The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
(UNAUDITED)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Cure Pharmaceutical Holding Corp (the “Company”), formerly known as Makkanotti Group Corp, was incorporated in the State of Nevada on May 15, 2014. The Company was formed to engage in the business of manufacturing food paper bags in Nicosia, Cyprus. On November 7, 2016, the Company changed its name to Cure Pharmaceutical Holding Corp.
On November 7, 2016, the Company, in a reverse take-over transaction, acquired Cure Pharmaceutical Corporation (“Cure Pharmaceutical”), a specialty pharmaceutical and bioscience company based in California that specializes in drug delivery technologies, by executing a Share Exchange Agreement and Conversion Agreement (“Exchange Agreement”) by and among the Company and a holder of a majority of the issued and outstanding capital stock of the registrant prior to the closing (the “Majority Stockholder”), on the one hand, and Cure Pharmaceutical, a California corporation, all of the shareholders of Cure Pharmaceutical’s issued and outstanding share capital (the “Cure Pharm Shareholders”) and the holders of certain convertible promissory notes of Cure Pharmaceutical (“Cure Pharm Noteholders”), on the other hand. Hereinafter, this share exchange transaction is described as the “Share Exchange.” As a result of the Share Exchange, Cure Pharmaceutical became a wholly owned subsidiary of the Company, and the Cure Pharm Shareholders and Cure Pharm Noteholders became the controlling shareholders of the Company.
For accounting purposes, Cure Pharmaceutical shall be the surviving entity. The transaction is accounted for using the reverse acquisition method of accounting. As a result of the recapitalization and change in control, Cure Pharmaceutical is the acquiring entity in accordance with ASC 805, Business Combinations.
Cure Pharmaceutical Corporation is a specialty pharmaceutical and bioscience company with a focus in drug delivery technologies. Cure leverages novel drug delivery technologies to develop and commercialize new applications of proven therapeutics through Oral Thin Film (“OTF”) via our proprietary patented CureFilm™ Technology as well as through transdermal applications. Our micro encapsulation of drug actives in our CureFilm™ Technology allows for a higher volume of an active and if required, multiple actives to be produced on a single oral thin film strip.
The Company is focused on partnering with pharmaceutical and biotech companies seeking to deliver drug actives utilizing and benefitting from our proprietary OTF and transdermal applications and when preferable to take our own products from clinical process to commercialization. We are focused on both the human and veterinary prescription, OTC and nutraceutical markets. Cure represents the complete solution for OTF drug delivery therapeutics from inception to finished product utilizing our CGMP/FDA registered manufacturing facility and processes.
In July 2017, the Company, Therapix Biosciences Ltd. (“Therapix”), a specialty clinical-stage pharmaceutical company dedicated to the development of cannabinoid-based drugs headquartered in Israel, and Assuta Medical Centers, Ltd., a medical services center located in Israel, entered into a nonbinding memorandum of understanding to collaborate to advance, research, develop and commercialize potential therapeutic products in the fields of personalized medicine and cannabinoids. On October 27, 2017, the Company entered into a development agreement with Therapix where the Company will formulate and develop pharmaceutical products using Therapix’s proprietary compounds while utilizing the Company’s proprietary OTF technology.
Consistent with our mission of improving the lives of all people in need, regardless of geography or economic status, we have made our technology available to a private company, Oak Therapeutics (“Oak”), that is developing novel drug formulations for patients in developing nations (“Territory”). On November 10, 2017, we received 269,000 shares of Oak as consideration for an exclusive license to our patents rights in the Territory, along with a royalty-free non-exclusive license to any improvements made by Oak. As a result of this transaction, we own approximately 63% of Oak’s outstanding shares and have consolidated Oak’s financial statements as of the fourth quarter 2017. Oak has completed a Phase I Small Business Innovative Research Contract (“SBIR”) from the National Institutes of Health to develop a formulation for 300mg of Isoniazid in a rapidly dissolving film as an anti-tuberculosis treatment option. Oak is currently in the application process for Phase II of the SBIR program to continue its research and development and focus on manufacturing scale up, clinical trials and commercialization.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principal of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of CURE Pharmaceutical Holding Corp (“CPHC”), its wholly-owned subsidiary, CURE Pharmaceutical Corporation (“CURE”) and its majority owned subsidiary Oak Therapeutics, Inc. (“OAK”), collectively referred to as (“CURE”, “we”, “us”, “our” or the “Company” All significant inter-company balances and transactions have been eliminated in consolidation. The Company’s film strip product represents the principal operations of the Company.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of March 31, 2018, and the results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2018 and 2017, are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in Form 10-K for the fiscal period ended December 31, 2017 filed with the Securities and Exchange Commission (the “SEC”) on March 26, 2018.
