UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 20182019

 

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

 

For the transition period from __________ to __________

 

Commission file number 333-204857

 

CURE PHARMACEUTICAL HOLDING CORP.

(Exact name of registrant as specified in its charter)

 

Nevada

 

26732834

 

37-1765151

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Number)

 

(IRS Employer

Identification Number)

 

1620 Beacon Place, Oxnard, California 93033

(Address of principal executive offices)

 

(805) 824-0410

(Issuer’s telephone number)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

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

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

x

 

Emerging growth company

x

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

On May 11, 2018,13, 2019, we had 23,951,25230,547,469 shares of common stock, par value $0.001 per share (the “Common Stock”) issued and outstanding.

 

 
 
 
 

TABLE OF CONTENTS

 

Page

PART I. FINANCIAL INFORMATION:

Item 1.

Unaudited Condensed Consolidated Financial Statements

3

Condensed Consolidated Balance Sheets as of March 31, 20182019 (Unaudited) and December 31, 20172018

3

Unaudited Condensed Consolidated Statements of Operations for the three month periods ended March 31, 20182019 and 20172018

4

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three month periods ended March 31, 2019 and 2018

5

Unaudited Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31, 20182019 and 20172018

56

Notes to the Unaudited Condensed Consolidated Financial Statements

67

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2029

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

2741

Item 4.

Controls and Procedures

2841

PART II. OTHER INFORMATION:

Item 1.

Legal Proceedings

2942

Item 1A.

Risk Factors

2942

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

2942

Item 3.

Defaults Upon Senior Securities

2945

Item 4.

Mine Safety Disclosure

2945

Item 5.

Other Information

2045

Item 6.

Exhibits

3046

Signatures

3147

 

 
2
 
Table of Contents

  

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

 

CURE PHARMACEUTICAL HOLDING CORP.

Condensed Consolidated Balance Sheets

 

 

 

March 31,

2018

 

 

December 31,

2017

 

Assets

 

Current assets:

 

 

 

 

 

 

Cash

 

$840,577

 

 

$108,249

 

Accounts receivable

 

 

39,907

 

 

 

4,364

 

Inventory

 

 

69,987

 

 

 

44,996

 

Prepaid expenses and other assets

 

 

986,589

 

 

 

586,888

 

Total current assets

 

 

1,937,060

 

 

 

744,497

 

Property and equipment, net

 

 

328,855

 

 

 

337,361

 

Intellectual property and patents, net

 

 

896,211

 

 

 

900,472

 

Prepaid expenses and other assets

 

 

606,130

 

 

 

-

 

Other assets

 

 

108,868

 

 

 

117,555

 

Total assets

 

$3,877,124

 

 

$2,099,885

 

 

 

 

 

 

 

 

 

 

Liabilities and Deficit

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$559,205

 

 

$544,980

 

Accrued expenses

 

 

183,599

 

 

 

129,978

 

Loan payable

 

 

33,526

 

 

 

50,425

 

Notes payable

 

 

700,000

 

 

 

800,000

 

Convertible promissory notes, net of unamortized discount

 

 

3,290,450

 

 

 

1,551,488

 

Derivative liability

 

 

65,961

 

 

 

90,738

 

Deferred revenue

 

 

396,484

 

 

 

361,462

 

Total current liabilities

 

 

5,229,225

 

 

 

3,529,071

 

License fees

 

 

560,000

 

 

 

560,000

 

Total liabilities

 

 

5,789,225

 

 

 

4,089,071

 

 

 

 

 

 

 

 

 

 

Deficit:

 

 

 

 

 

 

 

 

Common stock: $0.001 par value; authorized 75,000,000 shares; 23,951,252 and 23,901,252 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively

 

 

23,952

 

 

 

23,902

 

Additional paid-in capital

 

 

17,240,845

 

 

 

16,483,632

 

Stock payable

 

 

1,553,328

 

 

 

324,995

 

Accumulated deficit

 

 

(20,770,435)

 

 

(18,868,599)

Total CURE Pharmaceutical Holding Corp stockholders’ deficit

 

 

(1,952,310)

 

 

(2,036,070)

Noncontrolling interest in subsidiary

 

 

40,209

 

 

 

46,884

 

Total deficit

 

 

(1,912,101)

 

 

(1,989,186)

Total liabilities and deficit

 

$3,877,124

 

 

$2,099,885

 

 

 

March 31,

2019

 

 

December 31,

2018

 

ASSETS

 

(Unaudited)

 

 

(Audited)

 

Current assets:

 

 

 

 

 

 

Cash

 

$2,593,976

 

 

$500,962

 

Accounts receivable, net

 

 

-

 

 

 

102,799

 

Inventory

 

 

39,801

 

 

 

37,776

 

Prepaid expenses and other assets

 

 

965,641

 

 

 

946,386

 

Total current assets

 

 

3,599,418

 

 

 

1,587,923

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

296,825

 

 

 

299,910

 

Intellectual property and patents, net

 

 

1,212,961

 

 

 

1,206,011

 

Prepaid expenses and other assets

 

 

133,116

 

 

 

232,407

 

Other assets

 

 

59,153

 

 

 

69,837

 

 

 

 

 

 

 

 

 

 

Total assets

 

$5,301,473

 

 

$3,396,088

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Deficit

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$861,614

 

 

$774,387

 

Accrued expenses

 

 

274,491

 

 

 

508,733

 

Loan payable

 

 

66,842

 

 

 

105,125

 

Notes payable, net

 

 

699,375

 

 

 

920,000

 

Convertible promissory notes, net

 

 

2,374,999

 

 

 

5,242,431

 

Derivative Liability

 

 

770,248

 

 

 

617,628

 

Deferred revenue

 

 

311,275

 

 

 

383,275

 

Total current liabilities

 

 

5,358,844

 

 

 

8,551,579

 

 

 

 

 

 

 

 

 

 

License Fees

 

 

97,500

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

5,456,344

 

 

 

8,551,579

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (see Note 14)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' deficit:

 

 

 

 

 

 

 

 

Common stock: $0.001 par value; authorized 75,000,000 shares; 30,366,794 shares and 26,784,019 issued and outstanding as of March 31, 2019 and December 31, 2018, respectively

 

 

30,367

 

 

 

26,785

 

Additional paid-in capital

 

 

37,097,902

 

 

 

23,424,737

 

Stock payable

 

 

2,004,307

 

 

 

645,575

 

Accumulated deficit

 

 

(39,297,168)

 

 

(29,269,000)

Total CURE Pharmaceutical Holding Corp stockholders’ deficit

 

 

(164,592)

 

 

(5,171,903)

 

 

 

 

 

 

 

 

 

Noncontrolling interest

 

 

9,721

 

 

 

16,412

 

 

 

 

 

 

 

 

 

 

Total stockholders' deficit

 

 

(154,871)

 

 

(5,155,491)

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' deficit

 

$5,301,473

 

 

$3,396,088

 

  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
3
 
Table of Contents

  

CURE PHARMACEUTICAL HOLDING CORP.

Condensed Consolidated Statements of Operations (Unaudited)

For the Three Months Ended March 31, 20182019 and 20172018

  

 

For the Three

Months Ended

March 31,

2018

 

 

For the Three

Months Ended

March 31,

2017

 

 

For the Three Months Ended

 

Revenue

 

 

 

 

 

 

March 31, 2019

 

 

March 31, 2018

 

Revenue:

 

 

 

 

 

Net product sales

 

$69,322

 

$27,497

 

 

$-

 

$69,322

 

Consulting research & development income

 

 

35,692

 

 

 

4,448

 

 

72,000

 

35,692

 

Shipping and other sales

 

 

2,500

 

 

 

-

 

Total revenues

 

 

105,014

 

 

 

31,945

 

 

 

74,500

 

 

 

105,014

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold:

 

 

 

 

 

Cost of goods sold

 

 

59,086

 

 

 

35,550

 

 

 

2,584

 

 

 

59,086

 

Gross profit (loss)

 

 

45,928

 

 

 

(3,605)

 

 

 

 

 

Gross profit

 

 

71,916

 

 

 

45,928

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Research and development expenses

 

426,529

 

219,620

 

 

360,870

 

426,529

 

Selling, general and administrative expenses

 

 

1,018,510

 

 

 

2,402,547

 

 

 

2,365,086

 

 

 

1,018,510

 

Total costs and expenses

 

 

1,445,039

 

 

 

2,622,167

 

Net loss from operations

 

 

(1,399,111)

 

 

(2,625,772)

 

 

 

 

 

Total operating expenses

 

 

2,725,956

 

 

 

1,445,039

 

 

 

 

 

 

Net Operating (loss) before other income (expense)

 

 

(2,654,040)

 

 

(1,399,111)

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

Interest income

 

-

 

4

 

 

-

 

-

 

Other income

 

7,533

 

8,571

 

 

-

 

7,533

 

Change in derivative liability

 

24,777

 

-

 

Change in fair value of derivative liability

 

(152,620)

 

24,777

 

Other expense

 

(107,881)

 

(994)

 

(271,201)

 

(107,881)

Interest expense

 

 

(433,830)

 

 

(2,151)

 

(3,297,480)

 

(433,830)

Loss on conversion of convertible promissory notes

 

 

(3,659,518)

 

 

-

 

 

 

 

 

 

Other income (expense)

 

 

(509,401)

 

 

5,430

 

 

 

(7,380,819)

 

 

(509,401)

 

 

 

 

 

Net loss before income taxes

 

(1,908,512)

 

(2,620,342)

 

(10,034,859)

 

(1,908,512)

 

 

 

 

 

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss before noncontrolling interest

 

(1,908,512)

 

-

 

Noncontrolling interest

 

 

(6,676)

 

 

-

 

Net loss attributed to stockholders

 

$(1,901,836)

 

$(2,620,342)

 

 

 

 

 

 

 

 

 

 

Net loss attributed to stockholders per share, basic and diluted

 

$(0.08)

 

$(0.11)

Net loss

 

(10,034,859)

 

(1,908,512)

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic and diluted

 

 

23,937,919

 

 

 

23,336,673

 

Net loss attributable to non-controlling interest

 

 

(6,691)

 

 

(6,676)

 

 

 

 

 

Net loss attributable to Cure Pharmaceutical Holding Corp.

 

 

(10,028,168)

 

 

(1,901,836)

 

 

 

 

 

Net loss per share, basic

 

 

 

 

 

Basic and diluted

 

$(0.35)

 

$(0.08)

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

Basic and diluted

 

 

28,595,784

 

 

 

23,937,919

 

  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
4
 
Table of Contents

  

CURE PHARMACEUTICAL HOLDING CORP.

