Avenir Wellness Solutions, Inc. - Quarter Report: 2018 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2018

¨ 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

1620 Beacon Place, Oxnard, California 93033

(Address of principal executive offices)

(805) 824-0410

(Issuer’s telephone number)

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

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

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

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 August 13, 2018, we had 25,021,427 shares of common stock, par value $0.001 per share (the “Common Stock”) issued and outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CURE PHARMACEUTICAL HOLDING CORP.

Condensed Consolidated Balance Sheets

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

CURE PHARMACEUTICAL HOLDING CORP.

Condensed Consolidated Statements of Operations (Unaudited)

For the Three and Six Months Ended June 30, 2018 and 2017

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

CURE PHARMACEUTICAL HOLDING CORP.

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the Six Months Ended June 30, 2018 and 2017

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

CURE PHARMACEUTICAL HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(UNAUDITED)

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

CURE Pharmaceutical Holding Corp. (the “Company”) was 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 the registrant’s common stock executed a written consent to change the registrant’s name to CURE Pharmaceutical Holdings Corp. from Makkanotti Group Corp. The Certificate of Amendment to Articles of Incorporation was filed with the State of Nevada on November 30, 2016.

Our wholly owned subsidiary and operating business, CURE Pharmaceutical Corporation, located in Oxnard, California was originally incorporated in July 2011.

The Company is a drug formulation and delivery technology company that researches and manufactures novel dosage forms to improve drug safety, efficacy and patient adherence. Our mission is to improve lives by redefining how medications are delivered and experienced. Our business strategy is to develop products using our proprietary technology, license the product rights to partners responsible for clinical development, regulatory approval, marketing and sales and retain exclusive manufacturing rights. We operate a 25,000 sqft cGMP manufacturing plant in Oxnard, CA.

Our technology platform includes oral dissolving film (ODF) and transdermal formulations. We apply our technology to pharmaceutical drugs and dietary supplements. ODF products are about the size of a postage stamp and composed of excipients such as polymers, stabilizers, lipids and surfactants which are all generally recognized as safe. They can be designed to deliver active ingredients to the gastrointestinal tract (GI) when placed on the tongue and swallowed, or directly to the blood stream when placed under the tongue (sublingual) or on the inner lining of the cheek and lip (buccal).

Our commercial strategy seeks to mitigate risk by pursuing a diversified model.

1. Dietary supplements. We manufacture select dietary supplements that complement our portfolio and align with our mission which are white labeled and distributed by third parties. Dietary supplements are regulated under the Dietary Supplement Health and Education Act of 1994 (DSHEA) under which supplements are effectively by the FDA for Good Manufacturing Practices under 21 CFR Part 111 but do not require FDA approval. By developing, manufacturing and selling dietary supplement, we can generate modest short term revenue while and improving our production capabilities.

2. Pharmaceuticals. We partner with companies that are responsible for clinical development, regulatory approval, marketing and sales of the products. We provide the Chemistry, Manufacturing, and Controls (CMC) documentation required for regulatory submissions and in some instances, we may conduct the preclinical testing. Deal terms may include upfront licensing fees, development costs, milestone payments, royalties and exclusive manufacturing rights. Within this category, we are further diversifying risk and return by pursuing both competitive differentiation of marketed drugs (product life cycle opportunities) and improved pharmacokinetics of investigational drugs. While we currently commercially manufacture dietary supplements in our facility, we are undertaking steps to scale up manufacturing of pharmaceutical drugs for clinical and commercial use.

3. Cannabinoids. We are researching and developing drugs in the cannabinoid family of molecules. The oral bioavailability of cannabinoids is very low due to extensive gut and liver metabolism. Consequently, potency and release times are unpredictable and inconsistent. Moreover, cannabinoids don’t readily dissolve in water which adds to dosing difficulties and discrepancies. In addition to improving bioavailability, CUREfilm technology enables the loading of combinations of cannabinoids and other plant extracts that, together, provide maximum therapeutic benefit. Development and manufacturing of cannabinoid drugs are regulated by the FDA and the Drug enforcement Agency (DEA). A research license filed with the DEA in January 2018 was determined to be submitted in error given our proposed activities. As such, we have applied for a Schedule 1 manufacturer license with the DEA.

4. Underserved patient populations. Consistent with our mission of improving the lives of all people in need, regardless of geography or economic status, we licensed our technology to our majority-owned subsidiary, Oak Therapeutics, for the development of novel drug formulations for patients in developing nations such as a rapidly dissolving film to treat tuberculosis.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principal of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of CURE Pharmaceutical Holding Corp (“CPHC”), its wholly-owned subsidiary, CURE Pharmaceutical Corporation (“CURE”) and its majority owned subsidiary Oak Therapeutics, Inc. (“OAK”), collectively referred to as (“CURE”, “we”, “us”, “our” or the “Company” All significant inter-company balances and transactions have been eliminated in consolidation. The Company’s film strip product represents the principal operations of the Company.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of June 30, 2018, and the results of operations and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2018 and 2017, are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in Form 10-K for the fiscal period ended December 31, 2017 filed with the Securities and Exchange Commission (the “SEC”) on March 26, 2018.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting period. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. As of June 30, 2018 and December 31, 2017, the Company had no cash equivalents. At June 30, 2018 and December 31, 2017, the Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (“FDIC”) in accounts that at times may be in excess of the federally insured limit of $250,000 per bank. The Company minimizes this risk by placing its cash deposits with major financial institutions.

