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
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20192020
¨ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
☐ | 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) |
|
| 2834 |
| 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)
Securities registered pursuant to Section 12(b) of the Act: None.
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 |
|
| Emerging growth company |
|
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 November 12, 2019,August 11, 2020, we had 37,959,87751,056,638 shares of common stock, par value $0.001 per share (the “Common Stock”) issued and outstanding.
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| Notes to the Unaudited Condensed Consolidated Financial Statements |
| 9 | |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2 |
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve risks and uncertainties, including statements based on our current expectations, assumptions, estimates and projections about future events, our business, financial condition, results of operations and prospects, our industry and the regulatory environment in which we operate. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, or other comparable terms intended to identify statements about the future. Forward-looking statements include, but are not limited to, statements about:
• | the length and severity of the recent COVID-19 outbreak and its impact on the global economy and our financial results; | |
• | our ability to obtain additional and substantial funding for our company on an immediate basis, whether pursuant to a capital raising transaction arising from the sale of our securities, a strategic transaction or otherwise; | |
• | our ability to attract and/or maintain research, development, commercialization and manufacturing partners; | |
• | the ability of our company and/or a partner to successfully complete product research and development, including pre-clinical and clinical studies and commercialization; | |
• | the ability of our company and/or a partner to obtain required governmental approvals, including product patent approvals; | |
• | the ability of our company and/or a partner to develop and commercialize products that can compete favorably with those of our competitors; | |
• | the timing of costs and expenses related to the research and development programs of our company and/or our partners; | |
• | the timing and recognition of revenue from milestone payments and other sources not related to product sales; | |
• | our ability to obtain suitable facilities in which to conduct our planned business operations on acceptable terms and on a timely basis; | |
• | our ability to satisfy our disclosure obligations under the Exchange Act, and to maintain the registration of our common stock thereunder; | |
• | our ability to attract and retain qualified officers, employees and consultants as necessary; and | |
• | costs associated with any product liability claims, patent prosecution, patent infringement lawsuits and other lawsuits. |
The forward-looking statements included herein are based on current expectations of our management based on available information and involve a number of risks and uncertainties, all of which are difficult or impossible to predict accurately and many of which are beyond our control. As such, our actual results may differ significantly from those expressed in any forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to, those discussed in more detail in Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part I and Item 1A “Risk Factors” of Part II of this Quarterly Report on Form 10-Q. Readers should carefully review these risks, as well as the additional risks described in other documents we file from time to time with the Securities and Exchange Commission (“SEC”). In light of the significant risks and uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results will be achieved, and readers are cautioned not to place undue reliance on such forward-looking statements. Except as required by law, we undertake no obligation to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. You should read this Quarterly Report on Form 10-Q and the documents we file with the SEC, with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
Unless otherwise indicated or the context requires otherwise, as used in this Quarterly Report on Form 10-Q, the words “we,” “us,” “our,” the “Company” “our Company” or “CURE” refer to CURE Pharmaceutical Holding Corp., a Delaware corporation, and our subsidiaries taken as a whole, unless otherwise noted.
This Quarterly Report on Form 10-Q includes our trademarks and trade names, including, without limitation, CureFilm™ Technology, which is our property and is protected under applicable intellectual property laws. This Quarterly Report on Form 10-Q also includes trademarks and trade names that are the property of other organizations. Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q may appear without the ® and ™ symbols, but those references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights, or that the applicable owner will not assert its rights, to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
3 |
Table of Contents |
CURE PHARMACEUTICAL HOLDING CORP.CORP
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
ASSETS |
| (Unaudited) |
|
|
| |||
Current assets: |
|
|
|
|
|
| ||
Cash |
| $ | 1,429 |
|
| $ | 4,096 |
|
Accounts receivable, net |
|
| 43 |
|
|
| 142 |
|
Inventory |
|
| 210 |
|
|
| 156 |
|
Prepaid expenses and other assets |
|
| 657 |
|
|
| 1,794 |
|
Total current assets |
|
| 2,339 |
|
|
| 6,188 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 1,995 |
|
|
| 641 |
|
Right of use asset |
|
| 57 |
|
|
| 63 |
|
Investment |
|
| 509 |
|
|
| 259 |
|
Goodwill |
|
| 9,178 |
|
|
| 9,178 |
|
Intellectual property and patents, net |
|
| 1,756 |
|
|
| 1,808 |
|
In-process research and development, net |
|
| 14,288 |
|
|
| 14,288 |
|
Other assets |
|
| 35 |
|
|
| 35 |
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 30,157 |
|
| $ | 32,460 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 1,373 |
|
| $ | 1,260 |
|
Accrued expenses |
|
| 336 |
|
|
| 223 |
|
Finance lease payable |
|
| 11 |
|
|
| 11 |
|
Loan payable |
|
| 16 |
|
|
| 127 |
|
Notes payable, net |
|
| 699 |
|
|
| 50 |
|
Convertible promissory notes, net |
|
| 550 |
|
|
| 550 |
|
Derivative liability |
|
| 16 |
|
|
| 91 |
|
Contract liabilities |
|
| 304 |
|
|
| 456 |
|
Contingent share considerations |
|
| - |
|
|
| 9,068 |
|
Total current liabilities |
|
| 3,305 |
|
|
| 11,836 |
|
|
|
|
|
|
|
|
|
|
License fees |
|
| 85 |
|
|
| 90 |
|
Finance lease payable |
|
| 46 |
|
|
| 52 |
|
Contingent share considerations |
|
| - |
|
|
| 6,975 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
| 3,436 |
|
|
| 18,953 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (see Note 17) |
|
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|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
Common stock: $0.001 par value; authorized 150,000,000 shares; 51,026,636 shares and 38,001,543 issued and outstanding as of June 30, 2020 and December 31, 2019, respectively |
|
| 51 |
|
|
| 38 |
|
Additional paid-in capital |
|
| 88,123 |
|
|
| 63,035 |
|
Common stock issuable |
|
| 572 |
|
|
| 1,066 |
|
Accumulated deficit |
|
| (62,025 | ) |
|
| (50,632 | ) |
Total stockholders' equity |
|
| 26,721 |
|
|
| 13,507 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity |
| $ | 30,157 |
|
| $ | 32,460 |
|
September 30, 2019 December 31, 2018 ASSETS (Unaudited) Current assets: Cash Accounts receivable, net Inventory Prepaid expenses and other assets Total current assets Property and equipment, net Goodwill Intellectual property and patents, net In-process research and development Prepaid expenses and other assets Other assets Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued expenses Loan payable Notes payable, net Convertible promissory notes, net Derivative liability Contract liabilities Contingent share considerations Total current liabilities License Fees Contingent share considerations Total liabilities Commitments and Contingencies (see Note 15) Stockholders' equity (deficit): Common stock: $0.001 par value; authorized 150,000,000 shares; 37,949,460 shares and 26,784,019 issued and outstanding as of September 30, 2019 and December 31, 2018, respectively Additional paid-in capital Stock payable Accumulated deficit Total CURE Pharmaceutical Holding Corp stockholders’ equity (deficit) Noncontrolling interest Total stockholders' equity (deficit) Total liabilities and stockholders' equity (deficit) $ 6,258 $ 501 9 103 78 38 1,608 946 7,953 1,588 659 300 9,178 - 1,913 1,206 14,288 - - 232 38 70 $ 34,029 $ 3,396 $ 655 $ 774 185 509 - 105 50 920 550 5,242 147 618 495 383 9,938 - 12,020 8,551 93 - 8,560 - 20,673 8,551 38 27 62,239 23,425 820 646 (49,741 ) (29,269 ) 13,356 (5,171 ) - 16 13,356 (5,155 ) $ 34,029 $ 3,396
TheSee accompanying notes are an integral part ofto these unaudited condensed consolidated financial statements.
Table of Contents |
CURE PHARMACEUTICAL HOLDING CORP.CORP
Unaudited Condensed Consolidated Statements of Operations (Unaudited)
For the Three and Nine Months Ended September 30, 2019 and 2018
(in thousands, except share amounts)
|
| For the Three Months Ended |
| For the Nine Months Ended |
|
| For the Three Months Ended |
| For the Six Months Ended |
| ||||||||||||||||||||||
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Net product sales |
| $ | 29 |
| $ | 68 |
| $ | 29 |
| $ | 287 |
|
| $ | 163 |
| $ | - |
| $ | 366 |
| $ | - |
| ||||||
Consulting research & development income |
| 70 |
| 20 |
| 247 |
| 63 |
|
| 100 |
| 105 |
| 169 |
| 177 |
| ||||||||||||||
Shipping and other sales |
|
| 3 |
|
|
| - |
|
|
| 8 |
|
|
| - |
|
|
| 6 |
|
|
| 3 |
|
|
| 14 |
|
|
| 5 |
|
Total revenues |
|
| 102 |
|
|
| 88 |
|
|
| 284 |
|
|
| 350 |
|
|
| 269 |
|
|
| 108 |
|
|
| 549 |
|
|
| 182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Cost of goods sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Cost of goods sold |
|
| 15 |
|
|
| 42 |
|
|
| 18 |
|
|
| 171 |
|
|
| 100 |
|
|
| 1 |
|
|
| 201 |
|
|
| 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Gross profit |
|
| 87 |
|
|
| 46 |
|
|
| 266 |
|
|
| 179 |
|
|
| 169 |
|
|
| 107 |
|
|
| 348 |
|
|
| 179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Research and development expenses |
| 453 |
| 292 |
| 1,547 |
| 1,095 |
|
| 735 |
| 733 |
| 1,540 |
| 1,094 |
| ||||||||||||||
Selling, general and administrative expenses |
| 2,217 |
| 2,444 |
| 7,593 |
| 5,496 |
|
| 2,511 |
| 3,011 |
| 4,635 |
| 5,376 |
| ||||||||||||||
Change in fair value contingent stock consideration |
|
| (4,654 | ) |
|
| - |
|
|
| 3,866 |
|
|
| - |
| ||||||||||||||||
Change in fair value of contingent stock consideration |
|
| 10,390 |
|
|
| 8,520 |
|
|
| 5,658 |
|
|
| 8,520 |
| ||||||||||||||||
Total operating expenses |
|
| (1,984 | ) |
|
| 2,736 |
|
|
| 13,006 |
|
|
| 6,591 |
|
|
| 13,636 |
|
|
| 12,265 |
|
|
| 11,833 |
|
|
| 14,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Net operating income (loss) before other income (expense) |
|
| 2,071 |
|
|
| (2,690 | ) |
|
| (12,740 | ) |
|
| (6,412 | ) |
|
| (13,467 | ) |
|
| (12,157 | ) |
|
| (11,485 | ) |
|
| (14,811 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Interest income |
| 37 |
| - |
| 40 |
| - |
|
| 5 |
| 2 |
| 20 |
| 3 |
| ||||||||||||||
Other income |
| - |
| - |
| 15 |
| 6 |
| |||||||||||||||||||||||
Gain on deconsolidation |
| - |
| - |
| 81 |
| - |
| |||||||||||||||||||||||
Gain from settlement |
| 26 |
| 15 |
| 26 |
| 15 |
| |||||||||||||||||||||||
Change in fair value of derivative liability |
| 198 |
| (624 | ) |
| 471 |
| (418 | ) |
| 12 |
| 426 |
| 75 |
| 273 |
| |||||||||||||
Other expense |
| - |
| (62 | ) |
| (590 | ) |
| (171 | ) |
| - |
| (319 | ) |
| - |
| (590 | ) | |||||||||||
Interest expense |
| (102 | ) |
| (1,433 | ) |
| (4,099 | ) |
| (2,133 | ) |
| (15 | ) |
| (699 | ) |
| (28 | ) |
| (3,997 | ) | ||||||||
Gain on deconsolidation |
| - |
| 81 |
| - |
| 81 |
| |||||||||||||||||||||||
Loss on conversion of convertible promissory notes |
|
| - |
|
|
| - |
|
|
| (3,660 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (3,660 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Other income (expense) |
|
| 133 |
|
|
| (2,119 | ) |
|
| (7,742 | ) |
|
| (2,714 | ) | ||||||||||||||||
Total other expense |
|
| 28 |
|
|
| (494 | ) |
|
| 93 |
|
|
| (7,875 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Net income (loss) before income taxes |
| 2,204 |
| (4,809 | ) |
| (20,482 | ) |
| (9,128 | ) | |||||||||||||||||||||
Net loss before income taxes |
| (13,439 | ) |
| (12,651 | ) |
| (11,392 | ) |
| (22,686 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Provision for income taxes |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Net income (loss) |
| 2,204 |
| (4,809 | ) |
| (20,482 | ) |
| (9,128 | ) | |||||||||||||||||||||
Net loss |
| (13,439 | ) |
| (12,651 | ) |
| (11,392 | ) |
| (22,686 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Net income (loss) attributable to non-controlling interest |
|
| - |
|
|
| (10 | ) |
|
| (10 | ) |
|
| (25 | ) |
|
| - |
|
|
| (3 | ) |
|
| - |
|
|
| (10 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) attributable to Cure Pharmaceutical Holding Corp. |
|
| 2,204 |
|
|
| (4,799 | ) |
|
| (20,472 | ) |
|
| (9,103 | ) | ||||||||||||||||
Net loss attributable to Cure Pharmaceutical Holding Corp. |
| $ | (13,439 | ) |
| $ | (12,648 | ) |
| $ | (11,392 | ) |
| $ | (22,676 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Net income (loss ) per share, basic |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Net loss per share |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Basic |
| $ | 0.06 |
|
| $ | (0.20 | ) |
| $ | (0.62 | ) |
| $ | (0.37 | ) |
| $ | (0.32 | ) |
| $ | (0.36 | ) |
| $ | (0.29 | ) |
| $ | (0.73 | ) |
Diluted |
| $ | 0.05 |
|
| $ | (0.20 | ) |
| $ | (0.62 | ) |
| $ | (0.37 | ) |
| $ | (0.32 | ) |
| $ | (0.36 | ) |
| $ | (0.29 | ) |
| $ | (0.73 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Basic |
|
| 34,613,642 |
|
|
| 24,403,901 |
|
|
| 33,247,660 |
|
|
| 24,635,143 |
|
|
| 41,716,558 |
|
|
| 35,345,442 |
|
|
| 39,867,063 |
|
|
| 31,088,381 |
|
Diluted |
|
| 43,368,323 |
|
|
| 24,403,901 |
|
|
| 33,247,660 |
|
|
| 24,635,143 |
|
|
| 41,716,558 |
|
|
| 35,345,442 |
|
|
| 39,867,063 |
|
|
| 31,088,381 |
|
TheSee accompanying notes are an integral part ofto these unaudited condensed consolidated financial statements.