Condensed Consolidated Statements of Cash FlowsChanges in Stockholders’ Deficit (Unaudited)

For the Three Months Ended March 31, 20182019 and 20172018

   

 

 

For the Three

Months Ended

 

 

For the Three

Months Ended

 

 

 

March 31,

2018

 

 

March 31,

2017

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$(1,908,512)

 

$(2,620,342)

Adjustment to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Amortization of stock based compensation – prepaid expenses

 

 

237,689

 

 

 

115,644

 

Depreciation and amortization

 

 

34,954

 

 

 

48,258

 

Amortization of loan discounts

 

 

360,089

 

 

 

-

 

Change in derivative liability

 

 

(24,777)

 

 

-

 

Warrants granted for commission expense

 

 

37,137

 

 

 

-

 

Warrants granted for services

 

 

-

 

 

 

1,801,993

 

Change in other assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(35,543)

 

 

(31,089)

Inventory

 

 

(24,991)

 

 

1,927

 

Prepaid expenses and other assets

 

 

58,813

 

 

 

35,894

 

Other assets

 

 

8,687

 

 

 

9,050

 

Accounts payable

 

 

14,225

 

 

 

28,595

 

Accrued expenses

 

 

53,621

 

 

 

3,616

 

Deferred revenue

 

 

35,022

 

 

 

10,320

 

Net cash used in operating activities

 

 

(1,153,586)

 

 

(596,134)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase in intangible assets

 

 

(6,638)

 

 

(11,000)

Payment to joint venture

 

 

-

 

 

 

(5,000)

Acquisition of property and equipment, net

 

 

(15,549)

 

 

(19,314)

Net cash used in investing activities

 

 

(22,187)

 

 

(35,314)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from convertible promissory notes

 

 

2,025,000

 

 

 

-

 

Loan repayments

 

 

(116,899)

 

 

(10,729)

Capital lease payments

 

 

-

 

 

 

(3,063)

Net cash provided (used) by financing activities

 

 

1,908,101

 

 

 

(13,792)

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

732,328

 

 

 

(645,240)

Cash and cash equivalents, beginning of period

 

 

108,249

 

 

 

1,106,142

 

Cash and cash equivalents, end of period

 

$840,577

 

 

$460,902

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest and income taxes:

 

 

 

 

 

 

 

 

Interest

 

$19,973

 

 

$2,151

 

Income taxes

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

Non-cash financing activities:

 

 

 

 

 

 

 

 

Common stock related to prepaid expenses

 

$1,323,562

 

 

$514,356

 

Warrants granted for discount on convertible promissory notes

 

$646,127

 

 

$-

 

 

 

 

 

 

 

 

 

 Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 Paid-in

 

 

 Stock

 

 

 Accumulated

 

 

 Noncontrolling

 

 

 

 

 

 

 Shares

 

 

 Par

 

 

 Capital

 

 

 Payable

 

 

 Deficit

 

 

 Interest

 

 

 Total

 

Balance, December 31, 2018

 

 

26,784,019

 

 

$26,785

 

 

$23,424,737

 

 

$645,575

 

 

$(29,269,000)

 

$16,412

 

 

$(5,155,491)

Issuance of common stock for professional services

 

 

86,744

 

 

 

87

 

 

 

165,371

 

 

 

355,952

 

 

 

 

 

 

 

 

 

 

 

521,410

 

Issuance of common stock for extension of maturity dates relating to convertible promissory notes

 

 

105,000

 

 

 

105

 

 

 

320,744

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

320,849

 

Issuance of common stock for conversion of convertible promissory notes

 

 

2,844,156

 

 

 

2,844

 

 

 

8,620,784

 

 

 

938,260

 

 

 

 

 

 

 

 

 

 

 

9,561,888

 

Issuance of common stock from the equity incentive plan

 

 

130,208

 

 

 

130

 

 

 

(130)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Issuance of common stock for cash

 

 

416,667

 

 

 

416

 

 

 

499,584

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

500,000

 

Issuance of common stock for cancellation of accounts payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

64,520

 

 

 

 

 

 

 

 

 

 

 

64,520

 

Warrants granted

 

 

 

 

 

 

 

 

 

 

3,035,190

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,035,190

 

Beneficial conversion features

 

 

 

 

 

 

 

 

 

 

801,331

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

801,331

 

Fair value of stock options and restricted stock granted

 

 

 

 

 

 

 

 

 

 

230,291

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

230,291

 

Noncontrolling interest of Oak Therapeutics, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,691)

 

 

(6,691)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,028,168)

 

 

 

 

 

 

(10,028,168)

Balance, March 31, 2019

 

 

30,366,794

 

 

$30,367

 

 

$37,097,902

 

 

$2,004,307

 

 

$(39,297,168)

 

$9,721

 

 

$(154,871)

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Stock

 

 

Accumulated

 

 

Noncontrolling

 

 

 

 

 

 

Shares

 

 

Par

 

 

Capital

 

 

Payable

 

 

Deficit

 

 

Interest

 

 

Total

 

Balance, December 31, 2017

 

 

23,901,252

 

 

$23,902

 

 

$16,483,632

 

 

$324,995

 

 

$(18,868,599)

 

$46,885

 

 

$(1,989,185)

Issuance of common stock for professional services

 

 

50,000

 

 

 

50

 

 

 

73,950

 

 

 

1,228,333

 

 

 

 

 

 

 

 

 

 

 

1,302,333

 

Warrants granted

 

 

 

 

 

 

 

 

 

 

37,137

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

37,137

 

Beneficial conversion features

 

 

 

 

 

 

 

 

 

 

646,126

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

646,126

 

Noncontrolling interest of Oak Therapeutics, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,676)

 

 

(6,676)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,901,836)

 

 

 

 

 

 

(1,901,836)

Balance, March 31, 2018

 

 

23,951,252

 

 

$23,952

 

 

$17,240,845

 

 

$1,553,328

 

 

$(20,770,435)

 

$40,209

 

 

$(1,912,101)

  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
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CURE PHARMACEUTICAL HOLDING CORP.

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the Three Months Ended March 31, 2019 and 2018

 

 

For the Three Months Ended

 

 

 

March 31,

2019

 

 

March 31,

2018

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$(10,034,859)

 

$(1,908,512)

 

 

 

 

 

 

 

 

 

Adjustment to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation - services

 

 

91,833

 

 

 

-

 

Stock based compensation - prepaid

 

 

468,146

 

 

 

237,689

 

Stock issued for amending convertible promissory notes

 

 

320,850

 

 

 

-

 

Loss on conversion of convertible promissory notes

 

 

3,659,518

 

 

 

-

 

Warrant expense from convertible promissory notes

 

 

2,173,056

 

 

 

-

 

Depreciation and amortization

 

 

40,437

 

 

 

34,954

 

Amortization of loan discounts

 

 

488,274

 

 

 

360,089

 

Recovery of bad debt expense

 

 

(7,500)

 

 

-

 

Inventory reserve for obsolesce

 

 

2,436

 

 

 

-

 

Change of fair value in derivative liabilities

 

 

152,620

 

 

 

(24,777)

Fair value of vested stock options

 

 

230,291

 

 

 

-

 

Warrants granted for commission expense

 

 

590,933

 

 

 

37,137

 

Warrants granted for broker fee expense

 

 

271,201

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Change in other assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

110,299

 

 

 

(35,543)

Inventory

 

 

(4,461)

 

 

(24,991)

Prepaid expenses and other assets

 

 

41,466

 

 

 

58,813

 

Other assets

 

 

10,684

 

 

 

8,687

 

Accounts payable

 

 

151,747

 

 

 

14,225

 

Accrued expenses

 

 

193,128

 

 

 

53,621

 

Deferred revenue

 

 

(72,000)

 

 

35,022

 

License fees

 

 

97,500

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Cash used in operating activities

 

 

(1,024,401)

 

 

(1,153,586)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase in intangible assets

 

 

(21,180)

 

 

(6,638)

Acquisition of property and equipment, net

 

 

(23,122)

 

 

(15,549)

 

 

 

 

 

 

 

 

 

Cash used in investing activities

 

 

(44,302)

 

 

(22,187)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from convertible notes payable

 

 

3,425,000

 

 

 

2,025,000

 

Proceeds from common stock issuance

 

 

500,000

 

 

 

-

 

Repayment of convertible notes payable

 

 

(725,000)

 

 

-

 

Repayment of loans payable

 

 

(38,283)

 

 

(116,899)

 

 

 

 

 

 

 

 

 

Cash provided by financing activities

 

 

3,161,717

 

 

 

1,908,101

 

 

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

2,093,014

 

 

 

732,328

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

 

500,962

 

 

 

108,249

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$2,593,976

 

 

$840,577

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest and income taxes:

 

 

 

 

 

 

 

 

Interest

 

$81,341

 

 

$19,973

 

Income taxes

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

Non-cash financing activities:

 

 

 

 

 

 

 

 

Common stock related to prepaid expense

 

$-

 

 

$1,323,562

 

Warrants granted for discount on convertible promissory notes

 

$-

 

 

$646,127

 

Common stock issued for conversion of promissory notes and accrued interest

 

$5,373,781

 

 

$-

 

Common stock payable for note conversion

 

$528,589

 

 

$-

 

Common issued for settlement of accounts payable

 

$64,520

 

 

$-

 

Beneficial conversion features for convertible promissory notes

 

$801,331

 

 

$-

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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CURE PHARMACEUTICAL HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 20182019

(UNAUDITED)

 

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

 

CureBusiness Operations

CURE Pharmaceutical Holding CorpCorp., its wholly-owned subsidiaries, CURE Pharmaceutical Corporation (“CURE Pharmaceutical”) and its 63% majority owned subsidiary Oak Therapeutics, Inc. (“Oak”) (collectively (the “Company”“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:

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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 CureCURE Pharmaceutical Holding Corp.

  

On November 7, 2016, the Company, in a reverse take-over transaction, acquired CureCURE Pharmaceutical Corporation (“CureCURE 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 CureCURE Pharmaceutical, a California corporation, all of the shareholders of CureCURE Pharmaceutical’s issued and outstanding share capital (the “Cure“CURE Pharm Shareholders”) and the holders of certain convertible promissory notes of CureCURE Pharmaceutical (“CureCURE Pharm Noteholders”), on the other hand. Hereinafter, this share exchange transaction is described as the “Share Exchange.” As a result of the Share Exchange, CureCURE Pharmaceutical became a wholly owned subsidiary of the Company, and the CureCURE Pharm Shareholders and CureCURE Pharm Noteholders became the controlling shareholders of the Company.

 

For accounting purposes, CureCURE Pharmaceutical shall bewas the surviving entity. The transaction iswas accounted for using the reverse acquisition method of accounting. As a result of the recapitalization and change in control, CureCURE Pharmaceutical iswas 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 madelicensed our technology available to a private company, Oak Therapeutics (“Oak”), that isto develop products for sale in the developing novel drug formulations for patients in developing nationsworld (“Territory”). On November 10, 2017, we received 269,000 shares of Oak as consideration for an exclusive license to our patentspatent 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 ownowned 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 has completed a Phase I Small Business Innovative Research Contract (“SBIR”) fromunder the National Institutes of Healthlicense agreement, on April 15, 2019, we terminated all contractual relationships with Oak, including the license and surrendered our Oak shares to develop a formulation for 300mg of IsoniazidOak. Further information can be found 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 15 – SUBSEQUENT EVENTS.

