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.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(UNAUDITED)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Business Operations
CURE Pharmaceutical Holding Corp., its wholly-owned subsidiaries, CURE Pharmaceutical Corporation (“CURE Pharmaceutical”) and its 63% majority owned subsidiary Oak Therapeutics, Inc. (“Oak”) (collectively (the “Company,” “we,” “our,” “us,” or “CURE”) is an emerging growth company focusing on drug formulation and delivery technology company that researches and manufactures novel dosage forms to improve drug safety, efficacy and patient adherence. Our mission is to improve lives by redefining how medications are delivered and experienced. Our business strategy is to develop products using our proprietary technology, license the product rights to partners responsible for clinical development, regulatory approval, marketing and sales and retain exclusive manufacturing rights. We operate a 25,000 square foot cGMP manufacturing plant in Oxnard, CA.
Our technology platform includes oral dissolving film (ODF) and transdermal formulations. We apply our technology to pharmaceutical drugs and dietary supplements. ODF products are about the size of a postage stamp and composed of excipients such as polymers, stabilizers, lipids and surfactants which are all generally recognized as safe. They can be designed to deliver active ingredients to the gastrointestinal tract (GI) when placed on the tongue and swallowed, or directly to the blood stream when placed under the tongue (sublingual) or on the inner lining of the cheek and lip (buccal).
We currently have two commercial products and several development programs underway:
Background
CURE, formerly known as Makkanotti Group Corp, was incorporated in the State of Nevada on May 15, 2014. The Company was originally 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 was the surviving entity. The transaction was accounted for using the reverse acquisition method of accounting. As a result of the recapitalization and change in control, CURE Pharmaceutical was the acquiring entity in accordance with ASC 805, Business Combinations.
We licensed our technology available to a private company, Oak Therapeutics (“Oak”), to develop products for sale in the developing world (“Territory”). On November 10, 2017, we received 269,000 shares of Oak as consideration for an exclusive license to our patent 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 owned approximately 63% of Oak’s outstanding shares and have consolidated Oak’s financial statements as of the fourth quarter 2017. Due to the lack of performance by Oak under the license agreement, on April 15, 2019, we terminated all contractual relationships with Oak, including the license and surrendered our Oak shares to Oak. Further information can be found in NOTE 15 – SUBSEQUENT EVENTS.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The summary of significant accounting policies presented below is designed to assist in understanding the Company’s financial statements. Such financial statements and accompanying notes are the representations of Company’s management, who is responsible for their integrity and objectivity.
Principle of Consolidation and Basis of Presentation
The condensed consolidated financial statements include the accounts of CURE Pharmaceutical Holding Corp (“CPHC”), its wholly-owned subsidiary, CURE Pharmaceutical Corporation (“CURE”) and its 63% 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, 2019, and the results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2019 and 2018, 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, 2018 filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2019.
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, 2019 and December 31, 2018, the Company had no cash equivalents. At March 31, 2019 and December 31, 2018, 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 28, 2018, in agreement with IncuBrands, the Company dissolved CI as we did not see a viable future relating to this joint venture.
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, 2019, the Company has only contributed $5,000 to the Joint Venture. The Company is looking to dissolve this Joint Venture due to Pace’s insolvency and we are no longer looking to develop these Products.
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. At March 31, 2019 and December 31, 2018, management determined that an allowance was necessary which amounted to approximately $0 and $7,500, respectively.
Inventory
Inventory is stated at the lower of cost or net realizable value. The Company determines the cost of its inventory, which includes amounts related to materials, direct labor, and manufacturing overhead, on a first-in, first-out basis. The Company performs an assessment of the recoverability of capitalized inventory during each reporting period and writes down any excess and obsolete inventories to their realizable value in the period in which the impairment is first identified.
Impairment of Long-Lived Assets
We review all of our long-lived assets for impairment indicators throughout the year and perform detailed testing whenever impairment indicators are present. In addition, we perform detailed impairment testing for indefinite-lived intangible assets, at least annually, at December 31. When necessary, we record charges for impairments. Specifically:
|
·
|
For finite-lived intangible assets, such as developed technology rights, and for other long-lived assets, we compare the undiscounted amount of the projected cash flows associated with the asset, or asset group, to the carrying amount. If the carrying amount is found to be greater, we record an impairment loss for the excess of book value over fair value. In addition, in all cases of an impairment review, we re-evaluate the remaining useful lives of the assets and modify them, as appropriate; and
|
|
|
|
|
·
|
For indefinite-lived intangible assets, such as acquired in-process R&D assets, each year and whenever impairment indicators are present, we determine the fair value of the asset and record an impairment loss for the excess of book value over fair value, if any.
|
Management determined that no impairment indicators were present and that no impairment charges were necessary as of March 31, 2019 or December 31, 2018.
Revenue Recognition
We recognize revenue in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue Recognition”. The Company adopted Topic 606 using a modified retrospective approach for the years ended December 31, 2017 and prior and has been applied prospectively in the Company’s financial statements beginning January 1, 2018. Revenues under Topic 606 are required to be recognized either at a “point in time” or “over time”, depending on the facts and circumstances of the arrangement, and will be evaluated using a five-step model. The adoption of Topic 606 did not have a material impact on the Company’s financial statements, at initial implementation nor will it have a material impact on an ongoing basis.
To achieve the core principle of Topic 606, we perform the following steps:
1.
|
Identify the contract(s) with customer;
|
2.
|
Identify the performance obligations in the contract;
|
3.
|
Determine the transactions price;
|
4.
|
Allocate the transactions price to the performance obligations in the contract; and
|
5.
|
Recognize revenue when (or as) we satisfy a performance obligation.
|
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 formulation and product development income include services for the development of OTF products utilizing our CureFilm™ Technology. Our development contracts have up to 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, 2019 and December 31, 2018 we had deferred revenues of $311,275 and $383,275, respectively.
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 record advertising costs for the three months periods ended March 31, 2019 and 2018.
