| NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Principal
of Consolidation and Basis of Presentation The
consolidated financial statements include the accounts of CURE Pharmaceutical Holding Corp (“CPHC”), its wholly-owned
subsidiary, CURE Pharmaceutical Corporation (“CURE”) and its majority owned subsidiary Oak Therapeutics, Inc. (“OAK”),
collectively referred to as (“CURE”, “we”, “us”, “our” or the “Company”
All significant inter-company balances and transactions have been eliminated in consolidation. The Company’s film strip
product represents the principal operations of the Company. The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and
Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do
not contain all information and footnotes required by accounting principles generally accepted in the United States of America
for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated
financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial
position of the Company as of June 30, 2018, and the results of operations and cash flows for the periods presented. The results
of operations for the three and six months ended June 30, 2018 and 2017, are not necessarily indicative of the operating results
for the full fiscal year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction
with the financial statements and related notes thereto included in Form 10-K for the fiscal period ended December 31, 2017 filed
with the Securities and Exchange Commission (the “SEC”) on March 26, 2018. Use
of Estimates The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements. These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting
period. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates. Cash
and Cash Equivalents The
Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other
highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. As of June
30, 2018 and December 31, 2017, the Company had no cash equivalents. At June 30, 2018 and December 31, 2017, the Company maintains
its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (“FDIC”) in accounts that
at times may be in excess of the federally insured limit of $250,000 per bank. The Company minimizes this risk by placing its
cash deposits with major financial institutions. Investment
in Associates An
associate is an entity over which the Company has significant influence through a joint venture. Significant influence is the
power to participate in the financial and operating policy decisions of the investee but not control or joint control over those
policies. The
results of assets and liabilities of associates are incorporated in the condensed consolidated financial statements using the
equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet
at cost as adjusted for post-acquisition changes in the Company’s share of the net assets of the associate, less any impairment
in the value of the investment. Losses of an associate in excess of the Company’s interest in that associate are not recognized.
Additional losses are provided for, and a liability is recognized, only to the extent that the Company has incurred legal or constructive
obligations or made payments on behalf of the associate. Any
excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets, liabilities
and contingent liabilities of the associate recognized at the date of acquisition is recognized as goodwill. The goodwill is included
within the carrying amount of the investment. On
January 8, 2016, the Company received 50% ownership in Cure Innovations, Inc (“CI”). CI was created in 2015 by IncuBrands
Studio, Inc (“IncuBrands”). The Company and IncuBrands each own 50% of the common stock of CI. The Company and IncuBrands
entered into a Joint Venture agreement in 2013 to distribute several OTF products utilizing IncuBrands marketing and contacts
in various industries as well as utilize the Company’s technology and capabilities of manufacturing OTF’s. On
December 6, 2016, the Company entered into a Joint Venture Agreement (“Joint Venture”) with Pace Wellness, Inc. (“Pace”)
to jointly develop three Active Pharmaceutical Ingredients (“API”) within the nonprescription and/or Over-the-Counter
(OTC) medicines specifically utilizing the Company’s patented and proprietary CUREFilm™ Technology. The three API’s
to be jointly developed are Diphenhydramine HCL, Omeprazole and a third API to be determined at a later date (“Products”).