Use of Estimates
The preparation of financial statements in conformity with 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. These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting period. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. As of March 31, 2018 and December 31, 2017, the Company had no cash equivalents. At March 31, 2018 and December 31, 2017, the Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (“FDIC”) in accounts that at times may be in excess of the federally insured limit of $250,000 per bank. The Company minimizes this risk by placing its cash deposits with major financial institutions.
Investment in Associates
An associate is an entity over which the Company has significant influence through a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but not control or joint control over those policies.
The results of assets and liabilities of associates are incorporated in the condensed consolidated financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Company’s share of the net assets of the associate, less any impairment in the value of the investment. Losses of an associate in excess of the Company’s interest in that associate are not recognized. Additional losses are provided for, and a liability is recognized, only to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of the associate.
Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognized at the date of acquisition is recognized as goodwill. The goodwill is included within the carrying amount of the investment.
On January 8, 2016, the Company received 50% ownership in Cure Innovations, Inc (“CI”). CI was created in 2015 by IncuBrands Studio, Inc (“IncuBrands”). The Company and IncuBrands each own 50% of the common stock of CI. The Company and IncuBrands entered into a Joint Venture agreement in 2013 to distribute several OTF products utilizing IncuBrands marketing and contacts in various industries as well as utilize the Company’s technology and capabilities of manufacturing OTF’s.
On December 6, 2016, the Company entered into a Joint Venture Agreement (“Joint Venture”) with Pace Wellness, Inc. (“Pace”) to jointly develop three Active Pharmaceutical Ingredients (“API”) within the nonprescription and/or Over-the-Counter (OTC) medicines specifically utilizing the Company’s patented and proprietary CUREFilm™ Technology. The three API’s to be jointly developed are Diphenhydramine HCL, Omeprazole and a third API to be determined at a later date (“Products”). Pace shall be the exclusive global distributor of the Products under the Solves Strips® branding or other private or branded labels. All benefits, advantages, and liabilities derived from, or incurred in respect of the Joint Venture shall be borne by the parties in proportion of their respective participating interests of 50/50 equal interest. As of March 31, 2018, the Company has only contributed $5,000 to the Joint Venture.
Property and Equipment
The Company capitalizes expenditures related to property and equipment, subject to a minimum rule, that have a useful life greater than one year for: (1) assets purchased; (2) existing assets that are replaced, improved or the useful lives have been extended; or (3) all land, regardless of cost. Acquisitions of new assets, additions, replacements and improvements (other than land) costing less than the minimum rule in addition to maintenance and repair costs, including any planned major maintenance activities, are expensed as incurred. Depreciation has been provided using the straight-line method on the following estimated useful lives:
Manufacturing equipment
|
|
5-7 Years
|
Computer and other equipment
|
|
3-7 Years
|
Leasehold Improvements
|
|
Lesser of useful life or the term of the lease
|
Accounts Receivable
Accounts receivable are generally unsecured. The Company establishes an allowance for doubtful accounts receivable based on the age of outstanding invoices and management’s evaluation of collectability. Accounts are written off after all reasonable collection efforts have been exhausted and management concludes that likelihood of collection is remote. Any future recoveries are applied against the allowance for doubtful accounts.
Impairment of Long-Lived Assets
Long-lived assets include equipment and intangible assets other than those with indefinite lives. We assess the carrying value of our long-lived asset groups when indicators of impairment exist and recognize an impairment loss when the carrying amount of a long-lived asset is not recoverable when compared to undiscounted cash flows expected to result from the use and eventual disposition of the asset.
Indicators of impairment include significant underperformance relative to historical or projected future operating results, significant changes in our use of the assets or in our business strategy, loss of or changes in customer relationships and significant negative industry or economic trends. When indications of impairment arise for a particular asset or group of assets, we assess the future recoverability of the carrying value of the asset (or asset group) based on an undiscounted cash flow analysis. If carrying value exceeds projected, net, undiscounted cash flows, an additional analysis is performed to determine the fair value of the asset (or asset group), typically a discounted cash flow analysis, and an impairment charge is recorded for the excess of carrying value over fair value. There was no impairment on our long-lived assets during the three months ended March 31, 2018 and for the year ended December 31, 2017.