Table of Contents |
CURE PHARMACEUTICAL HOLDING CORP.CORP
For the Three Month Periodsand Six Months Ended March 31, June 30, 2020 and September 30, 2019 and 2018
(in thousands, except share amounts)
|
| Common Stock |
|
| Additional Paid-in |
|
| Common Stock |
|
| Accumulated |
|
| Noncontrolling |
|
|
|
| ||||||||||
|
| Shares |
|
| Par |
|
| Capital |
|
| Issuable |
|
| Deficit |
|
| Interest |
|
| Total |
| |||||||
Balance, December 31, 2019 |
|
| 38,001,543 |
|
| $ | 38 |
|
| $ | 63,035 |
|
| $ | 1,066 |
|
| $ | (50,632 | ) |
| $ | - |
|
| $ | 13,507 |
|
Issuance of common stock for professional services |
|
| 31,250 |
|
|
| - |
|
|
| 68 |
|
|
| 163 |
|
|
|
|
|
|
|
|
|
|
| 231 |
|
Fair value of stock options and restricted stock granted |
|
|
|
|
|
|
|
|
|
| 469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 469 |
|
Fair value of restricted stock units granted |
|
|
|
|
|
|
|
|
|
| 60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 60 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,046 |
|
|
|
|
|
|
| 2,046 |
|
Balance, March 31, 2020 |
|
| 38,032,793 |
|
| $ | 38 |
|
| $ | 63,632 |
|
| $ | 1,229 |
|
| $ | (48,586 | ) |
| $ | - |
|
| $ | 16,313 |
|
Issuance of common stock for professional services |
|
| 218,750 |
|
|
| - |
|
|
| 600 |
|
|
| (411 | ) |
|
|
|
|
|
|
|
|
|
| 189 |
|
Issuance of common stock from the equity incentive plan |
|
| 8,003 |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
Issuance of common stock from exercise of warrants |
|
| 708,467 |
|
|
| 1 |
|
|
| 1,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,418 |
|
Issuance of common stock from settlement with Chemistry Holdings, Inc. |
|
| 12,058,623 |
|
|
| 12 |
|
|
| 21,935 |
|
|
| (246 | ) |
|
|
|
|
|
|
|
|
|
| 21,701 |
|
Fair value of stock options and restricted stock granted |
|
|
|
|
|
|
|
|
|
| 479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 479 |
|
Fair value of restricted stock units granted |
|
|
|
|
|
|
|
|
|
| 60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 60 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (13,439 | ) |
|
|
|
|
|
| (13,439 | ) |
Balance, June 30, 2020 |
|
| 51,026,636 |
|
| $ | 51 |
|
| $ | 88,123 |
|
| $ | 572 |
|
| $ | (62,025 | ) |
| $ | - |
|
| $ | 26,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018 |
|
| 26,784,019 |
|
| $ | 27 |
|
| $ | 23,425 |
|
| $ | 646 |
|
| $ | (29,269 | ) |
| $ | 16 |
|
| $ | (5,155 | ) |
Issuance of common stock for professional services |
|
| 86,744 |
|
|
| - |
|
|
| 165 |
|
|
| 356 |
|
|
|
|
|
|
|
|
|
|
| 521 |
|
Issuance of common stock for extension of maturity dates relating to convertible promissory notes |
|
| 105,000 |
|
|
| - |
|
|
| 321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 321 |
|
Issuance of common stock for conversion of convertible promissory notes |
|
| 2,844,156 |
|
|
| 3 |
|
|
| 8,621 |
|
|
| 938 |
|
|
|
|
|
|
|
|
|
|
| 9,562 |
|
Issuance of common stock from the equity incentive plan |
|
| 130,208 |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
Issuance of common stock for cash |
|
| 416,667 |
|
|
| - |
|
|
| 500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 500 |
|
Issuance of common stock for cancellation of accounts payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 65 |
|
|
|
|
|
|
|
|
|
|
| 65 |
|
Warrants granted for debt and services |
|
|
|
|
|
|
|
|
|
| 3,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,035 |
|
Beneficial conversion features on convertible promissory notes |
|
|
|
|
|
|
|
|
|
| 801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 801 |
|
Fair value of stock options and restricted stock granted |
|
|
|
|
|
|
|
|
|
| 230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 230 |
|
Noncontrolling interest of Oak Therapeutics, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (7 | ) |
|
| (7 | ) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (10,028 | ) |
|
|
|
|
|
| (10,028 | ) |
Balance, March 31, 2019 |
|
| 30,366,794 |
|
| $ | 30 |
|
| $ | 37,098 |
|
| $ | 2,005 |
|
| $ | (39,297 | ) |
| $ | 9 |
|
| $ | (155 | ) |
Issuance of common stock for professional services |
|
| 186,249 |
|
|
| - |
|
|
| 502 |
|
|
| (167 | ) |
|
|
|
|
|
|
|
|
|
| 335 |
|
Issuance of common stock for cash |
|
| 208,333 |
|
|
| - |
|
|
| 250 |
|
|
| 1,745 |
|
|
|
|
|
|
|
|
|
|
| 1,995 |
|
Issuance of common stock from exercise of warrants |
|
| 25,675 |
|
|
| - |
|
|
| - |
|
|
| 60 |
|
|
|
|
|
|
|
|
|
|
| 60 |
|
Issuance of common stock for acquistion of Chemistry Holdings, Inc |
|
| 5,700,000 |
|
|
| 6 |
|
|
| 19,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 19,038 |
|
Warrants granted |
|
|
|
|
|
|
|
|
|
| 817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 817 |
|
Fair value of stock options and restricted stock granted |
|
|
|
|
|
|
|
|
|
| 659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 659 |
|
Noncontrolling interest of Oak Therapeutics, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (3 | ) |
|
| (3 | ) |
Deconsolidation of Oak Therapeutics, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (6 | ) |
|
| (6 | ) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (12,648 | ) |
|
|
|
|
|
| (12,648 | ) |
Balance, June 30, 2019 |
|
| 36,487,051 |
|
| $ | 36 |
|
| $ | 58,358 |
|
| $ | 3,643 |
|
| $ | (51,945 | ) |
| $ | - |
|
| $ | 10,092 |
|
Additional Common Stock Paid-in Stock Accumulated Noncontrolling Shares Par Capital Payable Deficit Interest Total Balance, December 31, 2018 Issuance of common stock for professional services Issuance of common stock for extension of maturity dates relating to convertible promissory notes Issuance of common stock for conversion of convertible promissory notes Issuance of common stock from the equity incentive plan Issuance of common stock for cash Issuance of common stock for cancellation of accounts payable Warrants granted Beneficial conversion features Fair value of stock options and restricted stock granted Noncontrolling interest of Oak Therapeutics, Inc. Net loss Balance, March 31, 2019 Issuance of common stock for professional services Issuance of common stock for cash Issuance of common stock from exercise of warrants Issuance of common stock for acquistion of Chemistry Holdings, Inc Warrants granted Fair value of stock options and restricted stock granted Noncontrolling interest of Oak Therapeutics, Inc. Net loss Balance, June 30, 2019 Issuance of common stock for professional services Issuance of common stock for cash Issuance of common stock for conversion of convertible promissory notes Issuance of common stock from exercise of warrants Issuance of common stock for purchase of patents Issuance of common stock for cancellation of accounts payable Issuance of common stock from the equity incentive plan Common stock shares to be issued for purchase of intellectual property Common stock shares to be issued for issuance of note payable Warrants granted Fair value of stock options and restricted stock granted Net loss �� Balance, September 30, 2019 26,784,019 $ 27 $ 23,425 $ 646 $ (29,269 ) $ 16 $ (5,155 ) 86,744 - 165 356 522 105,000 1 321 322 2,844,156 2 8,621 938 9,561 130,208 - - - 416,667 - 500 500 64 64 3,035 3,035 801 801 230 230 (6 ) (7 ) (10,028 ) (10,028 ) 30,366,794 $ 30 $ 37,098 $ 2,004 $ (39,297 ) $ 10 $ (155 ) 186,249 - 502 (166 ) 336 208,333 1 250 1,745 1,996 25,675 - - 60 60 5,700,000 6 19,032 19,038 817 817 659 659 (10 ) (10 ) (12,648 ) (12,648 ) 36,487,051 $ 37 $ 58,358 $ 3,643 $ (51,945 ) $ - $ 10,093 191,476 - 586 (221 ) 365 528,790 1 1,744 (1,745 ) - 285,723 - 938 (938 ) - 66,753 - 60 (60 ) - 30,000 - 43 (43 ) - 34,876 - 64 (64 ) - 324,791 - - - 157 157 91 91 (91 ) (91 ) 537 537 2,204 2,204 37,949,460 $ 38 $ 62,239 $ 820 $ (49,741 ) $ - $ 13,356
Balance, December 31, 2017 Issuance of common stock for professional services Warrants granted Beneficial conversion features Noncontrolling interest of Oak Therapeutics, Inc. Net loss Balance, March 31, 2018 Issuance of common stock for professional services Issuance of common stock for purchase of patents Issuance of common stock for cancellation of accounts payable Warrants granted Fair value of stock options and restricted stock granted Noncontrolling interest of Oak Therapeutics, Inc. Net loss Balance, June 30, 2018 Issuance of common stock for professional services Issuance of common stock for extension of maturity dates relating to convertible promissory notes Issuance of common stock for cancellation of accounts payable Warrants granted Beneficial conversion features Fair value of stock options and restricted stock granted Noncontrolling interest of Oak Therapeutics, Inc. Net loss Balance, September 30, 2018 23,901,252 $ 24 $ 16,484 $ 325 $ (18,868 ) $ 47 $ (1,988 ) 50,000 - 74 1,228 1,302 37 37 646 646 (7 ) (7 ) (1,902 ) (1,902 ) 23,951,252 $ 24 $ 17,241 $ 1,553 $ (20,770 ) $ 40 $ (1,912 ) 1,070,175 1 1,015 (776 ) 240 97 97 50 50 (22 ) (22 ) 461 461 (8 ) (8 ) (2,403 ) (2,403 ) 25,021,427 $ 25 $ 18,695 $ 924 $ (23,173 ) $ 32 $ (3,497 ) 590,000 1 849 (412 ) 438 115,000 - 190 407 597 69,444 - 50 (50 ) - 1,684 1,684 355 355 100 100 (10 ) (10 ) (4,799 ) (4,799 ) 25,795,871 $ 26 $ 21,923 $ 869 $ (27,972 ) $ 22 $ (5,132 )
TheSee accompanying notes are an integral part ofto these unaudited condensed consolidated financial statements.
6 |
Table of Contents |
CURE PHARMACEUTICAL HOLDING CORP Unaudited Condensed Consolidated Statements of Cash Flows |
|
(in thousands) |
| For the Nine Months Ended |
| For the Six Months Ended |
| ||||||||||||
| September 30, 2019 |
| September 30, 2018 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
| |||||||||||||||
|
|
|
|
|
| |||||||||||
Net loss |
| $ | (20,482 | ) |
| $ | (9,128 | ) |
| $ | (11,392 | ) |
| $ | (22,686 | ) |
|
| |||||||||||||||
Adjustment to reconcile net loss to net cash used in operating activities: |
| |||||||||||||||
|
| |||||||||||||||
Stock based compensation - services |
| 572 |
| 46 |
|
| 420 |
| 207 |
| ||||||
Stock based compensation - prepaid |
| 1,083 |
| 1,162 |
|
| 300 |
| 900 |
| ||||||
Stock issued for amending convertible promissory notes |
| 320 |
| 190 |
|
| - |
| 321 |
| ||||||
Gain from settlement on accounts payable |
| (15 | ) |
| - |
| ||||||||||
Gain from deconsolidation of Oak Therapeutics, Inc |
| (81 | ) |
| - |
| ||||||||||
Gain from settlement of accounts payable |
| (26 | ) |
| (15 | ) | ||||||||||
Gain from desconsolidation of Oak Therapeutics, Inc. |
| - |
| (81 | ) | |||||||||||
Change in fair value of contingent share consideration |
| 3,866 |
| - |
|
| 5,658 |
| 8,520 |
| ||||||
Loss on conversion of convertible promissory notes |
| 3,660 |
| - |
|
| - |
| 3,660 |
| ||||||
Warrant expense from convertible notes |
| 2,173 |
| - |
|
| - |
| 2,173 |
| ||||||
Depreciation and amortization |
| 420 |
| 110 |
|
| 164 |
| 267 |
| ||||||
Amortization of right of use asset |
| 6 |
| - |
| |||||||||||
Amortization of loan discounts |
| 1,255 |
| 1,651 |
|
| - |
| 1,164 |
| ||||||
Bad debt expenses |
| 14 |
| - |
| |||||||||||
Recovery of bad debt expense |
| (8 | ) |
| - |
|
| - |
| (8 | ) | |||||
Inventory reserve for obsolesce |
| 7 |
| - |
| |||||||||||
Deposits made for purchase of property, plant and equipment |
| (883 | ) |
| - |
| ||||||||||
Inventory reserve for obsolescence |
| (2 | ) |
| 4 |
| ||||||||||
Change of fair value in derivative liabilities |
| (471 | ) |
| 418 |
|
| (75 | ) |
| (273 | ) | ||||
Fair value of vested stock options and restricted stock |
| 1,426 |
| 561 |
|
| 1,069 |
| 889 |
| ||||||
Warrants granted for commission expense |
| 1,178 |
| 1,155 |
|
| - |
| 1,268 |
| ||||||
Warrants granted for broker fee expense |
| 411 |
| - |
|
| - |
| 411 |
| ||||||
Cashless exercise of warrants |
| - |
| - | ||||||||||||
|
| |||||||||||||||
Change in other assets and liabilities: |
|
| ||||||||||||||
Accounts receivable |
| 101 |
| (2 | ) |
| 85 |
| (46 | ) | ||||||
Inventory |
| (47 | ) |
| (48 | ) |
| (52 | ) |
| (15 | ) | ||||
Prepaid expenses and other assets |
| 20 |
| 165 |
|
| (36 | ) |
| (94 | ) | |||||
Other assets |
| 33 |
| 25 |
|
| - |
| 24 |
| ||||||
Accounts payable |
| (379 | ) |
| 250 |
|
| 139 |
| (496 | ) | |||||
Accrued expenses |
| (670 | ) |
| 269 |
|
| 113 |
| (676 | ) | |||||
Contract Liabilities |
| 112 |
| 43 |
| |||||||||||
Finance lease liabilities | �� |
| (6 | ) |
| - |
| |||||||||
Contract liabilities |
| (152 | ) |
| (65 | ) | ||||||||||
License fees |
| 93 |
| - |
|
| (5 | ) |
|
| 95 |
| ||||
|
| |||||||||||||||
Cash used in operating activities |
| (6,306 | ) |
| (3,133 | ) |
|
| (3,778 | ) |
|
| (4,552 | ) | ||
|
| |||||||||||||||
Cash flows from investing activities |
|
| ||||||||||||||
Purchase in intangible assets |
| (47 | ) |
| (72 | ) | ||||||||||
Proceeds from common stock issuance for acquisition of Chemistry Holdings |
| 8,487 |
| - |
| |||||||||||
Investment in company |
| (250 | ) |
| - |
| ||||||||||
Purchase of intangible assets |
| (8 | ) |
| (29 | ) | ||||||||||
Proceeds from common stock issuance for acquisition of Chemistry Holdings, Inc |
| - |
| 8,487 |
| |||||||||||
Acquisition of property and equipment, net |
| (377 | ) |
| (51 | ) |
|
| (586 | ) |
|
| (790 | ) | ||
|
| |||||||||||||||
Cash provided by (used in) investing activities |
|
| (844 | ) |
|
| 7,668 |
| ||||||||
|
| |||||||||||||||
Cash flows from financing activities |
| |||||||||||||||
Proceeds from convertible notes payable |
| - |
| 3,425 |
| |||||||||||
Proceeds from common stock issuance |
| - |
| 750 |
| |||||||||||
Proceeds from stock payable |
| - |
| 1,745 |
| |||||||||||
Proceeds from exercise of warrants |
| 1,417 |
| 61 |
| |||||||||||
Proceeds from notes payable |
| 649 |
| - |
| |||||||||||
Repayment of convertible notes payable |
| - |
| (1,225 | ) | |||||||||||
Repayment of notes payable |
| - |
| (650 | ) | |||||||||||
Repayment of loans payable |
|
| (111 | ) |
|
| (78 | ) | ||||||||
|
|
|
|
| ||||||||||||
Cash provided by financing activities |
|
| 1,955 |
|
|
| 4,028 |
| ||||||||
|
| |||||||||||||||
Net increase (decrease) in cash and cash equivalents |
| (2,667 | ) |
| 7,144 |
| ||||||||||
|
| |||||||||||||||
Cash and cash equivalents, beginning of year |
|
| 4,096 |
|
|
| 501 |
| ||||||||
|
| |||||||||||||||
Cash and cash equivalents, end of year |
| $ | 1,429 |
|
| $ | 7,645 |
|
7 |
|
Cash provided by (used in) investing activities |
| 8,063 |
| (123 | ) | |||
| ||||||||
Cash flows from financing activities |
| |||||||
Proceeds from convertible notes payable |
| 3,425 |
| 3,600 |
| |||
Proceeds from promissory notes |
| - |
| 250 |
| |||
Proceeds from common stock issuance |
| 2,495 |
| - |
| |||
Proceeds from stock payable |
| - |
| - |
| |||
Proceeds from exercise of warrants |
| 60 |
| - |
| |||
Repayment of convertible notes payable |
| (1,225 | ) |
| - |
| ||
Repayment of notes payable |
| (650 | ) |
| - |
| ||
Repayment of loans payable |
| (105 | ) |
| (400 | ) | ||
| ||||||||
Cash provided by financing activities |
| 4,000 |
| 3,450 | ||||
| ||||||||
Net increase in cash and cash equivalents |
| 5,757 |
| 194 | ||||
| ||||||||
Cash and cash equivalents, beginning of period |
| 501 |
| 109 | ||||
| ||||||||
Cash and cash equivalents, end of period |
| $ | 6,258 |
| $ | 303 | ||
| ||||||||
Supplemental cash flow information | ||||||||
| ||||||||
Cash paid for interest and income taxes: |
| |||||||
Interest |
| $ | 90 |
| $ | 67 |
| |
Income taxes |
| $ | - |
| $ | - | ||
| ||||||||
Non-cash financing activities: |
| |||||||
Common stock related to prepaid expense |
| $ | - |
| $ | 1,018 |
| |
Warrants granted for discount on convertible promissory notes |
| $ | - |
| $ | 1,546 |
| |
Common stock issued for conversion of promissory notes and accrued interest |
| $ | 5,902 |
| $ | - |
| |
Common stock payable for conversion of convertible note |
| $ | - |
| $ | 263 |
| |
Common stock payable for issuance of a promissory note |
| $ | - |
| $ | 144 |
| |
Common stock payable for patents |
| $ | - |
| $ | 97 |
| |
Common stock payable for purchase of intellectual property |
| $ | 157 |
| $ | - |
| |
Common stock issued for settlement of accounts payable |
| $ | 65 |
| $ | 50 |
| |
Accrued interest converted to convertible promissory note |
| $ | - |
| $ | 10 |
| |
Fixed assets received from the acquisition of Chemistry Holdings, Inc |
| $ | 83 |
| $ | - |
| |
Patents received from the acquistion of Chemistry Holdings, Inc |
| $ | 650 |
| $ | - |
| |
In-process research and development received from the acquistion of Chemistry Holdings, Inc |
| $ | 14,460 |
| $ | - |
| |
Goodwill resulting from the acquisiton of Chemistry Holdings, Inc |
| $ | 9,178 |
| $ | - |
| |
Contingent share considerations for acquistion of Chemistry Holdings |
| $ | 14,632 |
| $ | - |
| |
Liabilities assumed from the acquisiton of Chemistry Holdings, Inc |
| $ | 1,189 |
| $ | - |
| |
Convertible promissory note payable eliminated from the acquisiton of Chemistry Holdings, Inc |
| $ | 2,000 |
| ||||
Cashless exercise of warrants |
| $ | - |
| $ | - |
| |
Liabilities released as a result of deconsolidation of Oak Therapeutics, Inc |
| $ | 76 |
| $ | - |
| |
Non-controlling interest released as a result of deconsolidation of Oak Therapeutics, Inc |
| $ | 16 |
| $ | - |
Supplemental cash flow information |
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|
|
|
|
| ||
|
|
|
|
|
|
| ||
Cash paid for interest and income taxes: |
|
|
|
|
|
| ||
Interest |
| $ | 3 |
|
| $ | 89 |
|
Income taxes |
| $ | - |
|
| $ | - |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Common stock issued for conversion of promissory notes and accrued interest |
| $ | - |
|
| $ | 8,623 |
|
Beneficial conversion feature |
| $ | - |
|
| $ | 801 |
|
Common issued for prepaid expense |
|
|
|
|
| $ | 659 |
|
Common stock payable for note conversion |
| $ | - |
|
| $ | 938 |
|
Common stock issued for settlement of accounts payable |
| $ | - |
|
| $ | 65 |
|
Fixed assets received from the acquisition of Chemistry Holdings, Inc |
| $ | - |
|
| $ | 83 |
|
Patents received from the acquistion of Chemistry Holdings, Inc |
| $ | - |
|
| $ | 650 |
|
In-process research and development received from the acquistion of Chemistry Holdings, Inc |
| $ | - |
|
| $ | 14,460 |
|
Goodwill resulting from the acquisiton of Chemistry Holdings, Inc |
| $ | - |
|
| $ | 9,178 |
|
Contingent share considerations for acquistion of Chemistry Holdings |
| $ | - |
|
| $ | 14,632 |
|
Liabilities assumed from the acquisiton of Chemistry Holdings, Inc |
| $ | - |
|
| $ | 1,189 |
|
Convertible promissory note payable eliminated from the acquisiton of Chemistry Holdings, Inc |
| $ | - |
|
| $ | 2,000 |
|
Liabilities released as a result of deconsolidation of Oak Therapeutics, Inc |
| $ | - |
|
| $ | 76 |
|
Non-controlling interest released as a result of deconsolidation of Oak Therapeutics, Inc |
| $ | - |
|
| $ | 6 |
|
Common stock issued for settlement of earnout liabilities from the acquisiton of Chemistry Holdings, Inc |
| $ | 21,701 |
|
| $ | - |
|
TheSee accompanying notes are an integral part ofto these unaudited condensed consolidated financial statements.
