% or 25% of the number of shares issuable upon the conversion of the notes and investors making cumulative investments, in this offering, of $500,000 and greater were granted warrants to purchase an aggregate number of shares of common stock equal to 25% of the number of shares issuablebased upon the conversionamount of the notes.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 nine months ended September 30, 2018, the Company issued $625,000 face value of 2018 Convertible Notesthree month periods ending March 31, 2019 and granted 460,000 warrants with an exercise price of $0.25 per share and 10-year terms. The Company incurred approximately $4,000 in legal costs in connection with the issuance of the 2018 Convertible Notes. In accordance with FASB ASU 2015-03 Interest-Imputation of Interest (Subtopic 835-30), these debt issuance costs have been presented as a direct deduction from the carrying amount of the convertible note liability and reflected as a component of debt discount which is amortized and included in interest expense over the five-year term of the Convertible Notes.
The Company allocated $250,000 of the proceeds from the 2018 Convertible Notes to debt discount based on the computed fair value of the warrants, the beneficial conversion feature, and the debt issuance costs on the date of investment. As of September 30, 2018, these notes have a face value of $625,000 and are presented net of unamortized debt discount of $242,000 related to warrants, beneficial conversion feature and debt issuance costs resulting in a carrying value of $383,000.
During the three and nine-month periods ended September 30,March 31, 2018, the Company recorded $6,000$11,000 and $8,000,$0, respectively in interest expense which includesreflects the amortization of debt discount.
2017 6% Convertible Notes
Face value of 2017 Convertible Notes issued | $ | 4,420,000 | ||
Debt discount at issuance | (1,897,000 | ) | ||
2017 extinguishment impact on discount | 1,183,000 | |||
Debt conversion net of unamortized discount | (46,000 | ) | ||
Amortization of debt discount since inception | 155,000 | |||
2017 Senior Convertible Notes (net) | $ | 3,815,000 |
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”). On July 19, 2018, the Company’s board approved a resolution to complete this offering. As of July 19, 2018,Total investments received on the 2017 SPA totaled $4,420,000 and included the issuance of 2,307,207 common stock warrants.
The 2017 Convertible Notes have a five-year maturity 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 dueInvestors in full on each note's maturity date.
The conversion rate of the notes was originally fixed at $0.50 per share as determined at the close of business on May 31, 2017 and subsequently modified on November 30, 2017 to $0.333 per share. Investors making investments of less than $500,000this offering were granted warrants to purchase an aggregate number of shares of common stockwarrants equal to 10% or 25% of the number of shares issuable upon the conversion of the notes and investors making investments of $500,000 and greater were granted warrants to purchase an aggregate number of shares of common stock equal to 25% of the number of shares issuablebased upon the conversionamount of the notes. Originally, the warrants had a fixed exercise pricetheir investment.
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.
The Company issued $1,595,000 in 2017 Convertible Notes during the nine months ended September 30, 2018 representing 4,789,790 potential common stock shares and 1,120,871 warrants. The Company allocated $374,000 of the proceeds received in the nine months ended September 30, 2018 to debt discount based on the computed fair value of the warrants issued and the beneficial conversion feature.
During the quarter ended September 30, 2018,three month period ending March 31, 2019 the Company recorded $94,000$80,000 in interest expense including $28,000$15,000 of amortization of debt discount. During the nine monthsthree month period ended September 30,March 31, 2018, the Company recorded $260,000$74,000 in interest expense including amortization of debt discount of $76,000. During the quarter ended September 30, 2017, the Company recorded $43,000 in interest expense including $28,000$21,000 of amortization of debt discount. During the nine months ended September 30, 2017, the Company recorded $50,000 in interest expense including amortization of debt discount of $34,000.
As of September 30, 2018, the outstanding 2017 Convertible Notes had a face value of $4,370,000 and have been presented net of unamortized debt discount of $555,000 resulting in a carrying value of $3,815,000. As of December 31, 2017, the 2017 Convertible Notes had a face value of $2,825,000 and were presented net of unamortized debt discount of $261,000 resulting in a carrying value of $2,564,000.
2016 6% Convertible Notes
Face value 2016 Convertible Notes issued | $ | 3,000,000 | ||
Debt discount at issuance | (2,551,000 | ) | ||
Debt conversion net of unamortized discount | (3,000 | ) | ||
Amortization of debt discount since inception | 911,000 | |||
2016 Senior Convertible Notes (net) | $ | 1,357,000 |
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 maturity dates ranging from August 2021 through December 2021 and a fixed annual interest rate of 6%. The initial year of interest expense was paid to the note holders on the first anniversary of each note's issuance and will be paid 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.
The Company allocated $2,551,000Act of the proceeds from the 2016 Notes to debt discount based on the computed fair value of the warrants, the beneficial conversion feature and the debt issuance costs on the date of investment. In connection with the issuance of the 2016 Convertible Notes, the Company granted 1,200,000 warrants with an exercise price of $0.25 per share and 10-year terms. The Company incurred $28,000 in debt issuance costs in connection with the issuance of the 2016 Convertible Notes. In accordance with FASB ASU 2015-03 Interest-Imputation of Interest (Subtopic 835-30), these debt issuance costs have been presented as a direct deduction from the carrying amount of the convertible note liability and reflected as a component of debt discount which is amortized and included in interest expense over the five-year term of the 2016 Convertible Notes.
As of September 30, 2018, the outstanding 2016 Convertible Notes had a face value of $2,990,000 and have been presented net of unamortized debt discount of $1,663,000 resulting in a carrying value of $1,357,000. As of December 31, 2017, the 2016 Convertible Notes had a face value of $3,000,000 and were presented net of unamortized debt discount of $2,001,000 related to warrants, beneficial conversion feature and debt issuance costs resulting in a carrying value of $999,000.1933.
During the three months ended September 30, 2018,period ending March 31, 2019, the Company recorded $167,000$169,000 in interest expense including amortization of debt discount of $122,000.$126,000. During the nine monthsthree month period ended September 30,March 31, 2018 the Company recorded $495,000$163,000 in interest expense including amortization of debt discount of $360,000. During the three months ended September 30, 2017, the Company recorded $160,000 in interest expense including $115,000 in amortization of debt discount. During the nine-month period ended September 30, 2017 the Company recorded $475,000 in interest expense including $339,000 in amortization of debt discount.$118,000.
NOTE 5 – UNSECURED SUBORDINATED PROMISSORY NOTES
During the first quarter of 2018, the Company issued $125,000 in unsecured subordinated promissory notes to the Company’s Chief Executive Officer and to another board member. These notes bear an interest rate of 6% per annum and have a maturity date of ninety days from the date of grants.
NOTE 6 – RIGHT-TO-USE BUILDING ASSET
The FASB issued ASU No. 2016-02, “Leases,” which requires a lessee to recognize in 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 related to the right to use the underlying asset and a liability is recognized related to the obligation to make lease payments over the term of the lease. The standard became effective for the Company 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 as our headquarters located in Rochester, New York. The adoption of this accounting standard did not impact our consolidated loss from operations and had no impact on cash flows.
The Company measured the present value of future lease costs at $257,000 which included monthly rental, common area costs, and taxes in measuring the present value of the right-to-use building asset on January 1, 2019. The Company assumed an incremental borrowing rate of 6% as the building lease agreement does not include an implicit rate. The right-to-use asset includes two, one year renewal options that run through May 2021.
Operating lease costs for the first quarter of 2019 were $30,000 with future maturing lease liabilities as follows: 2019: $85,000 for the remaining nine months of 2019; $114,000 in 2020 and $57,000 in 2021. Total future lease payments are $256,000 including imputed interest of $18,000.