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 $360,870 and $426,529 for the three months periods ended March 31, 2019 and 2018, 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, 2019 and December 31, 2018, 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 follows FASB ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements and establishes a framework for measuring fair value and expands disclosure about such fair value measurements.
ASC 820 defines fair value as 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. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1:
|
Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
|
Level 2:
|
Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
|
|
|
Level 3:
|
Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.
|
The carrying amounts reported in the balance sheet for cash, accounts receivable, accounts payable, accrued expenses and notes and loans payable approximate their estimated fair market value based on the short-term maturity of these instruments. The carrying amount of the notes and convertible promissory notes approximates the estimated fair value for these instruments as management believes that such notes constitute substantially all of the Company’s debt and the interest payable on the notes approximates the Company’s incremental borrowing rate. We measured the liability for price adjustable warrants and embedded derivative features in the convertible notes, using the probability adjusted Black-Scholes option pricing model (“Black-Scholes”), which management has determined approximates values using more complex methods, using Level 3 inputs. (See Note 10)
Net Loss per Common Share
Basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period, excluding any unvested restricted stock awards. Diluted net loss per share includes the effect of common stock equivalents (stock options, unvested restricted stock, and warrants) when, under either the treasury or if-converted method, such inclusion in the computation would be dilutive. Net loss is adjusted for the dilutive effect of the change in fair value liability for price adjustable warrants, if applicable.
The following number of shares have been excluded from diluted net income (loss) since such inclusion would be anti-dilutive:
|
|
Year ended December 31,
|
|
|
|
March 31,
2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Restricted stock and stock options outstanding
|
|
|
-
|
|
|
|
97,742
|
|
Warrants
|
|
|
90,000
|
|
|
|
2,879,695
|
|
Shares to be issued upon conversion of convertible payable
|
|
|
115,047
|
|
|
|
236,475
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
205,047
|
|
|
|
3,213,912
|
|
Going Concern and Management’s Liquidity Plans
The accompanying condensed consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At March 31, 2019, we had a significant accumulated deficit of approximately $39.3 million and a negative working capital of approximately $1.8 million. Our operating activities consume the majority of our cash resources. We anticipate that we will continue to incur operating losses as we execute our commercialization and research and development plans, as well as strategic and business development initiatives. In addition, we have had and will continue to have negative cash flows from operations, at least into the near future. We have previously funded, and plan to continue funding, our losses primarily through the sale of common and preferred stock, combined with or without warrants, the sale of notes, revenue provided from our license agreements and, to a lesser extent, equipment financing facilities and secured loans. However, we cannot be certain that we will be able to obtain such funds required for our operations at terms acceptable to us or at all.
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 $8,000,000 to $10,000,000 in capital over the next 12 months through a merger and $1,000,000 to $2,000,000 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 to 18 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 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.
The accompanying consolidated financial statements do not include any adjustments relating to the recoverability of and classification of assets carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
Recently Issued Standards
In February 2016, the FASB issued ASU 2016-02,
"Leases"
("ASU 2016-02"). This guidance, as amended by subsequent ASU's on the topic, improves transparency and comparability among companies by recognizing right of use (ROU) assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. ASU No. 2016-02 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. We will adopt ASU No. 2016-02 in our fiscal year beginning January 1, 2019 and will use the alternative transition method provided by the FASB in ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” and ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements”, with no restatement of comparative periods.
The new standard provides optional practical expedients in transition. We expect to only elect the "package of practical expedients" where, under the new standard, prior conclusions about lease identification, lease classification and initial direct costs do not need to be reassessed. The new standard also provides practical expedients for ongoing accounting and we do not expect to elect any of these practical expedients on adoption. We continue to assess the impact of the new standard and believe it will not have a material effect on the condensed consolidated balance sheet.
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 became effective for the Company on January 1, 2018. There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and did not have a material impact on the Company’s financial position, results of operations or cash flows.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350). ASU. 2017-04 simplifies the subsequent measurement of goodwill by removing the second step of the two‑step impairment test. The amendment requires an entity to perform its annual, or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 becomes effective for the Company on January 1, 2020 with early adoption permitted and will be applied prospectively.
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 became effective for the Company in the first quarter of 2018. The adoption of ASU 2017-09 did not have an impact on the Company’s condensed consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-7, Compensation – Stock Compensation (Topic 718) — Improvements to Nonemployee Share-Based Payment Accounting. This guidance supersedes ASC 505-50 and expands the scope of ASC 718 to include all share-based payment arrangements related to the acquisition of goods and services from both nonemployees and employees. The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The guidance permits early adoption and was adopted by the Company in the first quarter of fiscal year 2019. The adoption of this ASU did not have any impact on the Company’s 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, 2019 and December 31, 2018:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Raw materials
|
|
$
|
27,094
|
|
|
$
|
25,297
|
|
Packaging components
|
|
|
7,687
|
|
|
|
7,687
|
|
Work-in-process
|
|
|
8,162
|
|
|
|
8,162
|
|
|
|
|
42,943
|
|
|
|
41,146
|
|
Reserve for obsolescence
|
|
|
(3,142
|
)
|
|
|
(3,370
|
)
|
Total inventory
|
|
$
|
39,801
|
|
|
$
|
37,776
|
|
NOTE 4 - PREPAID EXPENSES AND OTHER ASSETS
As of March 31, 2019 and December 31, 2018, prepaid expenses and other assets consisted of the following:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
Prepaid consulting services– stock-based compensation
|
|
$
|
897,313
|
|
|
$
|
935,883
|
|
Prepaid consulting services
|
|
|
73,667
|
|
|
|
82,167
|
|
Prepaid insurance
|
|
|
87,911
|
|
|
|
120,877
|
|
Other receivables
|
|
|
2,666
|
|
|
|
2,666
|
|
Prepaid expenses
|
|
|
37,200
|
|
|
|
37,200
|
|
Prepaid expenses and other assets
|
|
|
1,098,757
|
|
|
|
1,178,793
|
|
Current portion of prepaid expenses and other assets
|
|
|
(965,641
|
)
|
|
|
(946,386
|
)
|
Prepaid expenses and other assets less current portion
|
|
$
|
133,116
|
|
|
$
|
232,407
|
|
NOTE 5 - PROPERTY AND EQUIPMENT
As of March 31, 2019 and December 31, 2018, property and equipment consisted of the following:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
Manufacturing equipment
|
|
$
|
857,612
|
|
|
$
|
841,098
|
|
Computer and other equipment
|
|
|
186,655
|
|
|
|
183,346
|
|
Leasehold improvements
|
|
|
51,788
|
|
|
|
48,488
|
|
Less accumulated depreciation
|
|
|
(799,230
|
)
|
|
|
(773,022
|
)
|
Property and Equipment, net
|
|
$
|
296,825
|
|
|
$
|
299,910
|
|
For the three months periods ended March 31, 2019 and 2018, depreciation expense amounted to $26,207 and $24,055, respectively, which includes depreciation of $0 and $2,160 for capitalized leased assets for each of the periods ended, respectively. Accumulated depreciation for property held under capital leases were $43,201 and $39,337 for the three months periods ended March 31, 2019 and 2018, respectively.
