| Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Basis
of Presentation The
accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). The summary of significant accounting policies presented below
is designed to assist in understanding the Company’s financial statements. Such financial statements and accompanying notes
are the representations of Company’s management, who is responsible for their integrity and objectivity. Principle
of Consolidation and Basis of Presentation The
condensed consolidated financial statements include the accounts of CURE Pharmaceutical Holding Corp (“CPHC”), its
wholly-owned subsidiary, CURE Pharmaceutical Corporation (“CURE”) and its 63% majority owned subsidiary Oak Therapeutics,
Inc. (“OAK”), collectively referred to as (“CURE”, “we”, “us”, “our”
or the “Company”). All significant inter-company balances and transactions have been eliminated in consolidation.
The Company’s film strip product represents the principal operations of the Company. The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and
Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do
not contain all information and footnotes required by accounting principles generally accepted in the United States of America
for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated
financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial
position of the Company as of March 31, 2019, and the results of operations and cash flows for the periods presented. The results
of operations for the three months ended March 31, 2019 and 2018, are not necessarily indicative of the operating results for
the full fiscal year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction
with the financial statements and related notes thereto included in Form 10-K for the fiscal period ended December 31, 2018 filed
with the Securities and Exchange Commission (the “SEC”) on April 1, 2019. Use
of Estimates The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements. These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting
period. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates. Cash
and Cash Equivalents The
Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other
highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. As of March
31, 2019 and December 31, 2018, the Company had no cash equivalents. At March 31, 2019 and December 31, 2018, the Company maintains
its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (“FDIC”) in accounts that
at times may be in excess of the federally insured limit of $250,000 per bank. The Company minimizes this risk by placing its
cash deposits with major financial institutions. Investment
in Associates An
associate is an entity over which the Company has significant influence through a joint venture. Significant influence is the
power to participate in the financial and operating policy decisions of the investee but not control or joint control over those
policies. The
results of assets and liabilities of associates are incorporated in the condensed consolidated financial statements using the
equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet
at cost as adjusted for post-acquisition changes in the Company’s share of the net assets of the associate, less any impairment
in the value of the investment. Losses of an associate in excess of the Company’s interest in that associate are not recognized.
Additional losses are provided for, and a liability is recognized, only to the extent that the Company has incurred legal or constructive
obligations or made payments on behalf of the associate. Any
excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets, liabilities
and contingent liabilities of the associate recognized at the date of acquisition is recognized as goodwill. The goodwill is included
within the carrying amount of the investment. On
January 8, 2016, the Company received 50% ownership in Cure Innovations, Inc (“CI”). CI was created in 2015 by IncuBrands
Studio, Inc (“IncuBrands”). The Company and IncuBrands each own 50% of the common stock of CI. The Company and IncuBrands
entered into a Joint Venture agreement in 2013 to distribute several OTF products utilizing IncuBrands marketing and contacts
in various industries as well as utilize the Company’s technology and capabilities of manufacturing OTF’s. On December
28, 2018, in agreement with IncuBrands, the Company dissolved CI as we did not see a viable future relating to this joint venture. On
December 6, 2016, the Company entered into a Joint Venture Agreement (“Joint Venture”) with Pace Wellness, Inc. (“Pace”)
to jointly develop three Active Pharmaceutical Ingredients (“API”) within the nonprescription and/or Over-the-Counter
(OTC) medicines specifically utilizing the Company’s patented and proprietary CUREFilm™ Technology. The three API’s
to be jointly developed are Diphenhydramine HCL, Omeprazole and a third API to be determined at a later date (“Products”).