Investment in Associates

An associate is an entity over which the Company has significant influence through a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but not control or joint control over those policies.

The results of assets and liabilities of associates are incorporated in the condensed consolidated financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Company’s share of the net assets of the associate, less any impairment in the value of the investment. Losses of an associate in excess of the Company’s interest in that associate are not recognized. Additional losses are provided for, and a liability is recognized, only to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of the associate.

Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognized at the date of acquisition is recognized as goodwill. The goodwill is included within the carrying amount of the investment.

On January 8, 2016, the Company received 50% ownership in Cure Innovations, Inc (“CI”). CI was created in 2015 by IncuBrands Studio, Inc (“IncuBrands”). The Company and IncuBrands each own 50% of the common stock of CI. The Company and IncuBrands entered into a Joint Venture agreement in 2013 to distribute several OTF products utilizing IncuBrands marketing and contacts in various industries as well as utilize the Company’s technology and capabilities of manufacturing OTF’s.

On December 6, 2016, the Company entered into a Joint Venture Agreement (“Joint Venture”) with Pace Wellness, Inc. (“Pace”) to jointly develop three Active Pharmaceutical Ingredients (“API”) within the nonprescription and/or Over-the-Counter (OTC) medicines specifically utilizing the Company’s patented and proprietary CUREFilm™ Technology. The three API’s to be jointly developed are Diphenhydramine HCL, Omeprazole and a third API to be determined at a later date (“Products”). Pace shall be the exclusive global distributor of the Products under the Solves Strips® branding or other private or branded labels. All benefits, advantages, and liabilities derived from, or incurred in respect of the Joint Venture shall be borne by the parties in proportion of their respective participating interests of 50/50 equal interest. As of June 30, 2018, the Company has only contributed $5,000 to the Joint Venture.

Property and Equipment

The Company capitalizes expenditures related to property and equipment, subject to a minimum rule, that have a useful life greater than one year for: (1) assets purchased; (2) existing assets that are replaced, improved or the useful lives have been extended; or (3) all land, regardless of cost. Acquisitions of new assets, additions, replacements and improvements (other than land) costing less than the minimum rule in addition to maintenance and repair costs, including any planned major maintenance activities, are expensed as incurred. Depreciation has been provided using the straight-line method on the following estimated useful lives:

Accounts Receivable

Accounts receivable are generally unsecured. The Company establishes an allowance for doubtful accounts receivable based on the age of outstanding invoices and management’s evaluation of collectability. Accounts are written off after all reasonable collection efforts have been exhausted and management concludes that likelihood of collection is remote. Any future recoveries are applied against the allowance for doubtful accounts.

Impairment of Long-Lived Assets

Long-lived assets include equipment and intangible assets other than those with indefinite lives. We assess the carrying value of our long-lived asset groups when indicators of impairment exist and recognize an impairment loss when the carrying amount of a long-lived asset is not recoverable when compared to undiscounted cash flows expected to result from the use and eventual disposition of the asset.

Indicators of impairment include significant underperformance relative to historical or projected future operating results, significant changes in our use of the assets or in our business strategy, loss of or changes in customer relationships and significant negative industry or economic trends. When indications of impairment arise for a particular asset or group of assets, we assess the future recoverability of the carrying value of the asset (or asset group) based on an undiscounted cash flow analysis. If carrying value exceeds projected, net, undiscounted cash flows, an additional analysis is performed to determine the fair value of the asset (or asset group), typically a discounted cash flow analysis, and an impairment charge is recorded for the excess of carrying value over fair value. There was no impairment on our long-lived assets during the three and six month periods ended June 30, 2018 and 2017.

Revenue Recognition

We recognize revenue in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue Recognition”.  The Company adopted Topic 606 using a modified retrospective approach and will be applied prospectively in the Company’s financial statements from January 1, 2018 forward. Revenues under Topic 606 are required to be recognized either at a “point in time” or “ over time”, depending on the facts and circumstances of the arrangement, and will be evaluated using a five-step model. The adoption of Topic 606 did not have a material impact on the Company’s financial statements, at initial implementation nor will it have a material impact on an ongoing basis. We derive revenues from two primary sources: products and services. Product revenue includes the shipment of product according to the agreement with our customers. Services include research and development contracts for the development of OTF products utilizing our CureFilm™ Technology or our other proprietary technologies. Rarely, contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices are typically estimated based on observable transactions when these services are sold on a standalone basis.

The Company’s consulting research and development income include services for the development of OTF products utilizing our CureFilm™ Technology. Most of our development contracts have four phases. Revenue is recognized based on progress toward completion of the performance obligation in each phase. The method to measure progress toward completion requires judgment and is based on the nature of the products or services to be provided. The Company generally uses the input method to measure progress for its contracts because it best depicts the transfer of assets to the customer, which occurs as the Company incurs costs for the contracts. Under the cost-to-cost measure of progress, the progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenue is recorded proportionally as costs are incurred. Costs to fulfill these obligations mainly include materials, labor, supplies and consultants.