NOTE 7-SOFTWARE
The Company investedinvestments in software for the CURA System during 2015. These assetssystem are amortized over an estimated useful life of 3 years. Amortization expense recognized for the nine months ended September 30, 2018 and 2017 was $85,000 and $94,000 respectively. Amortization expense recognized for the three months ended September 30,March 31, 2019 and 2018 and 2017 was $23,000$4,000 and $31,000, respectively.
The net value of capitalized software at September 30,March 31, 2019 and 2018 was $6,000 and at December 31, 2017 was $17,000 and $102,000,$71,000, respectively. Future amortization expense is expected to be $6,000 in 2018 and $11,000 in 2019.
NOTE 68 - PROPERTY AND EQUIPMENT
At September 30, 2018March 31, 2019 and December 31, 20172018 property and equipment consist of the following:
September 30, 2018 | December 31, 2017 | March 31, 2019 | December 31, 2018 | |||||||||||||
Office equipment | $ | 249,000 | $ | 249,000 | $ | 249,000 | $ | 249,000 | ||||||||
Shop equipment | 182,000 | 231,000 | 182,000 | 182,000 | ||||||||||||
Leasehold improvements | 253,000 | 253,000 | 253,000 | 253,000 | ||||||||||||
684,000 | 733,000 | 684,000 | 684,000 | |||||||||||||
Less accumulated depreciation | (614,000 | ) | (608,000 | ) | (629,000 | ) | (622,000 | ) | ||||||||
Net property and equipment | $ | 70,000 | $ | 125,000 | $ | 55,000 | $ | 62,000 |
Depreciation expense for the nine months ended September 30, 2018 and 2017 was $38,000 and $42,000 respectively. Depreciation expense for the three months ended September 30,ending March 31, 2019 and 2018 and 2017 was $13,000$7,000 and $13,000 respectively.
NOTE 7-9 - 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 endedending March 31, 2019 September 30, 2018 for the Company’s business segments follows:
CURA | Aegis | Corporate | Total | |||||||||||||
Revenue | $ | 10,000 | $ | - | $ | - | $ | 10,000 | ||||||||
Loss on Revenue | (17,000 | ) | - | - | (17,000 | ) | ||||||||||
Total costs and expenses | 1,976,000 | 206,000 | 338,000 | 2,520,000 | ||||||||||||
Loss from operations | (1,993,000 | ) | (206,000 | ) | (338,000 | ) | (2,537,000 | ) | ||||||||
Non-operating expense | - | - | (271,000 | ) | (271,000 | ) | ||||||||||
Net loss | $ | (1,993,000 | ) | $ | (206,000 | ) | $ | (609,000 | ) | $ | (2,808,000 | ) | ||||
Stock based compensation | $ | - | $ | 8,000 | $ | 34,000 | $ | 42,000 | ||||||||
Depreciation and amortization | $ | 28,000 | $ | 5,000 | $ | 2,000 | $ | 35,000 | ||||||||
Capital expenditures | $ | - | $ | - | $ | - | $ | - | ||||||||
Assets at September 30, 2018 | $ | 23,000 | $ | 60,000 | $ | 144,000 | $ | 227,000 |
Segment information for the nine months ended September 30, 2018 for the Company’s business segments follows:
CURA | Aegis | Corporate | Total | |||||||||||||
Revenue | $ | 26,000 | $ | - | $ | - | $ | 26,000 | ||||||||
Loss on revenue | (71,000 | ) | - | - | (71,000 | ) | ||||||||||
Total costs and expenses | 2,872,000 | 497,000 | 1,039,000 | 4,408,000 | ||||||||||||
Loss from operations | (2,943,000 | ) | (497,000 | ) | (1,039,000 | ) | (4,479,000 | ) | ||||||||
Non-operating expense | - | - | (766,000 | ) | (766,000 | ) | ||||||||||
Net loss | $ | (2,943,000 | ) | $ | (497,000 | ) | $ | (1,805,000 | ) | $ | (5,245,000 | ) | ||||
Stock based compensation | $ | (11,000 | ) | $ | 36,000 | $ | 54,000 | $ | 79,000 | |||||||
Depreciation and amortization | $ | 102,000 | $ | 15,000 | $ | 6,000 | $ | 123,000 | ||||||||
Capital expenditures | $ | - | $ | - | $ | - | $ | - | ||||||||
Assets at September 30, 2018 | $ | 23,000 | $ | 60,000 | $ | 144,000 | $ | 227,000 |
Segment information for the three months ended September 30, 2017 for the Company’s business segments follows:
|
| CURA |
| Aegis |
| Corporate |
| Total |
| CURA | Aegis | Corporate | Total | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Revenue |
| $ | 6,000 |
| $ | - |
| $ | - |
| $ | 6,000 |
| $ | 7,000 | $ | - | $ | - | $ | 7,000 | |||||||||||
Loss on Revenue |
| (31,000 | ) |
| - |
| - |
| (31,000 | ) | ||||||||||||||||||||||
Earnings on revenue | 1,000 | - | - | 1,000 | ||||||||||||||||||||||||||||
Total costs and expenses |
| 381,000 |
| 134,000 |
| 358,000 |
| 873,000 |
| 339,000 | 169,000 | 367,000 | 875,000 | |||||||||||||||||||
Loss from operations |
| (412,000 | ) |
| (134,000 | ) |
| (358,000 | ) |
| (904,000 | ) | 338,000 | 169,000 | 367,000 | 874,000 | ||||||||||||||||
Non-operating expense |
|
| - |
|
| - |
|
| (204,000 | ) |
|
| (204,000 | ) | ||||||||||||||||||
Interest and other expense | - | - | 274,000 | 274,000 | ||||||||||||||||||||||||||||
Net loss |
| $ | (412,000 | ) |
| $ | (134,000 | ) |
| $ | (562,000 | ) |
| $ | (1,108,000 | ) | $ | 338,000 | $ | 169,000 | $ | 641,000 | $ | 1,148,000 | ||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Stock based compensation |
| $ | 2,000 |
| $ | 2,000 |
| $ | 24,000 |
| $ | 28,000 |
| $ | 8,000 | $ | 8,000 | $ | 43,000 | $ | 59,000 | |||||||||||
Depreciation and amortization |
| $ | 38,000 |
| $ | 4,000 |
| $ | 2,000 |
| $ | 44,000 |
| $ | 6,000 | $ | 5,000 | $ | - | $ | 11,000 | |||||||||||
Capital expenditures |
| $ | 263,000 |
| $ | 14,000 |
| $ | - |
| $ | 277,000 |
| |||||||||||||||||||
Assets at September 30, 2017 |
| $ | 609,000 |
| $ | 80,000 |
| $ | 229,000 |
| $ | 918,000 |
| |||||||||||||||||||
Assets at March 31, 2019 | $ | 9,000 | $ | 50,000 | $ | 296,000 | $ | 355,000 |
Segment information for the ninethree months ending March 31, 2018 months ended September 30, 2017 for the Company’s business segments follows:
CURA | Aegis | Corporate | Total | CURA | Aegis | Corporate | Total | |||||||||||||||||||||||||
Revenue | $ | 23,000 | $ | - | $ | - | $ | 23,000 | $ | 8,000 | $ | - | $ | - | $ | 8,000 | ||||||||||||||||
Loss on revenue | (88,000 | ) | - | - | (88,000 | ) | 29,000 | - | - | 29,000 | ||||||||||||||||||||||
Total costs and expenses | 1,807,000 | 402,000 | 1,179,000 | 3,388,000 | 523,000 | 131,000 | 376,000 | 1,030,000 | ||||||||||||||||||||||||
Loss from operations | (1,895,000 | ) | (402,000 | ) | (1,179,000 | ) | (3,476,000 | ) | 552,000 | 131,000 | 376,000 | 1,059,000 | ||||||||||||||||||||
Non-operating expense | - | - | (523,000 | ) | (523,000 | ) | ||||||||||||||||||||||||||
Interest and other expense | - | - | 236,000 | 236,000 | ||||||||||||||||||||||||||||
Net loss | $ | (1,895,000 | ) | $ | (402,000 | ) | $ | (1,702,000 | ) | $ | (3,999,000 | ) | $ | 552,000 | $ | 131,000 | $ | 612,000 | $ | 1,295,000 | ||||||||||||
Stock based compensation | $ | 80,000 | $ | 6,000 | $ | 74,000 | $ | 160,000 | $ | (16,000 | ) | $ | 2,000 | $ | 16,000 | $ | 2,000 | |||||||||||||||
Depreciation and amortization | $ | 113,000 | $ | 15,000 | $ | 8,000 | $ | 136,000 | $ | 37,000 | $ | 5,000 | $ | 2,000 | $ | 44,000 | ||||||||||||||||
Capital expenditures | $ | 372,000 | $ | 47,000 | $ | - | $ | 419,000 | ||||||||||||||||||||||||
Assets at September 30, 2017 | $ | 609,000 | $ | 80,000 | $ | 229,000 | $ | 918,000 | ||||||||||||||||||||||||
Assets at March 31, 2018 | $ | 1,860,000 | $ | 70,000 | $ | 227,000 | $ | 2,157,000 |
NOTE 810 - 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 ninethree months ended September 30, 2018ending March 31, 2019 we issued 874,00035,996 shares of common stock in connection with conversion notices received from a Series C, C-2 and C-3 preferred stockholders and warrant exercises. The Company also issued 264,453 common shares at $0.25 per share in payment of interest on the Company'sCompany’s 2016 and 2017 Convertible Notes. During the ninethree months ended September 30, 2017, the CompanyMarch 31, 2018 we issued 1,596,50080,000 shares of common stock in connection with a conversion noticesnotice received from a Series C-3 convertible preferred stockholders.stockholder.