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

PrincipalBasis 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, 2018,2019, and the results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 20182019 and 2017,2018, 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, 20172018 filed with the Securities and Exchange Commission (the “SEC”) on March 26, 2018.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.

 

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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, 20182019 and December 31, 2017,2018, the Company had no cash equivalents. At March 31, 20182019 and December 31, 2017,2018, 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.

 

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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, 2018,2019, 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

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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

 

Long-lived assets include equipment and intangible assets other than those with indefinite lives. We assess the carrying valuereview all of our long-lived asset groups whenassets for impairment indicators ofthroughout the year and perform detailed testing whenever impairment exist and recognize anindicators are present. In addition, we perform detailed 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.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.

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

Management determined that no impairment on our long-lived assets during the three months endedindicators were present and that no impairment charges were necessary as of March 31, 2018 and for the year ended2019 or December 31, 2017.

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2018.

 

Revenue Recognition

 

We recognize revenue in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue Recognition,” when there is persuasive evidence that an arrangement exists, titleRecognition”. The Company adopted Topic 606 using a modified retrospective approach for the years ended December 31, 2017 and risk of loss have passed, deliveryprior and has occurred,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 services have been rendered, the sales price is fixed or determinablefacts and collectioncircumstances of the related receivable is reasonably assured. Titlearrangement, and riskwill be evaluated using a five-step model. The adoption of loss generally pass to our customers upon shipment. In limited circumstances where either title or riskTopic 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 loss pass upon destination or acceptance or when collection is not reasonably assured,Topic 606, we defer revenue recognition until such events occur. 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 consulting researchformulation and product development income include services for the development of OTF products utilizing our CureFilm™ Technology. Most of ourOur 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 revenuerevenues of $396,484. At December 31, 2017, we had deferred revenue of $361,462.$311,275 and $383,275, respectively.

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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 incurrecord advertising costs for the three months periodperiods ended March 31, 2019 and 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$360,870 and $219,620$426,529 for the three monthmonths periods ended March 31, 2019 and 2018, and 2017, respectively.

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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.

 

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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, 20182019 and December 31, 2017,2018, 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 adopted the provisions offollows FASB ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), which definesfor assets and liabilities measured at fair value as used in numerouson a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting pronouncements,principles that require the use of fair value measurements and establishes a framework for measuring fair value and expands disclosure ofabout 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 of certain financialfor these instruments including cash and cash equivalents are carried at historical cost basis, which approximates their fair values becauseas management believes that such notes constitute substantially all of the short-term nature of these instruments.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)

 

 
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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 lossNet Loss per shareCommon Share

 

Basic net loss per common 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.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 computed by dividing the net lossadjusted for the period bydilutive effect of the weighted averagechange in fair value liability for price adjustable warrants, if applicable.

The following 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.net income (loss) since such inclusion would be 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

 

 

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 Company’saccompanying condensed consolidated financial statements arehave been prepared using U.S. GAAP applicable toon the basis that we will continue as a going concern, which contemplates the realization of assets and liquidationthe satisfaction of liabilities in the normal course of business. The CompanyAt March 31, 2019, we had ana significant accumulated deficit at March 31, 2018 of $20,770,435. The Company hadapproximately $39.3 million and a negative working deficitcapital of $3,292,165 asapproximately $1.8 million. Our operating activities consume the majority 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.our cash resources. We expectanticipate that we will continue to generate losses from operations throughout 2018.

Historically, the Company has hadincur 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, which cast significant doubt uponat least into the Company’s abilitynear future. We have previously funded, and plan to continue asfunding, 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 going concern. The Companylesser extent, equipment financing facilities and secured loans. However, we cannot be certain that we will needbe able to raise capital in orderobtain such funds required for our operations at terms acceptable 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.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 $6,000,000$8,000,000 to $8,000,000$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.

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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 ofaccompanying consolidated financial statements with more decision-useful information. This ASU is effective fordo 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 in the first quarter of 2018. Early adoption is not permitted except for limited provisions. The Company does not expect the adoption of this amendmentbe unable 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.going concern.

 

 
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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 will bebecame effective for the Company on January 1, 2018; however, early adoption is permitted with prospective application to any business development transaction.2018. There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and aredid not expected to a 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 arebecame effective for the Company in the first quarter of 2018, with early adoption permitted.2018. The adoption of ASU 2017-09 did not have an impact on the Company’s condensed consolidated financial statements.

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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, 20182019 and December 31, 2017:2018:

 

 

March 31,

2018

 

 

December 31,

2017

 

 

March 31,

2019

 

 

December 31,

2018

 

Raw materials

 

$68,722

 

$67,664

 

 

$27,094

 

$25,297

 

Packaging components

 

18,454

 

17,546

 

 

7,687

 

7,687

 

Work-in-process

 

 

23,920

 

 

 

829

 

 

 

8,162

 

 

 

8,162

 

 

111,096

 

86,039

 

 

 

42,943

 

 

 

41,146

 

Reserve for obsolescence

 

 

(41,109)

 

 

(41,043)

 

(3,142)

 

(3,370)

Total inventory

 

$69,987

 

 

$44,996

 

 

$39,801

 

 

$37,776

 

 

NOTE 4 - PREPAID EXPENSES AND OTHER ASSETS

 

As of March 31, 20182019 and December 31, 2017,2018, prepaid expenses and other assets consisted of the following:

 

 

March 31,

2018

 

 

December 31,

2017

 

 

March 31,

2019

 

 

December 31,

2018

 

 

 

 

 

 

 

 

 

 

 

Prepaid consulting services– stock-based compensation

 

$1,323,562

 

$258,918

 

 

$897,313

 

$935,883

 

Prepaid consulting services

 

152,640

 

116,167

 

 

73,667

 

82,167

 

Prepaid clinical study

 

-

 

110,538

 

Prepaid insurance

 

43,767

 

60,180

 

 

87,911

 

120,877

 

Other receivables

 

5,858

 

5,858

 

 

2,666

 

2,666

 

Prepaid inventory

 

30,744

 

12,182

 

Prepaid expenses

 

 

36,148

 

 

 

23,045

 

 

37,200

 

37,200

 

Prepaid expenses and other assets

 

$1,592,719

 

 

$586,888

 

 

 

1,098,757

 

 

 

1,178,793

 

Current portion of prepaid expenses and other assets

 

 

(986,589)

 

 

-

 

 

 

(965,641)

 

 

(946,386)

Prepaid expenses and other assets less current portion

 

 

606,130

 

 

 

586,888

 

 

$133,116

 

 

$232,407

 

 

 
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NOTE 5 - PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS

 

As of March 31, 20182019 and December 31, 2017,2018, property and equipment and intangible assets consisted of the following:

 

 

March 31,

2018

 

 

December 31,

2017

 

 

March 31,

2019

 

 

December 31,

2018

 

 

 

 

 

 

 

 

 

 

 

Manufacturing equipment

 

$797,513

 

$797,513

 

 

$857,612

 

$841,098

 

Computer and other equipment

 

185,048

 

169,499

 

 

186,655

 

183,346

 

Leasehold improvements

 

42,666

 

42,666

 

 

 

51,788

 

 

 

48,488

 

Less accumulated depreciation

 

 

(696,372)

 

 

(672,317)

 

 

(799,230)

 

 

(773,022)

Property and Equipment, net

 

$328,855

 

 

$337,361

 

 

$296,825

 

 

$299,910

 

 

DepreciationFor 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, 20182019 and 2017 was $24,055 and $37,437,2018, 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

 

NOTE 6 - INTANGIBLE ASSETS

 

The Company incurred $6,638$21,180 and $49,480$6,638 of legal patent costs that were capitalized during the three months periodperiods ended March 31, 2019 and 2018, and forrespectively. In addition, the year ended December 31, 2017, respectively. Amortization expenseCompany did not purchase any patents through issuance of common stock shares of the Company for the three months period ended March 31, 2018 and2019. 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, 20172019 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 $10,821,2018, 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.

2019

 

$43,950

 

2020

 

 

58,600

 

2021

 

 

58,600

 

2022

 

 

58,600

 

2023

 

 

58,600

 

Thereafter

 

 

662,196

 

Total Amortization

 

$940,546

 

 

 
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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, 20182019 and December 31, 2017:2018:

 

 

March 31,

2018

 

 

December 31,

2017

 

 

March 31,

2019

 

 

December 31,

2018

 

 

 

 

 

 

 

 

 

 

 

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 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

 

 

 

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

 

800,000

 

 

700,000

 

950,000

 

 

 

 

 

 

 

 

 

 

 

Unamortized discount

 

(625)

 

(30,000)

Current portion of loan payable

 

 

(700,000)

 

 

(800,000)

 

 

(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 2017 was $19,027, and $0, respectivelyrespectively.

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NOTE 89 – CONVERTIBLE PROMISSORY NOTES

 

Convertible promissory notes consist of the following at March 31, 20182019 and December 31, 2017:2018:

 

 

 

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

 

$-

 

 

$-

 

 

 

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

 

 

 
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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

 

$-

 

 

$-

 

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As ofDuring the three month periods ended March 31, 2018, there were eight convertible promissory notes (“Notes”) totaling $1,700,000 that were in default. On April 15,2019 and 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, 2018incurred $458,899 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 month periods ended March 31, 2019 and 2018 was $72,813 and 2017 was $111,008 and 0, respectively$303,174, respectively. 

 

NOTE 910 – 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:

 

 

 

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)

 

 

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 20182019 were as follows:

 

March 31,

2018

Significant assumptions (weighted-average):assumptions:

 

 

 

Risk-free interest rate at grant date

 

 

2.562.23%

Expected stock price volatility

 

 

126.00138.42%

Expected dividend payout

 

 

-

 

Expected option life (in years)

 

 

1

 

Expected forfeiture rate

 

 

0%

 

The following istable presents a reconciliation of the derivative liability for 2018:measured at fair value on a recurring basis from December 31, 2017 to March 31, 2019:

 

 

March 31,

2018

 

Value at December 31, 2017

 

$

90,738

 

Decrease in value

 

(24,777

)

Value at March 31, 2018

 

$

65,961

 

 

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.

 

 
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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.

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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 1012 – WARRANT AGREEMENTS

 

On January 24, 2018,February 13, 2019, the Company issued an additional 55,000657,655 warrants at a fair market value of $50,094$1,792,965 and with an exercise price of $1.00$2.31 per share in connection with issuancethe conversion of $1,800,000$1,325,000 convertible promissory notesnotes.

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 2017connection 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 amended on January 24, 2018 to extendwith an exercise price of $2.00 per share in connection with the maturity date to March 31, 2018.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.