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CURE PHARMACEUTICAL HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Business Operations
CURE Pharmaceutical Holding Corp. (“CPHC”), and its wholly-owned subsidiaries,subsidiary, CURE Pharmaceutical Corporation (“CURE Pharmaceutical”) and Chemistry Holdings Inc. and its recently acquired subsidiaries (collectively referred to as “CHI”) (CPHC, CURE Chemistry, Inc. (collectively (thePharmaceutical, and CHI, collectively the “Company,” “we,” “our,” “us,” or “CURE”) is an emerging growtha 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 is to improve lives by redefining how medications are delivered and experienced. Our primary business strategymodel is to develop wellness and drug products using our proprietary technology, which development may include preclinical and clinical developmentstudies and regulatory approval, and license thegrant product rights to partners responsible for marketing, sales and distribution, while retaining exclusive manufacturing rights. We operate in a 25,000 square foot cGMP manufacturing plant in Oxnard, CA.
Our CUREformTMtechnology platform focuses on improving oral drug delivery by combining drug encapsulation techniques with alternative dosage forms including CUREfilm®, includes oral dissolving films (ODF)film (“ODF”), and CUREpodsTM , chewable products.encapsulation systems (“microCURE”) compatible with ODF, chews, oral solutions, topical and transdermal dose forms. We apply our technology to pharmaceutical drugs and dietary supplements.supplements for the wellness market. 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, or GI, tract (GI) when placed on the tongue and swallowed, or directly to the blood stream when placed under the tongue (sublingual) or on the inner lining of the cheek and lip (buccal).
We currently have two commercial products and several development programs underway.Background
Background
CURE, formerly known as Makkanotti Group Corp, wasWe were 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 Companywe changed itsour name from Makkanotti Group Corp to CURE Pharmaceutical Holding Corp. On September 27, 2019, the Company reincorporated from the State of Nevada to the State of Delaware.
On November 7, 2016, the Company,we, in a reverse take-over transaction, acquired CURE Pharmaceutical Corporation (“CURE Pharmaceutical”), a specialty pharmaceutical and bioscience company based in California that specializes in drug delivery technologies, by executing a Share Exchange Agreement and Conversion Agreement, (“Exchange Agreement”) by and among the Companyus 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, a California corporation, all of the shareholdersholders of CURE Pharmaceutical’s issued and outstanding shareshares of capital stock (the “CURE PharmPharmaceutical Shareholders”) and the holders of certain convertible promissory notes of CURE Pharmaceutical (“CURE PharmPharmaceutical Noteholders”), on the other hand. Hereinafter, this share exchange transaction is described as thehand (the “Share Exchange.” Exchange”).
As a result of the Share Exchange, CURE Pharmaceutical became a wholly owned subsidiary of the Company,CPHC, and the CURE PharmPharmaceutical Shareholders and CURE PharmPharmaceutical Noteholders became the controlling shareholdersCPHC stockholders owning, at such time, approximately 65% of the Company. For accounting purposes, CURE Pharmaceutical was the surviving entity. The transaction was accounted for using the reverse acquisition method of accounting. As a result of the recapitalizationour issued and change in control, CURE Pharmaceutical was the acquiring entity in accordance with ASC 805, Business Combinations.outstanding common stock.
We licensed our technology available to a private company, Oak Therapeutics (“Oak”), to develop products for sale in the developing world (“Territory”). On November 10, 2017, we received 269,000 shares ofentered into an exclusive license agreement with Oak as consideration forTherapeutics, Inc. (“Oak”), whereby we granted Oak an exclusive license to our patent rights in the developing world (the “Territory”) to develop products in the Territory along with a royalty-free non-exclusive license to any improvements made by Oak. As a resultIn consideration for such licenses, we received 269,000 shares of this transaction, we owned approximately 63% of Oak’s outstanding shares and consolidated Oak’s financial statements as of the fourth quarter 2017.Oak. Due to the lack of performance by Oak under the license agreement, on April 15, 2019, we terminated all contractual relationships with Oak, including the license and surrendered our Oak shares to Oak. The parties terminated all contractual relationships between them, whether written or verbal, express or implied. All license or other rights previously granted by Oak to the Companyus or the Companyus to Oak were terminated, including all licenses or rights of any kind granted by the Company. (See Note 13 for deconsolidation of Oak)us.
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On May 14, 2019, (the “Closing Date”), the Company, andCPHC, CURE Chemistry Inc., a Delaware corporation and wholly ownedwholly-owned subsidiary of the CompanyCPHC (“Merger Sub”), and CHI, 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 HoldingsCHI pursuant to a merger of the Merger Sub with and into Chemistry HoldingsCHI (the “Merger”). Pursuant to the Merger, Chemistry HoldingsCHI became a wholly-owned subsidiary of the CompanyCPHC and the stockholders of Chemistry HoldingsCHI received shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”)CPHC’s Common Stock in exchange for all of the issued and outstanding shares of Chemistry Holdings. (See Note 13)CHI.
The Coronavirus Disease 2019 (COVID-19) Pandemic
The COVID-19 pandemic was declared a global pandemic by the World Health Organization on March 11, 2020, has spread across the globe and is impacting worldwide economic activity. A pandemic, including COVID-19, or other public health epidemic poses the risk that the Company wasor its employees, suppliers, and other partners may be prevented from conducting business activities at full capacity for an indefinite period of time, including due to spread of the acquiring entitydisease within these groups or due to shutdowns that may be requested or mandated by governmental authorities. While it is not possible at this time to estimate the impact that COVID-19 could have on the Company’s business, the continued spread of COVID-19 and the measures taken by the governments of countries affected and in accordancewhich the Company operates could disrupt the operation of the Company’s business. The COVID-19 outbreak and mitigation measures may also have an adverse impact on global economic conditions, which could have an adverse effect on the Company’s business and financial condition, including on its potential to conduct financings on terms acceptable to the Company, if at all. In addition, the Company undertook temporary precautionary measures intended to help minimize the risk of the virus to its employees, including temporarily requiring a majority of our employees to work remotely, and discouraging employee attendance at in-person work-related meetings, which could negatively affect the Company’s business. The extent to which the COVID-19 outbreak impacts the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact. Due to the speed with ASC 805, Business Combinations.
Liquidity and Capital Resources
In connection with preparing unaudited condensedwhich the COVID-19 situation is developing, the Company is not able at this time to estimate the impact of COVID-19 on its consolidated financial statements and related disclosures, but the impact could be material for the threeremainder of fiscal year 2020 in all business aspects and nine months ended September 30, 2019, management evaluated whether there were conditions and events, considered in the aggregate, that raised substantial doubt about the Company’s ability to continue as a going concern within one year from the date that the financial statements are issued. As part of the Company’s evaluation, the Company considered the following:
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Based on these considerations, the Company believes that its current cash reserves and its revenues shallcould be adequate to sustain operations over the next 12 months.material during any future period affected either directly or indirectly by this pandemic.
IfWhile the extent and duration of the economic downturn from the COVID-19 pandemic remains unclear, the Company does require additional funds,has considered, among other things, whether the global operational disruptions indicate a change in circumstances that may trigger asset impairments and whether it may do so throughneeds to revisit accounting estimates and projections or its expectations about collectability of receivables. Additionally, the saleCompany has considered the potential impacts on its fair value disclosures and on its internal control over financial reporting. During the quarter, the Company's facilities, research laboratory, manufacturing and storage facilities have been operating at close to full capacity, and staff have remote working capabilities, and there was no significant direct impact on the Company's operations as a result of common stock, combinedthe economic downturn. While significant uncertainty still exists concerning the magnitude of the impact and duration of the COVID-19 pandemic on the global economy, the Company has determined that there was no triggering event for an impairment with or without warrants,respect to any of its assets nor has there been an adverse change in the saleprobability related to the collectability of notes, and,its receivables. The Company continues to a lesser extent, equipment financing facilities and secured loans.assess the potential impact of the global economic situation on its consolidated financial statements. Please see Item 1A. Risk Factors of this Quarterly Report on Form 10-Q.
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”) and its wholly-owned subsidiaries , CURE Pharmaceutical Corporation (“CURE”) Chemistry Holdings Inc. and related subsidiaries recently acquired (collectively referred to as “CHI”) and its 63% majority owned subsidiary Oak Therapeutics, Inc. (“Oak”) through April 15, 2019 as the Company entered into a Termination and Release Agreement with Oak to surrender all of the Company’s shares of Oak and terminate any rights the Company may have to acquire additional shares or interest in 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 AmericaGAAP 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 AmericaGAAP 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 SeptemberJune 30, 2019,2020, and the results of operations and cash flows for the periods presented. The results of operations for the three and nine monthssix month periods ended SeptemberJune 30, 20192020 and 2018,2019, 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, 20182019 filed with the Securities and Exchange Commission (the “SEC”)SEC on April 1, 2019.March 30, 2020.
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Principle of Consolidation
The condensed financial statements include the accounts of CPHC and its wholly-owned subsidiaries, CURE Pharmaceutical, CHI and its 63% majority owned subsidiary Oak, through April 15, 2019 when the Company entered into a Termination and Release Agreement with Oak whereby the Company surrender all of its shares of Oak and terminated any rights the Company may have had to acquire additional shares or interest in Oak. 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. Business acquisitions are included in the Company’s consolidated financial statements from the date of the acquisition. The Company’s purchase accounting resulted in all assets and liabilities of acquired businesses being recorded at their estimated fair values on the acquisition dates.
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 June 30, 2020, we had an accumulated deficit of approximately $62 million and a working capital deficit of approximately $1.0 million. Our operating activities consume the majority of our cash resources. We anticipate that we will continue to incur operating losses and negative cash flows from operations, at least into the near future, as we execute our commercialization and development plans and strategic and business development initiatives.
As of June 30, 2020 we had approximately $1.4 million of cash on hand, which is expected to provide operating cash needs for up to four months. We have previously funded, and intend to continue funding, our losses primarily through the issuance of common stock and/or convertible promissory notes, combined with or without warrants, and cash generated from our product sales and research and development and license agreements. We are currently discussing various financing alternatives with potential investors, but there can be no assurance that these funds will be available on terms acceptable to us or will be enough to fully sustain operations. If we are unable to raise sufficient additional funds, we will have to develop and implement a plan to extend payables, reduce expenditures, or scale back our business plan until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.
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.
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. These estimatesstatements and assumptions also affect the reported amounts of revenues, costsrevenue and expenses during the reportingreported period. Management evaluates theseSignificant areas requiring the use of management estimates include, but are not limited to, the allowance for doubtful accounts, valuation of intangible assets, depreciative and amortization useful lives, assumptions on a regular basis.used to calculate the fair value of the contingent share consideration, stock based compensation, beneficial conversion features, warrant values, deferred taxes and the assumptions used to calculate derivative liabilities. Actual results could differ materially from those estimates.such estimates under different assumptions or circumstances.
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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-liquidhighly liquid investments with maturities of three months or less when purchased,at the time of purchase to be cash and cash equivalents. As of SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company had no cash equivalents. At September 30, 2019 and December 31, 2018, theThe 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$250,000 per bank. The Company minimizes this risk by placing its cash deposits with major financial institutions. At June 30, 2020 and December 31, 2019, the Company had $1.2 million and $3.8 million 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 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
On November 1, 2019, the Company purchased a convertible loan (the “Releaf Loan”) with Releaf Europe BV (“Releaf”) in the amount of $0.2 million. Releaf shall accrue interest on the Releaf Loan at 6% per annum and shall become due and payable to the Company at the earlier of the conversion date, the date when the Releaf Loan is included withinrepaid or at the carryingmaturity date of October 31, 2021. In the event of a request for conversion by the Company or at the end of the maturity date, October 31, 2021, the outstanding amount of the investment.Releaf Loan and any unpaid accrued interest shall be converted into shares of Releaf based on a price per share on a post money valuation of $10.9 million. In the event Releaf completes a financing round totaling at least $2 million of debt and/or equity (“Releaf Qualified Financing”), the outstanding amount of the Releaf Loan and any unpaid accrued interest shall automatically convert at a price per share paid by the investors in connection with the Releaf Qualified Financing less a discount of 20% on the subscription price. In addition, both the Company and Releaf agree in the event that the pre-money valuation of the Releaf Qualified Financing is higher than $15 million, the conversion shall be calculated with a cap of pre-money valuation of $14.5 million. As of June 30, 2020, the Company recorded an investment using the cost method of accounting in Releaf and did not record any accrued interest relating to the Releaf Loan.
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Property
On February 5, 2020 and EquipmentFebruary 13, 2020, the Company purchased two convertible loans (the “February 2020 Loans”) with Releaf for a total amount of $0.3 million. Releaf shall accrue interest on the February 2020 Loans at 6% per annum and they shall become due and payable to the Company at the earlier of the conversion date or the maturity date of October 31, 2021. In the event of a request for conversion by the Company or at the end of the maturity date, October 31, 2021, the outstanding amounts of the February 2020 Loans and any unpaid accrued interests shall be converted into shares of Releaf based on a price per share on a post money valuation of $10.9 million. In the event Releaf completes a financing round totaling at least $2 million of debt and/or equity (“Releaf February 2020 Qualified Financing”), the outstanding amount of the February 2020 Loans and any unpaid accrued interest shall automatically convert at a price per share paid by the investors in connection with the Releaf February 2020 Qualified Financing, less a discount of 20% on the subscription price. In addition, in the event that the pre-money valuation of the Releaf February 2020 Qualified Financing is higher than $15 million, the conversion shall be calculated with a cap of pre-money valuation of $14.5 million. As of June 30, 2020, the Company recorded an investment using the cost method of accounting in Releaf and did not record any accrued interest relating to the foregoing Releaf loans.
The Company capitalizes expenditures relatedfollows Accounting Standards Codification (“ASC”) 325-20, Cost Method Investments (“ASC 325-20”), to propertyaccount for its ownership interest in noncontrolled entities. Under ASC 325-20, equity securities that do not have readily determinable fair values (i.e., non-marketable equity securities) and equipment, subjectare not required to a minimum rule, that have a useful life greater than one year for: (1) assets purchased; (2) existing assetsbe accounted for under the equity method are typically carried at cost (i.e., cost method investments). Investments of this nature are initially recorded at cost. Income is recorded for dividends received that are replaced, improved ordistributed from net accumulated earnings of the useful lives have been extended; or (3) all land, regardlessnoncontrolled entity subsequent to the date of cost. Acquisitionsinvestment. Dividends received in excess of new assets, additions, replacementsearnings subsequent to the date of investment are considered a return of investment and improvements (otherare recorded as reductions in the cost of the investment. Investments are written down only when there is clear evidence that a decline in value that is 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. Depreciationtemporary has been provided using the straight-line method on the following estimated useful lives:occurred.
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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 SeptemberJune 30, 2019 and December 31, 2018,2020 management determined that an allowance of $0.1 million was necessary which amounted to approximately $9 and $8, 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, atnecessary. At December 31. When necessary, we record charges for impairments.
Specifically:
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Management31, 2019, management determined that no impairment indicators were present and that no impairment charges were necessary as of September 30, 2019 or December 31, 2018.allowance was necessary.
Revenue Recognition
We recognize revenue in accordance with Accounting Standards Codification (“ASC”)ASC 606, “Revenue Recognition”“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 beare 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:
| · | Identify the contract(s) with customer; |
| · | Identify the performance obligations in the contract; |
| · | Determine the transactions price; |
| · | Allocate the transactions price to the performance obligations in the contract; and |
| · | 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 CUREForm™ technology.CureFilm™ Technology or our other proprietary technologies. Rarely our 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.
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The Company’s formulation and product development income includesinclude services for the development of OTF products utilizing our CUREForm™ technology.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.
Contract liabilities is shown separately in the condensed consolidated balance sheets. At SeptemberJune 30, 20192020 and December 31, 20182019, we had contract liabilities of $0.5$0.3 million and $0.4 million, respectively.
Cost of revenues primarily consists of labor and manufacturing costs for our products.