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 30, 2018March 31, 2019 and December 31, 2017,2018 there were 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 459,512 outstanding shares of Class A Preferred stock was $2,484,000$2,576,000 at September 30, 2018March 31, 2019 and $2,346,000$2,530,000 at December 31, 2017.2018.
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 stockholders, Class A Preferred stockholders have a liquidation preference with respect to all accumulated and unsettled dividends. The value of the Class A Preferred stockholders’ liquidation preference was $2,484,000$2,576,000 and $2,346,000$2,530,000 at September 30, 2018March 31, 2019 and December 31, 2017,2018, 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.
Class B Preferred Stock
At September 30, 2018March 31, 2019 and December 31, 2017,2018, 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 $445,000$462,000 at September 30, 2018March 31, 2019 and $420,000$454,000 at December 31, 2017.2018.
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 stockholders and our Class A Preferred stockholders, Class B Preferred stockholders have a liquidation preference with respect to all accumulated and unsettled dividends. The value of the Class B Preferred stockholders’ liquidation preference was $445,000$462,000 and $420,000$454,000 at September 30, 2018March 31, 2019 and December 31, 2017,2018, 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 30, 2018March 31, 2019 and December 31, 2017 respectively,2018, there were 15,687,500 and 15,937,500 shares of Series C Preferred stock outstanding. The value of the Series C Preferred stockholders’ liquidation preference was $6,275,000 at September 30, 2018March 31, 2019 and $6,375,000 at December 31, 2017.2018.
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’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 Preferred Stock
At September 30, 2018March 31, 2019 and December 31, 2017 respectively,2018, there were 24,500,000 and 25,000,000 shares of Preferred C-2 stock outstanding. The value of the Series C-2 Preferred stockholders’ liquidation preference was $4,900,000 at September 30, 2018March 31, 2019 and $5,000,000 as of December 31, 2017.2018.
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 Preferred Stock
At March 31, 2019 and December 31, 2018, there were 3,268,000 shares of Preferred C-3 stock outstanding. The Company issued the6,042,000 shares of Series C-3 Voting Convertible Preferred Stock in a private placement transaction during 2016, generating net proceeds of $1,495,000 after related legal costs. During the nine months ended September 30, 2018 and 2017 we issued 120,000 and 1,494,000 shares of common stock, respectively, in connection with conversion notices received from Series C-3 convertible preferred stockholders. 2016.
NOTE 911 - STOCK OPTIONS
2016 Stock Option Plan At the 2016 Annual Meeting the stockholdersThe shareholders approved the 2016 Stock Option Plan (the “2016 Plan”) which provides for the grant of up to 3,000,000 common stock options to 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. As of March 31, 2019, 1,220,000 options have been granted under the 2016 plan and 1,780,000 options are available for future grant.
2011 Stock Option Plan In 2011, stockholdersThe shareholders approved the 2011 Stock Option Plan (the “2011 Plan”) which provides for the grant of up to 3,000,000 common stock options to 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. As of March 31, 2019, there are 91,500 options are available for future grant under the 2011 Plan.
Under the Company’s stock option plans,2016 and 2011 Stock Option Plans, non-qualified stock options 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 case of non-qualified stock options, the exercise price may be less than the fair market value of our stock on the date of grant. Stock option grants to non-employees are revalued at each reporting date to reflect the expense over the vesting period. In the 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 for an incentive stock option granted to an employee who owns more than 10% of our stock may not be greater than five years.
During the ninethree months ended September 30,March 31, 2019, no stock options were granted. During the three months ended March 31, 2018, 150,000 stock options were granted.
Non-Plan Options On occasion, we have granted a total of 1,517,500non-qualified stock options to certain officers, directors and employees and non-employee consultants. These included stock options granted at exercise prices ranging from $0.20 to $.35 per share, exercisable for 10 years that generally vest at a ratehave been outside of 25% on each anniversary of the grant.established Company Stock Option Plans. All such option grants have been subsequently authorized by shareholder approval.
Summary For the three months ended September 30,March 31, 2019 and 2018, and 2017, costcompensation expense related to stock option awards amounted to $42,000$59,000 and $28,000,$2,000, respectively. For the nine months ended September 30, 2018 and 2017, cost related to stock option awards amounted to $79,000 and $160,000, respectively. During the nine months ended September 30, 2018, option expense was reduced by approximately $82,000 as a result of option forfeitures resulting from employee turnover during the period. There were no forfeitures, cancellations or option exercises during the nine-month period ended September 30, 2017.
As of September 30, 2018,March 31, 2019, there was approximately $325,000$238,000 of total unrecognized compensation costs related to outstanding stock options, which are expected to be recognized over a weighted average of 1.1 years.
The weighted average grant date fair value of stock options granted during the ninethree months ended September 30,March 31, 2019 and 2018 was zero and 2017 was $0.27 and $0.76,$0.33, respectively. The total grant date fair value of stock options vested during the ninethree months ended September 30,March 31, 2019 and 2018 and 2017 was approximately $347,000$4,000 and $97,000,$22,000, respectively.
The fair value of each option granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
2018 | 2017 | 2019 | 2018 | |||||||||||
Expected term (years) | 6.3 | 6.6 | - | 6.3 | ||||||||||
Expected forfeiture rate | 0% | 0% | - | 0% | ||||||||||
Risk-free rate | 2.9% | 2.1% | - | 2.6% | ||||||||||
Volatility | 137% | 130% | - | 130% | ||||||||||
Dividend yield | 0% | 0% | - | 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 historical stock option exercise experience on which to base the expected term.