Deferred revenue is shown separately in the condensed consolidated balance sheets. At June 30, 2018 we had deferred revenue of $408,263. At December 31, 2017, we had deferred revenue of $361,462.

Advertising Expense

The Company expenses marketing, promotions and advertising costs as incurred. Such costs are included in general and administrative expense in the accompanying statements of operations. The Company recorded advertising costs of $58,984 and $98,823 for the three and six month periods ended June 30, 2018, respectively. The Company recorded advertising costs of $68,893 and $95,226, for the three and six month periods ended June 30, 2017, respectively.

Research and Development

Costs incurred in connection with the development of new products and processes are charged to research and development expenses as incurred. The Company recorded research and development expenses of $376,840 and $803,369 for the three and six month periods ended June 30, 2018, respectively. The Company recorded research and development expenses of $205,648 and $425,268 for the three and six month periods ended June 30, 2017, respectively.

Income Taxes

The Company utilizes FASB ASC 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.

The Company generated a deferred tax asset through net operating loss carry-forward. However, a valuation allowance of 100% has been established due to the uncertainty of the Company’s realization of the net operating loss carry forward prior to its expiration.

Stock-Based Compensation

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date.

Convertible Debentures

Beneficial Conversion Feature

If the conversion features of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 ““Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF and the Company amortizes the discount to interest expense over the life of the debt using the effective interest method.

Derivative Liabilities

ASC 815-40 (formerly SFAS No. 133 “Accounting for derivative instruments and hedging activities”), requires that embedded derivative instruments be bifurcated and assessed, along with free-standing derivative instruments such as warrants, on their issuance date and in accordance with ASC 815-40-15 (formerly EITF 00-19 “Accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock”) to determine whether they should be considered a derivative liability and measured at their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option pricing formula and present value pricing. At June 30, 2018 and December 31, 2017, the Company adjusted its derivative liability to its fair value, and reflected the change in fair value, in its consolidated statement of operations and comprehensive loss.

Fair Value Measurements

The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

The estimated fair value of certain financial instruments, including cash and cash equivalents are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

Level 1 — quoted prices in active markets for identical assets or liabilities

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

The Company has no assets or liabilities valued at fair value on a recurring basis.

Basic and diluted loss per share

Basic loss per share is computed by dividing the net loss to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted loss per share is computed by dividing the net loss for the period by the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares, which consist of stock options and warrants, have been excluded from the diluted loss per share calculation because their effect is anti-dilutive.

Going Concern

The Company’s financial statements are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company had an accumulated deficit at June 30, 2018 of $23,172,763. The Company had a working capital deficit of $4,869,293 as of June 30, 2018. These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the financial statements. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable. The Company is continually analyzing its current costs and is attempting to make additional cost reductions where possible. We expect that we will continue to generate losses from operations throughout 2018.

Historically, the Company has had operating losses and negative cash flows from operations which cast significant doubt upon the Company’s ability to continue as a going concern. The Company will need to raise capital in order to fund its operations. This need may be adversely impacted by uncertain market conditions and changes in the regulatory environment. To address its financing requirements, the Company intends to seek financing through debt and equity issuances to existing stockholders.

Specifically, management has identified that a minimum of $4,000,000 of capital is needed over the next 12 months in order sustain operations. These capital needs take into account, among other things, management’s plans to advance intellectual property, maintenance of patents, upgrades for manufacturing and to hire personnel for business development. Management has outlined a plan to raise between $6,000,000 to $8,000,000 in capital over the next 12 months through the issuance of shares of the Company’s common stock to accredited investors. Management believes that the capital raised through these methods will be sufficient to sustain operations for the next 12 months. However, the outcome of these matters cannot be predicted with certainty at this time.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the financial statements. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that might be necessary if the Company is unable to continue as a going concern.

Recently Issued Standards

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The purpose is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. This ASU is effective for the Company in the first quarter of 2018. Early adoption is not permitted except for limited provisions. The adoption of ASU 2016-01 did not have an impact on the Company’s condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02—Leases (Topic 842), requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. The effective date of the new standard for public companies is for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the earliest comparative period presented. The Company is evaluating the effect that the updated standard will have on its financial statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The new standard requires recognition of the income tax effects of vested or settled awards in the income statement and involves several other aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This new standard became effective for the Company on January 1, 2017. The adoption of this standard did not have a material impact on its financial position, results of operations or statements of cash flows upon adoption.

In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”, to clarify certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition and disclosures no longer required if the full retrospective transition method is adopted. The effective date and transition requirements for these amendments are annual reporting periods beginning after December 15, 2017, including interim reporting periods therein, and that would also permit public entities to elect to adopt the amendments as of the original effective date as applicable to reporting periods beginning after December 15, 2016. The new guidance allows for the amendment to be applied either retrospectively to each prior reporting period presented or retrospectively as a cumulative-effect adjustment as of the date of adoption. The adoption of ASU 2016-12 did not have an impact on the Company’s condensed consolidated financial statements.