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 and six month periods ended June 30, 2020. The Company recorded advertising costs of $0.1 million and $0.3$0.2 million for the three and ninesix month periods ended SeptemberJune 30, 2019, respectively. The Company recorded advertising costs of $0.05 million and $0.1 million for the three and nine month periods ended September 30, 2018, 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 $0.5$0.7 million and $1.5 million for the three and ninesix month periods ended SeptemberJune 30, 2019,2020, respectively. The Company recorded research and development expenses of $0.3$0.7 million and $1.1 million for the three and ninesix month periods ended SeptemberJune 30, 2018,2019, respectively.
Income Taxes
The Company utilizes FASBFinancial Accounting Standards Board (“FASB”) ASC 740, “Income“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.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the outbreak of a novel strain of the coronavirus, COVID-19. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”). Under the CARES Act, net operating losses (“NOLs”) arising in tax years beginning after December 31, 2017, and before January 1, 2021 may be carried back to each of the five tax years preceding the tax year of such loss. Moreover, under the 2017 Tax Act as modified by the CARES Act, federal NOLs of our corporate subsidiaries generated in tax years ending after December 31, 2017 may be carried forward indefinitely, but the deductibility of federal NOLs, particularly for tax years beginning on or after January 1, 2021, may be limited. The accounting for the material income tax impacts will be reflected in the 2020 financial statements. It is uncertain if and to what extent various states will conform to the 2017 Tax Act or the CARES Act. The Company is currently assessing the impact the CARES Act will have on the Company’s consolidated financial statements.
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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 2018-07 (Topic 718) for share-based payments to employees, and 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 grant date. The Company uses the Black-Scholes option valuation model for estimating fair value at the date of grant.
The Company accounts for restricted stock awards and stock options issued at fair value, based on an exercise price per share equal to the volume-weighted average of the high and low selling prices of the Company’s common stock reported on the OTC Bulletin Board for the five (5) trading days in the Company’s common stock beginning with the third (3rd) such trading following the Filing Date and ending with the seventh (7th) such trading day following the Filing Date. Compensation expense is recognized for the portion of the award that is ultimately expected to vest over the period during which the recipient renders the required services to the Company generally using the straight-line single option method.
In the case of award modifications, Thethe Company accounts for the modification in accordance with ASUAccounting Standards Update (“ASU”) No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, whereby the Company recognizes the effect of the modification in the period the award is modified.
As of January 1, 2019, the Company adopted ASU No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which aligns the accounting of share-based payment awards issued to employees and nonemployees. The adoption did not materially impact our condensed consolidated financial statements.
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“Accounting for derivative instrumentsDerivative Instruments and hedging activities”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 SeptemberJune 30, 20192020 and December 31, 2018,2019, 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“Fair Value Measurements and Disclosures”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:
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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 than complex methods, using Level 3 inputs.inputs (See Note 10)13).
We measured the contingent stock consideration based on the following: i)(i) Company’s closing price at the end of each quarter; ii)(ii) the estimated fair value using the Monte-Carlo simulation of stock price correlation, and other variables over a 61 month performance period applied to the total number of contingent shares, as determined based on the weighted average present value probability of each the various estimates of milestones, earn-out amounts and achievements being accomplished; and iii)(iii) the fair value of the acquisition warrant shares based on using the Black-Scholes valuation
The following table summarizes fair value measurements by level at SeptemberJune 30, 20192020 for assets and liabilities measured at fair value on a recurring basis:basis (in thousands):
(Dollars in thousands) |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Fair value of contingent stock consideration |
| $ | 18,498 |
|
| $ | - |
|
| $ | - |
|
| $ | 18,498 |
|
Fair value of Derivative Liability |
| $ | 147 |
|
| $ | - |
|
| $ | - |
|
| $ | 147 |
|
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Fair value of contingent stock consideration |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Fair value of derivative liability |
| $ | 16 |
|
| $ | - |
|
| $ | - |
|
| $ | 16 |
|
The following table summarizes fair value measurements by level at December 31, 20182019 for assets and liabilities measured at fair value on a recurring basis:basis (in thousands):
(Dollars in thousands) |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Fair value of Derivative Liability |
| $ | 618 |
|
| $ | - |
|
| $ | - |
|
| $ | 618 |
|
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Fair value of contingent stock consideration |
| $ | 16,043 |
|
| $ | - |
|
| $ | - |
|
| $ | 16,043 |
|
Fair value of derivative liability |
| $ | 91 |
|
| $ | - |
|
| $ | - |
|
| $ | 91 |
|
The fair value of contingent stock consideration is evaluated each reporting period using projected financial information, discount rates, and key inputs. Projected contingent payment amounts are discounted back to the current period using a discount rate. Financial information is based on the Company’s most recent internal forecasts. Changes in projected financial information, the Company’s stock price, discount rate and time for settlement of milestones and earnouts may result in higher or lower fair value measurements. Increases (decreases) in any of those inputs in isolation may result in a significantly lower (higher) fair value measurement. For the period from the date of acquisitionDecember 31, 2019 to SeptemberJune 30, 2019,2020, the Company’s stock price, volatility percentage and the weighted average present value probability of each the various estimates of milestones, earn-out amounts and achievements being accomplished all decreased resultingresulted in a significant decrease of the fair value of the contingent stock consideration. In June 2020, we settled all of our outstanding contingent consideration liabilities outstanding with Chemistry Holdings Inc,
16 |
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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 June 30, 2020, and December 31, 2019, the Company reflected a non-controlling interest of $0 and $0 respectively, in connection with our majority-owned subsidiary, Oak as reflected in the accompanying consolidated balance sheets.
Contingencies
We are exposed to claims and litigation arising in the ordinary course of business and use various methods to resolve these matters in a manner that we believe serves the best interest of our shareholders and other constituents. When a loss is probable, we record an accrual based on the reasonably estimable loss or range of loss. When no point of loss is more likely than another, we record the lowest amount in the estimated range of loss and, if material, disclose the estimated range of loss. We do not record liabilities for reasonably possible loss contingencies, but do disclose a range of reasonably possible losses if they are material and we are able to estimate such a range. If we cannot provide a range of reasonably possible losses, we explain the factors that prevent us from determining such a range. Historically, adjustments to our estimates have not been material. We believe the recorded reserves in our consolidated financial statements are adequate in light of the probable and estimable liabilities. We do not believe that any of these identified claims or litigation will be material to our results of operations, cash flows, or financial condition.
Net Earnings (Loss)Loss per Common Share
Basic net earnings (loss)loss per common share is computed by dividing the net earnings (loss)loss by the weighted average number of common shares outstanding during the period, excluding any unvested restricted stock awards. Diluted net earningsloss per share is computed by dividing net earnings byincludes the weighted average common shares outstanding during the period plus dilutive securities or other contracts to issueeffect of common stock as if these securities were exercisedequivalents (stock options, unvested restricted stock, and warrants) when, under either the treasury or converted to common stock.
The following table sets forthif-converted method, such inclusion in the computation of basic and diluted net income per sharewould be dilutive. Net loss is adjusted for the period indicated:dilutive effect of the change in fair value liability for price adjustable warrants, if applicable.
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
(Dollars in thousands) |
| September 30, 2019 |
|
| September 30, 2018 |
|
| September 30, 2019 |
|
| September 30, 2018 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 2,204 |
|
| $ | (4,799 | ) |
| $ | (20,472 | ) |
| $ | (9,101 | ) |
Weighted average outstanding shares of common stock |
|
| 34,613,642 |
|
|
| 24,403,901 |
|
|
| 33,247,660 |
|
|
| 24,635,143 |
|
Dilutive potential common stock shares from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested Stock options from the Company’s 2017 Equity Incentive Plan |
|
| 228,759 |
|
|
| - |
|
|
| - |
|
|
| - |
|
Conversion of convertible notes |
|
| 115,047 |
|
|
| - |
|
|
| - |
|
|
| - |
|
Issuance of contingent shares relating to CHI acquisition |
|
| 8,410,875 |
|
|
| - |
|
|
| - |
|
|
| - |
|
Common stock and common stock equivalents |
|
| 43,368,323 |
|
|
| 24,403,901 |
|
|
| 33,247,660 |
|
|
| 24,635,143 |
|
Income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
|
| 0.06 |
|
|
| (0.20 | ) |
|
| (0.62 | ) |
|
| (0.37 | ) |
Diluted net income per share |
|
| 0.05 |
|
|
| (0.20 | ) |
|
| (0.62 | ) |
|
| (0.37 | ) |
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:
|
| For the Three Months Ended |
| For the Nine Months Ended |
|
| For the Three and Six Months Ended June 30, |
| ||||||||||||||||
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| 2020 |
|
| 2019 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Vested stock options from the Company’s 2017 Equity Incentive Plan |
| - |
|
| 132,153 |
|
| 1,481,391 |
|
| 527,231 |
| ||||||||||||
Restricted stock and stock options outstanding |
| 3,460,767 |
| 1,743,673 |
| |||||||||||||||||||
Warrants |
| - |
|
| 258,644 |
|
| 6,648,446 |
|
| 3,656,107 |
|
| 6,648,446 |
| 5,638,770 |
| |||||||
Shares to be issued upon conversion of convertible notes |
|
| - |
|
|
| 3,546,908 |
|
|
| 115,047 |
|
|
| 3,546,908 |
| ||||||||
Shares to be issued upon conversion of convertible payable |
|
| 115,047 |
|
|
| 115,047 |
| ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total |
|
| - |
|
|
| 3,937,705 |
|
|
| 8,244,884 |
|
|
| 7,730,246 |
|
|
| 10,224,260 |
|
|
| 7,497,490, |
|
17 |
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In connection with CHI acquisition, theEmerging Growth Company estimated as of the Closing Date that approximately 8,410,875 common stock shares, of which 7,128,913 common stock shares
We are held in escrow, may be issued and released over a period of 5 months to 5 years. These potential post-closing claims relate to, among other things, breaches of representations, warranties and covenants contained in the Merger Agreement and the future earn-out and achievement of a variety of milestonesan “emerging growth company” as defined in the Merger Agreement. Additionally,Jumpstart our Business Startups Act of 2012 (“JOBS Act”). For as long as we are an “emerging growth company,” we are not required to: (i) comply with any new or revised financial accounting standards that have different effective dates for public and private companies until those standards would otherwise apply to private companies, (ii) provide an auditor’s attestation report on management’s assessment of the effectiveness of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, (iii) comply with any new requirements adopted by the Public Company Accounting Oversight Board (“PCAOB”) requiring mandatory audit firm rotation or a warrant was issued to purchase up to 8,018,071 common stock shares which vest based on various revenue achievement during year 3 and year 4 post the CHI acquisition Closing Date. Duesupplement to the uncertaintyauditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the numberissuer or (iv) comply with any new audit rules adopted by the PCAOB after April 5, 2012, unless the SEC determines otherwise. However, we have elected to “opt out” of sharesthe extended transition period discussed in (i), and will therefore comply with new or revised accounting standards on the applicable dates on which the adoption of such standards are required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to be issued and vested under the warrant, these shares were not included in the table above.opt out of such extended transition period for compliance with new or revised accounting standards is irrevocable.
Recently Issued StandardsASU 2016-13
In FebruaryJune 2016, the FASB issued ASU 2016-02, “Leases” (“2016-13 (as amended through November 2019), Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-02”).2016-13 introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables and held-to-maturity debt securities, which will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. 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. 2016-02also expands disclosure requirements. ASU 2016-13 is effective for public business entities for annual periods, including interim periods within those annual periods,the Company beginning after December 15, 2018, with earlyin the first quarter of 2020. The guidance will be applied using the modified-retrospective approach. The adoption permitted. We adoptedof this ASU No. 2016-02 in our fiscal year beginning January 1, 2019 and used 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 willdid not have a material effectimpact on the condensedCompany’s consolidated balance sheet.financial statements.
ASU 2018-13
In JuneAugust 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 related2018-13, Disclosure Framework - Changes to the acquisition of goodsDisclosure Requirements for Fair Value Measurements, which eliminates, adds and services from both nonemployees and employees. The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earningsmodifies certain disclosure requirements for fair value measurements as part of the beginning ofFASB’s disclosure framework project. ASU 2018-13 is effective for the fiscal year of adoption. The guidance permits early adoption and was adopted by the Company beginning in the first quarter of fiscal year 2019.2020. The adoption of this ASU did not have any impact on the Company’s consolidated financial statements.
ASU 2017 - 04
In August 2018,January 2017, the FASB issued ASU 2018-15, “Intangibles—Goodwill2017-04, Intangibles-Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s AccountingOther, which simplifies the test for Implementation Costs Incurredgoodwill impairment. This update eliminates Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of the assets acquired and liabilities assumed in a Cloud Computing Arrangement That Isbusiness combination. Instead an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a Service Contract (a consensusreporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, however the loss recognized should not exceed the total amount of goodwill allocated to the FASB Emerging Issues Task Force)” (“ASU 2018-15”).reporting unit. The amendments in ASU 2018-15 align the requirementsthis update are effective for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). As permitted by ASU 2018-15, the Company early-adoptedfor fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The adoption of this standard on a prospective basis. The adoptionASU did not have any impact on the Company’s consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
ASU 2019-12
In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes” under ASC 740, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. This guidance is effective for fiscal years beginning after December 15, 2021, including interim periods within that fiscal year. Early adoption is permitted. The Company is in the process of evaluating the impacts of this guidance on its consolidated financial statements and related disclosures.
18 |
Table of Contents |
ASU 2020-01
In January 2020, the FASB issued ASU 2020-01, Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815. ASU 2020-01 addresses the accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. Observable transactions that require a materialcompany to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with ASC 321, Investments – Equity Securities, should be considered immediately before applying or upon discontinuing the equity method. Certain non-derivative forward contracts or purchased call options to acquire equity securities generally will be measured using the fair value principles of ASC 321 before settlement or exercise and consideration shall not be given to how entities will account for the resulting investments on eventual settlement or exercise. ASU 2020-01 is effective for the Company beginning in the first quarter of 2021 and early adoption is permitted. ASU 2020-01 should be applied prospectively. The Company is currently assessing the impact this standard will have 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 - PREPAID EXPENSES AND OTHER ASSETS
As of June 30, 2020 and December 31, 2019, prepaid expenses and other assets consisted of the following (in thousands):
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
|
|
|
|
|
|
| ||
Prepaid consulting services |
| $ | 74 |
|
| $ | 285 |
|
Prepaid clinical study |
|
| 175 |
|
|
| 175 |
|
Prepaid insurance |
|
| 66 |
|
|
| 146 |
|
Other receivables |
|
| 2 |
|
|
| - |
|
Prepaid equipment |
|
| 277 |
|
|
| 1,135 |
|
Prepaid inventory |
|
| 34 |
|
|
| 5 |
|
Prepaid expenses |
|
| 29 |
|
|
| 48 |
|
Other assets |
|
| 35 |
|
|
| 35 |
|
Prepaid expenses and other assets |
|
| 692 |
|
|
| 1,829 |
|
Current portion of prepaid expenses and other assets |
|
| (657 | ) |
|
| (1,794 | ) |
Prepaid expenses and other assets less current portion |
| $ | 35 |
|
| $ | 35 |
|
NOTE 4 - 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 SeptemberJune 30, 20192020 and December 31, 2018:2019 (in thousands):
(Dollars in thousands) |
| September 30, 2019 |
|
| December 31, 2018 |
| ||||||||||
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||||||
Raw materials |
| $ | 61 |
| $ | 25 |
|
| $ | 95 |
| $ | 78 |
| ||
Packaging components |
| 8 |
| 8 |
|
| 68 |
| 50 |
| ||||||
Work-in-process |
|
| 14 |
|
|
| 8 |
|
|
| 47 |
|
|
| 18 |
|
Finished goods |
|
| 2 |
|
|
| 15 |
| ||||||||
|
|
| 83 |
|
|
| 41 |
|
| 212 |
| 161 |
| |||
Reserve for obsolescence |
|
| (5 | ) |
|
| (3 | ) |
|
| (2 | ) |
|
| (5 | ) |
Total inventory |
| $ | 78 |
|
| $ | 38 |
|
| $ | 210 |
|
| $ | 156 |
|
Table of Contents |
NOTE 4 - PREPAID EXPENSES AND OTHER ASSETS
As of September 30, 2019 and December 31, 2018, prepaid expenses and other assets consisted of the following:
(Dollars in thousands) |
| September 30, 2019 |
|
| December 31, 2018 |
| ||
|
|
|
|
|
|
| ||
Prepaid consulting services– stock-based compensation |
| $ | 407 |
|
| $ | 936 |
|
Prepaid consulting services |
|
| 60 |
|
|
| 82 |
|
Prepaid insurance |
|
| 22 |
|
|
| 120 |
|
Prepaid inventory |
|
| 30 |
|
|
| - |
|
Other receivables |
|
|
|
|
|
| 3 |
|
Prepaid property, plant and equipment |
|
| 883 |
|
|
| - |
|
Prepaid expenses |
|
| 206 |
|
|
| 37 |
|
Prepaid expenses and other assets |
|
| 1,608 |
|
|
| 1,178 |
|
Current portion of prepaid expenses and other assets |
|
| (1,608 | ) |
|
| (946 | ) |
Prepaid expenses and other assets less current portion |
| $ | - |
|
| $ | 232 |
|
NOTE 5 - PROPERTY AND EQUIPMENT
As of SeptemberJune 30, 2019,2020 and December 31, 2018,2019, property and equipment consisted of the following:following (in thousands):
(Dollars in thousands) |
| September 30, 2019 |
|
| December 31, 2018 |
| ||||||||||
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||||||
|
|
|
|
|
| |||||||||||
Equipment deposits |
| $ | - |
| $ | 20 |
| |||||||||
Manufacturing equipment |
| $ | 896 |
| $ | 842 |
|
| 2,349 |
| 882 |
| ||||
Computer and other equipment |
| 562 |
| 183 |
|
| 620 |
| 616 |
| ||||||
Leasehold improvements |
|
| 75 |
|
|
| 48 |
| ||||||||
Less accumulated depreciation |
|
| (874 | ) |
|
| (773 | ) |
|
| (974 | ) |
|
| (877 | ) |
Property and Equipment, net |
| $ | 659 |
|
| $ | 300 |
|
| $ | 1,995 |
|
| $ | 641 |
|
Depreciation expense forFor the three and ninesix month periods ended SeptemberJune 30, 2019 was $0.042020, depreciation expense amounted to $0.05 million and $0.1 million, respectively. Depreciation expense for the three and ninesix month periods ended SeptemberJune 30, 20182019 was $0.03 million and $0.08$0.05 million, respectively, which includes depreciationrespectively.