Pace shall be the exclusive global distributor of the Products under the Solves Strips® branding or other private or branded
labels. All benefits, advantages, and liabilities derived from, or incurred in respect of the Joint Venture shall be borne by
the parties in proportion of their respective participating interests of 50/50 equal interest. As of June 30, 2018, the Company
has only contributed $5,000 to the Joint Venture. Property
and Equipment The
Company capitalizes expenditures related to property and equipment, subject to a minimum rule, that have a useful life greater
than one year for: (1) assets purchased; (2) existing assets that are replaced, improved or the useful lives have been extended;
or (3) all land, regardless of cost. Acquisitions of new assets, additions, replacements and improvements (other than land) costing
less than the minimum rule in addition to maintenance and repair costs, including any planned major maintenance activities, are
expensed as incurred. Depreciation has been provided using the straight-line method on the following estimated useful lives:
Manufacturing
equipment 5-7 Years
Computer and other
equipment 3-7 Years
Leasehold
Improvements Lesser
of useful life or the term of the lease Accounts
Receivable Accounts
receivable are generally unsecured. The Company establishes an allowance for doubtful accounts receivable based on the age of
outstanding invoices and management’s evaluation of collectability. Accounts are written off after all reasonable collection
efforts have been exhausted and management concludes that likelihood of collection is remote. Any future recoveries are applied
against the allowance for doubtful accounts. Impairment
of Long-Lived Assets Long-lived
assets include equipment and intangible assets other than those with indefinite lives. We assess the carrying value of our long-lived
asset groups when indicators of impairment exist and recognize an impairment loss when the carrying amount of a long-lived asset
is not recoverable when compared to undiscounted cash flows expected to result from the use and eventual disposition of the asset. Indicators
of impairment include significant underperformance relative to historical or projected future operating results, significant changes
in our use of the assets or in our business strategy, loss of or changes in customer relationships and significant negative industry
or economic trends. When indications of impairment arise for a particular asset or group of assets, we assess the future recoverability
of the carrying value of the asset (or asset group) based on an undiscounted cash flow analysis. If carrying value exceeds projected,
net, undiscounted cash flows, an additional analysis is performed to determine the fair value of the asset (or asset group), typically
a discounted cash flow analysis, and an impairment charge is recorded for the excess of carrying value over fair value. There
was no impairment on our long-lived assets during the three and six month periods ended June 30, 2018 and 2017. Revenue
Recognition We
recognize revenue in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue Recognition”. The
Company adopted Topic 606 using a modified retrospective approach and will be applied prospectively in the Company’s financial
statements from January 1, 2018 forward. Revenues under Topic 606 are required to be recognized either at a “point in time”
or “ over time”, depending on the facts and circumstances of the arrangement, and will be evaluated using a five-step
model. The adoption of Topic 606 did not have a material impact on the Company’s financial statements, at initial implementation
nor will it have a material impact on an ongoing basis. We derive revenues from two primary sources: products and services.
Product revenue includes the shipment of product according to the agreement with our customers. Services include research and
development contracts for the development of OTF products utilizing our CureFilm™ Technology or our other proprietary technologies.
Rarely, contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual
performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations
on a relative standalone selling price basis. Standalone selling prices are typically estimated based on observable transactions
when these services are sold on a standalone basis. The
Company’s consulting research and development income include services for the development of OTF products utilizing our
CureFilm™ Technology. Most of our development contracts have four phases. Revenue is recognized based on progress toward
completion of the performance obligation in each phase. The method to measure progress toward completion requires judgment and
is based on the nature of the products or services to be provided. The Company generally uses the input method to measure progress
for its contracts because it best depicts the transfer of assets to the customer, which occurs as the Company incurs costs for
the contracts. Under the cost-to-cost measure of progress, the progress toward completion is measured based on the ratio of costs
incurred to date to the total estimated costs at completion of the performance obligation. Revenue is recorded proportionally
as costs are incurred. Costs to fulfill these obligations mainly include materials, labor, supplies and consultants. Deferred
revenue is shown separately in the condensed consolidated balance sheets. At June 30, 2018 we had deferred revenue of $408,263.