In August, 2016, the FASB issued Accounting Standards Update No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) (“ASU 2016-15”). The amendments in ASU 2016-15 address eight specific cash flow issues and apply to all entities that are required to present a statement of cash flows under ASC Topic 230, Statement of Cash Flows. The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption during an interim period. The adoption of ASU 2016-15 did not have an impact on the Company’s condensed consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This new standard will be effective for the Company on January 1, 2018; however, early adoption is permitted with prospective application to any business development transaction. There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s financial position, results of operations or cash flows.

In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation: Scope of Modification Accounting, which provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions or award classification and would not be required if the changes are considered non-substantive. The amendments of this ASU are effective for the Company in the first quarter of 2018, with early adoption permitted. The adoption of ASU 2017-09 did not have an impact on the Company’s condensed consolidated financial statements.

There are various other updates recently issued, however, they are not expected to a have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

NOTE 3 - INVENTORY

Inventory consists of raw materials, packaging components, work-in-process and finished goods. The Company’s inventory is stated at the lower of cost (FIFO cost basis) or market. The carrying value of inventory consisted of the following at June 30, 2018 and December 31, 2017:

NOTE 4 - PREPAID EXPENSES AND OTHER ASSETS

As of June 30, 2018 and December 31, 2017, prepaid expenses and other assets consisted of the following:

NOTE 5 - PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS

As of June 30, 2018 and December 31, 2017, property and equipment and intangible assets consisted of the following:

Depreciation expense for the three and six month periods ended June 30, 2018 was $25,597 and $49,652, respectively. Depreciation expense for the three and six month periods ended June 30, 2017 was $37,437 and $76,442, respectively, which includes depreciation of $2,160 and $4,320 for capitalized leased assets for the three and six months ended June 30, 2017, respectively.

The Company incurred $47,632 and $16,555 of legal patent costs that were capitalized during the six months period ended June 30, 2018 and 2017, respectively. In addition, the Company purchased $97,000 of patents through the issuance of 120,000 common stock shares of the Company. As of June 30, 2018, these shares have not yet been issued. Amortization expense for the three and six month periods ended June 30, 2018 was $11,613 and $22,512, respectively. Amortization expense for the three and six month periods ended June 30, 2017 was $10,821 and $21,720, respectively.

The estimated aggregate amortization expense over each of the next five years is as follows:

NOTE 6 – LOAN PAYABLE

Loan payable consists of the following at June 30, 2018 and December 31, 2017:

Interest expense for the three and six month periods ended June 30, 2018 was $496 and $1,296, respectively. Interest expense for the three and six month periods ended June 30, 2017 was $653 and $1,665, respectively.

NOTE 7 – NOTES PAYABLE

Notes payable consist of the following at June 30, 2018 and December 31, 2017:

Interest expense for the three and six month periods ended June 30, 2018 was $16,205 and $32,233, respectively. No interest expense was incurred for the three and six month periods ended June 30, 2017.

NOTE 8 – CONVERTIBLE PROMISSORY NOTES

Convertible promissory notes consist of the following at June 30, 2018 and December 31, 2017:

During the three and six month period ended June 30, 2018, the Company incurred $224,936 and $372,544, respectively, amortization of discount. During the three and six month periods ended June 30, 2017, the Company incurred $77,683 amortization of discount. Interest expense for the three and six month periods ended June 30, 2018 was $89,759 and $142,153, respectively. Interest expense for the three and six month periods ended June 30, 2017 was $3,306.

NOTE 9 – DERIVATIVE LIABILITY

The following table summarizes fair value measurements by level at June 30, 2018 for assets and liabilities measured at fair value on a recurring basis:

The following table summarizes fair value measurements by level at December 31, 2017 for assets and liabilities measured at fair value on a recurring basis:

The Company has issued convertible promissory notes during 2017 and 2018. 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, interest rates and expected term. The assumptions used in valuing the derivative liability during 2018 were as follows:

The following is a reconciliation of the derivative liability for 2018:

NOTE 10 – STOCK BASED AWARDS

On December 29, 2017 (“Effective Date”), the Company adopted the CURE Pharmaceutical Holding Corp. 2017 Equity Incentive Plan (the “Plan”), pursuant to which an aggregate of 5,000,000 shares of the common stock of the Company are available for grant. The Board of Directors have determined that it is in the best interests of the Company and its stockholders to provide an additional incentive for certain employees, including executive officers, and non-employee members of the Board of Directors of the Company by granting to them awards with respect to the common stock of the Company pursuant to the Plan. The Plan seeks to achieve this purpose by providing for awards in the form of Options, Stock Appreciation Rights, Restricted Stock Awards, Restricted Stock Units, Performance Shares, Performance Units, Cash-Based Awards and Other Stock-Based Awards (“Awards”). The Plan will continue in effect until its termination by the Committee; provided, however, that all Awards must be granted, if at all, within ten (10) years from the Effective Date.

On April 6, 2018, the Company awarded 371,250 Restricted Common Stock (“RCS”), 1,251,700 Nonstatutory Stock Options (“NSO”) and 932,750 Incentive Stock Options (“ISO”) to employees, including executive officers, non-employee members of the Board of Directors of the Company, members of the Advisory Board Committee and consultants at a $0.74 price per share. Vesting period for the awarded RCS, NSO and ISO’s range from immediate to quarterly over a 4 year period. For NSO’s and ISO awarded, the term to exercise their NSO or ISO is 10 years.

