| Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Basis
of Presentation The
accompanying 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.
Principles
of Consolidation The
consolidated financial statements include the accounts of CURE Pharmaceutical Holding Corp, its wholly-owned subsidiary, CURE
Pharmaceutical Corporation and its 63% majority owned subsidiary, Oak Therapeutics, Inc. 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. Going
Concern and Management’s Liquidity Plans The
accompanying consolidated financial statements have been prepared on the basis that we will continue as a going concern, which
contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At December 31, 2018,
we had a significant accumulated deficit of approximately $29 million and a negative working capital of approximately $7 million.
Our operating activities consume the majority of our cash resources. We anticipate that we will continue to incur operating losses
as we execute our commercialization and research and development plans, as well as strategic and business development initiatives.
In addition, we have had and will continue to have negative cash flows from operations, at least into the near future. We have
previously funded, and plan to continue funding, our losses primarily through the sale of common and preferred stock, combined
with or without warrants, the sale of notes, revenue provided from our license agreements and, to a lesser extent, equipment financing
facilities and secured loans. However, we cannot be certain that we will be able to obtain such funds required for our operations
at terms acceptable to us or at all. Specifically,
management has identified that a minimum of $4,000,000 of capital is needed over the next 12 months in order sustain operations.
These capital needs take into account, among other things, management’s plans to advance intellectual property, maintenance
of patents, upgrades for manufacturing and to hire personnel for business development. Management has outlined a plan to raise
between $8,000,000 to $10,000,000 in capital over the next 12 months through 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 consolidated financial statements do not include any adjustments relating to the recoverability and
classification of assets and liabilities that might be necessary if the Company is unable to continue as a going concern. The
accompanying consolidated financial statements do not include any adjustments relating to the recoverability of and classification
of assets carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue
as a going concern. Re classifications Certain
reclassifications have been made to prior year’s consolidated financial statements to enhance comparability with the current
year’s consolidated financial statements. Use
of Estimates The
preparation of the accompanying consolidated 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 and the reported amounts of revenue and expenses during the reported period. Significant
areas requiring the use of management estimates include, but are not limited to, the allowance for doubtful accounts, valuation
of intangible assets and the assumptions used to calculate derivative liabilities. Actual results could differ materially from
such estimates under different assumptions or circumstances.
Cash
and Cash Equivalents The
Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
As of December 31, 2018, and 2017, the Company had no cash equivalents. At December 31, 2018 and 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. At December 31, 2018 and 2017, the Company had $245,988 and $0 in excess of the
federal insurance limit, respectively. 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 have joint control over
those policies. The
results of assets and liabilities of associates are incorporated in the consolidated financial statements using the equity method
of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted
for post-acquisition changes in the Company’s share of the net assets of the associate, less any impairment in the value
of the investment. Losses of an associate in excess of the Company’s interest in that associate are not recognized. Additional
losses are provided for, and a liability is recognized, only to the extent that the Company has incurred legal or constructive
obligations or made payments on behalf of the associate. Any excess of the cost of acquisition over the Company’s share
of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognized at the date
of acquisition is recognized as goodwill. The goodwill is included within the carrying amount of the investment. On
January 8, 2016, the Company received 50% ownership in Cure Innovations, Inc (“CI”). CI was created in 2015 by IncuBrands
Studio, Inc (“IncuBrands”). The Company and IncuBrands each own 50% of the common stock of CI. The Company and IncuBrands
entered into a Joint Venture agreement in 2013 to distribute several OTF products utilizing IncuBrands marketing and contacts
in various industries as well as utilize the Company’s technology and capabilities of manufacturing OTF’s. On December
28, 2018, in agreement with IncuBrands, the Company dissolved CI as we did not see a viable future relating to this joint venture. On
December 6, 2016, the Company entered into a Joint Venture Agreement (“Joint Venture”) with Pace Wellness, Inc. (“Pace”)
to jointly develop three Active Pharmaceutical Ingredients (“API”) within the nonprescription and/or Over-the-Counter
(OTC) medicines specifically utilizing the Company’s patented and proprietary CUREFilm™ Technology. The three API’s
to be jointly developed are Diphenhydramine HCL, Omeprazole and a third API to be determined at a later date (“Products”).
Pace shall be the exclusive global distributor of the Products under the Solves Strips® branding or other private or branded
labels. All benefits, advantages, and liabilities derived from, or incurred in respect of the Joint Venture shall be borne by
the parties in proportion of their respective participating interests of 50/50 equal interest. As of December 31, 2018, 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. Acquisitions On
November 10, 2017, we received 269,000 shares of Oak as consideration for an exclusive license to our patents rights in developing
nations, 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. The following summarizes the consideration paid for Oak and the amounts of the assets and liabilities assumed recognized
at the acquisition date, as well as the fair value at the acquisition date of the noncontrolling interest in Oak.