NOTE 6 – NOTES RECEIVABLE
On November 12, 2019, the Company purchased a $0.2 million convertible promissory note (the “Coeptis Note”) issued by Coeptis Pharmaceuticals, Inc.(“Coeptis”), a privately held biopharmaceutical company engaged in the acquisition, development and commercialization of $0.002 millionpharmaceutical products. The Coeptis Note is due June 15, 2020, pays interest at the rate of 9% per annum and $0.006 million for capitalized leased assetsgives us the right, at any time, to convert the Coeptis Note into shares of common stock of Coeptis, at a price per share equal to $2.60 or the share price set by the latest qualified financing, whichever is less.
Note receivable consists of the following (in thousands):
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
Coeptis Pharmaceuticals, Inc. |
| $ | 200 |
|
| $ | 200 |
|
Less: allowance for doubtful accounts |
|
| (200 | ) |
|
| (200 | ) |
Note receivable, net |
| $ | - |
|
| $ | - |
|
The Company has allowed in full this note receivable due to the uncertainty of repayment as of the date of this report. Even though we are allowing for the three and nine months ended September 30, 2018, respectively. Accumulated depreciation for property held under capital leases was $0.04 million asfull amount of September 30, 2019 and December 31, 2018.this note receivable, we will exhaust all efforts to collect on this note receivable.
NOTE 67 - INTANGIBLE ASSETS
The Company incurred $0.05 million$0.01 and $0.2$0.03 million of legal patent costs that were capitalized during the ninesix months periods ended SeptemberJune 30, 2020 and 2019, and 2018, respectively. In addition, theThe Company acquired a patent and developed technology withfrom the CHI acquisition patents at a fair value of $0.7 million and in-process research and development with a fair value of $14.5 million as part of the CHI acquisition (See Note 13). The Company purchased $0.2 million of intellectual property from Continuum Brand’s through the issuance of 40,000 common stock shares of the Company during the nine months period ended September 30, 2019. No intellectual properties were acquired through the issuance of common stock shares of the Company for the nine months ended September 30, 2018. No patents were acquired through issuance of common stock shares of the Company for the nine months period ended September 30, 2019. The Company purchased $0.3 million of patents through the issuance of 200,000 common stock shares of the Company during the year ended December 31, 2018.2019. The Company also acquired $14.5 million in Intellectual Property Research and Development and $9.2 million in goodwill from the acquisition of CHI during the year ended December 31, 2019.
Table of Contents |
Intangible Asset Summary
The following table summarizes the estimated fair values as of SeptemberJune 30, 20192020 of the identifiable intangible assets acquired, their useful life, and method of amortization:amortization (in thousands):
(Dollars in thousands) |
| Estimated Fair Value |
|
| Remaining Estimated Useful Life (Years) |
|
| Nine Months Amortization Expense |
| |||||||||||||||
|
| Estimated Fair Value |
|
| Remaining Estimated Useful Life (Years) |
|
| Annual Amortization Expense |
| |||||||||||||||
Intellectual Property |
| $ | 972 |
| 11.48 |
| $ | 31 |
|
| $ | 972 |
| 10.83 |
| $ | 20 |
| ||||||
Patents |
|
| 1,276 |
|
| 12.76 |
|
| 38 |
|
| 1,286 |
| 12.24 |
| 40 |
| |||||||
In-process research and development technology |
|
| 14,460 |
|
| 13.83 |
|
| 172 |
| ||||||||||||||
In-Process research and development technology |
|
| 14,460 |
|
|
| 13.58 |
|
|
| - |
| ||||||||||||
Total |
| $ | 16,708 |
|
|
|
| $ | 241 |
|
| $ | 16,718 |
|
|
|
|
| $ | 60 |
| |||
Less: accumulated amortization |
|
| (507 | ) |
|
|
|
|
|
|
| (675 | ) |
|
|
|
|
| ||||||
Intellectual property and patents, net |
| 16,201 |
|
|
|
|
| |||||||||||||||||
Less: pending patents and in-process research and development technology not subject to amortization |
|
| (14,586 | ) |
|
|
|
|
| |||||||||||||||
Net intangibles |
| $ | 16,043 |
|
|
|
|
| ||||||||||||||||
Less: Pending patents not amortized |
|
| (14,542 | ) |
|
|
|
|
| |||||||||||||||
Net intangible assets subject to amortization |
| $ | 1,615 |
|
|
|
|
|
| $ | 1,501 |
|
|
|
|
|
The net intangible asset was $16.2 million, net of accumulated amortization of $0.5 million, as of September 30, 2019. Amortization expense was $0.1$0.03 million and $0.3$0.06 million for the three and nine monthssix month periods ended SeptemberJune 30, 2019,2020, respectively. Amortization expense was $0.01$0.02 million and $0.03$0.04 million for the three and nine monthssix month periods ended SeptemberJune 30, 2018,2019, respectively.
The estimated aggregate amortization expense over each of the next five years is as follows:follows (in thousands):
(Dollars in thousands) |
| |||||||
2019 |
| $ | 108 |
| ||||
2020 |
| 118 |
| |||||
2020 (remaining) |
| $ | 61 |
| ||||
2021 |
| 118 |
|
| 121 |
| ||
2022 |
| 118 |
|
| 121 |
| ||
2023 |
| 118 |
|
| 121 |
| ||
2024 |
| 121 |
| |||||
Thereafter |
|
| 1,035 |
|
|
| 956 |
|
Total Amortization |
| $ | 1,615 |
|
| $ | 1,501 |
|
NOTE 78 – LOAN PAYABLE
Loan payable consists of the following at SeptemberJune 30, 20192020 and December 31, 2018:2019 (in thousands):
(Dollars in thousands) |
| September 30, 2019 |
|
| December 31, 2018 |
| ||||||||||
Notes to a company due September 29, 2019, including interest at 6.00% per annum; unsecured; interest due monthly |
| $ | - |
|
| $ | 105 |
| ||||||||
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||||||
Notes to a company due September 29, 2020, including interest at 4.95% per annum; unsecured; interest due monthly |
| $ | 16 |
|
| $ | 127 |
| ||||||||
Current portion of loan payable |
|
| - |
|
|
| (105 | ) |
|
| (16 | ) |
|
| (127 | ) |
Loan payable, less current portion |
| $ | - |
|
| $ | - |
|
| $ | - |
| $ | - |
|
Interest expense for the three and nine monthssix month periods ended SeptemberJune 30, 20192020 was $0$0.001 million and $0.003$0.002 million, respectively. Interest expense for the three and nine monthssix month periods ended SeptemberJune 30, 20182019 was $0$0.001 million and $0.002 million, respectively.
Table of Contents |
NOTE 89 – NOTES PAYABLE
Notes payable consist of the following at SeptemberJune 30, 20192020 and December 31, 2018:2019 (in thousands):
(Dollars in thousands) |
| September 30, 2019 |
|
| December 31, 2018 |
| ||
|
|
|
|
|
|
| ||
Note to a company amended on August 27, 2017 and February 27, 2019, due on or before one month from the amended date and the maturity date shall be extended for one month periods as long as the Company is not in default, interest shall accrue at 10% per annum, secured by the Company’s intellectual property. This note was repaid on May 21, 2019. |
| $ | - |
|
| $ | 650 |
|
Note to an individual, non-interest bearing, unsecured and has no fixed terms of repayment. |
|
| 50 |
|
|
| 50 |
|
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 |
|
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. This note was repaid on May 29, 2019. |
|
| - |
|
|
| 100 |
|
|
|
| 50 |
|
|
| 950 |
|
Unamortized discount |
|
|
|
|
|
| (30 | ) |
Current portion of loan payable |
|
| (50 | ) |
|
| (920 | ) |
Loan payable, less current portion |
| $ | - |
|
| $ | - |
|
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
|
|
|
|
|
|
| ||
Note to an individual, non-interest bearing, unsecured and due on demand |
| $ | 50 |
|
| $ | 50 |
|
Promissory Note (“Note”) to a company (“Holder”) due May 18, 2021; interest payable at 8% per annum; unsecured; principal and accrued interest automatically convert into a Convertible Promissory Note (“Convertible Note”) if the Company raises financing through the sale and issuance of promissory notes that are convertible into common stock of the Company on terms that are no less favorable to new investors than the terms described in the term sheet included in the Note, then the Company shall notify the Holder thereof and upon the first closing of such sale, the Holder shall have the right, but not the obligation, to convert into a Convertible Note with the same principal amount and interest accruing from the Note Date, but otherwise on the same terms as the Convertible Note(s) sold for cash to new investors in that financing |
|
| 250 |
|
|
| - |
|
Payment Protection Program Loan due April 2022, including interest at 1% per annum; unsecured |
|
| 399 |
|
|
| - |
|
Unamortized discount |
|
| - |
|
|
| - |
|
Current portion of loan payable |
| $ | 699 |
|
| $ | 50 |
|
In April 2020, the Company received loan proceeds in the aggregate amount of approximately $0.4 million under the Paycheck Protection Program (“PPP”). The PPP, established as part of the CARES Act, provides for loans to qualifying businesses. A portion of the loans and accrued interest are forgivable as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries. No collateral or guarantees were provided in connection with the PPP loans.
The unforgiven portion of the PPP loans is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. The Company intends to use the proceeds for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loans, we cannot assure you that we will not take actions that could cause the Company to be ineligible for forgiveness of the loans, in whole or in part.
Interest expense for the three and ninesix month periods ended SeptemberJune 30, 20192020 was $0$0.002 million and $0.03$0.002 million, respectively. Interest expense for the three and ninesix month periods ended SeptemberJune 30, 20182019 was $0.02$0.006 million and $0.05$0.03 million, respectively.
NOTE 910 – CONVERTIBLE PROMISSORY NOTES
Convertible promissory notes consist of the following at SeptemberJune 30, 20192020 and December 31, 2018:2019 (in thousands):
(Dollars in thousands) |
| September 30, 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 |
|
| $ | 1,400 |
|
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 |
|
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 |
|
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 |
|
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
|
|
|
|
|
|
| ||
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 |
|
| $ | 550 |
|
|
|
|
|
|
|
|
|
|
Unamortized discount |
|
| - |
|
|
| - |
|
Current portion of convertible promissory notes |
| $ | 550 |
|
| $ | 550 |
|
Table of Contents |
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 |
|
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 |
|
|
|
| 550 |
|
|
| 5,575 |
|
Unamortized discount |
|
| - |
|
|
| (333 | ) |
Current portion of convertible promissory notes |
|
| 550 |
|
|
| 5,242 |
|
Convertible promissory notes, less current portion |
| $ | - |
|
| $ | - |
|
During the three and ninesix month periods ended SeptemberJune 30, 2020, the Company incurred $0 and $0 million, respectively, amortization of discount. During the three and six month periods ended June 30, 2019, the Company incurred $0 and $1.1 million, respectively, amortization of discount. Interest expense for the three and ninesix month periods ended SeptemberJune 30, 20192020 was $0.01 million and $0.1$0.02 million, respectively. During the three and nine month period ended September 30, 2018, the Company incurred $0.4 million and $1.3 million, respectively, amortization of discount. Interest expense for the three and ninesix month periods ended SeptemberJune 30, 20182019 was $0.09 million$0.01 and $0.2 million,$0.09, respectively.
NOTE 1011 – 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 SeptemberJune 30, 20192020 for assets and liabilities measured at fair value on a recurring basis:basis (in thousands):
(Dollars in thousands) |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Fair value of Derivative Liability |
| $ | 147 |
|
| $ | - |
|
| $ | - |
|
| $ | 147 |
|
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Fair value of Derivative Liability |
| $ | 16 |
|
| $ | - |
|
| $ | - |
|
| $ | 16 |
|
The following table summarizes fair value measurements by level at December 31, 20182019 for assets and liabilities measured at fair value on a recurring basis:basis (in thousands):
(Dollars in thousands) |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Fair value of Derivative Liability |
| $ | 618 |
|
| $ | - |
|
| $ | - |
|
| $ | 618 |
|
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Fair value of Derivative Liability |
| $ | 91 |
|
| $ | - |
|
| $ | - |
|
| $ | 91 |
|
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 20192020 were as follows:
Significant assumptions: |
|
|
| |
Risk-free interest rate at grant date |
|
| % | |
Expected stock price volatility |
|
| % | |
Expected dividend payout |
|
| - |
|
Expected option life (in years) |
|
| 1 |
|
Expected forfeiture rate |
|
| 0 |
|
The following table presents a reconciliation of the derivative liability and contingent stock consideration measured at fair value on a recurring basis from December 31, 2018 to SeptemberJune 30, 2020 (in thousands):
|
| Fair value of derivative liabilities |
| |
Balance at December 31, 2018 |
| $ | 618 |
|
Loss on change in fair value included in earnings |
|
| (527 | ) |
Balance at December 31, 2019 |
|
| 91 |
|
Gain on change in fair value included in earnings |
|
| (75 | ) |
Balance at June 30, 2020 |
| $ | 16 |
|
23 |
Table of Contents |
NOTE 12 – WARRANT AGREEMENTS
Warrants that vest at the end of a one-year period are amortized over the vesting period using the straight-line method.
In June 2020, as part of the Company’s settlement with CHI we amended the warrants to purchase up 8,018,071 common stock shares which vest based on various revenue achievement during year 3 and year 4 post the CHI acquisition Closing Date. As part of the settlement the Company reduced the number of warrants to 708,467 common stock shares at an exercise price of $2.00 per share which was reduced from the original exercise price of $5.01 per share. In addition, the expiration date of the warrants was amended to expire on June 5, 2020. The warrants were exercisable on the date of issuance and were exercised by the warrant holders and the Company received $1.4 million. The Company determined there was no incremental value to the warrant modification as the exercise price was more than the fair value of the stock.
The Company’s warrant activity was as follows:
|
| Warrants |
|
| Weighted Average Exercise Price |
|
| Weighted Average Contractual Remaining Life |
| |||
Outstanding, December 31, 2019 |
|
| 14,666,518 |
|
|
| 3.70 |
|
|
| 2.99 |
|
Granted |
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| (708,467 | ) |
|
| 2.00 |
|
|
| - |
|
Forfeited/Expired |
|
| (7,309,605 | ) |
|
| 5.01 |
|
|
| - |
|
Outstanding, June 30, 2020 |
|
| 6,648,446 |
|
|
| 2.66 |
|
|
| 0.82 |
|
Exercisable at June 30, 2020 |
|
| 6,648,446 |
|
|
| 2.07 |
|
|
| 0.82 |
|
Warrant summary for the period ended June 30, 2020:
Range of Exercise Price |
| Number of Warrants |
|
| Weighted Average Remaining Contractual Life (years) |
|
| Weighted Average Exercise Price |
|
| Number of Warrants Exercisable |
|
| Weighted Average Exercise Price |
| ||||||
$ | 1.00–$7.00 |
|
| 6,648,446 |
|
|
| 0.82 |
|
| $ | 2.66 |
|
|
| 6,648,446 |
|
| $ | 2.07 |
|
|
|
|
| 6,648,446 |
|
|
| 0.82 |
|
| $ | 2.66 |
|
|
| 6,648,446 |
|
| $ | 2.07 |
|
Warrant summary for the year ended December 31, 2019:
(Dollars in thousands) |
| Fair value of derivative liabilities |
| |
Balance at December 31, 2018 |
| $ | 618 |
|
Gain on change in fair value included in earnings |
|
| (471 | ) |
Balance at September 30, 2019 |
| $ | 147 |
|
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 | 14,666,518 | 2.74 | $ | 3.70 | 6,648,446 | $ | 1.07 | |||||||||||||
14,666,518 | 2.74 | $ | 3.70 | 6,648,446 | $ | 1.07 |
24 |
Table of Contents |
The weighted-average fair value of warrants granted to during the three months ended June 30, 2020 and 2019, and the weighted-average significant assumptions used to determine those fair values, using a Black-Scholes option pricing model are as follows:
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||
Significant assumptions (weighted-average): |
|
|
|
|
|
| ||
Risk-free interest rate at grant date |
|
| 0.29 | % |
|
| 1.76 | % |
Expected stock price volatility |
|
| 74.46 | % |
|
| 129.01 | % |
Expected dividend payout |
|
| - |
|
|
| - |
|
Expected option life (in years) |
|
| 3 |
|
|
| 3 |
|
Expected forfeiture rate |
|
| 0 | % |
|
| 0 | % |
NOTE 1113 – STOCK BASED AWARDSINCENTIVE PLANS
On December 29, 2017 (“Effective Date”), the Company adopted the CURE Pharmaceutical Holding Corp. 2017 Equity Incentive Plan (the “Plan”“2017 Equity Plan”), pursuant to which an aggregate of 5,000,000 shares of the common stock of the Company are available for grant. The Board of Directors have determined that it is in the best interests of the Company and its stockholders to provide an additional incentive for certain employees, including executive officers, and non-employee members of the Board of Directors of the Company by granting to them awards with respect to the common stock of the Company pursuant to the Plan. The Plan seeks to achieve this purpose by providing for awards in the form of Options, Stock Appreciation Rights, Restricted Stock Awards, Restricted Stock Units, Performance Shares, Performance Units, Cash-Based Awards and Other Stock-Based Awards (“Awards”). The Plan will continue in effect until its termination by the Committee; provided, however, that all Awards must be granted, if at all, within ten (10) years from the Effective Date.