Stock Options

The Company’s stock option activity was as follows:

The aggregate intrinsic value of options outstanding and exercisable at June 30, 2018 was $0.

The aggregate grant date fair value of options granted during the six months ended June 30, 2018 and year ended December 31, 2017 amounted to $1,229,862 and $0, respectively. Compensation expense related to stock options was $313,730 for the three and six month periods ended June 30, 2018. No compensation expense related to stock options were incurred during the three and six month periods ended June 30, 2017.

As of June 30, 2018, the total unrecognized fair value compensation cost related to unvested stock options was $986,132, which is to be recognized over a remaining weighted average period of approximately 9.78 years.

The weighted-average fair value of options granted during the six months ended June 30, 2018 and year ended December 31, 2017, 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:

Restricted Stock

The Company’s restricted stock activity was as follows:

Compensation expense related to restricted shares was $147,538 for the three and six month periods ended June 30, 2018, respectively. There was no compensation expense related to restricted shares for the three and six month periods ended June 30, 2017. Information relating to non-vested restricted award shares is as follows:

NOTE 11 – WARRANT AGREEMENTS

On January 24, 2018, the Company issued an additional 55,000 warrants at a fair market value of $50,094 and with an exercise price of $1.00 per share in connection with issuance of $1,100,000 convertible promissory notes in 2017 and amended on January 24, 2018 to extend the maturity date to March 31, 2018.

On April 15, 2018, the Company issued an additional 275,000 warrants at a fair market value of $87,828 and with an exercise price of $1.00 per share in connection with issuance of $1,100,000 convertible promissory notes in 2017, amended on January 24, 2018 to extend the maturity date to March 31, 2018 and a second amendment on April 15, 2018 to extend the maturity date to May 31, 2018. In addition, the Company extended the term of the warrant agreements for one additional year for each of the convertible promissory notes.

On May 1, 2018, the Company issued 110,000 warrants at a fair market value of $27,479 and with an exercise price of $1.00 per share in connection with convertible promissory notes purchased issued by the Company.

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:

The weighted-average fair value of warrants granted to during the six months ended June 30, 2018 and year ended December 31, 2017, 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:

NOTE 12 – STOCKHOLDERS’ EQUITY

Authorized Stock

The Company has authorized to issue is 75,000,000 common shares with a par value of $0.001 per share.

As of June 30, 2018 and December 31, 2017, there were 25,021,427 and 23,901,252 shares of the Company’s common stock issued and outstanding, respectively.

Common Share Issuances

On January 24, 2018, the Company issued 50,000 common stock shares at $1.48 per share for consulting services to be performed over a one year period. The total value of this issuance was $74,000 and as of June 30, 2018, $23,108 is included in prepaid expenses and other assets.

On May 16, 2018, the Company issued 70,150 common stock shares at $0.65 per share for consulting services performed. The total value of this issuance was $45,614.

On May 16, 2018, the Company issued 1,000,000 common stock shares at $0.97 per share for consulting services to be performed over a 30 month period. The total value of this issuance was $970,000 and as of June 30, 2018, $831,429 is included in prepaid expenses and other assets.

Stock Payable

On January 11, 2018, the Company entered into an Advisory Consulting Agreement (“Agreement”) with a Company (“Consultant”) to provide scientific and technical advisory services. In consideration for the Consultant’s services provided, the Company shall grant 70,000 restricted common stock shares at $1.85 price per share over a six month period, where 70,000 restricted common stock shares vesting immediately. As the Company did not issue the 70,000 restricted common stock shares, the Company recorded a stock payable of $129,000. As of June 30, 2018, $7,780 is included in prepaid expenses and other assets.

On February 20, 2018, the Company entered into a Consulting Agreement (“Agreement”) with an individual (“Consultant”) to provide strategic marketing and development advisory services. In consideration for the Consultant’s services provided, the Company shall grant 250,000 restricted common stock shares at $1.10 price per share over a six month period, where 250,000 restricted common stock shares vesting immediately. As the Company did not issue the 250,000 restricted common stock shares, the Company recorded a stock payable of $275,000. As of June 30, 2018, $77,486 is included in prepaid expenses and other assets.

On April 2, 2018 (the “Effective Date”), the Company entered into a patent purchase agreement (“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. As consideration for the assignment of the Assigned Patents and other rights under the Agreement, the Company shall issue to Assignor shares of its Common Stock (“Shares”) as follows, provided, that the maximum number of Shares issuable hereunder shall not exceed Two Hundred Thousand (200,000): (a) 50,000 Shares will be issued on the Effective Date; (b) 10,000 Shares will be issued for each Abandoned Application the prosecution of which is revived by the United States Patent and Trademark Office (“USPTO”); and (c) 50,000 Shares will be issued upon issuance by the USPTO of each patent that includes at least one specific claim in a patent application that recites subject matter to be defined by Assignee in its sole discretion (“Target Claim”). For the six months period ended June 30, 2018, the Company owed 50,000 Shares at $0.69 price per share, 20,000 Shares at $0.70 price per share and 50,000 shares at $0.97 price per share, for a total of 120,000 Shares. As the Company has not yet issued the 120,000 Shares as of June 30, 2018, the Company recorded a stock payable of $97,000, where $96,286 is included in intellectual property and patents as of June 30, 2018.