Revenue Recognition
We recognize revenue in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue Recognition,” when there is persuasive evidence that an arrangement exists, title and risk of loss have passed, delivery has occurred, or the services have been rendered, the sales price is fixed or determinable and collection of the related receivable is reasonably assured. Title and risk of loss generally pass to our customers upon shipment. In limited circumstances where either title or risk of loss pass upon destination or acceptance or when collection is not reasonably assured, we defer revenue recognition until such events occur. We derive revenues from two primary sources: products and services. Product revenue includes the shipment of product according to the agreement with our customers. Services include research and development contracts for the development of OTF products utilizing our CureFilm™ Technology or our other proprietary technologies. Rarely, contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices are typically estimated based on observable transactions when these services are sold on a standalone basis.
The Company’s consulting research and development income include services for the development of OTF products utilizing our CureFilm™ Technology. Most of our development contracts have four phases. Revenue is recognized based on progress toward completion of the performance obligation in each phase. The method to measure progress toward completion requires judgment and is based on the nature of the products or services to be provided. The Company generally uses the input method to measure progress for its contracts because it best depicts the transfer of assets to the customer, which occurs as the Company incurs costs for the contracts. Under the cost-to-cost measure of progress, the progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenue is recorded proportionally as costs are incurred. Costs to fulfill these obligations mainly include materials, labor, supplies and consultants.
Deferred revenue is shown separately in the condensed consolidated balance sheets. At March 31, 2018 we had deferred revenue of $396,484. At December 31, 2017, we had deferred revenue of $361,462.
Advertising Expense
The Company expenses marketing, promotions and advertising costs as incurred. Such costs are included in general and administrative expense in the accompanying statements of operations. The Company did not incur advertising costs for the three months period ended March 31, 2018. The Company recorded advertising costs of $1,876 for the three month period ended March 31, 2017.
Research and Development
Costs incurred in connection with the development of new products and processes are charged to research and development expenses as incurred. The Company recorded research and development expenses of $426,529 and $219,620 for the three month periods ended March 31, 2018 and 2017, respectively.
Income Taxes
The Company utilizes FASB ASC 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
The Company generated a deferred tax asset through net operating loss carry-forward. However, a valuation allowance of 100% has been established due to the uncertainty of the Company’s realization of the net operating loss carry forward prior to its expiration.
Stock-Based Compensation
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date.
Convertible Debentures
Beneficial Conversion Feature
If the conversion features of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 ““Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF and the Company amortizes the discount to interest expense over the life of the debt using the effective interest method.
Derivative Liabilities
ASC 815-40 (formerly SFAS No. 133 “Accounting for derivative instruments and hedging activities”), requires that embedded derivative instruments be bifurcated and assessed, along with free-standing derivative instruments such as warrants, on their issuance date and in accordance with ASC 815-40-15 (formerly EITF 00-19 “Accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock”) to determine whether they should be considered a derivative liability and measured at their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option pricing formula and present value pricing. At March 31, 2018 and December 31, 2017, the Company adjusted its derivative liability to its fair value, and reflected the change in fair value, in its consolidated statement of operations and comprehensive loss.
Fair Value Measurements
The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial instruments, including cash and cash equivalents are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
The Company has no assets or liabilities valued at fair value on a recurring basis.
Basic and diluted loss per share
Basic loss per share is computed by dividing the net loss to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted loss per share is computed by dividing the net loss for the period by the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares, which consist of stock options and warrants, have been excluded from the diluted loss per share calculation because their effect is anti-dilutive.
|
|
March 31,
2018
|
|
|
|
|
|
Number of common stock shares issued and outstanding
|
|
|
23,951,252
|
|
Number of common stock shares from conversion of convertible notes
|
|
|
307,904
|
|
Number of common stock shares from exercise of warrants
|
|
|
1,695,000
|
|
Total fully-diluted common stock shares
|
|
|
25,954,156
|
|
Going Concern
The Company’s financial statements are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company had an accumulated deficit at March 31, 2018 of $20,770,435. The Company had a working deficit of $3,292,165 as of March 31, 2018. These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the financial statements. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable. The Company is continually analyzing its current costs and is attempting to make additional cost reductions where possible. We expect that we will continue to generate losses from operations throughout 2018.
Historically, the Company has had operating losses and negative cash flows from operations which cast significant doubt upon the Company’s ability to continue as a going concern. The Company will need to raise capital in order to fund its operations. This need may be adversely impacted by uncertain market conditions and changes in the regulatory environment. To address its financing requirements, the Company intends to seek financing through debt and equity issuances to existing stockholders.