NOTE 6 - INTANGIBLE ASSETS
The Company incurred $21,180 and $6,638 of legal patent costs that were capitalized during the three months periods ended March 31, 2019 and 2018, respectively. In addition, the Company did not purchase any patents through issuance of common stock shares of the Company for the three months period ended March 31, 2019. The Company purchased $280,100 of patents through the issuance of 200,000 common stock shares of the Company during the year ended December 31, 2018.
Intangible Asset Summary
The following table summarizes the estimated fair values as of March 31, 2019 of the identifiable intangible assets acquired, their useful life, and method of amortization:
|
|
Estimated Fair Value
|
|
|
Remaining
Estimated
Useful Life
(Years)
|
|
|
Three Months
Amortization
Expense
|
|
Intellectual Property
|
|
$
|
814,582
|
|
|
|
14.41
|
|
|
$
|
10,206
|
|
Patents
|
|
|
600,344
|
|
|
|
17.96
|
|
|
|
4,024
|
|
Total
|
|
$
|
1,414,926
|
|
|
|
|
|
|
$
|
14,230
|
|
Less: accumulated amortization
|
|
|
(201,965
|
)
|
|
|
|
|
|
|
|
|
Intellectual property and patents, net
|
|
|
1,212,961
|
|
|
|
|
|
|
|
|
|
Less: pending patents not subject to amortization
|
|
|
(272,415
|
)
|
|
|
|
|
|
|
|
|
Net intangible assets subject to amortization
|
|
$
|
940,546
|
|
|
|
|
|
|
|
|
|
The net intangible asset was $1,212,961, net of accumulated amortization of $201,965, as of March 31, 2019. Amortization expense was $14,230 and $10,899 for the three months periods ended March 31, 2019 and 2018, respectively.
The estimated aggregate amortization expense over each of the next five years is as follows:
2019
|
|
$
|
43,950
|
|
2020
|
|
|
58,600
|
|
2021
|
|
|
58,600
|
|
2022
|
|
|
58,600
|
|
2023
|
|
|
58,600
|
|
Thereafter
|
|
|
662,196
|
|
Total Amortization
|
|
$
|
940,546
|
|
NOTE 7 – LOAN PAYABLE
Loan payable consists of the following at March 31, 2019 and December 31, 2018:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Notes to a company due September 29, 2019, including interest at 6.00% per annum; unsecured; interest due monthly
|
|
$
|
66,842
|
|
|
$
|
105,125
|
|
Current portion of loan payable
|
|
|
(66,842
|
)
|
|
|
(105,125
|
)
|
Loan payable, less current portion
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest expense for the three months periods ended March 31, 2019 and 2018 was $2,230 and $800, respectively.
NOTE 8 – NOTES PAYABLE
Notes payable consist of the following at March 31, 2019 and December 31, 2018:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
Note to a company amended on August 27, 2017 and February 27, 2019, 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
|
|
$
|
400,000
|
|
|
$
|
650,000
|
|
Note to an individual, non-interest bearing, unsecured and has no fixed terms of repayment
|
|
|
50,000
|
|
|
|
50,000
|
|
Note to an individual due April 1, 2019, interest payable at 6% per annum, unsecured, principal and accrued interest due at maturity. The Company issued 50,000 shares of its common stock on October 18, 2018 at a price per share of $2.88 as an equity kicker. This note and accrued interest was repaid on April 2, 2019,
|
|
|
150,000
|
|
|
|
150,000
|
|
Note to a company due December 15, 2018, interest payable at 5% per annum, unsecured, principal and accrued interest due at maturity. If this note is still outstanding as of the date of any bona fide sale of the Company’s preferred stock or common stock in excess of $4,000,000 in gross proceeds, in one transaction or a serious of related transactions, which offering definitively sets a price per share of common stock and results in a listing of the Company’s common stock on a national securities exchange. On January 1, 2019, we entered into an Amendment to extend the maturity date to June 30, 2019.
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
|
700,000
|
|
|
|
950,000
|
|
|
|
|
|
|
|
|
|
|
Unamortized discount
|
|
|
(625
|
)
|
|
|
(30,000
|
)
|
Current portion of loan payable
|
|
|
(699,375
|
)
|
|
|
(920,000
|
)
|
Loan payable, less current portion
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest expense for the three month periods ended March 31, 2019 and 2018 was $21,661 and $19,027, respectively.