As
of November 10, 2017
Consideration
License
of CURE’s intellectual property $ 139,000
Fair
value of total consideration transferred $ 139,000
Recognized
amounts of identifiable assets acquired and liabilities assumed
Cash $ 65,702
Intangible
asset 139,000
Accrued
expenses (791 )
Loans
from shareholder (4,217 )
Total
identifiable net assets 199,694
Noncontrolling
interest in Oak (60,694 )
CURE’s
interest in Oak $ 139,000 Unaudited
pro forma results of operations for the year ended December 31, 2017, as if the Company and Oak 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.
December 31, 2017
Net
revenues $ 363,434
Net
loss (8,099,441 )
Net
loss per share, basic and diluted $ (0.34 ) Property
and Equipment The
Company capitalizes expenditures related to property and equipment, subject to a minimum rule, that have a useful life greater
than one year for: (1) assets purchased; (2) existing assets that are replaced, improved or the useful lives have been extended;
or (3) all land, regardless of cost. Acquisitions of new assets, additions, replacements and improvements (other than land) costing
less than the minimum rule in addition to maintenance and repair costs, including any planned major maintenance activities, are
expensed as incurred. Depreciation has been provided using the straight-line method on the following estimated useful lives:
Manufacturing equipment 5-7 years
Computer
and other equipment 3-7
years
Leasehold
Improvements Lesser of useful
life or the term of the lease Accounts
Receivable Accounts
receivable are generally unsecured. The Company establishes an allowance for doubtful accounts receivable based on the age of
outstanding invoices and management’s evaluation of collectability. Accounts are written off after all reasonable collection
efforts have been exhausted and management concludes that likelihood of collection is remote. Any future recoveries are applied
against the allowance for doubtful accounts. At December 31, 2018 and 2017, management determined that an allowance was necessary
which amounted to approximately $7,500 and $0, 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.
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 $0 and $13,062 for the years ended
December 31, 2018 and 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 $1,408,595 and $1,427,341 for the year ended December 31,
2018 and 2017, respectively. Income
Taxes The
Company utilizes FASB ASC 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities
and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. A valuation allowance is recorded when it is “more likely-than-not”
that a deferred tax asset will not be realized. The
Company generated a deferred tax asset through net operating loss carry-forward. However, a valuation allowance of 100% has been
established due to the uncertainty of the Company’s realization of the net operating loss carry forward prior to its expiration. Fair
Value of Financial Instruments The
Company follows FASB ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities
measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing
generally accepted accounting principles that require the use of fair value measurements and establishes a framework for measuring
fair value and expands disclosure about such fair value measurements.
ASC
820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize
the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level
1: Observable inputs
such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than
quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for
similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets
that are not active.
Level 3: Unobservable inputs
in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect
those that a market participant would use. The
carrying amounts reported in the balance sheet for cash, accounts receivable, accounts payable, accrued expenses and notes and
loans payable approximate their estimated fair market value based on the short-term maturity of these instruments. The carrying
amount of the notes and convertible promissory notes approximates the estimated fair value for these instruments as management
believes that such notes constitute substantially all of the Company’s debt and the interest payable on the notes approximates
the Company’s incremental borrowing rate. We measured the liability for price adjustable warrants and embedded derivative
features in the convertible notes, using the probability adjusted Black-Scholes option pricing model (“Black-Scholes”),
which management has determined approximates values using more complex methods, using Level 3 inputs. (See Note 10)
Impairment
of Long-Lived Assets We
review all of our long-lived assets for impairment indicators throughout the year and perform detailed testing whenever impairment
indicators are present. In addition, we perform detailed impairment testing for indefinite-lived intangible assets, at least annually,
at December 31. When necessary, we record charges for impairments. Specifically:
For
finite-lived intangible assets, such as developed technology rights, and for other long-lived assets, we compare the undiscounted
amount of the projected cash flows associated with the asset, or asset group, to the carrying amount. If the carrying amount
is found to be greater, we record an impairment loss for the excess of book value over fair value. In addition, in all cases
of an impairment review, we re-evaluate the remaining useful lives of the assets and modify them, as appropriate; and
For
indefinite-lived intangible assets, such as acquired in-process R&D assets, each year and whenever impairment indicators
are present, we determine the fair value of the asset and record an impairment loss for the excess of book value over fair
value, if any. Management
determined that no impairment indicators were present and that no impairment charges were necessary as of December 31, 2018 or
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 for the years ended December 31, 2017 and prior and has
been applied prospectively in the Company’s financial statements beginning January 1, 2018. Revenues under Topic 606 are
required to be recognized either at a “point in time” or “over time”, depending on the facts and circumstances
of the arrangement, and will be evaluated using a five-step model. The adoption of Topic 606 did not have a material impact on
the Company’s financial statements, at initial implementation nor will it have a material impact on an ongoing basis. To
achieve the core principle of Topic 606, we perform the following steps:
1. Identify the contract(s)
with customer;
2. Identify the performance
obligations in the contract;
3. Determine the transactions
price;
4. Allocate the transactions
price to the performance obligations in the contract; and
5. Recognize revenue
when (or as) we satisfy a performance obligation. We
derive revenues from two primary sources: products and services. Product revenue includes the shipment of product according to
the agreement with our customers. Services include research and development contracts for the development of OTF products utilizing
our CureFilm™ Technology or our other proprietary technologies. Rarely, contracts with customers contain multiple performance
obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct.