Specifically, management has identified that a minimum of $4,000,000 of capital is needed over the next 12 months in order sustain operations. These capital needs take into account, among other things, management’s plans to advance intellectual property, maintenance of patents, upgrades for manufacturing and to hire personnel for business development. Management has outlined a plan to raise between $6,000,000 to $8,000,000 in capital over the next 12 months through the issuance of shares of the Company’s common stock to accredited investors. Management believes that the capital raised through these methods will be sufficient to sustain operations for the next 12 months. However, the outcome of these matters cannot be predicted with certainty at this time.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the financial statements. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that might be necessary if the Company is unable to continue as a going concern.
Recently Issued Standards
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The purpose is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. This ASU is effective for the Company in the first quarter of 2018. Early adoption is not permitted except for limited provisions. The Company does not expect the adoption of this amendment to have a material effect on its financial condition and results of operations.
In February 2016, the FASB issued ASU 2016-02—Leases (Topic 842), requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. The effective date of the new standard for public companies is for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the earliest comparative period presented. The Company is evaluating the effect that the updated standard will have on its financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The new standard requires recognition of the income tax effects of vested or settled awards in the income statement and involves several other aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This new standard became effective for the Company on January 1, 2017. The adoption of this standard did not have a material impact on its financial position, results of operations or statements of cash flows upon adoption.
In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”, to clarify certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition and disclosures no longer required if the full retrospective transition method is adopted. The effective date and transition requirements for these amendments are annual reporting periods beginning after December 15, 2017, including interim reporting periods therein, and that would also permit public entities to elect to adopt the amendments as of the original effective date as applicable to reporting periods beginning after December 15, 2016. The new guidance allows for the amendment to be applied either retrospectively to each prior reporting period presented or retrospectively as a cumulative-effect adjustment as of the date of adoption. The adoption of ASU 2016-12 did not have an impact on the Company’s condensed consolidated financial statements.
In August, 2016, the FASB issued Accounting Standards Update No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) (“ASU 2016-15”). The amendments in ASU 2016-15 address eight specific cash flow issues and apply to all entities that are required to present a statement of cash flows under ASC Topic 230, Statement of Cash Flows. The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption during an interim period. The adoption of ASU 2016-15 did not have an impact on the Company’s condensed consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This new standard will be effective for the Company on January 1, 2018; however, early adoption is permitted with prospective application to any business development transaction. There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s financial position, results of operations or cash flows.
In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation: Scope of Modification Accounting, which provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions or award classification and would not be required if the changes are considered non-substantive. The amendments of this ASU are effective for the Company in the first quarter of 2018, with early adoption permitted. The adoption of ASU 2017-09 did not have an impact on the Company’s condensed consolidated financial statements.
There are various other updates recently issued, however, they are not expected to a have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
NOTE 3 - INVENTORY
Inventory consists of raw materials, packaging components, work-in-process and finished goods. The Company’s inventory is stated at the lower of cost (FIFO cost basis) or market. The carrying value of inventory consisted of the following at March 31, 2018 and December 31, 2017:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Raw materials
|
|
$
|
68,722
|
|
|
$
|
67,664
|
|
Packaging components
|
|
|
18,454
|
|
|
|
17,546
|
|
Work-in-process
|
|
|
23,920
|
|
|
|
829
|
|
|
|
|
111,096
|
|
|
|
86,039
|
|
Reserve for obsolescence
|
|
|
(41,109
|
)
|
|
|
(41,043
|
)
|
Total inventory
|
|
$
|
69,987
|
|
|
$
|
44,996
|
|
NOTE 4 - PREPAID EXPENSES AND OTHER ASSETS
As of March 31, 2018 and December 31, 2017, prepaid expenses and other assets consisted of the following:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Prepaid consulting services– stock-based compensation
|
|
$
|
1,323,562
|
|
|
$
|
258,918
|
|
Prepaid consulting services
|
|
|
152,640
|
|
|
|
116,167
|
|
Prepaid clinical study
|
|
|
-
|
|
|
|
110,538
|
|
Prepaid insurance
|
|
|
43,767
|
|
|
|
60,180
|
|
Other receivables
|
|
|
5,858
|
|
|
|
5,858
|
|
Prepaid inventory
|
|
|
30,744
|
|
|
|
12,182
|
|
Prepaid expenses
|
|
|
36,148
|
|
|
|
23,045
|
|
Prepaid expenses and other assets
|
|
$
|
1,592,719
|
|
|
$
|
586,888
|
|
Current portion of prepaid expenses and other assets
|
|
|
(986,589
|
)
|
|
|
-
|
|
Prepaid expenses and other assets less current portion
|
|
|
606,130
|
|
|
|
586,888
|
|
NOTE 5 - PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
As of March 31, 2018 and December 31, 2017, property and equipment and intangible assets consisted of the following:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Manufacturing equipment
|
|
$
|
797,513
|
|
|
$
|
797,513
|
|
Computer and other equipment
|
|
|
185,048
|
|
|
|
169,499
|
|
Leasehold improvements
|
|
|
42,666
|
|
|
|
42,666
|
|
Less accumulated depreciation
|
|
|
(696,372
|
)
|
|
|
(672,317
|
)
|
Property and Equipment, net
|
|
$
|
328,855
|
|
|
$
|
337,361
|
|
Depreciation expense for the three months ended March 31, 2018 and 2017 was $24,055 and $37,437, respectively.