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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

 

 

Warrants

 

 

Weighted Average

Exercise Price

 

 

Weighted Average Contractual Remaining Life

 

Outstanding, December 31, 2017

 

4,752,107

 

2.90

 

4.98

 

Outstanding, December 31, 2018

 

5,340,751

 

2.20

 

3.80

 

Granted

 

55,000

 

1.00

 

2.31

 

 

1,365,510

 

2.24

 

3.33

 

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

 

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

 

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

 

$

1.00 – $7.00

 

6,706,261

 

2.08

 

$

2.01

 

5,682,261

 

$

2.01

 

 

4,807,107

 

 

 

2.64

 

 

$2.06

 

 

 

3,271,107

 

 

$2.09

 

 

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, 20182019 and year ended December 31, 2017,2018, 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,

2018

 

 

December 31,

2017

 

 

March 31,

2019

 

 

December 31,

2018

 

Significant assumptions (weighted-average):

 

 

 

 

 

 

 

 

 

 

Risk-free interest rate at grant date

 

2.56%

 

2.20%

 

2.23%

 

2.51%

Expected stock price volatility

 

126.00%

 

75.43%

 

138.42%

 

156.15%

Expected dividend payout

 

-

 

-

 

 

-

 

-

 

Expected option life (in years)

 

3

 

3

 

 

3

 

3

 

Expected forfeiture rate

 

0%

 

0%

 

0%

 

0%

 

 
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NOTE 1113 – 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, 2018,1, 2019, the Company issued 50,00013,827 common stock shares at $1.48$2.26 per share for investor relations consulting services to be performed over a one yearsix-month period. The total value of this issuance was $74,000$31,249 and as of March 31, 2018, $42,9452019, $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.

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Table of Contents

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.

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Stock Payable

 

On February 20, 2018,January 4, 2019, the Company entered into a Consulting Agreement (“Agreement”) with an individual (“Consultant”) to provide strategic marketing and development advisory services. In consideration forindividual. Per the Consultant’s services provided,terms of the Agreement, the Company shall grant 250,000 restrictedis to issue 45,000 common stock shares at $1.10 price per share over a six month period, where 250,000 restricted common stock shares vesting immediately. Asof the Company did not issuefor providing investor relations services. As of our filing of our Form 10-Q for the 250,000 restricted common stock shares before the three monthsquarterly period ended March 31, 2018,2019, the Companycompany has not yet issued these common stock shares and has recorded a stock payable of $275,000.$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, 2018, $215,7462019, $185,450 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’sour filing of itsour Form 10-Q for the three monthsquarterly period ended March 31, 2018,2019, the Companycompany has not yet issued these restricted common stock shares. Thus, the Companyshares and has recorded a stock payable of $970,000. As of March 31, 2018, $930,720 is included in prepaid expenses and other assets.$226,800.

 

NOTE 1214 - 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 iswas requesting relief in this matter for a one halfone-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,On February 13, 2019, the Company cannot determine whether thereand 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 a reasonable possibility that a loss willto be incurred nor can it estimatepaid to the range of any such potential loss. Accordingly,Applicant’s attorney. On February 20, 2019, the Company has not accruedreceived an amount for any potential loss associatedOrder Approving Compromise and Release of WCAB Case No: ADJ 10686812 based on the Agreement entered into with this action.the Company and the Applicant.

 

 
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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 monthmonths periods ended March 31, 2019 and 2018 was $63,028 and 2017 was $74,178, and $72,400, respectively.

 

NOTE 1315 – SUBSEQUENT EVENTS

 

On April 2, 2018 (the “Effective Date”),8, 2019, the Company entered into a patent purchase agreement (“Agreement”Securities Purchase Agreement (the “SPA”) 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 considerationaccredited investor for the assignmentpurchase of 150,000 shares of common stock of the Assigned Patents and other rights under the Agreement, the Company shall issue to Assignor shares(the “Shares” or “Securities”) at $3.30 per share (the “Share Price”) for a total purchase price 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”).$495,000. As of the date of the Company’sour filing of itsour Form 10-Q for the quarterly period ended March 31, 2018,2019, the Companycompany has not yet issued these Shares.common stock shares.

 

TheOn April 9, 2019, the Company has previously adopted and maintainsentered into a Securities Purchase Agreement (the “SPA”) with an accredited investor for the CURE Pharmaceutical Holding Corp. 2017 Equity Incentive Plan (the “Plan”), pursuant to which an aggregatepurchase of 5,000,000100,000 shares of the common stock of the Company remain available(the “Shares” or “Securities”) at $3.30 per share (the “Share Price”) for grant asa total purchase price of $330,000. As of our filing of our Form 10-Q for the quarterly period ended March 31, 2018. The Board of Directors have determined that it is in2019, the best interests ofcompany has not yet issued these common stock shares.

On April 12, 2019, the Company and its stockholders to provideentered into a Securities Purchase Agreement (the “SPA”) with an additional incentiveaccredited investor for certain employees, including executive officers, and non-employee membersthe purchase of the Board15,152 shares 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”(the “Shares” or “Securities”) and 804,000 Incentive Stock Options (“ISO”at $3.30 per share (the “Share Price”) to employees, including executive officers, non-employee membersfor a total purchase price of the Board$50,000. As of Directorsour filing of the Company, members of the Advisory Board Committee and consultants at a $0.74 price per share. Vesting periodour Form 10-Q for the awarded RCS, NSO and ISO’s range from immediate to quarterly over a 4 year period. For NSO’s and ISO awarded,period ended March 31, 2019, the term to exercise their NSO or ISO is 10 years.company has not yet issued these common stock shares.

 

On April 15, 2018,2019, the Company amended six convertible promissory notes totaling $1,100,000 to extendentered into a Securities Purchase Agreement (the “SPA”) with an accredited investor for the maturity dates to May 31, 2018. For extending the maturity date, the Company granted an additional 275,000 warrants to 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 striketotal purchase price of $1.00 per share. In addition,$200,000. As of our filing of our Form 10-Q for the Company extendedquarterly period ended March 31, 2019, 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 ofcompany has not yet issued these convertible promissory notes totaling $250,000.common stock shares.

 

On April 24, 2018,15, 2019, the Company received in total $500,000 (“Investment Amount”entered into a Securities Purchase Agreement (the “SPA”) 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, atwith an accredited investor for the electionpurchase of the Investor, the entire then outstanding Investment Amount shall be converted into that number of15,152 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(the “Shares” or “Securities”) at $3.30 per share (the “Share Price”) for trading) overa total purchase price of $50,000. As of our filing of our Form 10-Q for the thirty (30) consecutive trading days priorquarterly 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 delivery of the notice of conversionCompany 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 the InvestorOak 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 timeto Oak were terminated, including all licenses or rights of such conversion, at a price per share equal to 75% of the fair market value of such Common Stock as shall be determinedany kind granted 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.Company.

 

On April 30, 2018,17, 2019, the Company paid $10,000entered into a Securities Purchase Agreement (the “SPA”) with an accredited investor for a Convertible Promissory Note (“Note”) from Oak Therapeutics, Inc. (“Oak”), a subsidiarythe purchase of 127,273 shares of common stock of the Company that is due April 30, 2019. The Note shall accrue interest(the “Shares” or “Securities”) at 9%$3.30 per annum and is unsecured. The entire outstanding Note balance and any unpaid accrued interest can be converted intoshare (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 of Oak at price per share of $0.52.shares.

 

 
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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)

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

 

Statements made in this Form 10-Q that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 (the “Act”) and Section 21E of the Securities Exchange Act of 1934. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

 

BUSINESS

 

CURE Pharmaceutical Holding Corp. (the “Company”) wasOverview

We are a biopharmaceutical company focusing on the development and manufacturing of drug formulation and drug delivery technologies in novel dosage forms to improve drug safety, efficacy and patient adherence. Our mission 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 in a 25,000 square foot cGMP manufacturing plant in Oxnard, CA.

We were incorporated in the State of Nevada on May 15, 2014. The Company was formerly named Makkanotti Group Corp. which was formed to engage in the business of manufacturing food paper bags in Nicosia, Cyprus.

On November 7, 2016, the board of directors and the majority stockholder of the then outstanding shares of registrant’s common stock executed a written consent to change registrant’s name from Makkanotti Group Corp. to CURE Pharmaceutical Holding Corp. The Certificate of Amendment to Articles of Incorporation was filed with the State of Nevada on November 30, 2016.

 

Further, on November 7, 2016, the registrant,we, in a reverse take-over transaction, acquired 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 registrantus and a holder of a majority of theour issued and outstanding capital stock of the registrant prior to the closing (the “Majority Stockholder”), on the one hand, and CURE Pharmaceutical, Corporation, a California corporation (“CURE Pharmaceutical”), 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.”

 

The following is a brief description of the terms and conditions of the Exchange Agreement and the transactions contemplated thereunder that are material to the registrant:

·

Share Exchange and Share Cancellations. The registrant shall issue 9,010,000 restricted shares of its common stock, $0.001 par value per share (“Common Stock”), to the CURE Pharm Shareholders in the aggregate, in exchange for 2,718,253 shares of CURE Pharmaceutical’s common stock held by them, representing 100% of the then issued and outstanding common stock of CURE Pharmaceutical (the “Share Exchange”). In connection with the Share Exchange, the Majority Stockholder agreed to cancel 16,181,400 shares of Common Stock of the registrant in exchange for a warrant (the “Majority Stockholder Warrant”) to purchase up to 1,640,305 shares of Common Stock of the registrant at an exercise price of $2.00 per share and with an exercise period of four years commencing on the date of issuance of the warrant. In addition, one other shareholder of the registrant entered into a share cancellation agreement with the registrant whereby such shareholder agreed to cancel 652,390 shares of the registrant’s common stock at the closing of the Share Exchange in order to induce CURE Pharmaceutical to enter into the Exchange Agreement.

·

Conversion. The registrant issued 6,106,463 restricted shares of Common Stock to the CURE Pharm Noteholders in the aggregate, by converting the convertible promissory notes of CURE Pharmaceutical held by the CURE Pharm Noteholders in the aggregate principal amount of $6,106,463, at a conversion price of $1.00 per share.

·

Change in Management. Michael Hlavsa, the registrant’s sole director and executive officer immediately prior to the closing of the Exchange Agreement, resigned, and Robert Davidson, William Yuan and Charles Berman were appointed to the registrant’s board of directors (the “Board”). Robert Davidson, Edward Maliski, Wayne Nasby and Mark Udell were appointed as the new chief executive officer, president and chief scientific officer, chief operating officer, and chief financial officer and secretary, respectively, effective at the closing of the Exchange Agreement. Additional information regarding the above-mentioned directors and executive officers is set forth below in Item 2.01 and Item 5.02.

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As a result of the Share Exchange, CURE Pharmaceutical became a wholly owned subsidiary of the registrant,Company, and the CURE Pharm Shareholders and CURE Pharm Noteholders became theour controlling shareholders owning, at such time, approximately 65% of our issued and outstanding common stock. For accounting purposes, CURE Pharmaceutical was the registrant.

The closing of the transactions contemplated under the Exchange Agreement (the “Closing”) took place on November 7, 2016 (the “Closing Date”).surviving entity. As a result of the registrant hadrecapitalization and change in control, CURE Pharmaceutical was deemed to be the accounting acquirer in accordance with ASC 805, Business Combinations.