The following summarizes the activity of all of our outstanding stock options as of September 30, 2018:for the quarter ended March 31, 2019:
Shares | Weighted Average Exercise Price | Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | Weighted | Average | |||||||||||||||||||||||||||
Outstanding at January 1, 2018 | 9,682,000 | $ | .54 | |||||||||||||||||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||||||||||||||||||
Exercise | Contractual | Intrinsic | ||||||||||||||||||||||||||||||
Shares | Price | Term (years) | Value | |||||||||||||||||||||||||||||
Outstanding at January 1, 2019 | 11,028,500 | $ | 0.49 | 3.8 | $ | 94,000 | ||||||||||||||||||||||||||
Granted | 1,517,500 | .27 | - | - | ||||||||||||||||||||||||||||
Exercised | - | - | - | - | ||||||||||||||||||||||||||||
Canceled or expired | (396,875 | ) | .57 | - | - | |||||||||||||||||||||||||||
Outstanding at September 30, 2018 | 10,802,625 | $ | .50 | 3.9 | $ | 127,000 | ||||||||||||||||||||||||||
Outstanding at March 31, 2019 | 11,028,500 | $ | 0.49 | 3.5 | $ | - | ||||||||||||||||||||||||||
Exercisable at September 30, 2018 | 6,754,750 | $ | .59 | 3.0 | $ | 7,000 | ||||||||||||||||||||||||||
Exercisable at March 31, 2019 | 7,068,500 | $ | 0.58 | 2.7 | $ | - |
During the quarter ended March 31, 2019, no options were granted, exercised, cancelled or expired unexercised. During the quarter ended March 31, 2018, no options were exercised, or expired unexercised. During the quarter ended March 31, 2018, the Company cancelled 191,875 options as a result of employee turnover. As of September 30, 2018,March 31, 2019, there were 10,802,6252,908,500 stock options outstanding under the Company’s stock option plans, 6,754,7502011 Plan, 2,048,500 of which were vested at that date; leaving 2,097,37591,500 options available for future grant under the plans. 2011 Plan. Also, as of March 31, 2019, there were 1,220,000 stock options outstanding under the 2016 Plan, 270,000 of which were vested at that date; leaving 1,780,000 options available for future grant under the 2016 Plan.
As of September 30, 2018,March 31, 2019, the exercise prices of all outstanding stock options ranged from $.22 per share to $1.58 per share.
NOTE 1012 - WARRANTS
The following summarizes the activity of our outstanding warrants as of September 30, 2018:for the three months ended March 31, 2019:
Weighted | Weighted | |||||||||||||||||||||||||||||||||||
Weighted | Average | Weighted | Average | |||||||||||||||||||||||||||||||||
Average | Remaining | Aggregate | Average | Remaining | Aggregate | |||||||||||||||||||||||||||||||
Exercise | Contractual | Intrinsic | Exercise | Contractual | Intrinsic | |||||||||||||||||||||||||||||||
Shares | Price | Term | Value | Shares | Price | Term | Value | |||||||||||||||||||||||||||||
Outstanding at January 1, 2018 | 5,214,836 | $ | .57 | (A) | ||||||||||||||||||||||||||||||||
Outstanding at January 1, 2019 | 7,381,707 | $ | 0.46 | (A) | 7.0 | (B) | $ | 39,000 | ||||||||||||||||||||||||||||
Granted | 1,900,871 | .32 | 330,000 | 0.25 | ||||||||||||||||||||||||||||||||
Exercised | (4,000 | ) | .25 | - | - | |||||||||||||||||||||||||||||||
Canceled or expired | - | - | - | - | ||||||||||||||||||||||||||||||||
Outstanding at September 30, 2018 | 7,111,707 | $ | .48 | (A) | 6.8 | (B) | $ | 73,000 | ||||||||||||||||||||||||||||
Outstanding at March 31, 2019 | 7,711,707 | $ | 0.45 | (A) | 6.9 | (B) | $ | 31,000 | ||||||||||||||||||||||||||||
Exercisable at September 30, 2018 | 6,486,707 | $ | .46 | 6.3 | (C) | $ | 72,000 | |||||||||||||||||||||||||||||
Exercisable at March 31, 2019 | 7,070,786 | $ | 0.44 | 7.0 | (C) | $ | 30,000 |
(A) | The weighted average exercise price for warrants outstanding as of | |
(B) | The weighted average remaining contractual term for warrants outstanding as of | |
(C) | The weighted average remaining contractual term for warrants exercisable as of |
NOTE 1113 - RELATED PARTY TRANSACTIONS
As of September 30,March 31, 2019, and December 31, 2018, the Company issued $2,027,500 aggregatehad outstanding $2,252,500 in principal amountamounts of senior convertible notes held by fivesix members of itsour board of directors. The Company recorded $28,000These notes represent 7,888,378 of potential shares of common stock at March 31, 2019 and $84,000 in interest expense in connectionDecember 31, 2018. Underlying warrants outstanding associated with these senior convertible notes for the threerepresent 1,239,285 of potential shares of common stock at March 31, 2019 and nine month periods ended September 30, 2018, respectively.December 31, 2018.
TheDuring the first quarter of 2019, the Company has $1,170,000 aggregate principal amount of senior convertibleissued unsecured subordinated promissory notes held by an investor that is deemed an affiliate through the ownership of the majority oftotaling $125,000 to our Series CChief Executive Officer and C-2 Preferred Stock. The Company recorded $17,000to a board member. These notes have a ninety day term and $52,000 inaccrued interest expense in connection with these senior convertible notes for the three and nine month periods ended September 30, 2018, respectively.
We occupy a leased facility for our corporate headquarters building, located in Rochester, New York, which consists of both executive offices and manufacturing space. The facility is owned by a partnership in which a Company director is associated. The Company recognized $98,000 and $81,000 respectively, in rent expense for the nine-month periods ended September 30, 2018 and 2017.at 6% per annum.
NOTE 12 14 - SUBSEQUENT EVENTS
JULY 2018 Convertible Notes
Subsequent to September 30, 2018,March 31, 2019, the Company issued 56,400$50,000 in new JULY 2018 Convertible Notes and 20,000 warrants.
Unsecured Subordinated Promissory Notes with Related Party
On each of April 4, 2019 and May 1, 2019, the Company entered into $100,000 unsecured subordinated promissory notes with Richard A. Kaplan the Company’s Chief Executive Officer and a director of the Company. The maturity date of the first note is July 3, 2019, and the maturity date of the second note is July 30, 2019. Interest accrues on the outstanding notes at a rate of 6% per annum.
Common shares Issued in Payment of Interest Expense
Subsequent to March 31, 2019, the Company issued 34,356 shares of common shares at $0.25 per sharestock representing $8,589 in payment of interest to note holders of the Company's 2017 Convertible Notes.
July 2018 Convertible Notes
The Company issued $475,000 aggregate principal amount of JULY 2018 Notes and warrants to purchase 190,000 shares of common stock since September 30, 2018.noteholders.
ItemITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, environmental regulations, and other risks and uncertainties, certain of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ materially from those forward-looking statements set forth herein. When used in this report, the words “anticipate”, “believe”, “estimate” or “expect” or words of similar import are intended to identify forward-looking statements. For further discussion of certain of the matters described above and other risks and uncertainties, see below and in “Risk Factors” in Part 1 Item 1A of our 20172018 annual report on Form 10K.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 Statementscondensed consolidated financial statements and Notesnotes thereto appearing elsewhere in this Form 10-Q.