Pace shall be the exclusive global distributor of the Products under the Solves Strips® branding or other private or branded
labels. All benefits, advantages, and liabilities derived from, or incurred in respect of the Joint Venture shall be borne by
the parties in proportion of their respective participating interests of 50/50 equal interest. As of March 31, 2019, the Company
has only contributed $5,000 to the Joint Venture. The Company is looking to dissolve this Joint Venture due to Pace’s insolvency
and we are no longer looking to develop these Products. Property
and Equipment The
Company capitalizes expenditures related to property and equipment, subject to a minimum rule, that have a useful life greater
than one year for: (1) assets purchased; (2) existing assets that are replaced, improved or the useful lives have been extended;
or (3) all land, regardless of cost. Acquisitions of new assets, additions, replacements and improvements (other than land) costing
less than the minimum rule in addition to maintenance and repair costs, including any planned major maintenance activities, are
expensed as incurred. Depreciation has been provided using the straight-line method on the following estimated useful lives:
Manufacturing
equipment 5-7 Years
Computer and other
equipment 3-7 Years
Leasehold
Improvements Lesser
of useful life or the term of the lease Accounts
Receivable Accounts
receivable are generally unsecured. The Company establishes an allowance for doubtful accounts receivable based on the age of
outstanding invoices and management’s evaluation of collectability. Accounts are written off after all reasonable collection
efforts have been exhausted and management concludes that likelihood of collection is remote. Any future recoveries are applied
against the allowance for doubtful accounts. At March 31, 2019 and December 31, 2018, management determined that an allowance
was necessary which amounted to approximately $0 and $7,500, respectively. Inventory Inventory
is stated at the lower of cost or net realizable value. The Company determines the cost of its inventory, which includes amounts
related to materials, direct labor, and manufacturing overhead, on a first-in, first-out basis. The Company performs an assessment
of the recoverability of capitalized inventory during each reporting period and writes down any excess and obsolete inventories
to their realizable value in the period in which the impairment is first identified. Impairment
of Long-Lived Assets We
review all of our long-lived assets for impairment indicators throughout the year and perform detailed testing whenever impairment
indicators are present. In addition, we perform detailed impairment testing for indefinite-lived intangible assets, at least annually,
at December 31. When necessary, we record charges for impairments. Specifically:
• For
finite-lived intangible assets, such as developed technology rights, and for other long-lived assets, we compare the undiscounted
amount of the projected cash flows associated with the asset, or asset group, to the carrying amount. If the carrying amount
is found to be greater, we record an impairment loss for the excess of book value over fair value. In addition, in all cases
of an impairment review, we re-evaluate the remaining useful lives of the assets and modify them, as appropriate; and
• For
indefinite-lived intangible assets, such as acquired in-process R&D assets, each year and whenever impairment indicators
are present, we determine the fair value of the asset and record an impairment loss for the excess of book value over fair
value, if any. Management
determined that no impairment indicators were present and that no impairment charges were necessary as of March 31, 2019 or December
31, 2018. Revenue
Recognition We
recognize revenue in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue Recognition”.
The Company adopted Topic 606 using a modified retrospective approach for the years ended December 31, 2017 and prior and has
been applied prospectively in the Company’s financial statements beginning January 1, 2018. Revenues under Topic 606 are
required to be recognized either at a “point in time” or “over time”, depending on the facts and circumstances
of the arrangement, and will be evaluated using a five-step model. The adoption of Topic 606 did not have a material impact on
the Company’s financial statements, at initial implementation nor will it have a material impact on an ongoing basis. To
achieve the core principle of Topic 606, we perform the following steps:
1. Identify the contract(s)
with customer;
2. Identify the performance
obligations in the contract;
3. Determine the transactions
price;
4. Allocate the transactions
price to the performance obligations in the contract; and
5. Recognize revenue
when (or as) we satisfy a performance obligation. We
derive revenues from two primary sources: products and services. Product revenue includes the shipment of product according to
the agreement with our customers. Services include research and development contracts for the development of OTF products utilizing
our CureFilm™ Technology or our other proprietary technologies. Rarely, contracts with customers contain multiple performance
obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct.
The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone
selling prices are typically estimated based on observable transactions when these services are sold on a standalone basis. The
Company’s formulation and product development income include services for the development of OTF products utilizing our
CureFilm™ Technology. Our development contracts have up to four phases. Revenue is recognized based on progress toward completion
of the performance obligation in each phase. The method to measure progress toward completion requires judgment and is based on
the nature of the products or services to be provided. The Company generally uses the input method to measure progress for its
contracts because it best depicts the transfer of assets to the customer, which occurs as the Company incurs costs for the contracts.