Nature of Business

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 totalpostage stamp and composed of 23,266,733 sharesexcipients 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, or GI, tract 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 common stock issuedthe cheek and outstanding atlip (buccal).

We currently have two commercial products and several development programs underway:

CURE 3068 (CUREfilm Sleep – Commercially Launched)

This is a melatonin-containing sleep aid CUREfilm ODF that is manufactured and sold as a dietary supplement under the Closing Date,brand name “ID Life Sleep Strips”. Our non-exclusive distributor is ID Life, a health and wellness company focused on customized nutrition and selling within the United States. We completed a purchase order with ID Life for approximately 3,200,000 units of product in 2018 and we are seeking additional distributors.

CURE 5079 (CUREfilm Sleep – Commercially Launched)

This novel sleep aid containing a dietary cannabinoid CUREfilm ODF was launched Q3 2018 by Incubrands under the brand name “Sleep Stripzzz”. The distribution rights were exclusive through the end of 2018. A purchase order was placed on February 22, 2018 and we are seeking additional distributors.

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CURE 5003 (CUREfilm Blue)

We are developing a sildenafil CUREfilm ODF for oral administration. The product, which will be launched for the treatment of erectile disorder, is in early stage clinical development with human studies planned in 2019. We completed a pre-IND meeting with the FDA on March 21, 2019.

CURE Pharm Shareholders5067 (CUREfilm D)

We are developing a 50,000IU, once per week, Vitamin D3 CUREfilm ODF for oral administration. On February 18, 2017, we entered into an exclusive 5-year license and Noteholders collectively owning approximately 64.97%distribution agreement with Meroven Limited in the MENA region: Iraq, Saudi Arabia, Yemen, Syria, UAE, Jordan, Palestine, Lebanon, Oman, Kuwait, Qatar, Bahrain, Sudan, Egypt, Tunisia, Morocco, Algeria and Africa. On April 30, 2019, we entered into a supply agreement with Meroven Limited for this product for distribution in the United States. The product is currently in the optimization development stage.

CURE 5210 (CUREfilm Beta-Caryophyllene)

We are developing a dietary cannabinoid ODF using food grade beta-caryophyllene to target the CB2 receptor. We are in early feasibility stages of development of this product and have not yet signed with a distribution partner.

CURE 5200

We are developing a novel CUREfilm ODF substrate with an undisclosed partner. On June 4, 2018, we entered into a development agreement with an undisclosed partner for product development feasibility of CURE 5200. In order to protect CURE’s and our partner’s competitive advantage, no details of the registrant’s issuedproduct have been disclosed at this stage.

CURE 5209

We are developing a CUREfilm ODF for mood enhancement as a dietary supplement. On May 30, 2018, we entered into a development agreement with an undisclosed partner for product development feasibility of CURE 5209. In order to protect CURE’s and outstanding Common Stock.our partner’s competitive advantage, no further details of the product have been disclosed at this stage.

 

CURE Pharmaceutical Corporation

 

Our wholly owned subsidiary and operating business, CURE Pharmaceutical Corporation, located in Oxnard, California was originally incorporated in July 2011 to develop novel drug formulation and delivery technologies.

 

The pharmaceutical industry is facing ever-growing R&D expenditureexpenditures and fewer new drug approvals as a result of increasing regulation, a failure to predict safety problems or a lack of efficacy early in a drug’s development, and high investment in new technologies to improve the speed and accuracy of drug development. Researching and developing new molecular entities (NMEs) is risky as measured by an ever-increasing R&D spend (13.4% average increase per year), low clinical trial success rate (10%) and sluggish NME drug approvals – with 55 NMEs approved in 2018. Faced with these challenges, drug developers are looking toward alternative dosage forms, for which R&D investments dwarves those of NMEs. Alternative dosage forms can address safety and efficacy limitations observed during clinical development of an NME using conventional formulations, by improving its pharmacokinetic profile.

In addition to these challenges, to the industry’s operators, many leadingmarketed drugs are coming off-patent, creating a need to fill revenue gaps. Novel dosage forms can offer strategies for surviving patent cliffs by extending market exclusivity when they address a bona fide unmet need.

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The pharmaceutical industry is also challenged by the many patients who do not adhere to a regime of prescription drugs because of side effects, difficulty in administration or the taste of a drug. According to HealthPrize and Capgemini, the loss of global revenues by drug makers due to non-adherence to medicines is $630 billion every year and according to a recent paper published in The Annals of Pharmacotherapy titled "Cost of Prescription Drug-Related Morbidity and Mortality" the estimated annual cost of prescription drug-related morbidity and mortality resulting from nonoptimized medication therapy was $528.4 billion in 2016 US dollars and about 275,689 deaths per year. Medication adherence and the patient experience can be improved with strategies such as replacing an injectable drug with a sublingual drug, simplifying the dosing schedule with a sustained release dosage form and reducing toxicities by avoiding the GI tract (e.g. through transdermal or transmucosal delivery).

 

Improved formulations can address these many challenges by cutting down development costs, reducing the time to market, extending product patent protection, improving patient compliance and increasing drug efficacy. For example, reformulation can enable drug repositioning, the process of finding new uses for failed drugs, such as those abandoned for lack of efficacy or excessive toxicity after Phase II trials, or marketed drugs for which new uses will extend patent life and, therefore, profitability.

 

The FDA approves more reformulations than new chemical entities (NCEs) each year under Section (505)(b)(2) of the Food, Drug, and Cosmetic Act, (“505(b)(2)”) the FDA. The number of 2017 NDA approvals that used the 505(b)(2) regulatory pathway rose dramatically from 45 approvals in each of the last two years to an all-time high of 63 in 2017. Under Section (505)(b)(2), the FDA may grant market exclusivity for a term of up to three years of exclusivity following approval of a listed drug that contains previously approved active ingredients but is approved in a new dosage, dosage form, route of administration or indication for use. Taken together, the exclusivity period of a drug and the lower R&D cost for reformulating a drug, have led to some pharmaceutical companies taking a keen interest ininvestigating reformulating their drugs as part of their lifecycle management protocols.

   

The veterinary industry, which is under pressure to acquire new products and revenue streams, will benefit from similar formulation-focused commercial strategies, addressing a significant need for improved ease of administration by animal caregivers and handlers.

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Our Product

CureFilm™ Technology and Value Proposition

Typical forms of drug delivery that consumers have been familiar with over the years, include tablets, capsules, chewables, gummies, and more recent developments, such as melts and sublingual drops and sprays. We believe that we are one of the companies at the forefront of OTF drug delivery technology. Our OTF product is about the size of a postage stamp using a matrix that maximizes the amount of “active” drug that can be delivered via OTF.

Our CureFilm™ Technology consists of patented, patent pending and trade secrets in two areas: OTF – Core Technology, Sublingual Technology and Transdermal (skin) Technology.

Our proprietary multi-layer CureFilm™ allows dosages of many pharmaceutical, OTC and nutraceutical products to be put onto a small strip applied to the cheek (buccal), or under the tongue (sublingual). We believe that what sets us apart from the competition is our proprietary patented CureFilm™ Technology, multi-layer systems and formulation technologies that:

·

Consists of two components - a liquid-based film layer that contains and stabilizes the active ingredients, and a powder matrix layer.

·

Provides improved stability as well as delivery of active ingredients.

·

Contains functional qualities to include extra flavoring ingredients, pliability enhancers, and mucosal permeation enhancers.

In a two-layer strip, the layers are designed to work together, in combination with the powder composition. The powder composition can be varied, as can the muco-adhesion properties of the strips, to alter the dissolution and absorption rates of the medicament. A complete multilayer system allows for increased stability, higher loading of active ingredients, and increased taste and palatability.

Another recent advancement in our CureFilm™ Technology utilizes micro-encapsulation of selected active ingredients. In the micro-encapsulation process, microscopic particles or droplets envelop the active ingredients to protect and shield them. The technique used in the micro-encapsulation process depends on various factors including the physical and chemical properties of the active ingredients. This micro-encapsulation technology has allowed the delivery of higher dosing with better flavor masking.

We have various types of CureFilm™ dietary supplement products that are being commercialized and developed. These include:

Commercialized:

·

MacuStrip Vitamin complex (eye health product)

·

ID Life Sleep melatonin

·

Electrolyte (Adult and Pediatric)

·

E6 Berry Caffeine

·

Hang-Over Relief

In Development:

·

Aspirin

·

Loratadine

·

Tadalifil

·

Sildenafil

·

Loperamide

·

Vitamin B12

·

Vitamin D3

·

Folic Acid

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Clinical Development

We partner with pharmaceutical companies looking for new methods to deliver drug actives. Under Section (505)(b)(2) of the Food, Drug, and Cosmetic Act, (“(505)(b)(2)”) the FDA may grant market exclusivity for a term of up to three years of exclusivity following approval of a listed drug that contains previously approved active ingredients but is approved in a new dosage, dosage form, route of administration or combination. The 505(b)(2) pathway is also the regulatory approach to be followed if an applicant intends to file an application for a product containing a drug that is already approved by the FDA for a certain indication and for which the applicant is seeking approval for a new indication or for a new use, the approval of which is required to be supported by new clinical trials, other than bioavailability studies. We have implemented a strategy under which we actively look for such so-called “repurposing opportunities” and determine whether our proprietary CureFilm™ Technology adds value to the product.

We currently have five such drug repurposing projects in our development pipeline, although there can be no assurance that such projects will be fully developed. The companies we partner with are typically responsible for managing the regulatory approval process of the product with the FDA and/or other regulatory bodies, as well as for the marketing and distribution of the products. On a case-by-case basis, we may be responsible for providing all or part of the documentation required for the regulatory submission.

In addition to pursuing partnering arrangements that provide for the full funding of a drug development project, we may undertake development of selected product opportunities until the marketing and distribution stage. We would first assess the potential and associated costs for successful development of a product, and then determine at which stage it would be most prudent to seek a partner, balancing costs against the potential for higher returns later in the development process. We currently have five of such potential drug candidates in our product pipeline, all of which are in the formulation development and pre-clinical phase of development. However, there can be no assurance that we will be able to fully develop, market and distribute OTF products for these drug candidates.

Business Strategy

 

Our commercial strategy is designed to mitigate risk by pursuing a diversified model.model in the following categories:

 

1.

Nutraceuticals. We manufacture select nutraceuticals that complement our portfolio and align with our mission, in partnership with distributors. This approach provides us with short term revenue opportunities.

2.

Pharmaceuticals. We partner with companies that are responsible for clinical development and regulatory approval with the FDA and/or other regulatory bodies, as well as for the marketing and distribution of the products. On a case-by-case basis, we may be responsible for providing all or part of the documentation required for regulatory submissions and for conducting the preclinical testing of our products. Deal terms may include upfront licensing fees, development costs, milestone payments and exclusive manufacturing rights. Within this category, we are further diversifying risk and return by pursuing product life cycle opportunities (e.g. Sildenafil CUREfilm) as well as investigational drugs (e.g. PEA & Dronabinol combination CUREfilm).