The Company issued 1,170,00090,000 Incentive Stock Options to an officer of the Company during the six months period ended June 30, 2020. The Company did not issue any ISO’s during the six months period ended June 30, 2019. In addition, the Company did not issue any Nonstatutory Stock Options (“NSO”), Restricted Common Stock (“RCS”) or Restricted Common Stock (“RCS”) to employees, including executive officers, and non-employee members of the Board of Directors of the Company during the ninesix months period ended SeptemberJune 30, 2019. The Company did not issue any Restricted Common Stock (“RCS”), 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 Committee2020 and consultants during the ninr months period ended September 30, 2019. Vesting periods for awarded RCS, NSOISO’s and ISO’sNSO’s range from immediate to quarterly over a 4 year period. Vesting period for RSU’s is the earlier of (i) the day prior to the next Annual Meeting of Shareholders following the date of grant, and (ii) one (1) year from the Date of Grant. For NSO’sISO’s and ISONSO’s awarded, the term to exercise their NSOISO or ISONSO is 10 years.
Stock Options
The Company’s stock option activity was as follows:
|
| Options |
|
| Weighted Average Exercise Price |
|
| Weighted Average Contractual Remaining Life |
|
| Options |
|
| Weighted Average Exercise Price |
|
| Weighted Average Contractual Remaining Life |
| ||||||
Outstanding, December 31, 2018 |
| 2,313,050 |
| $ | 0.79 |
| 9.27 |
| ||||||||||||||||
Outstanding, December 31, 2019 |
| 3,467,650 |
| 1.84 |
| 8.74 |
| |||||||||||||||||
Granted |
| 1,170,000 |
| $ | 3.62 |
| 9.59 |
|
| 90,000 |
| 2.38 |
| 9.86 |
| |||||||||
Exercised |
| - |
| - |
| - |
|
| - |
| - |
| - |
| ||||||||||
Forfeited/Expired |
|
| (89,544 | ) |
| $ | 0.74 |
|
|
| - |
|
|
| (122,500 | ) |
|
| 2.04 |
|
|
| - |
|
Outstanding, September 30, 2019 |
|
| 3,393,506 |
|
| $ | 1.77 |
|
|
| 8.91 |
| ||||||||||||
Exercisable at September 30, 2019 |
|
| 1,481,391 |
|
| $ | 1.22 |
|
|
| 8.72 |
| ||||||||||||
Outstanding, June 30, 2020 |
|
| 3,435,150 |
|
|
| 1.85 |
|
|
| 8.28 |
| ||||||||||||
Exercisable at June 30, 2020 |
|
| 2,067,125 |
|
|
| 1.46 |
|
|
| 8.09 |
|
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-$4.01 |
|
| 3,393,506 |
|
|
| 8.91 |
|
| $ | 1.77 |
|
|
| 1,481,391 |
|
| $ | 1.22 |
|
|
|
|
| 3,393,506 |
|
|
| 8.91 |
|
| $ | 1.77 |
|
|
| 1,481,391 |
|
| $ | 1.22 |
|
Table of Contents |
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 - $4.01 |
|
| 3,435,150 |
|
|
| 8.28 |
|
| $ | 1.85 |
|
|
| 2,067,125 |
|
| $ | 1.46 |
|
|
|
|
| 3,435,150 |
|
|
| 8.28 |
|
| $ | 1.85 |
|
|
| 2,067,125 |
|
| $ | 1.46 |
|
The aggregate intrinsic value of options outstanding and exercisable at SeptemberJune 30, 20192020 was $0.01$0.02 million.
The aggregate grant date fair value of options granted during the ninesix months ended SeptemberJune 30, 20192020 and year ended December 31, 20182019 amounted to $4$0.2 and $4.3 million, respectively. Compensation expense related to stock options was $0.4 million and $1.5$0.4 million for the three and six month periods ended June 30, 2020, respectively. Compensation expense related to stock options for the three and nine monthssix month periods ended SeptemberJune 30, 2019 was $0.4 million and $1 million, respectively. Compensation expense related to stock options for the three and nine months periods ended September 30, 2018 was $0.08 million and $0.4$0.5 million, respectively.
As of SeptemberJune 30, 2019,2020, the total unrecognized fair value compensation cost related to unvested stock options was $3.9$3 million, which is to be recognized over a remaining weighted average period of approximately 9.078.56 years.
The weighted-average fair value of options granted during the ninesix months ended SeptemberJune 30, 20192020 and year ended December 31, 2018,2019, and the weighted-average significant assumptions used to determine those fair values, using a Black-Scholes-Merton (“Black-Scholes”)Black-Scholes option pricing model are as follows:
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||
Significant assumptions (weighted-average): |
|
|
|
|
|
|
|
|
|
| ||||||
Risk-free interest rate at grant date |
| 1.55 | % |
| 2.51 | % |
| 0.29 | % |
| 1.76 | % | ||||
Expected stock price volatility |
| 77.52 | % |
| 156.15 | % |
| 74.46 | % |
| 129.01 | % | ||||
Expected dividend payout |
| - |
| - |
|
| - |
| - |
| ||||||
Expected option life (in years) |
| 10 |
| 10 |
|
| 10 |
| 10 |
| ||||||
Expected forfeiture rate |
| 0 | % |
| 0 | % |
| 0 | % |
| 0 | % |
Restricted Stock
The Company’s restricted stock activity was as follows:
|
| Restricted Stock Shares |
|
| Weighted Average Grant Date Fair Value |
| ||
Non-vested, December 31, 2019 |
|
| 82,086 |
|
|
| 2.69 |
|
Granted |
|
| - |
|
|
| - |
|
Vested |
|
| (56,469 | ) |
|
| 2.48 |
|
Forfeited/Expired |
|
| - |
|
|
| - |
|
Non-vested, June 30, 2020 |
|
| 25,617 |
|
|
| 3.15 |
|
Compensation expense related to restricted sharesstock was $0.07 million and $0.1 million for the three and nine monthssix month periods ended SeptemberJune 30, 2019 was $0.1 million and $0.4 million,2020, respectively. Compensation expense related to restricted shares for the three and nine monthssix month periods ended SeptemberJune 30, 20182019 was $0.02$0.1 million and $0.2$0.3 million, respectively. Information relating to non-vested
26 |
Table of Contents |
Restricted Stock Units
The Company’s restricted award shares isstock unit activity was as follows:
|
| Restricted Stock Shares |
|
| Weighted Average Grant Date Fair Value |
|
| Restricted Stock Units |
|
| Weighted Average Grant Date Fair Value |
| ||||
Non-vested, December 31, 2018 |
| 317,708 |
| 1.44 |
| |||||||||||
Outstanding, December 31, 2019 |
| 60,759 |
| 3.66 |
| |||||||||||
Granted |
| - |
| - |
|
| - |
| - |
| ||||||
Vested |
| (265,625 | ) |
| 1.50 |
|
| - |
| - |
| |||||
Forfeited/Expired |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Non-vested, September 30, 2019 |
|
| 52,083 |
|
|
| 1.17 |
| ||||||||
Outstanding, June 30, 2020 |
|
| 60,759 |
|
|
| 3.66 |
|
NOTE 12 – WARRANT AGREEMENTSCompensation expense related to restricted stock units was $0.06 and $0.12 million for the three and six month periods ended June 30, 2020, respectively. Compensation expense related to restricted stock units for the three and six month periods ended June 30, 2019 was $0 and $0 million, respectively.
On February 13, 2019, theNOTE 14 – STOCKHOLDERS’ EQUITY
Authorized Stock
The Company issued 657,655 warrants athas authorized to issue is 150,000,000 common shares with a fair marketpar value of $1.8 million and with an exercise price of $2.31$0.001 per share in connection with the conversion of $1.3 million convertible promissory notes. The Company also issued 99,476 warrants at a fair market value of $0.3 million and with an exercise price of $2.31 per share in connection with the broker fees earned from the conversion of those convertible promissory notes.share.
On February 15,As of June 30, 2020 and December 31, 2019, the Company issued 312,500 warrants at a fair market value of $0.9 millionthere were 51,026,636 and with an exercise price of $2.00 per share in connection with the conversion of $500,000 convertible promissory notes.
On February 15, 2019, the Company issued 295,879 warrants at a fair market value of $0.8 million and with an exercise price of $2.31 per share in connection with the conversion of $1,000,000 convertible promissory notes.
On May 10, 2019, the Company issued 52,879 warrants at a fair market value of $0.1 million and with an exercise price of $5.01 per share in connection with an engagement agreement with a licensed brokerage company for $1,745,000 of funds raised.
On May 10, 2019, the Company issued 52,879 warrants at a fair market value of $0.1 million and with an exercise price of $6.00 per share in connection with eight stock purchase agreements with accredited investors totaling $1,745,000.
On May 14, 2019, in connection with the acquisition of CHI, the Company issued warrants to purchase up to 8,018,07138,001,543 shares of the Company’s common stock issued and outstanding, respectively.
Common Share Issuances
From January 1, 2020 to June 30, 2020, the Company issued 258,003 common stock shares at an exerciseprices per share ranging from $1.50 to $3.93 regarding consulting services. Total value of these issuances was $0.7 million.
On June 5, 2020, the Company issued 12,058,623 common stock shares at a price of $5.01. The total number of shares$1.82 relating to vest is subject to certain revenue milestones earned during the 3rdRelease, Waiver, and 4th years post acquisition period and the warrant expires on May 14, 2024. The fairAmendment Agreement with CHI. Total value of these issuances was $21.9 million.
On June 5, 2020, the warrants, assuming full vestingCompany issued 708,467 common stock shares at a price of all$2.00 from the exercise of warrants. Total value of these issuances was $1.4 million.
Common Stock Issuable
During 2018, a convertible promissory notes and accrued interests totaling $0.3 million was converted into 297,288 shares was $0.005 million and is used in the calculationof common stock of the acquisitionCompany at a price of CHI.$0.89 per share. As of our filing of this Current Report on Form 10-Q, the Company has not yet issued these common stock shares and has recorded a stock issuable of $0.3 million.
Warrants that vest at the end of a one-year period are amortized over the vesting period using the straight-line method.
The Company’s warrant activity was as follows:
|
| Warrants |
|
| Weighted Average Exercise Price |
|
| Weighted Average Contractual Remaining Life |
| |||
Outstanding, December 31, 2018 |
|
| 5,340,751 |
|
| $ | 2.20 |
|
|
| 3.80 |
|
Granted |
|
| 9,489,340 |
|
| $ | 4.62 |
|
|
| 4.35 |
|
Exercised |
|
| (163,573 | ) |
| $ | 1.62 |
|
|
| - |
|
Forfeited/Expired |
|
| - |
|
| $ | - |
|
|
| - |
|
Outstanding, September 30, 2019 |
|
| 14,666,518 |
|
| $ | 3.70 |
|
|
| 3.84 |
|
Exercisable at September 30, 2019 |
|
| 6,648,446 |
|
| $ | 2.27 |
|
|
| 2.90 |
|
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 |
|
| 14,666,518 |
|
|
| 3.84 |
|
| $ | 3.70 |
|
|
| 6,648,446 |
|
| $ | 2.27 |
|
|
|
|
| 14,666,518 |
|
|
| 3.84 |
|
| $ | 3.70 |
|
|
| 6,648,446 |
|
| $ | 2.27 |
|
The weighted-average fair value of warrants granted to during the nine months ended September 30, 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:
|
| September 30, 2019 |
|
| December 31, 2018 |
| ||
Significant assumptions (weighted-average): |
|
|
|
|
|
| ||
Risk-free interest rate at grant date |
|
| 1.55 | % |
|
| 2.51 | % |
Expected stock price volatility |
|
| 77.52 | % |
|
| 156.15 | % |
Expected dividend payout |
|
| - |
|
|
| - |
|
Expected option life (in years) |
|
| 3 |
|
|
| 3 |
|
Expected forfeiture rate |
|
| 0 | % |
|
| 0 | % |
NOTE 13 – BUSINESS COMBINATION AND DECONSOLIDATION OF SUBSIDIARY
CHI Acquisition
On May 14, 2019, the Company acquired all of the issued and outstanding stock of CHI for shares of the Company’s Common Stock. The maximum number of shares of Common Stock to be issued, including escrowed shares and shares issuable pursuant to a variety of earn-out provisions and warrants, is 32,072,283 shares. The shares are allocated as follows: (i) 5,700,000 shares of Common Stock as upfront consideration issued at the Closingclosing of the transaction (the “Upfront Consideration Shares”“Closing Date”); (ii) 7,128,913 shares to be held in escrow, subject to indemnification and clawback rights that lapse upon the achievement of certain milestones (the “Clawback Shares”);milestones; (iii) up to 3,207,228 shares that may be issued pursuant to an earn-out over five years upon the achievement of certain technological implementations (“Achievement Shares”);implementations; (iv) up to 8,018,071 shares that may be issued pursuant to an earn-out over two years upon the achievement of certain revenue goals (“Earnout Shares”);goals; and (v) up to 8,018,071 shares issuable upon exercise of warrants (“Acquisition Warrants”Warrant Shares”) 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 exchange for the assets and liabilities acquired, the Company received an investment of $2,000,000 (the “Principal Amount”)$2 million from Chemistry Holdings pursuant to a convertible note (the “Note”).note. Such Note,convertible note, on the Closing Date, became an intercompany payable and was cancelled.
Table of Contents |
As previously disclosed, the maximum number of shares of Common Stock that could be issued to the Holders in connection with the Merger, including escrowed shares and shares issuable pursuant to earn-out provisions and warrants, was 32,072,283 shares allocated as follows: (i) 5,700,000 shares of Common Stock that were issued as upfront consideration at the closing of the Merger; (ii) 7,128,913 shares held in escrow, subject to indemnification and clawback rights that were subject to lapse upon the achievement of certain milestones; (iii) 3,207,228 shares that could be issued pursuant to an earn-out over five years upon the achievement of certain technological implementations; (iv) 8,018,071 shares that could 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 were to become exercisable upon achieving certain revenue goals between the second and fourth anniversary of the closing of the Merger at an exercise price of $5.01 per share, exercisable, to the extent vested, for five years from the closing of the Merger.
On June 5, 2020 (the “Release Effective Date”), the Company and CHI, entered into a Release, Waiver, and Amendment (the “Agreement”) and a related Warrant Amendment Agreement (“Warrant Amendment”), in order to make a full resolution of the shares issuable pursuant to the Merger. The Agreement provided as follows: (a) all 7,128,913 shares held in escrow were released to the Holders as of the Release Effective Date, of which 140,828 shares were returned to the Company for cancellation in consideration for the Company committing to pay certain outstanding liabilities, (b) of the 11,225,299 total shares issuable pursuant to the earn-out provisions in the Merger Agreement, 5,612,654 shares were issued to the Holders as of the Release Effective Date (310,821 of which were assigned back to the Company as of the Release Effective Date) and the obligation of the Company to issue any further earn-out shares was terminated, and (c) certain Holders exercised warrants issued in the Merger to purchase 708,467 shares of Common Stock on the Release Effective Date at a price of $2.00 per share (which reflects a reduced exercise price as a result of the Warrant Amendment) for gross proceeds to the Company of approximately $1.4 million and the remaining warrants to purchase 7,309,605 shares of Common Stock issued in the Merger expired on the Release Effective Date as a result of an amendment of such warrants effected pursuant to the Warrant Amendment.
As previously disclosed, the Company undertook to issue warrants to purchase an additional 4,143,706 shares of Common Stock to certain affiliates of CHI in consideration for consulting and advisory services to be provided following the closing of the Merger (the “Service Warrants”). Pursuant to the Agreement, the undertaking by the Company to issue the Service Warrants was terminated as of the Release Effective Date.
CHI has developed a novel chewable delivery system, nanoemulsions, microemulsions, microcapsules and taste masking solutions. These technologies complement and expand the CUREfilm™ platform to enable the delivery of a wider range of active ingredients at higher doses. The combined technologies create a versatile platform for both immediate and controlled-release drug delivery.
The acquisition was accounted for in accordance with ASC 805, Business Combinations. The equity consideration to be provided is subject to a variety of earn-out and milestone provisions thus of the 32,072,283 total potential shares to be issued, 26,372,283 shares are considered contingent shares to be released or issued over a period from 5 months to 5 years based on the various contingency as described in the Merger Agreement. (“Contingent Shares”). Under ASC 480-10-25, based on the variable number of shares to be issued as part of the acquisition, the fair value of the Contingent Shares and Acquisition Warrant Shares of $14,632,000$14.6 million will be recorded as a liability as contingent share consideration as of May 14, 2019. On June 5, 2020 the company entered into a settlement with CHI in order to settle the total amount of shares to be issued upon in relation to the contingent consideration. As part of the settlement the Company agreed to issue 12,058,623 common stock shares in order to settle the contingent consideration in full. Below is the change of Contingent Share consideration for the three months ended June 30, 2020:
The Company estimated the fair value of the preliminary purchase price for the acquisition of CHI is approximately $34,070,000. The Company acquired CHI through the issuance of shares of Common Stock of the Company with no cash consideration provided. The preliminary total purchase price was determined based on the following: i) Company’s closing price ($3.34) on May 14, 2019 for the Upfront Consideration Share; ii) the estimated fair value using the Monte-Carlo simulation of stock price correlation, and other variables over a 66 month performance period applied to the total number of contingent shares, which consists of the Clawback Shares, Achievement Shares and Earnout Shares, as determined based on the weighted average present value probability of each the various estimates of milestones, earn-out amounts and achievements being accomplished (“Adjusted Contingent Shares”); iii) the fair value of the Acquisition Warrant Shares based on using the Black-Scholes valuation using the a risk free rate of 2.4%, stock price volatility of 134.7%, no dividend payout, 1 year expected life, exercise price of $5.01 and an estimated stock price of $0.39 based on the end of the earn-out period, year 4 (as determine by using a Monte-Carlo simulation model); and iv) the Company estimated acquisition costs of $400,000, of which $290,000 were included in general and administrative expenses for the period ended September 30, 2019.