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Intellectual Property
|
|
$
|
814,582
|
|
|
$
|
814,582
|
|
Patents
|
|
|
231,165
|
|
|
|
224,527
|
|
Less accumulated amortization
|
|
|
(149,535
|
)
|
|
|
(138,637
|
)
|
Intangible assets, net
|
|
$
|
896,211
|
|
|
$
|
900,472
|
|
The Company incurred $6,638 and $49,480 of legal patent costs that were capitalized during the three months period ended March 31, 2018 and for the year ended December 31, 2017, respectively. Amortization expense for the three months period ended March 31, 2018 and March 31, 2017 was $10,899 and $10,821, respectively.
The estimated aggregate amortization expense over each of the next five years is as follows:
2018
|
|
$
|
32,696
|
|
2019
|
|
|
43,596
|
|
2020
|
|
|
43,596
|
|
2021
|
|
|
43,596
|
|
2022
|
|
|
43,596
|
|
Thereafter
|
|
|
513,396
|
|
Total Amortization
|
|
$
|
720,476
|
|
NOTE 6 – LOAN PAYABLE
Loan payable consists of the following at March 31, 2018 and December 31, 2017:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Notes to a company due August 29, 2018 and September 21, 2018, including interest at 7.55% and 7.05%, respectively per annum; unsecured; interest due monthly
|
|
$
|
33,526
|
|
|
$
|
50,425
|
|
Current portion of loan payable
|
|
|
(33,526
|
)
|
|
|
(50,425
|
)
|
Loan payable, less current portion
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest expense for the three months ended March 31, 2018 and 2017 was $800 and $1,012, respectively.
NOTE 7 – NOTES PAYABLE
Notes payable consist of the following at March 31, 2018 and December 31, 2017:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Note to a company amended on August 27, 2017 and due on or before one month from the amended date and the maturity date shall be extended for one month periods as long as the Company is not in default, interest shall accrue at 10% per annum, secured by the Company’s intellectual property
|
|
$
|
650,000
|
|
|
$
|
650,000
|
|
Note to a company of $100,000 due January 31, 2018 including interest of $3,000 per month, unsecured, principal and interest due at maturity, principal and interest repaid on January 23, 2018
|
|
|
-
|
|
|
|
100,000
|
|
Note to an individual, non-interest bearing, unsecured and has no fixed terms of repayment
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
700,000
|
|
|
|
800,000
|
|
|
|
|
|
|
|
|
|
|
Current portion of loan payable
|
|
|
(700,000
|
)
|
|
|
(800,000
|
)
|
Loan payable, less current portion
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest expense for the three ended March 31, 2018 and 2017 was $19,027 and $0, respectively
NOTE 8 – CONVERTIBLE PROMISSORY NOTES
Convertible promissory notes consist of the following at March 31, 2018 and December 31, 2017:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Convertible promissory notes totaling $1,900,000 due between November 11, 2017 and May 8, 2018, interest payable at 8% per annum; unsecured; principal and accrued interest convertible into common stock at the lower of $7.00 per share or the price per share of the latest closing of a debt or equity offering by the Company greater than $3,000,000; accrued interest due between November 11, 2017 and May 8, 2018
|
|
$
|
1,900,000
|
|
|
$
|
1,900,000
|
|
Convertible promissory notes totaling $2,025,000 due November 30, 2018, interest payable at 9% per annum; unsecured; principal and accrued interest convertible into common stock at either the price per share equal to the average closing price of the Company’s Common Stock on the OTC Markets for the five consecutive trading days prior to the delivery of a Notice of Conversion (“Optional Conversion”) or price per share equal to 75% of the price of the Company’s next bona fide sale of its preferred stock or Common Stock in excess of $4,000,000 in gross proceeds, in one transaction or a series of related transactions, which offering definitively sets a price per share of the Company’s Common Stock or preferred stock and enables the Company to list its common stock on a national securities exchange; accrued interest to be paid quarterly beginning June 30, 2018
|
|
|
2,025,000
|
|
|
|
-
|
|
|
|
|
3,925,000
|
|
|
|
1,900,000
|
|
|
|
|
|
|
|
|
|
|
Unamortized discount
|
|
|
(634,550
|
)
|
|
|
(348,512
|
)
|
Current portion of convertible promissory notes
|
|
|
3,290,450
|
|
|
|
1,551,488
|
|
Convertible promissory notes, less current portion
|
|
$
|
-
|
|
|
$
|
-
|
|
As of March 31, 2018, there were eight convertible promissory notes (“Notes”) totaling $1,700,000 that were in default. On April 15, 2018, the Company amended six of Notes to extend the maturity date to May 31, 2018. Of these six Notes, two Notes totaling $250,000 were repaid on April 23, 2018. In addition, two Notes totaling $500,000 are currently being negotiated to either extend the maturity date, be repaid or be converted into common stock of Company.