Pharmaceuticals

We partner with companies that are responsible for marketing and distribution of the products we develop and manufacture. On a case-by-case basis, we may be responsible for clinical development and regulatory approval with the FDA and/or other regulatory bodies. Deal terms may include upfront licensing fees, development costs, milestone payments, royalties and exclusive manufacturing rights. Within this category, we are pursuing products with 505(b)(2) approval pathways such as our Sildenafil ODF – CUREfilm Blue. While we currently manufacture nutraceutical products in our state-of-the-art cGMP oral dissolving film manufacturing facility, we are undertaking steps to manufacture pharmaceutical products for commercial use.

3.

Cannabinoids. We are specifically investing in pharmaceutical-grade cannabinoid products, such as tetrahydrocannabinol (THC) and cannabidiol (CBD). The oral bioavailability of cannabinoids is very low due to extensive “first-pass” metabolism. Consequently, potency and release times are unpredictable and inconsistent. Moreover, cannabinoids don’t readily dissolve in water which adds to dosing difficulties and discrepancies. In addition to improving bioavailability, CUREfilm enables the loading of combinations of cannabinoids and other plant extracts that, together, provide maximum therapeutic benefit. We are investing in preclinical cannabinoid research at the Technion – Israel Institute of Technology, where the laboratory of Dr. Dedi Meiri is identifying specific combinations of cannabinoids with anti-tumor effects. We are undertaking steps to research scheduled drugs at our Oxnard facility.

4.

Underserved patient populations. 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.

 

 
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Product Portfolio and PipelineCannabinoids

 

We are sellingspecifically investing in pharmaceutical-grade cannabinoid products, such as tetrahydrocannabinol (THC) and cannabidiol (CBD). The oral bioavailability of cannabinoids is very low due to extensive “first-pass” metabolism. Consequently, potency and release times are unpredictable and inconsistent. Moreover, cannabinoids do not readily dissolve in water which adds to dosing difficulties and discrepancies. In addition to improving bioavailability, CUREfilm dietary supplementsenables the loading of combinations of cannabinoids and developing CUREfilm prescriptionbotanical extracts which may provide maximum therapeutic benefit. We have a licensing rights agreement with Canopy Growth Corporation (“Canopy”) for the global commercialization of ODFs containing cannabinoids, under which Canopy is granted non-exclusive in the United States and OTC pharmaceutical drugs. These include:exclusive rights in the rest of the world excluding Asia. We are sponsoring preclinical cannabinoid research at the Technion – Israel Institute of Technology, where the laboratory of Dr. Dedi Meiri is identifying specific combinations of cannabinoids with anti-tumor effects. We are registered with the Drug Enforcement Agency (DEA) to manufacture schedule 1 controlled substances at the Oxnard facility.

 

Nutraceuticals

Increasingly, patients are encouraged to take part in their own treatments, and a consumer market has been developing midway between the supermarket-based world of consumer goods companies and the scientific, pharmacy-based world of pharmaceutical firms. The front lines of this battle are nutraceutical products that have been proven to help prevent or cure disease. Breakthroughs in functional medicine suggest a number of opportunities for pharmaceutical companies like CURE. Functional medicines focus on the imbalances underlying disease processes (rather than only symptomatic relief) and they rely on molecular nutrition for patient-specific solutions. These types of nutraceuticals can be synergistic with pharmaceutical treatments. We therefore focus on evidence-based nutraceuticals that are differentiated by using proprietary and/or proven active ingredients that we formulate for greater stability, overall quality and increased bioavailability. Nutraceutical products do not require FDA approval but do require following all GMPs. Thus, they are less costly and faster to launch in the marketplace. While manufacturing fees for nutraceuticals have lower margins than prescription drugs, they provide us with short term revenue opportunities.

Technology Platform Expansion

As a drug delivery company, we seek to grow our technological capabilities through internal innovation and acquisitions. On March 31, 2019, we entered into an Agreement and Plan of Merger and Reorganization (the “Marketed:Merger Agreement”) with Chemistry Holdings, Inc., a Delaware corporation (“Chemistry Holdings”) to acquire Chemistry Holdings, with a closing date to complete the transaction on May 13, 2019. Chemistry Holdings is a formulation technology company that is developing innovative delivery systems for nutraceutical, pharmaceutical and other industries. There is an increased demand for solid, chewable or dissolvable products for immediate and controlled-release, oral delivery of active ingredients and particularly poorly soluble active pharmaceutical ingredients. However, such dosage forms can pose challenges such as (i) stability of the active ingredient, (ii) overall integrity and shelf life of the product, and (iii) palatability. Chemistry Holdings is developing a novel biopolymer technology for both liquid encapsulation and microencapsulation of dry powders, which are designed to improve the stability and solubility of active ingredients. Encapsulated active ingredients can then be formulated in various final dosage forms including oral thin film. This technology extends our technology platform beyond oral soluble films, to chewables and fast dissolving tablets along with micro- and nano-encapsulation methods. Further information can be found in NOTE 15 – SUBSEQUENT EVENTS.

Underserved Patient Populations

On November 10, 2017, we received 269,000 shares of Oak Therapeutics as consideration for an exclusive license to certain patents rights and trademarks of CURE for the commercialization of products in developing nations as defined in the 2013 International Statistics Institute. 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. 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 exclusive license and we surrendered our Oak shares to Oak. Further information can be found in NOTE 15 – SUBSEQUENT EVENTS.

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CUREfilmTM Technology

The founders of CURE Pharmaceutical are pioneers in drug delivery and ODF, having launched the first therapeutic ODF product, Chloraseptic® relief strips in 2003. ODF products are about the size of a postage stamp and can deliver medicines through the mucosal tissue in the mouth, sublingually or buccally – on the cheek or more traditionally via the GI tract. Oral transmucosal drug delivery is a non-invasive route for drug delivery that allows for absorption directly into the vascularized tissue in the mouth, bypassing the hepatic first pass effect. This leads to reduced drug exposure and can offer a rapid onset of action. As an oral ODF, active ingredients can be either pre-solubilized within the matrix or encapsulated, or both for more effective GI absorption and/or sustained release. The quick dissolution nature of ODF means that no water is required for administration, improving patient compliance - especially among the elderly, children, and in conditions where patients have difficulty in swallowing.

ODFs have significant advantages compared to other dosage forms (e.g., tablets and capsules), including:

Safety and Efficacy

 

 

·

Melatonin-based sleep aid CUREfilmPotential for rapid onset of action which can be especially useful for indications such as motion sickness, erectile dysfunction, seizures, allergic attack or coughing, bronchitis or asthma.

·

Potential to extend a drug’s half-life and consequently extending dosage intervals

·

Transmucosal delivery can improve a drug’s safety profile of therapy such as reduced gastric irritation

·

Transmucosal delivery can improve a drug’s efficacy in patients with GI absorption issues.

·

Accuracy in the administered dose can be better assured for each film.

 

Under development:Patient Experience and Medication Adherence

 

 

·

High dose Vitamin D3 (once weekly 50,000 IU)Difficulty swallowing tablets and capsules can be a problem for many individuals and can lead to a variety of adverse events and patient noncompliance with treatment regimens. It is estimated that over 16 million people in the United States have some difficulty swallowing, also known as dysphagia. Studies in adults evaluating the effect of tablet and capsule size on ease of swallowing suggest that increases in size are associated with increases in patient complaints related to swallowing difficulties at tablet sizes greater than approximately 8 mm in diameter. ODFs can readily be taken without the need to swallow or use of water or other beverages.

 

·

SildenafilUpon administration, there is a relatively low risk of the patient choking which can be most beneficial for patients suffering from motion sickness, dysphagia and repeated emesis.

 

·

PEA & dronabinol combinationEasily administered to bedridden and non-cooperative patients (e.g., geriatric, pediatric, and psychiatric). They are hard to spit out.

 

·

BenzocaineConfigured with physical dimensions such that it is relatively easy and convenient to store and carry. Patients can conveniently carry multiple dissolvable films in his or her pocket or wallet. A single dose of strip can be carried individually without requiring the secondary container.

 

·

Isoniazid (pursued by Oak)ODFs are flexible with a pleasant mouth feel unlike oral dissolvable tablets which are brittle.

 

Research:
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Manufacturing and logistics

 

 

·

High dose electrolytesThe pouches or sachets offer larger printable 2D areas which traditional drug product formats do not. This allows the manufacturer to adapt to rapidly evolving labeling and regulatory requirements for information and anti-counterfeiting, such as product serialization.

 

·

Various activesThe manufacturing process has a low carbon foot print, with lower use of water for veterinary applicationscomponent preparation and sterilization as compared with other dosage forms.

·

Even though not necessarily sterile, each dose unit is packed individually avoiding contact with other units.

·

Tensile strength and plasticity of ODF allow for handling single, individual dose units without damage to the dosage form.

·

Multiple SKUs can be produced by simply modifying the length of the ODF

·

Enables anti-counterfeit management and dose management

·

Adaptable for use with dispensing devices for pharmacy preparation or self-administration

·

Can be easily and conveniently handled, stored, and transported at room temperature

 

The CUREfilm platform is a scalable and versatile formulation and drug delivery system for both oral (ODF) and transdermal (skin) delivery. We believe that CUREfilm formulations can improve or match the pharmacokinetics of drugs in accordance with the desired outcome. The platform is compatible with a broad spectrum of molecules, for the formulation of both investigational and marketed prescription drugs and nutraceutical products.

The specific advantages below are present with multiple CUREfilm products and platform technologies. The advantages listed below are expressly described in CURE’s patent documents. Other advantages are present in specific products and platform technologies but not outlined in the patent documents and kept as trade secrets and proprietary equipment designs. Additional advantages are described in pending and unpublished patent documents.

·

Loading of multiple active ingredients on one dose unit

·

Can accommodate high drug load per dose unit (e.g. > 200 mg)

·

Quickly dissolving/disintegrating (e.g. < 2 minutes)

·

Potential for low moisture level (e.g. < 10 wt.% water)

·

Can achieve desired performance characteristics while maintaining pleasant feeling in the mouth (e.g. soft, plush feeling with pliable film)

·

Can achieve desired performance characteristics while formulating active ingredients susceptible to degradation from low pH environments, light, heat, moisture, and oxygen

·

Multiple and unique ways to mask the bitter, metallic or salty taste of an active ingredient

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Intellectual Property

The competitive advantages of the CUREfilm platform and products over other ODF technology and products are protected by issued and ending patents, as well as trade secrets such as proprietary equipment design and manufacturing processes which allow us to produce CUREfilm products at commercial scale in a cGMP environment. We will be able to protect our technology and products from unauthorized use by third parties only to the extent it is covered by valid and enforceable claims of our patents or is effectively maintained as trade secrets. Patents and other proprietary rights are thus an essential element of our business.