(Dollars in thousands) |
| Shares |
|
| Amount |
| ||
Upfront Consideration Shares |
|
| 5,700,000 |
|
| $ | 19,038 |
|
Adjusted Contingent Shares |
|
| 8,410,875 |
|
|
| 14,627 |
|
Acquisition Warrant Shares |
|
| 8,018,071 |
|
|
| 5 |
|
Acquisition costs |
|
| - |
|
|
| 400 |
|
Total purchase price |
|
| 22,128,946 |
|
| $ | 34,070 |
|
The Company estimated the fair value of acquired in-process research and development technology using the relief from royalty method. The fair values of acquired patents and developed technology were estimated using the multi-period excess earnings method. Under both the relief from royalty and multi-period excess earnings methods, the fair value models incorporate estimates of future cash flows, estimates of allocations of certain assets and cash flows, estimates of future growth rates, and management’s judgment regarding the applicable discount rates to use to discount such estimates of cash flows.
The Company allocated the acquisition consideration to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The fair value of the acquired tangible and identifiable intangible assets were determined based on inputs that are unobservable and significant to the overall fair value measurement. It is also based on estimates and assumptions made by management at the time of the acquisition. As such, this was classified as Level 3 fair value hierarchy measurements and disclosures.
The excess of the purchase price over the estimated fair values is assigned to goodwill.
Table of Contents |
(Dollars in thousands) |
| Fair Value of the Contingent Share Consideration |
| |
Fair value at December 31, 2019 |
| $ | 16,043 |
|
Net change in fair value during the six months ended June 30, 2020 |
|
| (16,043 | ) |
Fair Value at June 30, 2020 |
| $ | - |
|
The following table summarizes the preliminary estimated fair values of the assets and liabilities assumed in the CHI acquisition, which is subject to change during measurement period:
(Dollars in thousands) |
|
|
| |
Net assets acquired: |
|
|
| |
Cash |
| $ | 8,487 |
|
Note receivable from CURE |
|
| 2,000 |
|
Property, plant and equipment |
|
| 83 |
|
Patents and development technology |
|
| 650 |
|
In-process research and development |
|
| 14,460 |
|
Goodwill |
|
| 9,178 |
|
Accounts payable |
|
| (354 | ) |
Payroll tax liabilities |
|
| (834 | ) |
Net assets acquired |
|
| 33,670 |
|
Acquisition costs |
|
| 400 |
|
Net assets acquired and acquisition costs incurred |
| $ | 34,070 |
|
Information regarding identifiable intangible assets acquired in the CHI acquisition is presented below:
(Dollars in thousands) |
| Weighted-average Estimated useful life |
| Preliminary Estimated Asset Fair Value |
| |
Finite-lived intangible assets: |
|
|
|
|
| |
Patent and developed technology |
| 11.0 years |
| $ | 650 |
|
Total finite-lived intangible assets acquired |
| 11.0 years |
| $ | 650 |
|
Supplemental Pro Forma Information
The following unaudited supplemental pro forma financial information is based on our historical condensed consolidated financial statements and CHI’s historical condensed consolidated financial statements as adjusted to give effect to the May 14, 2019 acquisition of CHI’s. The unaudited supplemental pro forma financial information for the periods presented gives effect to the acquisition as if it had occurred on January 1, 2018.
This unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have resulted had the acquisition been in effect at the beginning of the periods presented. In addition, the unaudited pro forma results are not intended to be a projection of future results and do not reflect any operating efficiencies or cost savings that might be achievable.
The following table presents pro forma sales, net income attributable to Cure Pharmaceuticals Holding, Inc., and net income attributable to CURE per common share data assuming CHI was acquired at the beginning of the 2018 fiscal year:year (in thousands, except per share data):
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| |||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| Three months ended June 30, 2019 |
|
| Six months ended June 30, 2019 |
| ||||||
Net revenues |
| $ | 31 |
| $ | 88 |
| $ | 214 |
| $ | 350 |
|
| $ | 108 |
| 182 |
| |||||
Net loss |
| (14,590,578 | ) |
| (2,344,350 | ) |
| (24,739,485 | ) |
| (4,200,631 | ) |
| (14,591 | ) |
| (24,739 | ) | ||||||
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| ||||||||||
Net loss attributable to Cure per common share, basic |
| $ | (0.36 | ) |
| $ | (0.08 | ) |
| $ | (0.67 | ) |
| (0.14 | ) |
| $ | (0.36 | ) |
| (0.67 | ) | ||
Net loss attributable to Cure per common share, diluted |
| (0.36 | ) |
| (0.08 | ) |
| (0.67 | ) |
| (0.14 | ) |
| $ | (0.36 | ) |
| (0.67 | ) |
Deconsolidation of Oak Therapeutics, Inc.NOTE 16 - INTELLECTUAL PROPERTY AND COLLABORATIVE AGREEMENTS
On April 15, 2019, the CompanySeptember 4, 2018, Cure Pharmaceutical entered into a Termination and Release Agreement (“its first multi-year licensing agreement (the “Licensing Agreement”) with Oak TherapeuticsCanopy Growth Corporation (“Oak”Canopy”) to surrender all, a company that engages in the production and sale of its Oak shares to Oak and terminating any rights the Company might have to acquire additional shares or interest in Oak. The parties terminated all contractual relationships between them, whether written or verbal, express or implied. All license or other rights previously granted by Oak to the Company or the Company to Oak were terminated, including all licenses or rights of any kind granted by the Company. As of the date of deconsolidation, Oak has a negative net assets, which resulted in a gain of $0.08 million.
In the Company’s condensed consolidated financial statements for the nine months period ended September 30, 2019, the Company’s investment in Oak has been written off and was reflected at a value of zero.
The following information summarizes the results of operations of Oak for the period January 1, 2019 through April 15, 2019, the date of deconsolidation:
(Dollars in thousands) |
| January 1, 2019 through April 15, 2019 |
| |
Revenue |
| $ | - |
|
Net loss |
| $ | 29 |
|
NOTE 14 – STOCKHOLDERS’ EQUITY
Authorized Stock
The Company has authorized to issue is 150,000,000 common shares with a par value of $0.001 per share.
As of September 30, 2019 and December 31, 2018, there were 37,949,460 and 26,784,019 shares of the Company’s common stock issued and outstanding, respectively.
Common Share Issuances
On December 14, 2018, the Company entered into an Advisory Consulting Agreement (“Agreement”). Permedical cannabis. Under the terms of the Licensing Agreement, Canopy will have an exclusive license to certain of Cure Pharmaceutical’s intellectual property rights, including Cure Pharmaceutical’s patented, multi-layer oral thin film (OTF), CUREfilm™ technology for use with cannabis extracts and biosynthetic cannabinoids and the CompanyCure Pharmaceutical’s trademarks in markets around the world where it is legal for Canopy to issue 50,000 common stock shares ofsell such products, excluding Asia. Cure Pharmaceutical will retain 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. right to manufacture synthetic cannabinoids for pharmaceutical applications.
On January 14,November 7, 2019, the Company issued 50,000 common stock shares ofand Canopy entered into an Amendment Agreement (“Amendment”) to allow the Company at $1.84 per share perto sell cannabinoid CUREfilm products to third parties internationally, excluding Canada, from the terms of this Agreement. From February 14,November 7. 2019 through May 14, 2019,until December 31, 2020. However, Cure Pharmaceutical may not sell any cannabinoid CUREfilm products that are specifically developed for Canopy, as identified in the Company issued a total of 41,666 common stock shares of the Company at prices per share ranging from $1.52 to $3.85 per the terms of this Agreement.
On December 14, 2018, the Company entered into a Securities PurchaseDevelopment 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,between 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 ninety (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. In addition, per the SPA, the investor had an option to purchase an additional 833,333 common stock shares of the Company at the Share Price of $1.20 for a period of 90 days subsequent to the last funds received from the multiple closings (“Option”). On May 21, 2019, the investor funded $250,000 and the Company issued 208,333 common stock shares at the Share Price relating to the investor’s Option.
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 nine-month period. The total value of this issuance was $31,249
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,Canopy, dated June 17, 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 (Nine Hundred Fifty Thousand Dollars) of the Outstanding Balance under the Senior Secured Promissory Note effective April 27, 2017 which was replaced with an Amended and Restated Senior Secured Promissory Note dated August 27, 2017 (the “Note”) shall be converted into 135,135 (One Hundred Thirty-Five Thousand, One Hundred Thirty-Five) shares of Common Stock of the Company (the “Conversion Shares”) at a conversion price of $1.85 per share (a discounted rate calculated as an approximation based on 20% discount on 5 days volume weighted average price of the market rate). As a result of the lower conversion price compared to the fair market value of the common stock on the date of issuance, the Company recorded a loss on conversion of $201,351.
On February 14, 2019, the Company entered into a First Amendment to Amended and Restated Senior Secured Promissory Note, that amends the Senior Secured Promissory Note effective April 27, 2017 which was replaced with an Amended and Restated Senior Secured Promissory Note effective August 27, 2017 (“Amended Agreement”) with the Note Holder (“Holder”). The Company and the Holder have agreed that the Maturity Date shall be extended to February 27, 2019 in exchange for 75,000 common stock shares of the Company at a price per share of $3.35. The total value of this issuance was $251,250. The Company considered if the amendment of the convertible promissory note was a debt modification or extinguishment based on the guidelines of ASC 470-50, and concluded that the amendments of the convertible promissory notes were debt modifications. The Company recorded the fair market value of the 75,000 common stock shares issued as a debt discount that has been fully amortized as of March 31, 2019.
On February 15, 2019, the Company entered into a Debt Conversion Agreement (“Agreement”) to convert $400,000 of convertible promissory notes plus accrued interest of $71,342 into 254,779 common stock shares of the Company with a conversion price per share $1.85 which was based on a 20% discount to the average closing price of the Company’s common stock on the OTC Markets for five consecutive trading days. As a result of the lower conversion price compared to the fair market value of the common stock on the date of issuance, the Company recorded a loss on conversion of $630,238.
On February 15, 2019, the Company entered into a Debt Conversion Agreement (“Agreement”) with a convertible promissory note holder totaling $1,000,000 plus accrued interest of $94,750 that were converted into 591,757 common stock shares of the Company with a conversion price per share $1.85 which was based on a 20% discount to the average closing price of the Company’s common stock on the OTC Markets for five consecutive trading days. As a result of the lower conversion price compared to the fair market value of the common stock on the date of issuance, the Company recorded a loss on conversion of $860,087. In connection with the conversion of the convertible promissory notes, the Company will issue 295,879 warrants that were priced at $2.31 price per share.
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On February 15, 2019,Canopy will manufacture CUREfilms that deliver cannabis extracts, expanding 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 sharescommercialization and monetization of the Company with a conversion price per share $1.85 which was basedCUREfilm technology. The parties will collaborate 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 immediatelynew products 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. As of our filing of our Form 10-Quses for the quarterly period ended September 30, 2019, the Company has not yet issued the 12,500 common stock shares due as of June 19, 2019 and has recorded a stock payable of $52,375.
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.
On April 16, 2019, the Company issued a total of 25,675 common stock shares at $2.31 per share from the cashless exercise of 88,769 warrants held by 5 warrant holders. The share price on the date of exercise was $3.25 per share.
On April 29, 2019, the Company issued 45,000 common stock shares at $1.52 per share in regard to a Consulting Agreement (“Agreement”), dated January 4, 2019, with an individual for providing financial and investor relations services.
On April 29, 2019 the Company issued 50,000 common stock shares at $1.84 per share in regard to an Advisory Consulting Agreement (“Agreement”), dated January 15, 2019, with an individual for providing financial advisory and business development services.
On April 29, 2019 the Company issued 60,000 common stock shares at $3.78 per share in regard to a Media Advertising Agreement (“Agreement”), dated February 26, 2019, with a company for providing investor relations and media coverage services.
On May 14, 2019, in connection with the Company’s acquisition of CHI (See Note 13), the Company issued 5,700,000 common stock shares as upfront consideration and estimated as of the Closing Date that approximately 8,410,875 common stock shares, of which 7,128,913 common stock shares are held in escrow, may be issued and released over a period of 5 months to 5 years related potential post-closing claims relating to, among other things, breaches of representations, warranties and covenants contained in the Merger Agreement and the future earn-out and achievement of a variety of milestones as defined in the Merger Agreement.products.
During the three and six months period ending Septemberended June 30, 2019,2020, the Company issued 191,476 common stock shares at price per shares ranging from $2.25recognized $0 and $0.5 million, respectively, of revenue relating to $5.05work completed in regard to various consulting and advisory services.the transfer of technology fee as discussed in the License Agreement with Canopy.
During the three months period ending September 30, 2019, the Company issued 285,723 common stock shares of the Company at a conversion prices per share of $1.85 in regard to a Debt Conversion Agreement (“Agreement”) with a convertible promissory note holder totaling $500,000 plus accrued interest of $28,588. 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 issued 312,500 warrants that were priced at $2.00 price per share.
During the three months period ending September 30, 2019, the Company issued 34,876 common stock shares at a price per share of $1.85 in regard to a Stock Purchase Agreement (“SPA”) with an individual (“Landlord”) for the cancellation of two months rent and overages for property tax and general liability insurance.
During the three months period ending September 30, 2019, the Company issued 528,780 common stock shares at a price per share of $3.30 in regard to a Securities Purchase Agreement (the “SPA”) with several accredited investors for a total purchase price of $1,745,000.
During the three months period ending September 30, 2019, the Company issued 324,791 common stock shares of the Company at prices per share ranging from $0.74 and $1.81 in regard to restricted stock issued from the Company’s 2017 Equity Incentive Plan.
During the three months period ending September 30, 2019, the Company issued a total of 66,753 common stock shares at $1.00 per share from the cashless exercise of 14,324 warrants and cash exercise of 60,480 warrants. The share price on the date of exercise was $4.11 per share.
During the three months period ending September 30, 2019, the Company issued 30,000 common stock shares at a price per share of $1.42 in regard to a Patent Purchase Agreement (“Patent Agreement”) 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.
Stock Payable
During 2018, convertible promissory notes and accrued interests totaling $0.6 million was converted into 447,288 shares of common stock of the Company at prices ranging from $0.886 to $2.26 per share. As of our filing of our Form 10-Q for the quarterly period ended September 30, 2019, the Company has not yet issued these common stock shares and has recorded a stock payable.
During the three months period ending September 30, 2019, the Company entered into a Consulting Agreement (“Agreement”) with an individual. Per the terms of the Agreement, the Company is to issue 40,000 common stock shares of the Company at $3.93 per share for completing phase I and II of the Agreement. As of our filing of our Form 10-Q for the quarterly period ended September 30, 2019, the Company has not yet issued these common stock shares and has recorded a stock payable of $157,200.
During the three months period ending September 30, 2019, the Company issued 25,000 common stock shares at a price per share of $3.65 in regard to a Promissory Note (“Note”) with a company (“Lender”). Per the terms of the Note, the Company’s next bona fide sale or issuance of its preferred or common stock shares equal to or in excess of $2,000,000 in gross proceeds, in one transaction or a series of related transactions shall issue to the Lender 25,000 common stock shares of the Company. As of our filing of our Form 10-Q for the quarterly period ended September 30, 2019, the Company has not yet issued these common stock shares and has recorded a stock payable of $91,250.
NOTE 1517 - 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.
Operating leases
The Company maintains its corporate offices and manufacturing facility at 1620 Beacon Place, Oxnard, CA 93033, which contains approximately 25,000 square feet. The Company is currently on a month-to-month lease.
Total rent expense for the three and nine monthssix month periods ended SeptemberJune 30, 20192020 was $0.06 million$0.07 and $0.2$0.1 million, respectively. Total rent expense for the three and nine monthssix month periods ended SeptemberJune 30, 20182019 was $0.06 million and $0.2$0.1 million, respectively.
Finance leases
During 2019 the Company entered into a 5-year equipment lease rental which requires the Company to pay annual payments of $0.02 million. The Company determined the payments represented substantially all of the fair value of the asset and recorded a right of use asset for $0.06 million and a finance lease liability for $0.06 million as of December 31, 2019 within other assets and liabilities. The Company will make payment of $0.02 annually until October 2024. Interest associated with the lease is $0.01 million or less annually based on a discount rate of 9.0%. As of June 30, 2020, the current portion and long-term portion of finance capital lease liability is $0.01 million and $0.05 million, respectively. For the year ended December 31, 2019 the current portion and long-term portion of finance capital lease liability is $0.01 million and $0.05 million, respectively.