At December 31, 2017, we had deferred revenue of $361,462. Advertising
Expense The
Company expenses marketing, promotions and advertising costs as incurred. Such costs are included in general and administrative
expense in the accompanying statements of operations. The Company recorded advertising costs of $58,984 and $98,823 for the three
and six month periods ended June 30, 2018, respectively. The Company recorded advertising costs of $68,893 and $95,226, for the
three and six month periods ended June 30, 2017, respectively. 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 $376,840 and $803,369 for the three and six month periods
ended June 30, 2018, respectively. The Company recorded research and development expenses of $205,648 and $425,268 for the three
and six month periods ended June 30, 2017, respectively. Income
Taxes The
Company utilizes FASB ASC 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities
and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. A valuation allowance is recorded when it is “more likely-than-not”
that a deferred tax asset will not be realized. The
Company generated a deferred tax asset through net operating loss carry-forward. However, a valuation allowance of 100% has been
established due to the uncertainty of the Company’s realization of the net operating loss carry forward prior to its expiration. Stock-Based
Compensation Stock-based
compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition
in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity
instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively,
the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for
an award based on the grant-date fair value of the award. Pursuant
to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the
“measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is
reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based
on the fair value of the award at the reporting date. Convertible
Debentures Beneficial
Conversion Feature If
the conversion features of conventional convertible debt provides for a rate of conversion that is below market value, this feature
is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant
to ASC Topic 470-20 ““Debt with Conversion and Other Options.” In those circumstances, the convertible debt
is recorded net of the discount related to the BCF and the Company amortizes the discount to interest expense over the life of
the debt using the effective interest method. Derivative
Liabilities ASC
815-40 (formerly SFAS No. 133 “Accounting for derivative instruments and hedging activities”), requires that embedded
derivative instruments be bifurcated and assessed, along with free-standing derivative instruments such as warrants, on their
issuance date and in accordance with ASC 815-40-15 (formerly EITF 00-19 “Accounting for derivative financial instruments
indexed to, and potentially settled in, a company’s own stock”) to determine whether they should be considered a derivative
liability and measured at their fair value for accounting purposes. In determining the appropriate fair value, the Company uses
the Black-Scholes option pricing formula and present value pricing. At June 30, 2018 and December 31, 2017, the Company adjusted
its derivative liability to its fair value, and reflected the change in fair value, in its consolidated statement of operations
and comprehensive loss. Fair
Value Measurements The
Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value
as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair
value measurements. The
estimated fair value of certain financial instruments, including cash and cash equivalents are carried at historical cost basis,
which approximates their fair values because of the short-term nature of these instruments. ASC
820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may
be used to measure fair value: Level
1 — quoted prices in active markets for identical assets or liabilities Level
2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable Level
3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions) The
Company has no assets or liabilities valued at fair value on a recurring basis. Basic
and diluted loss per share Basic
loss per share is computed by dividing the net loss to common stockholders for the period by the weighted average number of common
shares outstanding during the period. Diluted loss per share is computed by dividing the net loss for the period by the weighted
average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares, which
consist of stock options and warrants, have been excluded from the diluted loss per share calculation because their effect is
anti-dilutive.
June
30, 2018
Number
of common stock shares issued and outstanding 25,021,427
Number
of common stock shares from conversion of convertible notes 3,546,908
Number
of common stock shares from exercise of warrants 3,656,107
Number of common
stock shares from exercise of stock options 527,231
Total
fully-diluted common stock shares 32,751,673 Going
Concern The
Company’s financial statements are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization
of assets and liquidation of liabilities in the normal course of business. The Company had an accumulated deficit at June 30,
2018 of $23,172,763. The Company had a working capital deficit of $4,869,293 as of June 30, 2018. These factors raise substantial
doubt about the Company’s ability to continue as a going concern for one year from the issuance of the financial statements.
The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating
losses until it establishes a revenue stream and becomes profitable. The Company is continually analyzing its current costs and
is attempting to make additional cost reductions where possible. We expect that we will continue to generate losses from operations
throughout 2018. Historically,
the Company has had operating losses and negative cash flows from operations which cast significant doubt upon the Company’s
ability to continue as a going concern. The Company will need to raise capital in order to fund its operations. This need may
be adversely impacted by uncertain market conditions and changes in the regulatory environment. To address its financing requirements,
the Company intends to seek financing through debt and equity issuances to existing stockholders. Specifically,
management has identified that a minimum of $4,000,000 of capital is needed over the next 12 months in order sustain operations.