NOTE 9 – CONVERTIBLE PROMISSORY NOTES
Convertible promissory notes consist of the following at March 31, 2019 and December 31, 2018:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
Convertible promissory notes totaling $1,400,000 due between December 31, 2018 and February 28, 2019, 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 December 31, 2018 and February 28, 2019. A total of $250,000 convertible promissory notes was repaid in 2018 and $450,000 convertible promissory notes were repaid in 2019. A total $400,000 of convertible promissory notes plus accrued interest of $71,342 have been converted in to 254,779 common stock shares of the Company in 2019. Remaining $550,000 of convertible promissory notes are currently in default.
|
|
$
|
550,000
|
|
|
$
|
1,400,000
|
|
Convertible promissory notes totaling $1,275,000 due November 30, 2018 and $750,000 due February 28, 2019, 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 September 30, 2018, which has not yet been paid. During the first quarter of 2019, the Company repaid $275,000. On February 13, 2019, $750,000 of convertible promissory notes plus accrued interest and penalties of $135,825 were converted into 479,144 common stock shares of the Company. On February 15, 2019, $1,000,000 of convertible promissory notes plus accrued interest and penalties of $94,750 were converted into 591,757 common stock shares of the Company.
|
|
|
-
|
|
|
|
2,025,000
|
|
Convertible promissory note totaling $500,000 due April 30, 2019, interest payable at 9% per annum; unsecured; principal and accrued interest convertible into common stock 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. This convertible promissory note and accrued interest was repaid on April 29, 2019.
|
|
|
500,000
|
|
|
|
500,000
|
|
Convertible promissory note totaling $500,000 due December 31, 2018, interest payable at 9% per annum; secured by all assets of the company; 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 September 30, 2018. In 2019, the noteholder of this convertible promissory note entered into a debt conversion agreement to convert this convertible promissory note plus accrued interest into common stock shares of the Company at a $1.85 conversion price.
|
|
|
-
|
|
|
|
500,000
|
|
Convertible promissory notes totaling $575,000 due June 27, 2019, 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 December 31, 2018. $575,000 convertible promissory notes due June 27, 2019 plus accrued interest and penalties of $78,034 have been converted into 353,221 common stock shares of the Company in 2019.
|
|
|
-
|
|
|
|
575,000
|
|
Convertible promissory notes totaling $2,000,000 due October 31, 2019, 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 December 31, 2018, which has not yet been paid. In 2019, the noteholder of this convertible promissory note entered into a debt conversion agreement to convert this convertible promissory note plus accrued interest into common stock shares of the Company at a $1.85 conversion price.
|
|
|
-
|
|
|
|
575,000
|
|
Convertible demand note totaling $2,000,000 due on demand at any time after the earlier of (i) an Event of Default, (ii) the closing of a proposed merger (the “Merger”) of a wholly-owned subsidiary of the Company with and into Chemistry Holdings, Inc., a Delaware corporation, and (iii) May 13, 2019 if a binding definitive agreement and plan of merger with respect to the Merger has not been executed by that date, in each case if this Note has not previously converted into Common Stock. If the Merger has not been consummated by May 13, 2019, the outstanding principal balance of this Note (the “Outstanding Balance”) shall automatically be converted (the “Conversion”) into shares of common stock, par value $0.001 per share, of the Company at a price per share equal to $3.34 (the “Conversion Price”) effective as of May 13, 2019 (the “Conversion Date”), and the Outstanding Balance shall thereafter be considered repaid in full. Please see Note 15 - Subsequent Events footnote for further information.
|
|
|
2,000,000
|
|
|
|
-
|
|
|
|
|
3,050,000
|
|
|
|
5,575,000
|
|
|
|
|
|
|
|
|
|
|
Unamortized discount
|
|
|
(675,001
|
)
|
|
|
(332,569
|
)
|
Current portion of convertible promissory notes
|
|
|
2,374,999
|
|
|
|
5,242,431
|
|
Convertible promissory notes, less current portion
|
|
$
|
-
|
|
|
$
|
-
|
|
During the three month periods ended March 31, 2019 and 2018, the Company incurred $458,899 and $147,608, respectively, amortization of discount. Interest expense for the three month periods ended March 31, 2019 and 2018 was $72,813 and $303,174, respectively.
NOTE 10 – DERIVATIVE LIABILITY
The Company evaluates its convertible instruments, options, warrants or other contracts, to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instruments, the instrument is marked to fair value at the conversion date then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date.
The following table summarizes fair value measurements by level at March 31, 2019 for assets and liabilities measured at fair value on a recurring basis:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Fair value of Derivative Liability
|
|
$
|
770,248
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
770,248
|
|
The following table summarizes fair value measurements by level at December 31, 2018 for assets and liabilities measured at fair value on a recurring basis:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Fair value of Derivative Liability
|
|
$
|
617,628
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
617,628
|
|
The Company has issued convertible promissory notes during 2018 and 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, dividends, interest rates and expected term. The assumptions used in valuing the derivative liability during 2019 were as follows:
Significant assumptions:
|
|
|
|
Risk-free interest rate at grant date
|
|
|
2.23
|
%
|
Expected stock price volatility
|
|
|
138.42
|
%
|
Expected dividend payout
|
|
|
-
|
|
Expected option life (in years)
|
|
|
1
|
|
Expected forfeiture rate
|
|
|
0
|
|
The following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis from December 31, 2017 to March 31, 2019:
|
|
Fair value of derivative liabilities
|
|
Balance at December 31, 2017
|
|
$
|
90,738
|
|
Initial fair value of derivative liability recorded as debt discount
|
|
|
297,599
|
|
Loss on change in fair value included in earnings
|
|
|
229,291
|
|
Balance at December 31, 2018
|
|
|
617,628
|
|
Loss on change in fair value included in earnings
|
|
|
152,620
|
|
Balance at March 31, 2019
|
|
$
|
770,248
|
|
NOTE 11 – STOCK BASED AWARDS
On December 29, 2017 (“Effective Date”), the Company adopted 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 are available for grant. 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. The Plan seeks to achieve this purpose by providing for awards in the form of Options, Stock Appreciation Rights, Restricted Stock Awards, Restricted Stock Units, Performance Shares, Performance Units, Cash-Based Awards and Other Stock-Based Awards (“Awards”). The Plan will continue in effect until its termination by the Committee; provided, however, that all Awards must be granted, if at all, within ten (10) years from the Effective Date.