Overall Business Strategy
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 2016 in connection with the establishment of its two business divisions. The CURA (Circadian User Risk Assessment) division is engaged in the fatigue management business, and the Aegis division is engaged in the power and hydraulic business.
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 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 consists of the following capabilities:
● | real-time alertness monitoring, |
● | the Group Wellness Index, and |
● | the Z-Coach |
The Aegis hydraulic pump technology has been designed to bring to the marketplace a unique concept in hydraulic pumps and motors that will be:
● | smaller, lighter, and |
● | more efficient, |
● | as reliable, 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 for a start-up entity. In addition to the activities to be undertaken by us to implement our plan of operation detailed below, we may expand and/or refocus our marketing activities depending upon future circumstances and developments.
Information regarding the Company and all of our inventions, including regular updates on technological and business developments, can be found on our website www.curaegis.com. The website and its contents are not incorporated by reference into this report.
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 ofrelated products designed to (i) measure the decrease in a person’s alertness and (ii) to train individuals on how to improve alertness levels. The CURA System will enable the user and third parties to anticipate 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.
During 2018, the Company released an APP that utilizes the CURA algorithm with a Fitbit device with a consumer focus. The APP was further developed throughout 2018 and 2019 to expand the reporting capabilities to other devices and to include an API for corporate users. The Company anticipates updated software for the APP and the API in the second quarter of 2019 in anticipation of mid-year 2019 CURA product sales. We believe this will greatly improve the ease of use and the customer experience. We have also modified our pricing structure which we believe makes it much more attractive to potential customers.
CurAegis has engaged sleep study 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 CURA systemSystem is designed to be aprovide real-time alertness systemmonitoring 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 CURA platform is designed to predict and detect a degradation of alertness in a user and reveal sleep and fatigue problems. The CURA platform was expanded during 2018 to support other wearable technology and has been designed to include an API (Application Programming Interface) to facilitate safety reporting for corporate customers. The CURA Platform will include:
● | a proprietary tool | |
● | a risk assessment that identifies the degradation of alertness potentially affecting the wearer’s ability to perform tasks, | |
● |
| |
● | real-time reporting that distills complex data into actionable information on mobile and desktop platforms, | |
● | predictive reporting for a user to take action when alertness begins to wane, | |
● | flexible settings to provide employers a customized tool within existing safety definitions and to create protocols for a unique environment, and | |
● | pricing that makes it affordable across a broad-based workforce. |
The Company developed marketing and sales programs in support of the CURA app soft-launch that occurred in May 2018 and is now pursuing prospective customer orders. At this time, we cannot predict the duration of this initial cycle of the sales process and project the timing to close future sales.
The Company has invested in controlled clinical studies at the Sleep and Chronobiology Laboratory at the University of Colorado-BoulderBoulder-Colorado 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 tool is a criticalkey component of the CURA platform and was originally created by highly respected fatigue management scientists. We acquired the Z-Coach 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 Z-Coach modules have been designed for a range of industry professionals, including aviation, trucking and busing industry and for corporate workers. These Z-Coach modules are a key component to the CURA™ System.
Aegis Division: Hydraulic Pump
On May 4,During 2018 the Company initiated discussions with a major hydraulics manufacturer ("the Manufacturer") to evaluate our hydraulics technology. After several productive discussions, the Manufacturer and the Company signed a Memorandum of Understanding (the "MOU"("the MOU") with a major hydraulics manufacturer to assessevaluate an investment in the Aegis pump/motor technology. This manufacturer visitedAEGIS technologies. The Company and the Company’s headquartersManufacturer continued discussions through March 18, 2019 when it was determined that the week of September 24, 2018parties had not been able to further evaluate our pump and motor technology. The result of these discussions was a verbal commitment to initiate negotiations onreach an agreement to formproceed. In April 2019, the Company engaged an investment banking firm to provide financial advisory services in connection with a relationship with the Company. The Company had not formalized the naturepotential sale of this relationship at the time of this filing but will continue active discussions on this objective. The Company believes the Aegis pump/motor technology can significantly change the hydraulics industry in the future.technologies. Management believes these are valuable assets and will prioritize receiving a fair price for them.
The development of ourthe Aegis 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. This enables manufacturers to keep the current equipment layout without the need for expensive modifications to accommodate larger hydraulic pumps.
OurThe Aegis engineering team has completed a production prototype and is working to align the prototype capability with specific customer applications. The Company reachedhas achieved significant milestones in the design and testing of this production prototype in 2017 and 2018.recent years. Engineering testing, design and expansion of pump and motor functionalitiesfunctionality is continuing.
We have invested in software, test equipment and personnel to enhance our development efforts of our hydraulic pump to improve the overall performance while maintaining the advantages we have in sizeweight and weight.scale. We have builtmaintain our own testing facility, which would have otherwise taken place at a third-partyeliminates the necessity of third party testing facility.fees and support. Our engineerengineering and design team has progressively made adjustments to the valve and piston technology and each change hasthese changes have 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. We will continue to design modifications to enhance the overall pump technology.
Results of Operations for the three monthsThree Months ended September 30,March 31, 2019 and 2018 and 2017
Revenue, Cost of Revenue and LossMargin (loss) on Revenue
For the three months ended September 30, |
Variance Incr (decr) | |||||||||||
2018 | 2017 | |||||||||||
CURA Revenue | $ | 10,000 | $ | 6,000 | $ | 4,000 | ||||||
Cost of Revenue | 27,000 | 37,000 | (10,000 | ) | ||||||||
Loss on Revenue | $ | (17,000 | ) | $ | (31,000 | ) | $ | (14,000 | ) |
For the Three Months Ended |
Variance | |||||||||||
2019 | 2018 | Incr (decr) | ||||||||||
Revenue | $ | 7,000 | $ | 8,000 | $ | (1,000 | ) | |||||
Cost of revenue | 6,000 | 37,000 | (31,000 | ) | ||||||||
Margin (loss) on revenue | $ | 1,000 | $ | (29,000 | ) | $ | 30,000 |
During the third quarter of 2018 sixteen Z-Coach Aviation subscriptions were sold to five customers. Duringthree months ended March 31, 2019, the third quarter of 2017 thirty-six Z-Coach Aviation subscriptions were sold to three customers. Quarter-to-date revenue earned from the sales of the CURA app as of September 30, 2018 was $3,000. The Company did not haverecorded $7,000 in revenue from sales of CURA system units inZ-Coach stand-alone sales. During the three months ended September 30, 2017.
As of September 30,March 31, 2018 and December 31, 2017, the Company has deferredrecorded $4,000 in Z-Coach stand-alone sales and $4,000 in pilot revenue of $14,000 and $5,000, respectively attributed to Z-Coach subscription revenue that will be recognized ratably as our performance obligations are satisfied.
The cost of revenue includes: software amortization and hosting fees incurred to providefrom 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.CURA System.
The Z-Coach modules have been designed for a range of industry professionals, including aviation, trucking and busing industry and for corporate workers. Z-Coach provides fatigue safety training over a twelve-month subscription period. The user has unlimited access to this tool during the subscription period. Customers are billed at the acceptance of the subscription and revenue is recognized ratably over the subscription period as our performance obligations are satisfied and when collection is reasonably assured.
Provision for inventory and asset impairment
The Company recorded a provision for the myCadian watch components and finished goods of $1,741,000 during the three month period ended September 30, 2018. This inventory was sourced in 2017 from a third-party vendor engaged to manufacture and assemble the myCadian watch. The Company is currently offering the CURA app which does not require the use of the myCadian watch. Management is developing an alternate CURA medical product that may use this inventory but this product offering has not been finalized or offered for sale.