Under the cost-to-cost measure of progress, the progress toward completion is measured based on the ratio of costs incurred to
date to the total estimated costs at completion of the performance obligation. Revenue is recorded proportionally as costs are
incurred. Costs to fulfill these obligations mainly include materials, labor, supplies and consultants. Deferred
revenue is shown separately in the condensed consolidated balance sheets. At March 31, 2019 and December 31, 2018 we had deferred
revenues of $311,275 and $383,275, respectively. Advertising
Expense The
Company expenses marketing, promotions and advertising costs as incurred. Such costs are included in general and administrative
expense in the accompanying statements of operations. The Company did not record advertising costs for the three months periods
ended March 31, 2019 and 2018. Research
and Development Costs
incurred in connection with the development of new products and processes are charged to research and development expenses as
incurred. The Company recorded research and development expenses of $360,870 and $426,529 for the three months periods ended March
31, 2019 and 2018, respectively. Income
Taxes The
Company utilizes FASB ASC 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities
and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. A valuation allowance is recorded when it is “more likely-than-not”
that a deferred tax asset will not be realized. The
Company generated a deferred tax asset through net operating loss carry-forward. However, a valuation allowance of 100% has been
established due to the uncertainty of the Company’s realization of the net operating loss carry forward prior to its expiration. Stock-Based
Compensation Stock-based
compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition
in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity
instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively,
the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for
an award based on the grant-date fair value of the award. Pursuant
to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the
“measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is
reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based
on the fair value of the award at the reporting date. Convertible
Debentures Beneficial
Conversion Feature If
the conversion features of conventional convertible debt provides for a rate of conversion that is below market value, this feature
is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant
to ASC Topic 470-20 ““Debt with Conversion and Other Options.” In those circumstances, the convertible debt
is recorded net of the discount related to the BCF and the Company amortizes the discount to interest expense over the life of
the debt using the effective interest method. Derivative
Liabilities ASC
815-40 (formerly SFAS No. 133 “Accounting for derivative instruments and hedging activities”), requires that embedded
derivative instruments be bifurcated and assessed, along with free-standing derivative instruments such as warrants, on their
issuance date and in accordance with ASC 815-40-15 (formerly EITF 00-19 “Accounting for derivative financial instruments
indexed to, and potentially settled in, a company’s own stock”) to determine whether they should be considered a derivative
liability and measured at their fair value for accounting purposes. In determining the appropriate fair value, the Company uses
the Black-Scholes option pricing formula and present value pricing. At March 31, 2019 and December 31, 2018, the Company adjusted
its derivative liability to its fair value, and reflected the change in fair value, in its consolidated statement of operations
and comprehensive loss. Fair
Value Measurements The
Company follows FASB ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities
measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing
generally accepted accounting principles that require the use of fair value measurements and establishes a framework for measuring
fair value and expands disclosure about such fair value measurements. ASC
820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize
the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level
1: Observable inputs
such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than
quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for
similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets
that are not active.
Level 3: Unobservable inputs
in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect
those that a market participant would use. The
carrying amounts reported in the balance sheet for cash, accounts receivable, accounts payable, accrued expenses and notes and
loans payable approximate their estimated fair market value based on the short-term maturity of these instruments. The carrying
amount of the notes and convertible promissory notes approximates the estimated fair value for these instruments as management
believes that such notes constitute substantially all of the Company’s debt and the interest payable on the notes approximates
the Company’s incremental borrowing rate. We measured the liability for price adjustable warrants and embedded derivative
features in the convertible notes, using the probability adjusted Black-Scholes option pricing model (“Black-Scholes”),
which management has determined approximates values using more complex methods, using Level 3 inputs. (See Note 10) Net
Loss per Common Share Basic
net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during
the period, excluding any unvested restricted stock awards. Diluted net loss per share includes the effect of common stock equivalents
(stock options, unvested restricted stock, and warrants) when, under either the treasury or if-converted method, such inclusion
in the computation would be dilutive. Net loss is adjusted for the dilutive effect of the change in fair value liability for price
adjustable warrants, if applicable. The
following number of shares have been excluded from diluted net income (loss) since such inclusion would be anti-dilutive:
Year
ended December 31,
March
31, 2019 December
31, 2018
Restricted
stock and stock options outstanding - 97,742
Warrants 90,000 2,879,695
Shares
to be issued upon conversion of convertible payable 115,047 236,475
Total 205,047 3,213,912 Going
Concern and Management’s Liquidity Plans The
accompanying condensed consolidated financial statements have been prepared on the basis that we will continue as a going concern,
which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At March 31, 2019,
we had a significant accumulated deficit of approximately $39.3 million and a negative working capital of approximately $1.8 million.