The Company did not issue any Restricted Common Stock (“RCS”), Nonstatutory Stock Options (“NSO”) or Incentive Stock Options (“ISO”) to any employees, including executive officers, non-employee members of the Board of Directors of the Company, members of the Advisory Board Committee and consultants during the three months period ended March 31, 2019. Vesting period for 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.
Stock Options
The Company’s stock option activity was as follows:
|
|
Options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Contractual Remaining Life
|
|
Outstanding, December 31, 2017
|
|
|
2,313,050
|
|
|
|
0.79
|
|
|
|
9.27
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Expired
|
|
|
(89,544
|
)
|
|
|
0.74
|
|
|
|
-
|
|
Outstanding, December 31, 2018
|
|
|
2,223,506
|
|
|
|
0.79
|
|
|
|
9.02
|
|
Exercisable at December 31, 2018
|
|
|
982,934
|
|
|
|
0.81
|
|
|
|
9.02
|
|
Range of Exercise Price
|
|
Number of Awards
|
|
|
Weighted Average Remaining Contractual Life (years)
|
|
|
Weighted Average Exercise Price
|
|
|
Number of Awards Exercisable
|
|
|
Weighted Average Exercise Price
|
|
$0.61 - $1.81
|
|
|
2,223,506
|
|
|
|
9.02
|
|
|
$
|
0.79
|
|
|
|
982,934
|
|
|
$
|
0.81
|
|
|
|
|
2,223,506
|
|
|
|
9.02
|
|
|
$
|
0.79
|
|
|
|
982,934
|
|
|
$
|
0.81
|
|
The aggregate intrinsic value of options outstanding and exercisable at March 31, 2019 was $7,926.
The aggregate grant date fair value of options granted during the three months ended March 31, 2019 and year ended December 31, 2018 amounted to $1,488,070 and $1,541,353, respectively. Compensation expense related to stock options was $94,041 and $0 for the three months periods ended March 31, 2019 and 2018, respectively.
As of March 31, 2019, the total unrecognized fair value compensation cost related to unvested stock options was $817,722, which is to be recognized over a remaining weighted average period of approximately 9.02 years.
The weighted-average fair value of options granted during the three months ended March 31, 2019 and year ended December 31, 2018, 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,
2019
|
|
|
December 31,
2018
|
|
Significant assumptions (weighted-average):
|
|
|
|
|
|
|
Risk-free interest rate at grant date
|
|
|
2.23
|
%
|
|
|
2.51
|
%
|
Expected stock price volatility
|
|
|
138.42
|
%
|
|
|
156.15
|
%
|
Expected dividend payout
|
|
|
-
|
|
|
|
-
|
|
Expected option life (in years)
|
|
|
10
|
|
|
|
10
|
|
Expected forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Restricted Stock
The Company’s restricted stock activity was as follows:
Compensation expense related to restricted shares was $136,250 and $0 for the three months periods ended March 31, 2019 and 2018, respectively. Information relating to non-vested restricted award shares is as follows:
|
|
Restricted
Stock Shares
|
|
|
Weighted Average Grant Date Fair Value
|
|
Non-vested, December 31, 2018
|
|
|
317,708
|
|
|
|
1.44
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(93,750
|
)
|
|
|
1.44
|
|
Forfeited/Expired
|
|
|
-
|
|
|
|
-
|
|
Non-vested, March 31, 2019
|
|
|
223,958
|
|
|
|
1.44
|
|
NOTE 12 – WARRANT AGREEMENTS
On February 13, 2019, the Company issued 657,655 warrants at a fair market value of $1,792,965 and with an exercise price of $2.31 per share in connection with the conversion of $1,325,000 convertible promissory notes.
On February 13, 2019, the Company issued 99,476 warrants at a fair market value of $271,202 and with an exercise price of $2.31 per share in connection with the broker fees earned from the conversion of $1,325,000 convertible promissory notes.
On February 15, 2019, the Company issued 312,500 warrants at a fair market value of $866,620 and with an exercise price of $2.00 per share in connection with the conversion of $500,000 convertible promissory notes.
On February 15, 2019, the Company issued 295,879 warrants at a fair market value of $814,834 and with an exercise price of $2.31 per share in connection with the conversion of $1,000,000 convertible promissory notes.
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, 2018
|
|
|
5,340,751
|
|
|
|
2.20
|
|
|
|
3.80
|
|
Granted
|
|
|
1,365,510
|
|
|
|
2.24
|
|
|
|
3.33
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, March 31, 2019
|
|
|
6,706,261
|
|
|
|
2.01
|
|
|
|
2.08
|
|
Exercisable at March 31, 2019
|
|
|
5,682,261
|
|
|
|
2.01
|
|
|
|
2.15
|
|
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
|
|
|
6,706,261
|
|
|
|
2.08
|
|
|
$
|
2.01
|
|
|
|
5,682,261
|
|
|
$
|
2.01
|
|
|
|
|
|
5,340,751
|
|
|
|
2.08
|
|
|
$
|
2.01
|
|
|
|
5,682,261
|
|
|
$
|
2.01
|
|
The weighted-average fair value of warrants granted to during the three months ended March 31, 2019 and year ended December 31, 2018, 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,
2019
|
|
|
December 31,
2018
|
|
Significant assumptions (weighted-average):
|
|
|
|
|
|
|
Risk-free interest rate at grant date
|
|
|
2.23
|
%
|
|
|
2.51
|
%
|
Expected stock price volatility
|
|
|
138.42
|
%
|
|
|
156.15
|
%
|
Expected dividend payout
|
|
|
-
|
|
|
|
-
|
|
Expected option life (in years)
|
|
|
3
|
|
|
|
3
|
|
Expected forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
NOTE 13 – STOCKHOLDERS’ EQUITY
Common Share Issuances
On January 1, 2019, the Company issued 13,827 common stock shares at $2.26 per share for investor relations consulting services to be performed over a six-month period. The total value of this issuance was $31,249 and as of March 31, 2019, $6,388 is included in prepaid expenses and other assets.