The Company also recorded an asset impairment for $17,000 related to the write off of the book value of CURA capital assets that had been assigned a five year life upon acquisition. This impairment loss reflects a shorter useful life on these assets as of September 30, 2018.
Engineering and development costs and expenses
For the three months ended September 30, | Variance | |||||||||||
2018 | 2017 | Incr (decr) | ||||||||||
Wages and benefits | $ | 161,000 | $ | 98,000 | $ | 63,000 | ||||||
Professional fees | 36,000 | 4,000 | 32,000 | |||||||||
Parts and shop supplies | 45,000 | 73,000 | (28,000 | ) | ||||||||
Computer and software maintenance | 9,000 | 16,000 | (7,000 | ) | ||||||||
Depreciation and amortization | 11,000 | 11,000 | - | |||||||||
Other costs and expenses | 5,000 | - | 5,000 | |||||||||
267,000 | 202,000 | 65,000 | ||||||||||
Stock-based compensation | 11,000 | 9,000 | 2,000 | |||||||||
Total Engineering and Development | $ | 278,000 | $ | 211,000 | $ | 67,000 |
The $67,000 increase in engineering and development costs is primarily attributed to wages and professional fees reflecting the advanced stage of development for the CURA and AEGIS products. As the Company gets closer to product commercialization and development milestones are achieved, the engineering efforts become more focused resulting in lower parts and shop supplies. The Company will continue to invest in the CURA and Aegis product development efforts during 2018.
The increase in stock compensation expense reflects 450,000 new options granted during the third quarter of 2018, there were no option grants in the third quarter of 2017.
General and administrative costs and expenses
For the three months ended September 30, | Variance | |||||||||||
2018 | 2017 | Incr (decr) | ||||||||||
Wages and benefits | $ | 276,000 | $ | 418,000 | $ | (142,000 | ) | |||||
Professional fees | 80,000 | 111,000 | (31,000 | ) | ||||||||
Facilities and occupancy | 35,000 | 40,000 | (5,000 | ) | ||||||||
Insurance | 19,000 | 22,000 | (3,000 | ) | ||||||||
Conferences and travel | 11,000 | 34,000 | (23,000 | ) | ||||||||
Computer expense | 9,000 | 6,000 | 3,000 | |||||||||
Marketing | 10,000 | - | 10,000 | |||||||||
Stockholder support | 5,000 | 10,000 | (5,000 | ) | ||||||||
Depreciation and amortization | 2,000 | 2,000 | - | |||||||||
Other costs and expenses | 6,000 | - | 6,000 | |||||||||
453,000 | 643,000 | (190,000 | ) | |||||||||
Stock-based compensation | 31,000 | 19,000 | 12,000 | |||||||||
Total General and Administrative | $ | 484,000 | $ | 662,000 | $ | (178,000 | ) |
The decrease of $178,000 in general and administrative expenses in the third quarter of 2018 compared to the prior year period is attributed primarily to employee turnover, reduced spending with professional advisors and reduced travel costs. There were eleven employees in general and administrative functions at September 30, 2018 compared to fifteen at the same date in 2017.
Non-operating expense
For the three months ended September 30, | Variance Incr (decr) | |||||||||||
2018 | 2017 | |||||||||||
Interest expense | $ | (271,000 | ) | $ | (204,000 | ) | $ | 67,000 |
| |||
Other income | - | - | - | |||||||||
$ | (271,000 | ) | $ | (204,000 | ) | $ | 67,000 |
|
During the three months ended September 30, 2018, the Company recognized $112,000 in interest expense on the 6% convertible notes and $159,000 of amortization on debt discount classified as interest expense related to convertible notes. At September 30, 2018 and September 30, 2017, the Company had $8,486,000 and $4,626,000, respectively in convertible notes outstanding. (See Note 4.)
Net Loss for the three months ended September 30, 2018 and 2017
The net loss for the three months ended September 30, 2018 was $2,808,000, compared with a net loss in the three months ended September 30, 2017 of $1,108,000. The net loss attributable to common stockholders for the three months ended September 30, 2018 was $2,863,000 as compared to $1,170,000 for the three months ended September 30, 2017. The weighted average basic and diluted common shares outstanding amounted to 49,646,000 and 48,321,000 for each of the three months ended September 30, 2018 and 2017, respectively. Basic and diluted loss per common share for each of the three months ended September 30, 2018 and 2017 was $0.06 and $0.02.
Results of Operations for the nine months ended September 30, 2018 and 2017
Revenue, Cost of Revenue and Loss on Revenue
For the nine months ended September 30, |
Variance Incr (decr) | |||||||||||
2018 | 2017 | |||||||||||
CURA Revenue | $ | 26,000 | $ | 23,000 | $ | 3,000 | ||||||
Cost of revenue | 97,000 | 111,000 | (14,000 | ) | ||||||||
Loss on revenue | $ | (71,000 | ) | $ | (88,000 | ) | $ | (17,000 | ) |
The Company recorded $26,000 and $ 23,000 in revenue during theMarch 31, 2019, nine months ended September 30, 2018 and September 30,2017, respectively. Z-Coach sales aggregated $19,000 and CURA app and device sales aggregated $7,000 during the nine months ended September 30, 2018. During the nine months ended September 30, 2018, two hundred and six Z-Coach Aviation subscriptions were sold to nine customers. During the nine months ended September 30, 2017, one hundred and forty-seven Z-Coach Aviation subscriptions were sold to eight customers.two customers resulting in total customer sales of $1,000. As of September 30, 2018,March 31, 2019, and December 31, 2017,2018, the Company has deferred revenue of $14,000$4,000 and $5,000,$9,000, respectively attributed to Z-Coach subscription revenue that will be recognized ratably as our performance obligations are satisfied.
The Company recorded $97,000$6,000 and $37,000 in cost of revenue during the nine-month periodthree months ended September 30,March 31, 2019 and 2018, and $111,000 in the nine-month period ended September 30, 2017.respectively. The cost of revenue includes: (i)includes software amortization and hosting fees incurred to provide the Z-Coach product to subscriberssubscribers. Hosting and (ii) productrelated costs incurredwere $2,000 and $5,000 in the deliveryfirst quarters of pilot programs shipped2019 and 2018, respectively. Software amortization was $4,000 and $31,000 in the first quarters of 2019 and 2018, respectively. Capitalized software of $300,000 was fully amortized during the period related to the CURA system.third quarter of 2018. Software amortization is based upon the straight-line amortization of the capitalized software over an estimated useful life of 36 months.
The Z-Coach modules have been designed for a range of industry professionals, including aviation, trucking and busing industry and for corporate workers. Z-Coach provides fatigue safety training over a twelve-month subscription period. The user has unlimited access to this tool during the subscription period. Customers are billed at the acceptance of the subscription and revenue is recognized ratably over the subscription period as our performance obligations are satisfied and when collection is reasonably assured.
Provision for inventory and asset impairment
The Company recorded a provision for the myCadian watch components and finished goods of $1,741,000 in the third quarter of 2018. The Company is currently offering the CURA app which does not require the use of the myCadian watch. Management is developing an alternate CURA medical product that may use this inventory but that product offering is not yet finalized and offered for sale.
Also during the third quarter of 2018, the Company recorded an asset impairment of $17,000 related to the write off of the net book value Future amortization cost of capitalized assets that had been assigned a five year life upon acquisition. The impairment life reflects a shorter useful life on these assets at September 30, 2018.software of $6,300 will be fully amortized by December 31, 2019.