On April 10, 2018 (“Execution Date”), the Company entered into a Media Advertising Agreement (“Agreement”) with a company (“Consultant”) to provide media and advertising services over a six month period. In consideration for the Consultant’s services provided, the Company shall grant 90,000 restricted common stock shares, vesting immediately, as of the Execution Date and 90,000 three months from the Execution Date, vesting immediately. For the six months period ended June 30, 2018, the Company owed 90,000 shares at $0.71 price per share. As the Company did not issue the 90,000 restricted common stock shares, the Company recorded a stock payable of $63,900. As of June 30, 2018, $30,071 is included in prepaid expenses and other assets.

On May 16, 2018, the Company entered into 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. In consideration for the Landlord’s cancellations, the Company shall grant 69,444 restricted common stock shares at $0.72 price per share, where 69,444 restricted common stock shares vesting immediately. As the Company did not issue the 69,444 restricted common stock shares before the six months period ended June 30, 2018, the Company recorded a stock payable of $50,000. As the Company did not issue the 69,444 Shares, the Company recorded a stock payable of $50,000 as of June 30, 2018.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

Litigation:

From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. The only significant matter of which the Company is aware of is discussed below.

On May 22, 2017, Sandy Sierra Garate (“Applicant”), an employee of the Company, filed an application for benefits due to serious and willful misconduct of the employer pursuant to labor code section 4553 with the State of California Workers’ Compensation Appeals Board (WCAB Case No: ADJ 10686812) resulting in injury arising out of and in the course of the Applicant’s employment on August 5, 2016. The Applicant is requesting relief in this matter for a one half increase in all compensation recoverable in connection with the injury of August 5, 2016, for the allowance of costs and expenses in an amount to be determined and for such further relief as is deemed appropriate. The Company is currently unable to determine what additional expenses will be incurred in order to defend this matter. As such, the Company cannot determine whether there is a reasonable possibility that a loss will be incurred nor can it estimate the range of any such potential loss. Accordingly, the Company has not accrued an amount for any potential loss associated with this action.

Operating leases

The Company maintains its corporate offices and manufacturing facility at 1620 Beacon Place, Oxnard, CA 93033, which contains approximately 25,000 square feet. The Company is currently on a month-to-month lease.

The Company also leased additional office and warehouse space at 1612 Fiske Place, Oxnard, CA 93033, which contains approximately 2,227 square feet. The Company was on a month-to-month lease and vacated this facility on August 6, 2018.

Total rent expense for the three and six month periods ended June 30, 2018 was $67,792 and $141,670, respectively. Total rent expense for the three and six month periods ended June 30, 2017 was $73,416 and $145,815, respectively.

NOTE 14 – SUBSEQUENT EVENTS

On June 30, 2018, Edward Maliski, President and Chief Scientific Officer of the Company, retired from his position and entered into a Confidential Severance and General Release Agreement. On July 1, 2018, Edward Maliski (“Consultant”) entered into a Consulting Agreement (“Agreement”) with the Company with a term of 4 years. Per the Agreement, the Consultant will advise on new and existing product formulations and make recommendations based on best practices and latest innovations, advise on analytical method development and assist with patent prosecution matters (“Services”). The Consultant will be compensated at an hourly rate of $300 per hour and is not expected to exceed 10 hours per month. It is understood that the total cost to the Company for Services provided under the Agreement shall not exceed $36,000 during such one-year period.

On July 9, 2018, the Company entered into a non-binding Confidential Term Sheet (“Term Sheet) with Therapix Bioscience Ltd., an Israeli public company (“Therapix”). The Company will acquire all of Therapix’s non-pain assets, which include several clinical drug candidates as well as two pre-clinical drug candidates (“Assets”), in consideration for the issuance by the Company to Therapix of newly issued shares of common stock of the Company (the “Shares”). The number of Shares to be issued as consideration for the Assets (the “Acquisition”) shall be mutually agreed by the parties based on an independent third party valuation of the Assets and the Shares. A condition of the closing for the Acquisition shall be raising additional financing, some of which will be provide by Therapix.

On July 27, 2018, the Company issued a $250,000 convertible promissory note with an investor (“Investor”), secured by all assets of the Company and due December 31, 2018. The notes bear interest at 9% per year and are convertible into common stock at either a 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. The Investors in this offering also received warrants (the “Warrants”) for the option to purchase equal to 50% of the shares of Common Stock that the Investor is entitled to receive in connection with the conversion of the Investor’s Note. The Warrants’ price per share shall equal the lower of (a) $2.00 or (b) 125% of the price per share of the Qualified Offering. If the Qualified Offering has not occurred, then the Exercise Price shall be $2.00. The Warrants will have a three-year term and shall be exercisable in cash.

On July 7, 2018, a convertible promissory note and accrued interest totaling $263,398 was converted into 297,288 shares of common stock of the Company at a price of $0.886 per share. As of filing of our Form 10-Q for the quarterly period ended June 30, 2018, the Company has not yet issued these shares of common stock.

On July 31, 2018, the Company amended four convertible promissory notes totaling $850,000 to extend the maturity dates to August 31, 2018. For extending the maturity date, the Company will issue a total of 180,000 common stock shares of the Company at $1.65 per share.