On December 14, 2018, the Company entered into an Advisory Consulting Agreement (“Agreement”). Per the terms of the Agreement, the Company is to issue 50,000 common stock shares of the Company that vest 30 days from December 14, 2018 and an additional 250,000 common stock shares of the Company that vest monthly over 24 months. On January 14, 2019, the Company issued 50,000 common stock shares of the Company at $1.84 per share per the terms of this Agreement. On February 14, 2019, the Company issued 10,417 common stock shares of the Company at $3.35 per share per the terms of this Agreement.
On December 14, 2018, the Company entered into a Securities Purchase Agreement (the “SPA”) with an accredited investor for the purchase of 833,333 shares of common stock of the Company (the “Shares” or “Securities”) at $1.20 per share (the “Share Price”) for a total purchase price of One Million Dollars ($1,000,000) (the “Purchase Price”). Per the terms of the SPA, the Company and the investor agreed to multiple Closings and Closing Dates (as hereinafter defined): (1) a Closing of $250,000 five (5) business days after the Closing Date; (2) a Closing of $250,000 ten (10) business days after the Closing Date; (3) a Closing of $250,000 thirty (30) business days after the Closing Date; and (4) a Closing $250,000 sixty (60) business days after the Closing Date. Each of the aforementioned being a Closing and the dates of each Closing being a Closing Date. The investor funded $250,000 on December 26, 2018 and the Company issued 208,333 common stock shares. The investor funded another $250,000 on December 31, 2018 and the Company issued another 208,333 common stock shares. The investor funded $250,000 on January 22, 2019 and another $250,000 on February 25, 2019 and the Company issued 208,333 common stock shares and 208,334 common stock shares, respectively.
On February 1, 2019, the Company amended two convertible promissory notes totaling $600,000 to extend the maturity dates to February 28, 2019. For extending the maturity date, the Company will issue a total of 30,000 common stock shares of the Company at $2.32 price per share. The total value of this issuance was $69,600. The Company considered if the amendment of the convertible promissory note was a debt modification or extinguishment based on the guidelines of ASC 470-50, and concluded that the amendments of the convertible promissory notes were debt modifications. The Company recorded the fair market value of the 30,000 common stock shares issued as a debt discount that has been fully amortized as of March 31, 2019.
On February 13, 2019, the Company entered into Debt Conversion Agreements (“Agreements”) with thirty convertible promissory note holders totaling $1,325,000 plus accrued interest and penalties of $213,859 that were converted into 832,365 common stock shares of the Company with a conversion price per share $1.85 which was based on a 20% discount to the average closing price of the Company’s common stock on the OTC Markets for five consecutive trading days. As a result of the lower conversion price compared to the fair market value of the common stock on the date of issuance, the Company recorded a loss on conversion of $812,241. In connection with the conversion of the convertible promissory notes, the Company will issue 657,655 warrants that were priced at $2.31 price per share.
On February 14, 2019, the Company entered into a Debt Conversion Agreement (“Agreement”), where $250,000 (Two Hundred Fifty Thousand Dollars) of $650,000 (Six Hundred Fifty Thousand Dollars) of the Outstanding Balance under the Senior Secured Promissory Note effective April 27, 2017 which was replaced with an Amended and Restated Senior Secured Promissory Note dated August 27, 2017 (the “Note”) shall be converted into 135,135 (One Hundred Thirty-Five Thousand, One Hundred Thirty-Five) shares of Common Stock of the Company (the “Conversion Shares”) at a conversion price of $1.85 per share (a discounted rate calculated as an approximation based on 20% discount on 5 days volume weighted average price of the market rate). As a result of the lower conversion price compared to the fair market value of the common stock on the date of issuance, the Company recorded a loss on conversion of $201,351.
On February 14, 2019, the Company entered into a First Amendment to Amended and Restated Senior Secured Promissory Note, that amends the Senior Secured Promissory Note effective April 27, 2017 which was replaced with an Amended and Restated Senior Secured Promissory Note effective August 27, 2017 (“Amended Agreement”) with the Note Holder (“Holder”). The Company and the Holder have agreed that the Maturity Date shall be extended to February 27, 2019 in exchange for 75,000 common stock shares of the Company at a price per share of $3.35. The total value of this issuance was $251,250. The Company considered if the amendment of the convertible promissory note was a debt modification or extinguishment based on the guidelines of ASC 470-50, and concluded that the amendments of the convertible promissory notes were debt modifications. The Company recorded the fair market value of the 75,000 common stock shares issued as a debt discount that has been fully amortized as of March 31, 2019.
On February 15, 2019, the Company entered into a Debt Conversion Agreement (“Agreement”) to convert $400,000 of convertible promissory notes plus accrued interest of $71,342 into 254,779 common stock shares of the Company with a conversion price per share $1.85 which was based on a 20% discount to the average closing price of the Company’s common stock on the OTC Markets for five consecutive trading days. As a result of the lower conversion price compared to the fair market value of the common stock on the date of issuance, the Company recorded a loss on conversion of $630,238.
On February 15, 2019, the Company entered into a Debt Conversion Agreement (“Agreement”) with a convertible promissory note holder totaling $1,000,000 plus accrued interest of $94,750 that were converted into 591,757 common stock shares of the Company with a conversion price per share $1.85 which was based on a 20% discount to the average closing price of the Company’s common stock on the OTC Markets for five consecutive trading days. As a result of the lower conversion price compared to the fair market value of the common stock on the date of issuance, the Company recorded a loss on conversion of $860,087. In connection with the conversion of the convertible promissory notes, the Company will issue 295,879 warrants that were priced at $2.31 price per share.