Our operating activities consume the majority of our cash resources. We anticipate that we will continue to incur operating losses
as we execute our commercialization and research and development plans, as well as strategic and business development initiatives.
In addition, we have had and will continue to have negative cash flows from operations, at least into the near future. We have
previously funded, and plan to continue funding, our losses primarily through the sale of common and preferred stock, combined
with or without warrants, the sale of notes, revenue provided from our license agreements and, to a lesser extent, equipment financing
facilities and secured loans. However, we cannot be certain that we will be able to obtain such funds required for our operations
at terms acceptable to us or at all. Specifically,
management has identified that a minimum of $4,000,000 of capital is needed over the next 12 months in order sustain operations.
These capital needs take into account, among other things, management’s plans to advance intellectual property, maintenance
of patents, upgrades for manufacturing and to hire personnel for business development. Management has outlined a plan to raise
between $8,000,000 to $10,000,000 in capital over the next 12 months through a merger and $1,000,000 to $2,000,000 through the
issuance of shares of the Company’s common stock to accredited investors. Management believes that the capital raised through
these methods will be sufficient to sustain operations for the next 12 to 18 months. However, the outcome of these matters cannot
be predicted with certainty at this time. The
ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described
in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. These factors raise
substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the financial
statements. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and
classification of assets and liabilities that might be necessary if the Company is unable to continue as a going concern. The
accompanying consolidated financial statements do not include any adjustments relating to the recoverability of and classification
of assets carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue
as a going concern. Recently
Issued Standards In
February 2016, the FASB issued ASU 2016-02, "Leases" The
new standard provides optional practical expedients in transition. We expect to only elect the "package of practical expedients"
where, under the new standard, prior conclusions about lease identification, lease classification and initial direct costs do
not need to be reassessed. The new standard also provides practical expedients for ongoing accounting and we do not expect to
elect any of these practical expedients on adoption. We continue to assess the impact of the new standard and believe it will
not have a material effect on the condensed consolidated balance sheet. In
January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This
new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities
is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed
of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This
new standard became effective for the Company on January 1, 2018. There are various other updates recently issued, most of which
represented technical corrections to the accounting literature or application to specific industries and did not have a material
impact on the Company’s financial position, results of operations or cash flows. In
January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350). ASU. 2017-04 simplifies the subsequent
measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform
its annual, or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity
still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test
is necessary. ASU 2017-04 becomes effective for the Company on January 1, 2020 with early adoption permitted and will be applied
prospectively. In
May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation: Scope of Modification Accounting, which provides clarification
on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU
does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if
there is a change to the value, vesting conditions or award classification and would not be required if the changes are considered
non-substantive. The amendments of this ASU became effective for the Company in the first quarter of 2018. The adoption of ASU
2017-09 did not have an impact on the Company’s condensed consolidated financial statements. In
June 2018, the FASB issued ASU No. 2018-7, Compensation – Stock Compensation (Topic 718) — Improvements to Nonemployee
Share-Based Payment Accounting. This guidance supersedes ASC 505-50 and expands the scope of ASC 718 to include all share-based
payment arrangements related to the acquisition of goods and services from both nonemployees and employees. The amendments should
be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of
the fiscal year of adoption. The guidance permits early adoption and was adopted by the Company in the first quarter of fiscal
year 2019. The adoption of this ASU did not have any impact on the Company’s consolidated financial statements. There
are various other updates recently issued, however, they are not expected to a have a material impact on the Company’s consolidated
financial position, results of operations or cash flows. |