The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone
selling prices are typically estimated based on observable transactions when these services are sold on a standalone basis. The
Company’s 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 consolidated balance sheets. At December 31, 2018 and 2017 we had deferred revenues of $383,275
and $361,462, respectively.
Cost
of Revenues Cost
of revenues primarily consists of labor and manufacturing costs for our products. 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 provide 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 December 31, 2018 and December 31, 2017, the Company adjusted
its derivative liability to its fair value, and reflected the change in fair value, in its consolidated statement of operations
(See Note 10). Non-controlling
Interests in Consolidated Financial Statements The
Company follows ASC 810-10-65, “Non-controlling Interests in Consolidated Financial Statements.” This statement clarifies
that a non-controlling (minority) interest in a subsidiary is an ownership interest in the entity that should be reported as equity
in the consolidated financial statements. It also requires consolidated net income to include the amounts attributable to both
the parent and non-controlling interest, with disclosure on the face of the consolidated income statement of the amounts attributed
to the parent and to the non-controlling interest. In accordance with ASC 810-10-45-21, the losses attributable to the parent
and the non-controlling interest in subsidiary may exceed their interests in the subsidiary’s equity. The excess and any
further losses attributable to the parent and the non-controlling interest shall be attributed to those interests even if that
attribution results in a deficit non-controlling interest balance. As of December 31, 2018, and 2017, the Company reflected a
non-controlling interest of $16,412 and $46,884, respectively, in connection with our majority-owned subsidiary, Oak Therapeutics
Inc. as reflected in the accompanying consolidated balance sheets.
Net
Loss per Common Share Basic
net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during
the period, excluding any unvested restricted stock awards. Diluted net loss per share includes the effect of common stock equivalents
(stock options, unvested restricted stock, and warrants) when, under either the treasury or if-converted method, such inclusion
in the computation would be dilutive. Net loss is adjusted for the dilutive effect of the change in fair value liability for price
adjustable warrants, if applicable. The
following number of shares have been excluded from diluted net income (loss) since such inclusion would be anti-dilutive:
Year
ended December 31,
2018 2017
Restricted
stock and stock options outstanding 97,742 -
Warrants 2,879,695 360,000
Shares
to be issued upon conversion of convertible payable 236,475 307,904
Total 3,213,912 667,904 Recent
Accounting Pronouncements 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 was effective for the Company in the first quarter of 2018. Early adoption was not permitted except for
limited provisions. The adoption of ASU 2016-01 did not have an impact on the Company’s consolidated financial statements. In
February 2016, the FASB issued ASU 2016-02, "Leases" 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 consolidated balance sheet. 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 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. The Company did not early adopt. The adoption of ASU 2016-15 did not
have an impact on the Company’s 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 became effective for the Company on January 1, 2018. There are various other updates recently issued, most of which
represented technical corrections to the accounting literature or application to specific industries and did not have a material
impact on the Company’s financial position, results of operations or cash flows. In
May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation: Scope of Modification Accounting, which provides clarification
on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU
does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if
there is a change to the value, vesting conditions or award classification and would not be required if the changes are considered
non-substantive. The amendments of this ASU became effective for the Company in the first quarter of 2018. The adoption of ASU
2017-09 did not have an impact on the Company’s consolidated financial statements. In
June 2018, the FASB issued ASU No. 2018-7, Compensation – Stock Compensation (Topic 718) — Improvements to Nonemployee
Share-Based Payment Accounting. This guidance supersedes ASC 505-50 and expands the scope of ASC 718 to include all share-based
payment arrangements related to the acquisition of goods and services from both nonemployees and employees. The amendments should
be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of
the fiscal year of adoption. The guidance permits early adoption and was adopted by the Company in the first quarter of fiscal
year 2019. The adoption of this ASU did not have any impact on the Company’s consolidated financial statements. There
are various other updates recently issued, however, they are not expected to a have a material impact on the Company’s consolidated
financial position, results of operations or cash flows. |