During the three months ended March 31, 2018 and 2017, the Company incurred $147,608 and $0, respectively, amortization of discount. During the three months ended March 31, 2018 and 2017, the Company incurred $303,174 and $0, respectively, amortization of discount. Interest expense for the three ended March 31, 2018 and 2017 was $111,008 and 0, respectively
NOTE 9 – DERIVATIVE LIABILITY
The following table summarizes fair value measurements by level at March 31, 2018 for assets and liabilities measured at fair value on a recurring basis:
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(65,961
|
)
|
|
$
|
(65,961
|
)
|
The following table summarizes fair value measurements by level at December 31, 2017 for assets and liabilities measured at fair value on a recurring basis:
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(90,738
|
)
|
|
$
|
(90,378
|
)
|
The Company has issued convertible promissory notes during 2017. The convertible notes require us to record the value of the conversion feature as a liability, at fair value, pursuant to ASC 815, including provisions in the notes that protect the holders from declines in the Company’s stock price, which is considered outside the control of the Company. The derivative liabilities are marked-to-market each reporting period and changes in fair value are recorded as a non-operating gain or loss in our statement of operations, until they are completely settled. The fair value of the conversion feature is determined each reporting period using the Black-Scholes option pricing model, and is affected by changes in inputs to that model including our stock price, expected stock price volatility, interest rates and expected term. The assumptions used in valuing the derivative liability during 2018 were as follows:
|
|
March 31,
2018
|
|
Significant assumptions (weighted-average):
|
|
|
|
Risk-free interest rate at grant date
|
|
|
2.56
|
%
|
Expected stock price volatility
|
|
|
126.00
|
%
|
Expected dividend payout
|
|
|
-
|
|
Expected option life (in years)
|
|
|
1
|
|
Expected forfeiture rate
|
|
|
0
|
%
|
The following is a reconciliation of the derivative liability for 2018:
|
|
March 31,
2018
|
|
Value at December 31, 2017
|
|
$
|
90,738
|
|
Decrease in value
|
|
|
(24,777
|
)
|
Value at March 31, 2018
|
|
$
|
65,961
|
|
NOTE 10 – WARRANT AGREEMENTS
On January 24, 2018, the Company issued an additional 55,000 warrants at a fair market value of $50,094 and with an exercise price of $1.00 per share in connection with issuance of $1,800,000 convertible promissory notes in 2017 and amended on January 24, 2018 to extend the maturity date to March 31, 2018.
Warrants that vest at the end of a one-year period are amortized over the vesting period using the straight-line method.
The Company’s warrant activity was as follows:
|
|
Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Contractual Remaining Life
|
|
Outstanding, December 31, 2017
|
|
|
4,752,107
|
|
|
|
2.90
|
|
|
|
4.98
|
|
Granted
|
|
|
55,000
|
|
|
|
1.00
|
|
|
|
2.31
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, March 31, 2018
|
|
|
4,807,107
|
|
|
|
2.06
|
|
|
|
2.64
|
|
Exercisable at March 31, 2018
|
|
|
3,271,107
|
|
|
|
2.09
|
|
|
|
2.62
|
|
Range of Exercise Price
|
|
Number of Warrants
|
|
|
Weighted Average Remaining Contractual Life (years)
|
|
|
Weighted Average Exercise Price
|
|
|
Number of Warrants Exercisable
|
|
|
Weighted Average Exercise Price
|
|
$1.00 – $7.00
|
|
|
4,807,107
|
|
|
|
2.64
|
|
|
$
|
2.06
|
|
|
|
3,271,107
|
|
|
$
|
2.09
|
|
|
|
|
4,807,107
|
|
|
|
2.64
|
|
|
$
|
2.06
|
|
|
|
3,271,107
|
|
|
$
|
2.09
|
|
The weighted-average fair value of warrants granted to during the three months ended March 31, 2018 and year ended December 31, 2017, and the weighted-average significant assumptions used to determine those fair values, using a Black-Scholes-Merton (“Black-Scholes”) option pricing model are as follows:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Significant assumptions (weighted-average):
|
|
|
|
|
|
|
Risk-free interest rate at grant date
|
|
|
2.56
|
%
|
|
|
2.20
|
%
|
Expected stock price volatility
|
|
|
126.00
|
%
|
|
|
75.43
|
%
|
Expected dividend payout
|
|
|
-
|
|
|
|
-
|
|
Expected option life (in years)
|
|
|
3
|
|
|
|
3
|
|
Expected forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
NOTE 11 – STOCKHOLDERS’ EQUITY
Authorized Stock
The Company has authorized to issue is 75,000,000 common shares with a par value of $0.001 per share.