Our success will depend in part on our ability to obtain and maintain proprietary protection for our product candidates, technology, and know-how, to operate without infringing on the proprietary rights of others, and to prevent others from infringing it proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions, and improvements that are important to the development of our business. We also rely on trade secrets, know-how, continuing technological innovation, and in-licensing opportunities to develop and maintain our proprietary position.

We own or have exclusive rights to ten (11) issued patents, eight (8) pending applications in the United States, one (1) pending application in China and one (1) international Patent Cooperation Treaty (“PCT”) patent application. These patents and applications relate, among others, to (1) a method and apparatus for minimizing heat, moisture, and shear damage to medicant incorporated into an edible film, (2) edible films for administration of medicaments to animals, (3) methods for modulating dissolution, bioavailability, bioequivalence, (4) pharmaceutical composition and method of manufacturing, (5) pharmaceutical composition with ionically crosslinked polymer encapsulation of active ingredient, (6) multi-layered high dosage dissolvable film for oral administration, (7) thin films with high load of active ingredient, (8) high dosage dissolvable films for oral administration, (9) methods and composition for improving sleep, (10) oral dissolvable film that includes plant extracts and (10) rapidly disintegrating film matrix for moisture sensitive compounds.

Granted U.S. patents will expire between 2023 and 2035, excluding any patent term extensions that might be available following the grant of marketing authorizations. If issued, pending applications would expire in 2038, excluding any patent term adjustment that might be available following the grant of the patent and any patent term extensions that might be available following the grant of marketing authorizations.

We applied for six (6) trademark and logomark registrations, for which the opposition periods have expired without any opposition being filed.

Competition

 

We face competition from otherpharmaceutical companies, generic drug companies, wellness and nutraceutical companies, as well as organizations developing advanced drug delivery platforms such as Acquestive Therapeutics, BioDelivery Sciences International, IntelGenx, ARx Pharma and LTS Lohmann which have substantially greater financial, technical and human resources than we have. Furthermore, we face competition from these entities as well as universities, governmental agencies and other public and private research organizations for collaborative arrangements with pharmaceutical and biotechnology companies, in recruiting and retaining highly qualified scientific and management personnel and for licenses to additional technologies. Many of our competitors, including Monosol, BioDelivery Sciences International, IntelGenx and LTS Lohmann, have substantially greater financial, technical and human resources than we have. Our success will be based in part on our ability to develop and manufacture products that address unmet medical needs and create value to patients at competitive price points. In addition, continuing to build our intellectual property portfolio and designing innovative approaches that surpass our competitors’ patents will be critical to success.

 

Significant EmployeesEnvironmental Compliance

We currently have no significant employees.

Office

 

Our office located at 1620 Beacon Place, Oxnard, California 93033. Our phone number is (805) 824-0410.

Government Regulation

research and development activities involve the controlled use of hazardous materials and chemicals. We willare subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and specific waste products. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of bio-hazardous materials. The cost of compliance with these laws and regulations could be significant and may adversely affect capital expenditures to the extent we are required to complyprocure expensive capital equipment to meet regulatory requirements. At this time, we believe that we are in compliance with allenvironmental regulations rules and directives of governmental authorities and agencies applicable to our businessresearch and development and manufacturing facility located in any jurisdiction which we would conduct activities. We do not believe that regulation will have a material impact on the way we conduct our business.Oxnard, California.

 

 
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Employees

As of the date of this filing, we have 16 full-time employees. None of our employees are covered by collective bargaining agreements. We consider our relations with our employees to be good.

 

RESULTS OF OPERATIONS

 

Revenues for the Three Months Ended March 31, 20182019 and 2017.2018

 

Revenues for the three months ended March 31, 2018 were $105,0142019 was $74,500 as compared to $31,945$105,014 for the three months ended March 31, 2017.2018. The increasedecrease was principally due to the Company increasedseeing a decrease in orders from ID Life, LLC for Sleep Strips. Revenues earned from ID Life have increased by 152% for the three months ended March 31, 2018 compared to the same period in 2017. In addition,However, the Company experienced an increase in research and development income as the Company successfully completed phases I and II of our research and development agreement with Aveneon Technology Ltd.Canopy Growth Corporation. for the development of a SildenafilCBD OTF and with Isagenix for the development of CURE 5209 during the three months ended March 31, 2018. The Company did not generate this type1st quarter of revenue in the three months ended March 31, 2017.2019.

  

Cost of Goods Sold

 

Cost of goods sold was $59,086$2,584 in the three months ended March 31, 20182019 compared to $35,55059,086 in the three months ended March 31, 2017.2018. Cost of goods sold increaseddecreased by $23,536 in$56,502 during the three months ended March 31, 20182019 compared to the three months ended March 31, 2017, which2018. The decrease was primarily due to the increased sales to ID Life for Sleep Strips. In addition, the Company generatednot generating revenue from ID Life on higher margin products induring the three months ended March 31, 2018 compared to2019 as where the same period in 2017.

Selling, General and Administrative Expenses

Selling, general and administrative expenses forcompany did incur revenues during the three months ended March 31, 2018 amounted to $1,018,510, and for the three months ended March 31, 2017 amounted to $2,402,547. For the three months ended March 31, 2018 and 2017, selling, general and administrative expenses were mainly comprised of amortization, commission, insurance, payroll, consulting, investor relation services, PR services and rent expenses. The decrease in the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was mainly due to the decrease in noncash transactions of $1.6 million relating to common stock issued for consulting services and recording the fair value of warrants issued for services recorded in the three months ended March 31, 2017 compared to the same period in 2018. However, the decrease was offset by the increases in payroll, legal, accounting, investor relations, and PR services.

 

Research and Development Expenses

 

For the three months ended March 31, 2018,2019, research and development expenses increaseddecreased to $426,529$360,870 compared to the three months ended March 31, 20172018 of $219,620. As the Company was able to raise funds during 2017 and the first quarter of 2018 by issuing convertible promissory notes, we were able to continue to focus on spending to improve our intellectual property. At the same time the Company focused on developing potential partnerships with pharmaceutical and bioscience companies and new OTC and prescription products. This is evident by our$426,529. The decrease in research and development deals forexpenses is mainly due to the development of a Sildenafil CUREfilm andCompany no longer developing a PEA and Dronabinol combination CUREfilm as this development project has been canceled as well as our investment innot incurring costs associated with the preclinical cannabinoid research at the Technion – Israel Institute of Technology, where the laboratory of Dr. Dedi Meiri is identifying specific combinations of cannabinoids with anti-tumor effects. However, the decrease in these projects was offset with the continuous development of CURE 5003 (CUREfilm Blue), CURE 5067 (CUREfilm D), CURE 5200, CURE 5209 and CURE 5210 (CUREfilm Beta-Caryophyllene) during the three months ended March 31, 2019.

Selling, General and Administrative Expenses

Our expenses for the three months ended March 31, 2019 are summarized as follows in comparison to our expenses for the three months ended March 31, 2018.

 

 

Three Months Ended

 

 

 

March 31,

2019

 

 

March 31,

2018

 

 

 

 

 

 

 

 

Consulting

 

$1,232,193

 

 

$345,296

 

Salaries and wages

 

 

246,713

 

 

 

256,841

 

Selling, general and administrative

 

 

312,960

 

 

 

231,057

 

Professional and investor relations

 

 

342,929

 

 

 

185,316

 

Noncash compensation

 

 

230,291

 

 

 

-

 

Total operating expenses

 

$2,365,086

 

 

$1,018,510

 

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Consulting

Consulting expense increased by $886,897 for the three months ended March 31, 2019, as compared to the three months ended March 31, 2018. This was due to the Company increasing the number of consultants used during the three months ended March 31, 2018 compared to the same period in 2018. In addition, majority of the expenses related to noncash consulting services where the Company issued common stock shares in exchange for services performed over a period of time as well as the recording of the fair market value of warrants vested during the three months ended March 31, 2019 for services performed.

Salaries and wages

Salaries and wages expense decreased by approximately $10,000 during the three months ended March 31, 2019 as compared to the three months ended March 31, 2018. This was due two less officers employed during the three months ended March 31, 2019 compared to the same period in 2018. However, this decrease in officers was offset by the Company recognizing a full quarters worth of salary during the three months ended March 31, 2019 for two officers hired during the three months ended March 31, 2018.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expense increased by approximately $82,000 for the three months ended March 31, 2019, as compared to the three months ended March 31, 2018. This was due to the following factors: (i) increase in our subsidiary Oak Therapeutics, Inc. has completed a Phase I Small Business Innovative Research Contract (“SBIR”) fromD&O insurance as the National Institutes of HealthCompany increased coverage by getting an excess D&O policy, (ii) increase in our sales and marketing efforts to develop a formulation for 300mg of Isoniazidpromote the technology and Company and (iii) increase in a rapidly dissolving filmconference expenses as an anti-tuberculosis treatment option. Oak is currentlythe Company attending more conferences in the application processthree months ended March 31, 2019 compared to the same period in 2018.

Professional and Investor Relations

Professional and investor relations expenses increased by approximately $158,000 for Phase IIthe three months ended March 31, 2019 as compared to the three months ended March 31, 2018. This was due to the Company increasing our investor relation efforts to help increase awareness of our Company with potential new investors as well as to update our existing shareholder base. In addition, the SBIR programCompany increased our legal and accounting professional services during the three months ended March 31, 2019 compared to continue its researchthe same period in 2018 as to assist the Company in strategic planning and developmentadvisory for potential business acquisitions, patent and focustechnology acquisitions and general and corporate compliance services.

Non-cash Compensation

Non-cash compensation expense increased by approximately $230,000 for the three months ended March 31, 2019 as compared to the three months ended December 31, 2018. This was primarily due to the Company recording the fair value of vested stock options and vested restricted stock issued from our 2017 Equity Incentive Plan during the three months ended March 31, 2019. The Company did not issue any stock options or restricted stock from our 2017 Equity Incentive Plan during the same period in 2018.

Other Expense/Income

Other expense increased by approximately $6.8 million during the three months ended March 31, 2019 as compared to the three months ended March 31, 2018. This was mainly due to (i) recording of fair value of warrants issued relating to convertible promissory notes (ii) change in the warrant values relating to convertible promissory notes and (iii) a loss on manufacturing scale up, clinical trials and commercialization.conversion on convertible promissory notes of $3.7 million due to additional shares to be issued as a result of a lower conversion price compared to the fair market value at the date of issuance.

 

 
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LIQUIDITY AND CAPITAL RESOURCES

 

For the Three Months ended March 31, 20182019

Working Capital Deficit

 

 

March 31,

2019

 

 

December 31,

2018

 

Current assets

 

$3,599,418

 

 

$1,587,923

 

Current liabilities

 

 

(5,358,844)

 

 

(8,551,579)

Working capital (deficiency)

 

$(1,759,426)

 

$(6,963,656)

Working capital deficit as of March 31, 2019 was approximately $1.8 million, as compared to a working capital deficit of approximately $7 million as of December 31, 2018. As of March 31, 2019, current assets were approximately $3.6 million, primarily attributable to (i) an increase in cash of approximately $2 million primarily due to the issuance of new convertible debt. As of December 31, 2018, current assets were approximately $1.6 million, primarily attributable to (i) an increase in cash of approximately $0.4 million primarily due to the issuance of new convertible debt and (ii) an increase in prepaid expenses of approximately $0.4 million primarily due to prepaid stock-based compensation.