On February 15, 2019, the Company entered into a Debt Conversion Agreement (“Agreement”) with a convertible promissory note holder totaling $1,575,000 plus accrued interest of $18,406 that were converted into 861,301 common stock shares of the Company with a conversion price per share $1.85 which was based on a 20% discount to the average closing price of the Company’s common stock on the OTC Markets for five consecutive trading days. As a result of the lower conversion price compared to the fair market value of the common stock on the date of issuance, the Company recorded a loss on conversion of $745,929.
On February 19, 2019, the Company entered into a Debt Conversion Agreement (“Agreement”) with a convertible promissory note holder totaling $425,000 plus accrued interest of $425 that were converted into 168,819 common stock shares of the Company with a conversion price per share $2.52 which was based on a 20% discount to the average closing price of the Company’s common stock on the OTC Markets for five consecutive trading days.
On February 19, 2019, the Company entered into a Consulting Agreement (“Agreement”) with a Company. Per the terms of the Agreement, the Company is to issue 25,000 common stock shares of the Company for providing investor relations services, where 12,500 common stock shares of the Company are due immediately and the remaining 12,500 common stock shares of the Company is due June 19, 2019. On February 19, 2019, the Company issued 250,000 common stock shares of the Company at $3.39 per share.
On February 25, 2019, the Company issued 46,875 and 83,333 common stock shares of the Company at $0.74 and $1.81 per share, respectively, relating to restricted stock issued from the Company’s 2017 Equity Incentive Plan.
Stock Payable
On January 4, 2019, the Company entered into a Consulting Agreement (“Agreement”) with an individual. Per the terms of the Agreement, the Company is to issue 45,000 common stock shares of the Company for providing investor relations services. As of our filing of our Form 10-Q for the quarterly period ended March 31, 2019, the company has not yet issued these common stock shares and has recorded a stock payable of $68,400.
On January 15, 2019, the Company entered into an Advisory Consulting Agreement (“Agreement”) with an individual. Per the terms of the Agreement, the Company is to issue 50,000 common stock shares of the Company for providing investor relations services. As of our filing of our Form 10-Q for the quarterly period ended March 31, 2019, the company has not yet issued these common stock shares and has recorded a stock payable of $92,000.
On February 15, 2019, the Company entered into a Debt Conversion Agreement (“Agreement”) with a convertible promissory note holder totaling $500,000 plus accrued interest of $28,588 that were converted into 285,723 common stock shares of the Company with a conversion price per share $1.85 which was based on a 20% discount to the average closing price of the Company’s common stock on the OTC Markets for five consecutive trading days. As of our filing of our Form 10-Q for the quarterly period ended March 31, 2019, the company has not yet issued these common stock shares and has recorded a stock payable of $528,588. As a result of the lower conversion price compared to the fair market value of the common stock on the date of issuance, the Company recorded a loss on conversion of $409,672. In connection with the conversion of the convertible promissory notes, the Company will issue 312,500 warrants that were priced at $2.00 price per share.
On February 26, 2019, the Company entered into a Media Advertising Agreement (“Agreement”). Per the terms of the Agreement, the Company was to issue 60,000 common stock shares at $3.78 per share for providing media and advertising services over a six month period. The total value of these issuances was $226,800 and as of March 31, 2019, $185,450 is included in prepaid expenses and other assets. As of our filing of our Form 10-Q for the quarterly period ended March 31, 2019, the company has not yet issued these common stock shares and has recorded a stock payable of $226,800.
NOTE 14 - 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”) (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 was 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. On February 13, 2019, the Company and the Applicant entered to into a Workers’ Compensation Appeals Board Compromise and Release Agreement (“Agreement”) where the Applicant was awarded a settlement amount of $8,500 relating to WCAB Case No: ADJ 10686812. Out of the settlement amount, $1,250 is to be paid to the Applicant’s attorney. On February 20, 2019, the Company received an Order Approving Compromise and Release of WCAB Case No: ADJ 10686812 based on the Agreement entered into with the Company and the Applicant.
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.
Total rent expense for the three months periods ended March 31, 2019 and 2018 was $63,028 and $74,178, respectively.
NOTE 15 – SUBSEQUENT EVENTS
On April 8, 2019, the Company entered into a Securities Purchase Agreement (the “SPA”) with an accredited investor for the purchase of 150,000 shares of common stock of the Company (the “Shares” or “Securities”) at $3.30 per share (the “Share Price”) for a total purchase price of $495,000. As of our filing of our Form 10-Q for the quarterly period ended March 31, 2019, the company has not yet issued these common stock shares.
On April 9, 2019, the Company entered into a Securities Purchase Agreement (the “SPA”) with an accredited investor for the purchase of 100,000 shares of common stock of the Company (the “Shares” or “Securities”) at $3.30 per share (the “Share Price”) for a total purchase price of $330,000. As of our filing of our Form 10-Q for the quarterly period ended March 31, 2019, the company has not yet issued these common stock shares.
On April 12, 2019, the Company entered into a Securities Purchase Agreement (the “SPA”) with an accredited investor for the purchase of 15,152 shares of common stock of the Company (the “Shares” or “Securities”) at $3.30 per share (the “Share Price”) for a total purchase price of $50,000. As of our filing of our Form 10-Q for the quarterly period ended March 31, 2019, the company has not yet issued these common stock shares.
On April 15, 2019, the Company entered into a Securities Purchase Agreement (the “SPA”) with an accredited investor for the purchase of 60,606 shares of common stock of the Company (the “Shares” or “Securities”) at $3.30 per share (the “Share Price”) for a total purchase price of $200,000. As of our filing of our Form 10-Q for the quarterly period ended March 31, 2019, the company has not yet issued these common stock shares.
On April 15, 2019, the Company entered into a Securities Purchase Agreement (the “SPA”) with an accredited investor for the purchase of 15,152 shares of common stock of the Company (the “Shares” or “Securities”) at $3.30 per share (the “Share Price”) for a total purchase price of $50,000. As of our filing of our Form 10-Q for the quarterly period ended March 31, 2019, the company has not yet issued these common stock shares.