EngineeringEngineering and development costsDevelopment Costs and expensesExpenses
For the nine months ended September 30, | Variance | |||||||||||
2018 | 2017 | Incr (decr) | ||||||||||
Wages and benefits | $ | 592,000 | $ | 595,000 | $ | (3,000 | ) | |||||
Professional fees | 236,000 | 213,000 | 23,000 | |||||||||
Parts and shop supplies | 93,000 | 245,000 | (152,000 | ) | ||||||||
Computer and software maintenance | 31,000 | 44,000 | (13,000 | ) | ||||||||
Depreciation and amortization | 32,000 | 34,000 | (2,000 | ) | ||||||||
Other costs and expenses | 10,000 | 15,000 | (5,000 | ) | ||||||||
994,000 | 1,146,000 | (152,000 | ) | |||||||||
Stock-based compensation | 18,000 | 25,000 | (7,000 | ) | ||||||||
Total Engineering and Development | $ | 1,012,000 | $ | 1,171,000 | $ | (159,000 | ) |
For the Three Months Ended | Variance | |||||||||||
2019 | 2018 | Incr (decr) | ||||||||||
Wages and benefits | $ | 165,000 | $ | 250,000 | $ | (85,000 | ) | |||||
Professional fee and advisors | 129,000 | 129,000 | - | |||||||||
Parts and shop supplies | 12,000 | 22,000 | (10,000 | ) | ||||||||
Computer and software maintenance | 7,000 | 12,000 | (5,000 | ) | ||||||||
Depreciation and amortization | 7,000 | 10,000 | (3,000 | ) | ||||||||
Other costs and expenses | - | 3,000 | (3,000 | ) | ||||||||
320,000 | 426,000 | (106,000 | ) | |||||||||
Stock based compensation | 11,000 | (21,000 | ) | 32,000 | ||||||||
Total Engineering and Development | $ | 331,000 | $ | 405,000 | $ | (74,000 | ) |
Engineering and development expenses decreased by $159,000 duringfor the ninethree months ended September 30, 2018March 31, 2019 amounted to $331,000 as compared to $405,000 in the comparable period in 2017. Non-cash stock-based compensation attributable to stock options during the period was $18,000, reflecting $66,000 in forfeitures related to employee turnover experienced during the period.three months ended March 31, 2018. The decrease in engineeringwages and development costs is primarily attributed to decreased spending forbenefits, parts and shop supplies which reflects the advanced stageis a result of development for the CURA and AEGIS products. Asmore focused engineering efforts as the Company getgets closer to product commercializationcommercialization. Engineering headcount totaled seven and development milestones are achieved,eight professionals, respectively as of March 31, 2019 and 2018. During the engineering efforts become more focused resulting in lower costfirst quarter of wages and parts and shop supplies. The2018, the Company will continue to invest in the CURA and Aegis product development efforts during 2018.
General andrecognized administrative costs and expenses
For the nine months ended September 30, | Variance | |||||||||||
2018 | 2017 | Incr (decr) | ||||||||||
Wages and benefits | $ | 959,000 | $ | 1,230,000 | $ | (271,000 | ) | |||||
Professional fees | 255,000 | 427,000 | (172,000 | ) | ||||||||
Facilities and occupancy | 113,000 | 114,000 | (1,000 | ) | ||||||||
Insurance | 65,000 | 59,000 | 6,000 | |||||||||
Conferences and travel | 35,000 | 104,000 | (69,000 | ) | ||||||||
Computer expense | 29,000 | 35,000 | (6,000 | ) | ||||||||
Marketing Expense | 30,000 | 2,000 | 28,000 | |||||||||
Stockholder support | 42,000 | 61,000 | (19,000 | ) | ||||||||
Depreciation and amortization | 6,000 | 8,000 | (2,000 | ) | ||||||||
Other costs and expenses | 43,000 | 42,000 | 1,000 | |||||||||
1,577,000 | 2,082,000 | (505,000 | ) | |||||||||
Stock-based compensation | 61,000 | 135,000 | (74,000 | ) | ||||||||
Total General and Administrative | $ | 1,638,000 | $ | 2,217,000 | $ | (579,000 | ) |
The decrease of $579,000 in general and administration expenses for the nine month period ended September 30, 2018 reflects the reduction in headcount, reductionstock compensation due to forfeitures as a result in cost of professional services, reduced travel, conferences and marketing brochures. There were eleven employees in general and administrative functions at September 30, 2018 compared to fifteen atemployee turnover during the same date in 2017.quarter.
Non-operatingGeneral and Administrative Costs and Expenses
For the Three Months Ended | Variance | |||||||||||
2019 | 2018 | Incr (decr) | ||||||||||
Wages and benefits | $ | 250,000 | $ | 378,000 | $ | (128,000 | ) | |||||
Professional fees and advisors | 87,000 | 75,000 | 12,000 | |||||||||
Facilities and occupancy | 41,000 | 43,000 | (2,000 | ) | ||||||||
Outbound sales services | 62,000 | - | 62,000 | |||||||||
Patents | 10,000 | 31,000 | (21,000 | ) | ||||||||
Insurance | 20,000 | 20,000 | - | |||||||||
Conferences and travel | 7,000 | 11,000 | (4,000 | ) | ||||||||
Computer expense | 8,000 | 12,000 | (4,000 | ) | ||||||||
Shareholder support | 6,000 | 18,000 | (12,000 | ) | ||||||||
Depreciation and amortization | - | 2,000 | (2,000 | ) | ||||||||
Other costs and expenses | 5,000 | 12,000 | (7,000 | ) | ||||||||
496,000 | 602,000 | (106,000 | ) | |||||||||
Stock based compensation | 48,000 | 23,000 | 25,000 | |||||||||
Total General and Administrative | $ | 544,000 | $ | 625,000 | $ | (81,000 | ) |
General and administrative expense for the three months ended March 31, 2019 amounted to $544,000 compared to $625,000 in the three months ended March 31, 2018. The decrease of $81,000 of spending in the three months ended March 31, 2019 is attributed to headcount decreases in our sales and operations teams offset by an investment in a third party outbound sales team. Patent costs have decreased since the comparable period in 2018 reflecting the timing of technology development and filings in international and domestic locations. General and administrative headcount was nine and fourteen, respectively, at March 31, 2019 and 2018.
Other Income and Expense
For the nine months ended September 30, | Variance | For the Three Months Ended | Variance | |||||||||||||||||||||
2018 | 2017 | Incr (decr) | 2019 | 2018 | Incr (decr) | |||||||||||||||||||
Interest expense | $ | (767,000 | ) | $ | (525,000 | ) | $ | 242,000 |
| $ | 274,000 | $ | 237,000 | $ | 37,000 |
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Other income | 1,000 | 2,000 | (1,000 | ) | - | 1,000 | (1,000 | ) | ||||||||||||||||
$ | (766,000 | ) | $ | (523,000 | ) | $ | 243,000 |
| $ | 274,000 | $ | 236,000 | $ | 38,000 |
During the ninethree months ended September 30, 2018,March 31, 2019, the Company recognized $319,000$274,000 in interest expense on the 6% convertible notes and $448,000which includes $165,000 of amortization on debt discount that is classified as interest expense. Also included in interest expense related to convertibleis $1,000 from 6% unsecured subordinated promissory notes. As of September 30,During the three months ended March 2018, the company has $8,486,000Company recognized $98,000 in interest expense on the convertible notes and $139,000 of amortization on debt discount offset by $1,000 in income on disposed assets.
The increase in interest expense in the first quarter of 2019 reflects an increase of $334,000 in outstanding principal of 2017 convertible notes that earns ofbear interest at 6% per annum comparedresulting in increased interest expense year over year. The increase also reflects an increase in debt discount related to $4,626,000 at September 30, 2017.newly issued convertible debt of $501,000 resulting in increased amortization of debt discount reported as interest.