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

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

BUSINESS

CURE Pharmaceutical Holding Corp. (the “Company”) was 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 the registrant’s common stock executed a written consent to change the registrant’s name to CURE Pharmaceutical Holdings Corp. from Makkanotti Group Corp. The Certificate of Amendment to Articles of Incorporation was filed with the State of Nevada on November 30, 2016.

Our wholly owned subsidiary and operating business, CURE Pharmaceutical Corporation, located in Oxnard, California was originally incorporated in July 2011.

Industry Overview and Trends

The pharmaceutical industry is facing ever-growing R&D expenditure and fewer new drug approvals as a result of increasing regulation, a failure to predict safety problems or a lack of efficacy early in a drug’s development, and high investment in new technologies to improve the speed and accuracy of drug development. In addition to these challenges to the industry’s operators, many leading drugs are coming off-patent, creating a need to fill revenue gaps. 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.

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 after Phase II trials, or marketed drugs for which new uses will extend patent life and, therefore, profitability.

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

We are a drug formulation and delivery technology company that researches and manufactures novel dosage forms to improve drug safety, efficacy and patient adherence. Our mission is to improve lives by redefining how medications are delivered and experienced. Our business strategy is to develop products using our proprietary technology, license the product rights to partners responsible for clinical development, regulatory approval, marketing and sales and retain exclusive manufacturing rights. We operate a 25,000 sqft cGMP manufacturing plant in Oxnard, CA.

Technology

Our technology platform includes oral dissolving film (ODF) and transdermal formulations. We apply our technology to pharmaceutical drugs and dietary supplements.

ODF products are about the size of a postage stamp and composed of excipients such as polymers, stabilizers, lipids and surfactants which are all generally recognized as safe. They can be designed to deliver active ingredients to the gastrointestinal tract (GI) when placed on the tongue and swallowed, or directly to the blood stream when placed under the tongue (sublingual) or on the inner lining of the cheek and lip (buccal).

Sublingual and buccal drug delivery are non-invasive routes for drug delivery that allows for absorption directly into the vascularized tissue in the mouth, avoiding degradation of the active molecule in the stomach, intestines and liver. These routes can reduce overall drug exposure and toxicities.

As an ODF, active ingredients are often pre-solubilized within the film matrix which can accelerate the onset of action, whether the GI is targeted of the systemic circulation. Active ingredients can also be encapsulated within the film matrix which can cause a sustained release profile. Combined sustain release and rapid release strategies can be achieved with ODFs.

ODFs can be designed for rapid dissolution or slower dissolution in the case of a buccal patch. In each case, ODFs must mask the taste of the active ingredient if unpalatable, throughout the dissolution process. The self-dissolving nature of ODF means that no water or swallowing are required for administration, improving medication adherence - especially among the elderly, children, and in conditions where patients have difficulty in swallowing.

The CUREfilm platform is a scalable and versatile formulation and drug delivery system for both oral (ODF) and transdermal (skin) delivery. CUREfilm formulations can improve or match the pharmacokinetics of drugs depending on the desired outcome. The platform is compatible with a broad spectrum of molecules and can be applied to investigational and marketed drugs or dietary supplements.

Our CUREfilm transdermal technology has been tested at laboratory scale on a dozen different molecules. Our CUREfilm ODF technology, which is our core focus, has been used to develop hundreds of products at laboratory scale and over 20 dietary supplements at commercial scale in our GMP plant located in Oxnard, CA.

Intellectual Property

The competitive advantages of the CUREfilm platform and products over other ODF technology and products are protected by issued and pending patents, as well as trade secrets such as proprietary equipment design and manufacturing processes which allow us to produce CUREfilm products at commercial scale in a cGMP environment. Our patent and patent application portfolio are listed below.

Business Strategy

Our commercial strategy seeks to mitigate risk by pursuing a diversified model.

1. Dietary supplements. We manufacture select dietary supplements that complement our portfolio and align with our mission which are white labeled and distributed by third parties. Dietary supplements are regulated under the Dietary Supplement Health and Education Act of 1994 (DSHEA) under which supplements are effectively by the FDA for Good Manufacturing Practices under 21 CFR Part 111 but do not require FDA approval. By developing, manufacturing and selling dietary supplement, we can generate modest short term revenue while and improving our production capabilities.

2. Pharmaceuticals. We partner with companies that are responsible for clinical development, regulatory approval, marketing and sales of the products. We provide the Chemistry, Manufacturing, and Controls (CMC) documentation required for regulatory submissions and in some instances, we may conduct the preclinical testing. Deal terms may include upfront licensing fees, development costs, milestone payments, royalties and exclusive manufacturing rights. Within this category, we are further diversifying risk and return by pursuing both competitive differentiation of marketed drugs (product life cycle opportunities) and improved pharmacokinetics of investigational drugs. While we currently commercially manufacture dietary supplements in our facility, we are undertaking steps to scale up manufacturing of pharmaceutical drugs for clinical and commercial use.