Future minimum lease payments under non-cancellable capital leases as of June 30, 2020 are as follows (in thousands):
2020 (remaining) |
| $ | 5 |
|
2021 |
|
| 14 |
|
2022 |
|
| 14 |
|
2023 |
|
| 14 |
|
2024 |
|
| 9 |
|
Thereafter |
|
| - |
|
Total |
| $ | 56 |
|
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NOTE 1618 – SUBSEQUENT EVENTS
On October 14, 2019,July 27, 2020, the Company issued 10,417 common stock shares atentered into a price per sharenon-binding memorandum of $3.73 to an individual in regard to an Advisory Consulting Agreement ("Agreement") originally dated December 14, 2018. Per the termsunderstanding (the “Memorandum 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 November 1, 2019, the Company purchased a Convertible Loan (“Loan”Understanding”) with a company (“Borrower”) in the amount of $0.2 million. The Borrower shall accrue interest on the Loan at 6% per annum and shall become due and payable to the Company at the earlier of the conversion date, the date when the Loan is repaid or at the maturity date of October 31, 2021 (“Maturity Date”). In the event of a request for conversion by the Company (“Request for Conversion”) or at the end of the Maturity Date, the outstanding amount of the Loan and any unpaid accrued interest shall be converted into shares of the Borrower (“Shares”) based on a price per share on a post money valuation of $10.9 million. In the event the Borrower completes a financing round totaling at least $2 million of debt and/or equity (“Qualified Financing, the outstanding amount of the Loan Agreement and any unpaid accrued interest shall automatically convert at a price per share paid by the investors in connection with the Qualified Financing less a discount of 20% on the subscription price. In addition, both the Company and Borrower agree in the event the pre-money valuation of the Qualified Financing is higher than $15 million, the conversion shall be calculated with a cap of pre-money valuation of $14.5 million.
On November 12, 2019, the Company purchased a $0.2 million convertible promissory note (the “Convertible Promissory Note”) issued by Coeptis Pharnaceuticals,Sera Labs, Inc., a Delaware corporation (“Sera Labs”), which summarizes the terms and conditions of a privately held biopharmaceutical company engagedproposed acquisition, pursuant to which Sera Labs will become a wholly-owned subsidiary of the Company (the “Proposed Acquisition”).
In connection with the execution of the Memorandum of Understanding, the Company will loan to Sera Labs $500,000 in exchange for the acquisition, development and commercializationissuance of pharmaceutical products (“Coeptis”a secured promissory note (the “Promissory Note”)., with the right to take a future advance of an additional $1,000,000 if the Proposed Acquisition does not close by September 1, 2020. The Convertible Promissory Note is due June 15, 2020, payssecured by certain assets of Sera Labs as further set forth therein. The Promissory Note bears an interest at the rate of 9% per annum and gives the holder the right,has a maturity date of December 31, 2020. The outstanding principal amount and any unpaid accrued interest may be prepaid at any time, fromprovided that Sera Labs gives written notice to the date thereof,Company at least 15 days in advance of the prepayment.
The Promissory Note provides that, upon the occurrence of any Event of Default (as defined therein), the Company may accelerate the Promissory Note by written notice to Sera Labs, with the principal amount plus all accrued but unpaid interest (the “Outstanding Balance”) becoming immediately due and payable in cash, except that, upon the occurrence of a Bankruptcy Event (as defined therein), no notice shall be required and the Outstanding Balance shall become immediately and automatically due and payable. The Promissory Note further provides that if a merger transaction is effected between the Company and Sera Labs pursuant to the terms of a definitive merger agreement, the outstanding principal amount shall be credited to marketing and growth funds, as to be described in such definitive merger agreement.
On August 6, 2020 (“Note Date”), the Company entered into a unsecured promissory note (“Note”) with one of the Company’s board members (“Holder”) for $150,000. The Note is due on August 6, 2021 and has an interest rate of 8% per annum payable in quarterly payments. Principal and accrued interest automatically convert theinto a Convertible Promissory Note (“Convertible Note”) if the Company raises financing through the sale and issuance of promissory notes that are convertible into sharescommon stock of Common Stockthe Company on terms that are no less favorable to new investors than the terms described in the term sheet included in the Note, then the Company shall notify the Holder thereof and upon the first closing of Coeptis atsuch sale, the Holder shall have the right, but not the obligation, to convert into a price per share equalConvertible Note with the same principal amount and interest accruing from the Note Date, but otherwise on the same terms as the Convertible Note(s) sold for cash to $2.60 (the “Optional Conversion Price”) or the share price set by the latest qualified financing, whichever is less.new investors in that financing.
On August 12, 2020 (“Note Date”), the Company entered into a unsecured promissory note (“Note”) with a company (“Holder”) for $500,000. The Note is due on August 12, 2021 and has an interest rate of 8% per annum payable in quarterly payments. Principal and accrued interest automatically convert into a Convertible Promissory Note (“Convertible Note”) if the Company raises financing through the sale and issuance of promissory notes that are convertible into common stock of the Company on terms that are no less favorable to new investors than the terms described in the term sheet included in the Note, then the Company shall notify the Holder thereof and upon the first closing of such sale, the Holder shall have the right, but not the obligation, to convert into a Convertible Note with the same principal amount and interest accruing from the Note Date, but otherwise on the same terms as the Convertible Note(s) sold for cash to new investors in that financing.
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Statements madeThe following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, that are not historical or current facts are “forward-looking statements” made pursuant toas well as the safe harbor provisionsaudited consolidated financial statements and the related notes thereto, and the discussion under “Management’s Discussion and Analysis of Section 27AFinancial Condition and Results of Operations” and “Business” included in our Annual Report on Form 10-K for the Securities Act of 1933 (the “Act”) and Section 21E offiscal year ended December 31, 2019, as filed with 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 relianceSEC 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.March 30, 2020.
BUSINESS
Overview
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 is to improve lives by redefining how medications are delivered and experienced. Our primary business strategymodel is to develop wellness and drug products using our proprietary technology, which development may include preclinical and clinical developmentstudies and regulatory approval, and license thegrant product rights to partners responsible for marketing, sales and distribution, while retaining 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, 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 us and a holder of a majority of our issued and outstanding capital stock prior to the closing (the “Majority Stockholder”), on the one hand, and 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.”
As a result of the Share Exchange, CURE Pharmaceutical became a wholly owned subsidiary of the Company, and the CURE Pharm Shareholders and CURE Pharm Noteholders became our controlling shareholders owning, at such time, approximately 65% of our issued and outstanding common stock. For accounting purposes, CURE Pharmaceutical was the surviving entity. As a result of the recapitalization and change in control, CURE Pharmaceutical was deemed to be the accounting acquirer in accordance with ASC 805, Business Combinations.
Acquisitions
On May 14, 2019 (the “Closing Date”), we, 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” or “CHI”). As agreed in the Merger Agreement, we 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 ours and the stockholders of Chemistry Holdings received shares of our common stock. CHI has developed a novel chewable delivery system, nanoemulsions, microemulsions, microcapsules and taste masking solutions. These technologies complement and expand the CUREfilm™ platform to enable the delivery of a wider range of active ingredients at higher doses. The combined technologies create a versatile platform for both immediate and controlled-release drug delivery.
The purchase price for CHI was estimated at $34,069,942 and was paid for through the issuance of 5,700,000 shares of common stock as upfront consideration of $19,038,000. We also estimated as of the Closing Date that 8,410,875 common stock shares, of which 7,128,913 common stock shares are held in escrow, may be issued and released over a period of 5 months to 5 years related potential post-closing claims relating to, among other things, breaches of representations, warranties and covenants contained in the Merger Agreement and the future earn-out and achievement of a variety of milestones as defined in the Merger Agreement. Additionally, we issued a warrant to purchase up 8,018,071 common stock shares which vest based on various revenue achievement during year 3 and year 4 post the CHI acquisition Closing Date. Due to the nature of the contingent shares being issued or released from escrow in the future, and the uncertain vesting of the warrant shares, we determined the fair value of those shares to be $14,632,000 and we recorded the fair value as contingent stock consideration. No cash was provided as consideration.
In exchange for the purchase, we received $8,487,489 in cash, a $2,000,000 note due from us that was forgiven, $82,700 in equipment, and assumed $1,188,666 in payroll tax and acquisition liabilities. Additionally, we received a patent, developed technology and in-process research and development which we estimated the fair value to be $15,110,000.
Nature of Business
Our CUREformTM technology platform focuses on improving oral drug delivery by combining drug encapsulation techniques with alternative dosage forms including CUREfilm®, includes oral dissolving films (ODF)film (“ODF”), and CUREpodsTM , chewable products.encapsulation systems (“microCURE”) compatible with ODF, chews, oral solutions, topical and transdermal dose forms. We apply our technology to pharmaceutical drugs and dietary supplements.supplements for the wellness market. 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, or GI, 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 twosell multiple commercial wellness products and several development programs underway:
CUREfilm Sleep –Launched with ID Life LLC
This is a melatonin-containing sleep aid CUREfilm ODF that is manufactured and sold as a dietary supplement under the 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 are seeking additional distributors.
CUREfilm Sleep – Launched with Incubrands
This novel sleep aid containing a dietary cannabinoid CUREfilm ODF was launched Q3 2018 by Incubrands under the brand name “Sleep Stripzzz”. We are seeking additional distributors.
CUREfilm Blue
We are developing a 25mg and 50 mg sildenafil CUREfilm ODF for the treatment of erectile dysfunction. We have completed our pre-IND meeting with the FDA, confirming a 505(b)(2) regulatory path.
CUREfilm D
distribution partners’ brands. We are developing a 50,000IU, once per week, Vitamin D3 CUREfilm ODF for oral administration. On April 30, 2019, we entered into an exclusive 5-year supply agreement withadministration to be distributed by Meroven Pharmaceuticals coveringin the United States and the MENA region: Iraq, Saudi Arabia, Yemen, Syria, UAE, Jordan, Palestine, Lebanon, Oman, Kuwait, Qatar, Bahrain, Sudan, Egypt, Tunisia, Morocco, Algeria and Africa.region. Our pharmaceutical drug program includes:
CUREfilm and CUREpod Canna
We are developing several cannabinoid products using both our CUREfilm and CUREpod dosage forms as dietary supplements and pharmaceutical products. We entered into a development agreement with Canopy Growth Corporation on June 17, 2019 to develop a low dose hemp CUREfilm. Our pharmaceutical cannabinoid program is at the preclinical stage.
Impact of COVID-19
Due to the speed with which the situation is developing, we are not able at this time to estimate the impact of COVID-19 on our financial results and operations, but the impact could be material for the remainder of fiscal year 2020 and any future period affected either directly or indirectly by this pandemic. We
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 research and development (“R
In addition to these challenges, many marketed 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.
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
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
Our Strategy
Our commercial strategy is designed to mitigate risk by pursuing a diversified model in the following categories:
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.
Cannabinoids and Other Schedule 1 Drugs
We are specifically investing in
Our Technology
As a drug delivery company, we seek to grow our technological capabilities through internal innovation and acquisitions. On May 13, 2019, we acquired Chemistry Holdings, Inc., a formulation technology company that is developing innovative oral delivery systems for nutraceutical and pharmaceutical products. This acquisition allows us to address the 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 such as cannabinoids.
Our expanded oral formulation and delivery platform, CUREformTM combines the right formulation with the right dosage form. In addition to novel chewable dosage forms, the acquisition gives us advanced encapsulation capabilities that serve to:
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
Patient Experience and Medication Adherence
Manufacturing and
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.
Intellectual Property
The competitive advantages of the
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
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
We
Competition
We face competition from pharmaceutical 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. 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.
Environmental Compliance
Our research and development activities involve the controlled use of hazardous materials and chemicals. We are 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 procure expensive capital equipment to meet regulatory requirements. At this time, we believe that we are in compliance with environmental regulations applicable to our research and development and manufacturing facility located in Oxnard, California. Employees
As of the date of this filing, we have
RESULTS OF OPERATIONS
Revenues for the Three Months and
Revenues for the three and
Cost of Goods Sold
Cost of goods sold was
Research and Development Expenses
For the three and
Selling, General and Administrative Expenses
Our expenses for the three and
Consulting
Consulting expense decreased
Salaries and wages
Salaries and wages expense slightly increased
Selling, General and Administrative
Selling, general and administrative expense increased by approximately
Professional Services and Investor Relations
Professional Services and investor relations expenses increased by approximately
Non-cash Compensation
Non-cash compensation expense decreased by approximately $0.1 million and increased by approximately
Change in Fair Value Contingent Stock Consideration
Other Income/ (Expense)
Other
LIQUIDITY AND CAPITAL RESOURCES
As of
Working Capital
Working capital deficit as of
As of June 30, 2020, current liabilities were approximately $3.3 million, comprised primarily of (i) approximately $1.3 million in notes and convertible notes payable, (ii) approximately $1.4 million in accounts payable, (iii) approximately $0.3 million in contract liabilities, and (iv) approximately $0.4 million in accrued expenses. Comparatively, as of December 31, 2019, current liabilities were approximately $11.8 million, comprised primarily of (i) approximately $0.7 million in loans, notes and convertible notes payable, (ii) $0.09 million in derivative liability, (iii) $9.1 million in contingent consideration, (iv) approximately $1.2 million in accounts payable; (v) approximately $0.5 million in contract liabilities and (vi) approximately $0.2 million in accrued expenses. Net Cash (in thousands)
Net cash used in Operating Activities
Net cash used in operating activities was approximately
Comparatively, net cash used in operating activities was approximately $4.6 million during the six months ended June 30, 2019. This was primarily due to the net loss of approximately
Net cash used in Investing Activities
Net cash used in investing activities of approximately $0.8 million during the six months ended June 30, 2020 was due to (i) the investment in Relief Europe of $0.3 million (ii) the purchase of an intangible asset for approximately $0.01 million and (iii) the purchase of property and equipment for approximately $0.6 million. Comparatively, net cash provided by investing activities of $7.7 million during the
Net cash provided by Financing Activities
Net cash provided by financing activities of approximately $2 million during the six months ended June30, 2020 was due to (i) proceeds from the exercise of warrants of approximately $1.4 million, (ii) proceeds from notes payable of approximately of $0.6 million and (iii) repayment of loan payable of approximately $0.1 million. Correspondingly, net cash provided by financing activities of approximately $4 million during the
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with
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
For the year ended December 31, 2019, the auditors’ opinion contained a going concern paragraph, which stated that the Company had an accumulated deficit, working deficit and net loss. 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 Company has an accumulated deficit balance as of June 30, 2020. 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 2020. 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. We have previously funded, and intend to continue funding, our losses primarily through the issuance of common stock and/or convertible promissory notes, combined with or without warrants, and cash generated from our product sales and research and development and license agreements. We are currently discussing various financing alternatives with potential investors, but there can be no assurance that these funds will be available on terms acceptable to us or will be enough to fully sustain operations. If we are unable to raise sufficient additional funds, we will have to develop and implement a plan to extend payables, reduce expenditures, or scale back our business plan until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful. 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. Recently Issued Accounting Standards Information on Recently Issued Accounting Standards that could potentially impact the Company’s condensed consolidated financial statements and related disclosures is incorporated by reference to Part I, Item 1, Note 2, “Summary of Significant Accounting Policies”, included in this report. OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this Quarterly Report on Form 10-Q, 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.
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
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
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
During the six months ended June 30, 2020, we continued to execute upon our planned remediation actions which are all
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
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting during the fiscal quarter ended
Global economic conditions, including those resulting from the widespread outbreak of COVID-19, may negatively impact the Company’s financial condition and results of operations. A general weakening or decline in the global economy or a reduction in industrial outputs, business or consumer spending or confidence could delay or significantly decrease purchases of the Company’s products by its customers and end users. Consumer purchases of discretionary items, which could include the Company’s maintenance products and homecare and cleaning products, may decline during periods where disposable income is reduced or there is economic uncertainty, and this may negatively impact the Company’s financial condition and results of operations. In addition, the Company’s sales and operating results may be affected by uncertain or changing economic and market conditions, including inflation, deflation, prolonged weak consumer demand, political instability, public health crises or other changes that may affect the principal markets, trade channels, and industrial segments in which the Company conducts its business. Public health crises, including epidemics or pandemics, may affect the principal markets, trade channels, and industrial segments in which the Company conducts its business. For example, the Company is monitoring the impact of the recent global outbreak of COVID-19, which was first detected in China in 2019 and subsequently declared a global pandemic by the World Health Organization in March 2020. COVID-19 has already caused a significant disruption to global financial markets and supply chains. The significance of the operational and financial impact to the Company will depend on how long and widespread this disruption proves to be. The extent to which COVID-19 impacts the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the outbreak and the international actions that are being taken to contain and treat it. While the Company currently expects this business disruption to be temporary, there is uncertainty around its duration and its broader impact, and therefore the effects it will have on the Company’s financial results and operations. If economic or market conditions in key global markets continue to deteriorate, the Company may experience material adverse effects on its business, financial condition and results of operations.
Adverse economic and market conditions could also harm the Company’s business by negatively affecting the parties with whom it does business, including its customers and third-party contract manufacturers and suppliers. These conditions could impair the ability of the Company’s customers to pay for products they have purchased from the Company. As a result, allowances for doubtful accounts and write-offs of accounts receivable from the Company’s customers may increase. In addition, the Company’s third-party contract manufacturers and their suppliers may experience financial difficulties or business disruptions that could negatively affect their operations and their ability to supply the Company with finished goods and the raw materials, packaging, and components required for the Company’s products. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR
As of
ITEM 4. MINE SAFETY DISCLOSURE
None.
None.
_____________ # The information in Exhibits 32.1 and 32.2 shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act (including this Quarterly Report on Form 10-Q), unless the Registrant specifically incorporates the foregoing information into those documents by reference. ** In accordance with Rule 402 of Regulation S-T, this interactive data file is deemed not filed or part of this Quarterly Report on Form 10-Q for purposes of Sections 11 or 12 of the Securities Act or Section 18 of the Exchange Act and otherwise is not subject to liability under these sections.
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.
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:
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