Net Loss for the ninethree months ended September 30,March 31, 2019 and 2018 and 2017
The net loss for the ninethree months ended September 30, 2018March 31, 2019 was $5,245,000,$1,148,000, compared with a net loss in the ninethree months ended September 30, 2017March 31, 2018 of $3,999,000.$1,295,000. The net loss attributable to common stockholders for the ninethree months ended September 30, 2018March 31, 2019 was $5,408,000 as$1,202,000 compared to $4,185,000$1,349,000 for the ninethree months ended September 30, 2017. March 31, 2018.
The weighted average basic and diluted common shares outstanding amounted to 50,189,00050,401,000 and 47,768,00049,031,000 for each of the ninethree months ended September 30,March 31, 2019 and 2018, respectively. The increase in weighted average basic and 2017, respectively.diluted shares in the first quarter of 2019 reflects warrants issued on convertible notes and option grants granted since the first quarter of 2018. Basic and diluted loss per common share for each of the ninethree months ended September 30,March 31, 2019 and 2018 were $0.02 and 2017 was $0.11 and $0.09.$0.03 respectively.
Preferred stock dividends accrued totaled $163,000$54,000 were recorded in the ninethree months ended September 30,March 31, 2019 and 2018, and $186,000 in September 30, 2017.respectively.
Liquidity and Capital Resources
As of September 30, 2018,March 31, 2019, the Company had cash on-hand totaled $95,000,of $51,000, a net decrease of $99,000$2,000 since the beginning of the year. During the ninethree months ended September 30, 2018March 31, 2019 we used $2,813,000$577,000 of cash in operating activities. A net loss of $5,245,000$1,148,000 was adjusted for $2,408,000$244,000 in non-cash expenses for inventory reserves,for: depreciation, amortization, stock-based compensation and a non-cash charge for asset impairmentinterest paid in shares during the period. There also were $24,000quarter. The Company reported $327,000 in changes in working capital components during the nine-month period.three months ended March 31, 2019. The decrease in cash used in operations in the nine monthsfirst quarter of 2019 compared to the first quarter of 2018 compared to 2017 was driven byby: the changedecrease in the net loss and totalduring the first quarter, increase in amortization of debt discount reported as interest, increase in stock compensation expense combined with the increase in accounts payable and accrued liabilities from 2017 to 2018. In the nine months of 2017, the net loss of $3,999,000 was adjusted for $669,000 in non-cash expenses for depreciation, amortization and stock-based compensation and $293,000 in changes in components of working capital.other current liabilities.
The Company did not invest in capitalized software and property and equipment in the nine months ended September 30, 2018 and invested $419,000 in capital investments in the nine months ended September
During the nine months ended September 30,first quarter of 2019, the Company issued $450,000 in new convertible debt and $125,000 in unsecured subordinated promissory notes resulting in $575,000 in cash provided by financing activities. During the first quarter of 2018, the Company generated $2,714,000 in net cash from financing activities resulting from the issuance of convertible notes and a warrant conversion. During the nine months ended September 30, 2017, the Company generated $1,627,000$1,200,000 in cash from financing activities from issuancethe issuances of convertible notes and from the exercise of a common stock warrant.2017 Convertible Notes.
Current Cash Outlook and Management Plans
As of September 30, 2018,March 31, 2019, we have cash on hand of $95,000,$51,000, negative working capital of $1,869,000,$2,511,000, a stockholders’ deficit of $7,688,000$9,497,000 and an accumulated deficit of $86,086,000.$88,297,000. During nine months ended September 30, 2018the first quarter of 2019 we raised $2,720,000$575,000 in gross proceeds through the issuance of convertible notes and warrants, thesubordinated promissory notes. The proceeds of whichfrom these debt issuances have been used to support the ongoing development and marketing of our core technologies and product initiatives.
Management estimates that the twelve-month 20182019 cash needs will be $3 to $3.5 million, based on its current development and product plans, will be approximately $4.0 million.plans. As of September 30, 2018,March 31, 2019, 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 to use its best efforts to develop financing opportunities to fund the development and commercialization of the CURA and Aegis products.
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 tofor us to finance our development on acceptable terms, if at all. Furthermore, such additional financings maywill involve dilution to our stockholdersshareholders or may require that we relinquish rights to certain of our technologies or products. In addition, we may experience operational difficulties and delays due to working capital restrictions. If adequate funds are not available from additional sources of financing, we will have to delay or scale back our growth plans.
The Company’s ability to fund its current and future commitments from its available cash depends on a number of factors. These factors include the Company’s ability to (i) launch and generate sales from the CURA division; (ii) generate revenue from the licensing or salemonetization of our hydraulic technologies or; (iii) decrease engineering and development and administrative expenses. If these and other factors are not met, the Company will need to raise funds in order to meet its working capital needs and pursue its growth strategy. Although there can be no such assurances, management believes that sources for these additional funds will be available through either current or future investors.
Critical Accounting Policies
Revenue Recognition
The Company has two sources of revenue: (i) from the sale of CURA platform products and (ii) from stand-alone Z-Coach subscriptions. Revenue from the sale of CURA productssystem is recognized upon the shipment of myCadian devicesproducts to a customer and upon the company’s satisfaction of all performance obligations as described in customer agreements. The Z-Coach Program provides fatigue training over an annual subscription period of twelve months. The Z-Coach Program allows the user unlimited access during the annual subscription period. Customers are billed at the acceptance of the subscription, and revenue is recognized ratably over the subscription period as our performance obligations are satisfied and when collection is reasonably assured. Our collection terms provide customers standard terms of net 30 days. Future performance obligations are reflected in deferred revenue.
Income Taxes
We account for income taxes using the asset and liability method, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting and the tax basis of our assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
We account for uncertain tax positions using a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. Tax benefits that meet the more-likely-than-not recognition threshold should be measured as the largest amount of tax benefits, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement in the financial statements. It is our policy to recognize interest and penalties related to income tax matters as general and administrative expenses. As of September 30, 2018,March 31, 2019, and December 31, 2017,2018, there were no accrued interest or penalties related to uncertain tax positions.
Stock-Based Compensation
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 recognized as incurred.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. The Company adopted FASB ASC 718-10 during the third quarter
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 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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
Item 4. CONTROLS AND PROCEDURES
Disclosure controls and procedures
Evaluation of Disclosure Controls and Procedures
Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, 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 30, 2018,March 31, 2019, 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)), 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.
Changes in Internal Control Over Financial Reporting
There have been no significant changes in our internal control over financial reporting during the quarter ended September 30, 2018March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None.
There have no significant changes in our internal control over financial reporting during the nine months ended September 30, 2018first quarter of 2019 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
DuringThe Company issued $50,000 of JULY 2018 Convertible Notes and warrants during the three-month period ended September 30, 2018 and thereafter,from April 1, 2019 through the filing of this Form 10-Q, other than sales of securities previously reported on a Form 10-Q or Current Reportquarterly report on Form 8-K, the Company issued and sold the following securities without registration under the Securities Act of 1933, as amended (the “Securities Act”):10-Q.
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
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.
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100 | XBRL-related documents |
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101 | The following materials from CurAegis Technologies, Inc.’s Quarterly Report on Form 10-Q for the three month period ended |
| * 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. |
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.
| CURAEGIS, | |
Dated: | By: | /s/ Richard A. Kaplan |
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| Richard A. Kaplan, |
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| Chief Executive Officer |
Dated: | By: | /s/ Kathleen A. Browne |
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| Kathleen A. Browne, |
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| Chief Financial and Accounting Officer |
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