These capital needs take into account, among other things, management’s plans to advance intellectual property, maintenance
of patents, upgrades for manufacturing and to hire personnel for business development. Management has outlined a plan to raise
between $6,000,000 to $8,000,000 in capital over the next 12 months through the issuance of shares of the Company’s common
stock to accredited investors. Management believes that the capital raised through these methods will be sufficient to sustain
operations for the next 12 months. However, the outcome of these matters cannot be predicted with certainty at this time. The
ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described
in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. These factors raise
substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the financial
statements. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability
and classification of assets and liabilities that might be necessary if the Company is unable to continue as a going concern. Recently
Issued Standards In
January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The purpose
is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful
information. This ASU is effective for the Company in the first quarter of 2018. Early adoption is not permitted except for limited
provisions. The adoption of ASU 2016-01 did not have an impact on the Company’s condensed consolidated financial statements. In
February 2016, the FASB issued ASU 2016-02—Leases (Topic 842), requiring lessees to recognize a right-of-use asset and a
lease liability on the balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue
to be classified as either operating or finance leases in the income statement. The effective date of the new standard for public
companies is for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption
is permitted. The new standard must be adopted using a modified retrospective transition and requires application of the new guidance
at the beginning of the earliest comparative period presented. The Company is evaluating the effect that the updated standard
will have on its financial statements and related disclosures. In
March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting. The new standard requires recognition of the income tax effects of vested or settled awards in the income
statement and involves several other aspects of the accounting for share-based payment transactions, including the income tax
consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This
new standard became effective for the Company on January 1, 2017. The adoption of this standard did not have a material impact
on its financial position, results of operations or statements of cash flows upon adoption. In
May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements
and Practical Expedients”, to clarify certain core recognition principles including collectability, sales tax presentation,
noncash consideration, contract modifications and completed contracts at transition and disclosures no longer required if the
full retrospective transition method is adopted. The effective date and transition requirements for these amendments are annual
reporting periods beginning after December 15, 2017, including interim reporting periods therein, and that would also permit public
entities to elect to adopt the amendments as of the original effective date as applicable to reporting periods beginning after
December 15, 2016. The new guidance allows for the amendment to be applied either retrospectively to each prior reporting period
presented or retrospectively as a cumulative-effect adjustment as of the date of adoption. The adoption of ASU 2016-12 did not
have an impact on the Company’s condensed consolidated financial statements. In
August, 2016, the FASB issued Accounting Standards Update No. 2016-15, Classification of Certain Cash Receipts and Cash Payments
(a consensus of the Emerging Issues Task Force) (“ASU 2016-15”). The amendments in ASU 2016-15 address eight specific
cash flow issues and apply to all entities that are required to present a statement of cash flows under ASC Topic 230, Statement
of Cash Flows. The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December
15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption during an interim period.
The adoption of ASU 2016-15 did not have an impact on the Company’s condensed consolidated financial statements. In
January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This
new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities
is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed
of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This
new standard will be effective for the Company on January 1, 2018; however, early adoption is permitted with prospective application
to any business development transaction. There are various other updates recently issued, most of which represented technical
corrections to the accounting literature or application to specific industries and are not expected to a have a material impact
on the Company’s financial position, results of operations or cash flows. In
May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation: Scope of Modification Accounting, which provides clarification
on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU
does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if
there is a change to the value, vesting conditions or award classification and would not be required if the changes are considered
non-substantive. The amendments of this ASU are effective for the Company in the first quarter of 2018, with early adoption permitted.
The adoption of ASU 2017-09 did not have an impact on the Company’s condensed consolidated financial statements. There are various other updates
recently issued, however, they are not expected to a have a material impact on the Company’s consolidated financial position,
results of operations or cash flows. |