As of March 31, 2018 and December 31, 2017, there were 23,951,252 and 23,901,252 shares of the Company’s common stock issued and outstanding, respectively.
Common Share Issuances
On January 24, 2018, the Company issued 50,000 common stock shares at $1.48 per share for consulting services to be performed over a one year period. The total value of this issuance was $74,000 and as of March 31, 2018, $42,945 is included in prepaid expenses and other assets.
Stock Payable
On February 20, 2018, the Company entered into a Consulting Agreement (“Agreement”) with an individual (“Consultant”) to provide strategic marketing and development advisory services. In consideration for the Consultant’s services provided, the Company shall grant 250,000 restricted common stock shares at $1.10 price per share over a six month period, where 250,000 restricted common stock shares vesting immediately. As the Company did not issue the 250,000 restricted common stock shares before the three months period ended March 31, 2018, the Company recorded a stock payable of $275,000. As of March 31, 2018, $215,746 is included in prepaid expenses and other assets.
On February 23, 2018, (the “Effective Date”) the Company entered into a Consulting Agreement (“Agreement”) with Liviakis Financial Communications, Inc. (“Consultant”) to perform services in investors’ communication and public relations with existing and prospective shareholders, brokers, dealers and other investment professionals with respect to the Company’s current and proposed activities. The term of the Agreement is for 30 months from the Effective Date and the Company shall compensate the Consultant’s services by issuing 1,000,000 restricted common stock shares of the Company at price per share of $0.97. As of the date of the Company’s filing of its Form 10-Q for the three months period March 31, 2018, the Company has not yet issued these restricted common stock shares. Thus, the Company recorded a stock payable of $970,000. As of March 31, 2018, $930,720 is included in prepaid expenses and other assets.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Litigation:
From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. The only significant matter of which the Company is aware of is discussed below.
On May 22, 2017, Sandy Sierra Garate (“Applicant”), an employee of the Company, filed an application for benefits due to serious and willful misconduct of the employer pursuant to labor code section 4553 with the State of California Workers’ Compensation Appeals Board (WCAB Case No: ADJ 10686812) resulting in injury arising out of and in the course of the Applicant’s employment on August 5, 2016. The Applicant is requesting relief in this matter for a one half increase in all compensation recoverable in connection with the injury of August 5, 2016, for the allowance of costs and expenses in an amount to be determined and for such further relief as is deemed appropriate. The Company is currently unable to determine what additional expenses will be incurred in order to defend this matter. As such, the Company cannot determine whether there is a reasonable possibility that a loss will be incurred nor can it estimate the range of any such potential loss. Accordingly, the Company has not accrued an amount for any potential loss associated with this action.
Operating leases
The Company maintains its corporate offices and manufacturing facility at 1620 Beacon Place, Oxnard, CA 93033, which contains approximately 25,000 square feet. The Company is currently on a month-to-month lease.
The Company also leases additional office and warehouse space at 1612 Fiske Place, Oxnard, CA 93033, which contains approximately 2,227 square feet. The Company is currently on a month-to-month lease.
Total rent expense for the three month periods ended March 31, 2018 and 2017 was $74,178 and $72,400, respectively.