 

As of March 31, 2018, our total assets were $3,877,124 comprised of cash of $840,577, accounts receivable of $39,907, inventory of $69,987, prepaid expenses and other assets of $1,592,719, net property and equipment of $328,855, net intangibles of $896,211, and other assets of $108,868. Our total2019, current liabilities were $5,789,225approximately $5.4 million, comprised primarily of accounts(i) approximately $3.1 million in notes and convertible notes payable, of $559,205, accrued expenses of $183,599, current portion of loan and note payables of $733,526, convertible promissory notes of 3,290,450,(ii) $0.8 million in derivative liability, (iii) approximately $0.8 million in accounts payable; and (iv) approximately $0.3 million in accrued expenses. Comparatively, as of 65,961, deferred revenueDecember 31, 2018, current liabilities were approximately $8.6 million, comprised primarily of $396,484(i) approximately $6.2 million in notes and license fees of $560,000.convertible notes payable, (ii) $0.6 million in derivative liability, (iii) approximately $0.8 million in accounts payable; and (iv) approximately $0.5 million in accrued expenses.

 

 

For the Three Months Ended

 

 

 

March 31,

2019

 

 

March 31,

2018

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

$(1,024,401)

 

$(1,153,586)

Net cash used in investing activities

 

 

(44,302)

 

 

(22,187)

Net cash provided by financing activities

 

 

3,161,717

 

 

 

1,908,101

 

Increase in cash

 

$2,093,014

 

 

$732,328

 

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Cash flowsNet cash used in Operating Activities

Net cash used in operating activities

For was approximately $1 million during the three months ended March 31, 2018, operating activities consumed $1,153,586 of cash.2019. This was primarily due to the result of a net loss of $1,908,512,approximately $10 million, partially offset by depreciation and(i) the amortization of $34,954, amortizationthe debt discount of approximately $0.5 million, (ii) stock based compensation – prepaid expenses of $237,689,approximately $0.6 million, (iii) the fair value of stock issued for amending convertible notes of approximately $0.3 million, (iv) the fair value of vested stock options of approximately $0.3 million (v) fair value of warrant granted for commission expense of approximately $0.6 million, (vi) loss on conversion of convertible promissory notes of approximately $3.7 million, (vii) warrant expense from convertible promissory notes of approximately $2.2 million; and (viii) the fair value of warrant granted for broker fee expense of approximately $0.3 million.

Comparatively, net cash used in operating activities was approximately $1.1 million during the three months ended March 31, 2018. This was primarily due to the net loss of approximately $1.9 million offset by (i) the amortization of loan discountsthe debt discount of $360,089 as well as the changes in accounts receivableapproximately $0.3 million, and (ii) stock-based compensation of $35,543, inventory of $24,991, prepaid expenses of $58,813, accounts payable of $14,225, accrued expenses of $53,621 and deferred revenue of $35,022.approximately $0.2 million.

 

Cash flowsNet cash used in Investing Activities

Net cash used in investing activities

Investment during the three months ended March 31, 2019 was due to (i) the purchase of an intangible asset for approximately $21,000 and (ii) the purchase of property and equipment for approximately $23,000. Comparatively, net cash used in investing activities used an additional $22,187 of cash during the three months ended March 31, 2018 primarily as a resultwas due to (i) the purchase of paymentsan intangible asset for patentsapproximately $7,000, and costs associated in(ii) the development and improvement of our intellectual property of $6,638 and acquisitionpurchase of property and equipment of $15,549.for approximately $15,000.

 

Cash flowsNet cash provided by Financing Activities

Net cash provided by financing activities

Financing activities used $1,908,101 of cash forapproximately $3.1 million during the three months ended March 31, 2019 was primarily due to the approximately $3.4 million received from the issuances of new convertible notes payable and approximately $0.5 million in proceeds from issuances of common stock which was offset by approximately $0.7 million in repayments of convertible promissory notes and loans payable. Correspondingly, during the three months ended March 31, 2018, net cash provided by financing activities was approximately $1.9 million. This was primarily as the resultattributable to proceeds of proceedsapproximately $2.0 million from the issuanceissuances of new convertible promissory notes of $2,025,000 andpayable which was offset by approximately $0.1 million in repayments of convertible promissory noteloans payable.

We may need to raise additional operating capital in calendar year 2019 in order to maintain our operations and loan payablesto realize our business plan. Without additional sources of $116,899.cash and/or the deferral, reduction, or elimination of significant planned expenditures, we may not have the cash resources to continue as a going concern thereafter.

 

CRITICAL ACCOUTNINGACCOUNTING POLICIES

 

The preparation of financial statements in conformity with generally accepted accounting principles of the United States (“U.S. GAAP”) requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results. For additional information, see Note 2 – “Summary of Significant Accounting Policies”. Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditioncondition.

  

 
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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, 20182019 and for the year ended December 31, 2017.2018.

 

Going Concern

 

For the year ended December 31, 2017,2018, the auditorsauditors’ opinion contained a going concern paragraph, which stated that the Company had an accumulated deficit, working deficit and net loss, theseloss. These factors raise substantial doubt about the Company'sCompany’s ability to continue as a going concern for one year from the issuance of the financial statements.

 

The Company has an accumulated deficit balance as of March 31, 2018.2019. 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 the remainder of 2018.2019.

 

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 $6,000,000$8,000,000 to $8,000,000$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. If we cannot raise additional funds when we need or want them, our operations and prospects could be negatively affected. 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. The accompanying 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.

 

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OFF-BALANCE SHEET ARRANGEMENTS

 

As of the date of this Quarterly Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not Applicable.

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ITEM 4. CONTROLS AND PROCEDURES

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(t) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

 

 

1.

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 

2.

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

 

3.

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management assessed the effectiveness of our internal control over financial reporting as of March 31, 2018.2019. Based on this assessment, management concluded that the Company did not maintain effective internal controls over financial reporting as a result of the identified material weakness in our internal control over financial reporting described below. In making this assessment, management used the framework set forth in the report entitled Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication and (v) monitoring.

 

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Identified Material Weakness

 

A material weakness in our internal control over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement or the financial statements will not be prevented or detected. Management identified the segregation of duties as a material weakness during its assessment of internal controls over financial reporting as of March 31, 2018.2019. As of March 31, 2018,2019, we had one full-time employee with the requisite expertise in the key functional areas of finance and accounting. As a result, there is a lack of proper segregation of duties necessary to ensure that all transactions are accounted for accurately and in a timely manner. As our resources allow, we will add financial personnel to our management team.

 

Management, with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a15(e) and 15d15(e)) as of March 31, 2018,2019, the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based upon that evaluation, the Company’s Principal Executive Officer and Principal Financial Officer have concluded that as of the Evaluation Date, the Company’s disclosure controls are not effective as a result of the identified material weakness described herein.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal controls over financial reporting during the fiscal quarter ended March 31, 20182019 that materially affected, or is reasonably likely to have a material effect, on our internal control over financial reporting.

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PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

The information set forth under Note 1214 of Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report, is incorporated herein by reference.

 

ITEM 1A. RISK FACTORS

 

Not Applicable.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

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.

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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 2018,months. On January 14, 2019, the Company issued 50,000 common stock shares of the Company at $1.48$1.84 per share for consulting services to be performed over a one year period.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.

 

TheOn 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 described above were issued without registration under the Securities Act of 1933 (the “Securities Act”) in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act promulgated thereunderCompany (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 in reliancethe 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 similar exemptions under applicable state laws.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 January 24, 2018,February 1, 2019, the Company issued an additional 55,000 warrants in connection with the issuance of $1,100,000amended two convertible promissory notes issued in 2017. The warrants have an exercise price of $1.00 per share and a term of 3 years.

From January 30, 2018totaling $600,000 to Marchextend the maturity dates to February 28, 2018,2019. For extending the maturity date, the Company issued up to $2,025,000will 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 with investors (“Investors”) due November 30, 2018.were debt modifications. The notes bear interest at 9% per year and are convertible intoCompany recorded the fair market value of the 30,000 common stock at eithershares 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 equal$1.85 which was based on a 20% discount to the average closing price of the Company’s Common Stockcommon 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. The Investors in this offering also received warrants (the “Warrants”) for the option to purchase equal to 50% of the shares of Common Stock that the Investor is entitled to receive indays. In connection with the conversion of the Investor’s Note. The Warrants’convertible promissory notes, the Company will issue 657,655 warrants that were priced at $2.31 price per share shall equalshare.

On February 14, 2019, the lowerCompany entered into a Debt Conversion Agreement (“Agreement”), where $250,000 (Two Hundred Fifty Thousand Dollars) of (a) $2.00 or (b) 125%$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).

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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 Qualified Offering.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 Warrants will haveCompany recorded the fair market value of the 75,000 common stock shares issued as a three year term and shall be exercisable in cash.debt discount that has been fully amortized as of March 31, 2019.

 

The warrants andOn February 15, 2019, the Company entered into a Debt Conversion Agreement (“Agreement”) to convert $400,000 of convertible promissory notes described above were issued and sold without registration underplus accrued interest of $71,342 into 254,779 common stock shares of the Securities Act in relianceCompany 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 exemptions provided by Section 4(a)(2)OTC Markets for five consecutive trading days.

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 Securities Act and/or Regulation D promulgated thereunderCompany 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. 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.

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 $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.

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 in reliance on similar exemptions under applicable state laws.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.

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ITEM 3. DEFAULTS UPON SENIOR SECURITES

 

As of March 31, 2018,2019, there were eighttwo convertible promissory notes (“Notes”) totaling $1,700,000$550,000 that were in default. On April 15, 2018, theThe 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 negotiatedhas offered to either extendrepay the maturity date, be repaidNotes or berequest to have them converted into common stock shares of the Company. As of theour filing of our Form 10-Q for the quarterly period ended March 31, 2018, the two Notes totaling $500,000 are still in default, however, the Company has not received any notice of default from2019, the note holders of these two Notes.the Notes have not yet communicated their intent to either receive payment or convert.

  

ITEM 4. MINE SAFETY DISCLOSURE

 

None.

 

ITEM 5. OTHER INFORMATION

 

None.

 

 
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ITEM 6. EXHIBITS

 

31.1

Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

 

 
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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

CURE PHARMACEUTICAL HOLDING CORP.

 

Dated: May 15, 201817, 2019

By:

/s/ Robert Davidson

Robert Davidson

Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

 

/s/ Robert Davidson

Robert Davidson

Chief Executive Officer

 

May 15, 201817, 2019

 

/s/ Mark Udell

Mark Udell

Chief FinancialAccounting Officer

May 15, 201817, 2019

 

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