On April 15, 2019, the Company entered into a Termination and Release Agreement (“Agreement”) with Oak Therapeutics (“Oak”) to surrender all of its Oak shares to Oak and terminating any rights the Company might have to acquire additional shares or interest in Oak. The parties terminated all contractual relationships between them, whether written or verbal, express or implied. All license or other rights previously granted by Oak to the Company or the Company to Oak were terminated, including all licenses or rights of any kind granted by the Company.
On April 17, 2019, the Company entered into a Securities Purchase Agreement (the “SPA”) with an accredited investor for the purchase of 127,273 shares of common stock of the Company (the “Shares” or “Securities”) at $3.30 per share (the “Share Price”) for a total purchase price of $420,000. As of our filing of our Form 10-Q for the quarterly period ended March 31, 2019, the company has not yet issued these common stock shares.
On May 6, 2019, the Company entered into a Securities Purchase Agreement (the “SPA”) with an accredited investor for the purchase of 15,151 shares of common stock of the Company (the “Shares” or “Securities”) at $3.30 per share (the “Share Price”) for a total purchase price of $50,000. As of our filing of our Form 10-Q for the quarterly period ended March 31, 2019, the company has not yet issued these common stock shares.
On May 13, 2019, the Company entered into a Securities Purchase Agreement (the “SPA”) with an accredited investor for the purchase of 45,455 shares of common stock of the Company (the “Shares” or “Securities”) at $3.30 per share (the “Share Price”) for a total purchase price of $150,000. As of our filing of our Form 10-Q for the quarterly period ended March 31, 2019, the company has not yet issued these common stock shares.
On May 14, 2019 (the “
Closing Date
”), Cure Pharmaceutical Holding Corp., a Nevada corporation (the “
Company
”), and CURE Chemistry Inc., a Delaware corporation and wholly owned subsidiary of the Company (“
Merger Sub
”), completed the transactions contemplated by the Agreement and Plan of Merger and Reorganization, dated March 31, 2019 (the “
Merger Agreement
”), with Chemistry Holdings, Inc., a Delaware corporation (“
Chemistry Holdings
”). As agreed in the Merger Agreement, the Company acquired Chemistry Holdings pursuant to a merger of the Merger Sub with and into Chemistry Holdings (the “
Merger
”). Pursuant to the Merger, Chemistry Holdings became a wholly-owned subsidiary of the Company and the stockholders of Chemistry Holdings received shares of the Company’s common stock, par value $0.001 per share (the “
Common Stock
”) and warrants to purchase Common Stock in exchange for all of the issued and outstanding shares of Chemistry Holdings.
In connection with signing the Merger Agreement, the Company received an investment of $2,000,000 (the “
Principal Amount
”) from Chemistry Holdings pursuant to a convertible note (the “
Note
”). Such Note, on the Closing Date, supersedes the amended convertible note executed on April 30, 2019 and became an intercompany payable and will be cancelled. As a condition to closing, Chemistry Holdings had a cash balance at closing of at least $8,000,000 plus the amount of certain liabilities and expenses (the “
Closing Cash Requirement
”).
The maximum number of shares of Common Stock that may be issued to the stockholders of Chemistry Holdings in connection with the Merger, including escrowed shares and shares issuable pursuant to earn-out provisions and warrants, is 32,072,283 shares allocated as follows: (i) 5,700,000 shares of Common Stock as upfront consideration issued at the Closing (the “
Upfront Consideration
”); (ii) 7,128,913 shares to be held in escrow, subject to indemnification and clawback rights that lapse upon the achievement of certain milestones; (iii) 3,207,228 shares that may be issued pursuant to an earn-out over five years upon the achievement of certain technological implementations; (iv) 8,018,071 shares that may be issued pursuant to an earn-out over two years upon the achievement of certain revenue goals; and (v) 8,018,071 shares issuable upon exercise of warrants that become exercisable upon achieving certain revenue goals between the second and fourth anniversary of the Closing Date at an exercise price of $5.01 per share, exercisable, to the extent vested, for five years from the Closing Date.
In addition, certain stockholders of Chemistry Holdings agreed to return to the Company certain shares of Common Stock (approximately 231,294 shares) in satisfaction of their tax withholding obligations related to the exercise of Chemistry Holdings stock options in connection with the Merger.
Unaudited pro forma results of operations for the three months ended March 31, 2019 and 2018, as if the Company and Chemistry Holdings had been combined as of the beginning of the period, follows. The pro forma results include estimates and assumptions which management believes are reasonable. However, pro forma results are not necessarily indicative of the results that would have occurred if the business combination had been in effect on the dates indicated, or which may result in the future.
|
|
CURE Pharmaceutical Holding Corp for the Three Months Ended March 31,
2019
|
|
|
Chemistry Holdings Inc for the Three Months Ended March 31,
2019
|
|
|
Chemistry
Spirits LLC
for the Three Months Ended March 31,
2019
|
|
|
Chemistry Labs LLC for the Three Months Ended March 31,
2019
|
|
|
Consolidated
|
|
Net revenues
|
|
$
|
74,500
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
74,500
|
|
Net loss
|
|
(10,028,168
|
)
|
|
|
(5,054
|
)
|
|
|
(2,137
|
)
|
|
|
(26,323
|
)
|
|
|
(10,061,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.17
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(0.17
|
)
|
|
|
CURE Pharmaceutical Holding Corp for the Three Months Ended March 31,
2018
|
|
|
Chemistry Holdings Inc for the Three Months Ended March 31,
2018
|
|
|
Chemistry
Spirits LLC
for the Three Months Ended March 31,
2018
|
|
|
Chemistry Labs LLC for the Three Months Ended March 31,
2018
|
|
|
Consolidated
|
|
Net revenues
|
|
$
|
105,014
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
326,172
|
|
|
$
|
431,186
|
|
Net income (loss)
|
|
|
(1,901,836
|
)
|
|
|
21,599
|
|
|
|
(88,535
|
)
|
|
|
29,347
|
|
|
|
(1,939,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.03
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(0.03
|
)
|