NOTE 13 – SUBSEQUENT EVENTS
On April 2, 2018 (the “Effective Date”), the Company entered into a patent purchase agreement (“Agreement”) with an individual (“Assignor”) who is the owner of all rights, title and interest in and to certain Assigned Patents to purchase the rights to the Assigned Patents. As consideration for the assignment of the Assigned Patents and other rights under the Agreement, the Company shall issue to Assignor shares of its Common Stock (“Shares”) as follows, provided, that the maximum number of Shares issuable hereunder shall not exceed Two Hundred Thousand (200,000): (a) 50,000 Shares will be issued on the Effective Date; (b) 10,000 Shares will be issued for each Abandoned Application the prosecution of which is revived by the United States Patent and Trademark Office (“USPTO”); and (c) 50,000 Shares will be issued upon issuance by the USPTO of each patent that includes at least one specific claim in a patent application that recites subject matter to be defined by Assignee in its sole discretion (“Target Claim”). As of the date of the Company’s filing of its Form 10-Q for the quarterly period ended March 31, 2018, the Company has not yet issued these Shares.
The Company has previously adopted and maintains the CURE Pharmaceutical Holding Corp. 2017 Equity Incentive Plan (the “Plan”), pursuant to which an aggregate of 5,000,000 shares of the common stock of the Company remain available for grant as of March 31, 2018. The Board of Directors have determined that it is in the best interests of the Company and its stockholders to provide an additional incentive for certain employees, including executive officers, and non-employee members of the Board of Directors of the Company by granting to them awards with respect to the common stock of the Company pursuant to the Plan. On April 6, 2018, the Company awarded 500,000 Restricted Common Stock (“RCS”), 1,251,700 Nonstatutory Stock Options (“NSO”) and 804,000 Incentive Stock Options (“ISO”) to employees, including executive officers, non-employee members of the Board of Directors of the Company, members of the Advisory Board Committee and consultants at a $0.74 price per share. Vesting period for the awarded RCS, NSO and ISO’s range from immediate to quarterly over a 4 year period. For NSO’s and ISO awarded, the term to exercise their NSO or ISO is 10 years.
On April 15, 2018, the Company amended six convertible promissory notes totaling $1,100,000 to extend the maturity dates to May 31, 2018. For extending the maturity date, the Company granted an additional 275,000 warrants to purchase common stock of the Company at a strike price of $1.00 per share. In addition, the Company extended the term of the warrant agreements for one additional year for each of the convertible promissory notes. On April 23, 2018, the Company repaid two of these convertible promissory notes totaling $250,000.
On April 24, 2018, the Company received in total $500,000 (“Investment Amount”) by issuing a convertible promissory note (“Convertible Note”) to a Company, Therapix Biosciences Ltd., (“Investor”) that is due April 30, 2019 (“Maturity Date”). The Convertible Note shall accrue interest at 9% per annum and is unsecured. Unless earlier converted, at the election of the Investor, the entire then outstanding Investment Amount shall be converted into that number of shares of the most senior class of shares of the Company existing at the time of such conversion, at a price per share (the “
Voluntary Conversion PPS
”) equal to 75% of the average of the closing prices of the Company’s Common Stock on the OTC Market (or any other market on which the common stock of the Company is then listed for trading) over the thirty (30) consecutive trading days prior to the delivery of the notice of conversion by the Investor to the Company, or, if at the time of such conversion the shares of the Company’s Common Stock are not listed for trading, then the entire then outstanding Investment Amount shall be converted into that number of shares of the most senior class of shares of the Company existing at the time of such conversion, at a price per share equal to 75% of the fair market value of such Common Stock as shall be determined by the Board of Directors based on, among others, a valuation prepared by an independent third party and which shall have been submitted to the Company not more than 90 days prior to the date of such determination by the Board of Directors. In the event of the consummation by the Company, on or before the Maturity Date, of a transaction or series of related transactions in which the Company issues equity securities of the Company in consideration of at least US$4,000,000 (a “
Financing
”), the then outstanding Investment Amount not previously converted hereunder shall be automatically converted, immediately prior to (but conditioned upon) the consummation of such Financing, into such number of shares (or a sub-class thereof) issued by the Company in the Financing, equal to the outstanding Investment Amount divided by a price per share equal to 75% of the lowest price per share paid to the Company in the Financing. In the event the Financing is not consummated by the Maturity Date, then the outstanding Investment Amount as of the Maturity Date not previously converted hereunder shall be automatically converted, on the Maturity Date, into such number of shares (or a sub-class thereof) issued by the Company in the Financing, equal to the outstanding Investment Amount divided by the Voluntary Conversion PPS.
Payment to convertible note holders.
On April 30, 2018, the Company paid $10,000 for a Convertible Promissory Note (“Note”) from Oak Therapeutics, Inc. (“Oak”), a subsidiary of the Company, that is due April 30, 2019. The Note shall accrue interest at 9% per annum and is unsecured. The entire outstanding Note balance and any unpaid accrued interest can be converted into common stock shares of Oak at price per share of $0.52.