3. Cannabinoids. We are researching and developing drugs in the cannabinoid family of molecules. The oral bioavailability of cannabinoids is very low due to extensive gut and liver metabolism. Consequently, potency and release times are unpredictable and inconsistent. Moreover, cannabinoids don’t readily dissolve in water which adds to dosing difficulties and discrepancies. In addition to improving bioavailability, CUREfilm technology enables the loading of combinations of cannabinoids and other plant extracts that, together, provide maximum therapeutic benefit. Development and manufacturing of cannabinoid drugs are regulated by the FDA and the Drug enforcement Agency (DEA). A research license filed with the DEA in January 2018 was determined to be submitted in error given our proposed activities. As such, we have applied for a Schedule 1 manufacturer license with the DEA.

4. Underserved patient populations. Consistent with our mission of improving the lives of all people in need, regardless of geography or economic status, we licensed our technology to our majority-owned subsidiary, Oak Therapeutics, for the development of novel drug formulations for patients in developing nations such as a rapidly dissolving film to treat tuberculosis.

Growth Strategy

We will drive growth by (1) securing additional distributors for our dietary supplements, (2) out licensing rights to our drug products in available territories; (3) in-licensing novel drug delivery technologies and cannabinoid related patents and (4) developing additional ODF drug products with biotech and pharmaceutical partners.

Product Portfolio

Our product portfolio includes dietary supplements and prescription drugs. To manufacture our products, we depend on raw material suppliers and packaging material suppliers. There are several global suppliers of packaging laminate appropriate for dietary supplements and drug product ODFs. We are currently purchasing our packaging laminate from Glenroy Inc. and Bemis Company.

CURE 3068

This is a melatonin-containing sleep aid CUREfilm ODF that is manufactured and sold as a dietary supplement. Our non-exclusive distributor is ID Life, a health and wellness company focused on customized nutrition and selling within the United States. We have an open purchase order with ID Life for 3,210,252 units of product in 2018.

CURE 5003

We are developing a sildenafil CUREfilm ODF for p.o. administration. On August 1, 2017, we entered into a development agreement with an undisclosed partner for China, Hong Kong, Japan, Korea, Singapore, Philippines, Taiwan, Vietnam and Thailand. The product which will be launched for the treatment of erectile disorder, is in late stage development. We are qualifying the API supplier and have qualified our contract packaging partner.

CURE 5067

We are developing a 50,000IU, once per week, vitamin D3 CUREfilm ODF for p.o. administration. On February 18, 2017, we entered into an exclusive 5-year license and distribution agreement with Meroven Limited in the MENA region: Iraq, Saudi Arabia, Yemen, Syria, UAE, Jordan, Palestine, Lebanon, Oman, Kuwait, Qatar, Bahrain, Sudan, Egypt, Tunisia, Morocco, Algeria and Africa. The product is currently in the optimization development stage.

CURE 5079

This is a novel sleep aid CUREfilm ODF that will be manufactured and sold as a dietary supplement. A purchase order was placed on February 22, 2018 by a distributor in the United States. In order to protect CURE’s and our partner’s competitive advantage, no further details of the product can be disclosed at this stage.

CURE 5198

We are developing a Palmitoylethanolamine (PEA) & Dronabinol (THC) CUREfilm ODF for buccal administration. On October 27, 2017, we entered into a development agreement with Therapix Biosciences for worldwide rights. The product is in formulation development for PEA. We will need our DEA license to incorporate THC into the product.

CURE 5200

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

CURE 5209

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

Significant Employees

We currently have no significant employees.

Office

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

Government Regulation

We will be required to comply with all regulations, rules and directives of governmental authorities and agencies applicable to our business in any jurisdiction which we would conduct activities. We do not believe that regulation will have a material impact on the way we conduct our business.

RESULTS OF OPERATIONS

Revenues for the Three and Six Months Ended June 30, 2018 and 2017.

Revenues for the three and six months ended June 30, 2018 were $156,918 and $216,932, respectively, as compared to $38,885 and $70,830 for the three and six months ended June 30, 2017, respectively. The increase was principally due to the Company increased orders from ID Life, LLC for Sleep Strips. Revenues earned from ID Life have increased by 441% for the six months ended June 30, 2018 compared to the same period in 2017. In addition, the Company successfully completed a new sleep OTF product for another customer during the three months ended June 30, 2018. As this was a new customer in 2018, we did not generate this type of revenue in the same period in 2017. Finally, The Company completed phases I and II of our research and development agreement with Aveneon Technology Ltd. for the development of a Sildenafil OTF during the 1^st quarter of 2018. The Company did not generate this type of revenue in the same period in 2017.

Cost of Goods Sold

Cost of goods sold was $69,988 and $129,074 in the three and six months ended June 30, 2018 compared to $39,598 and $75,148 in the three and six months ended June 30, 2017. Cost of goods sold increased by $30,390 and $53,926 in the three and six months ended June 30, 2018 compared to the three and six months ended June 30, 2017, which was primarily due to the increased sales to ID Life for Sleep Strips as well as sales from a new customer for another sleep OTF product during the three and six month periods ended June 30, 2018. In addition, the Company generated revenue from ID Life on higher margin products in the three and six months ended June 30, 2018 compared to the same period in 2017.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three and six months ended June 30, 2018 amounted to $2,033,761 and $3,052,271, respectively, and for the three and six months ended June 30, 2017 amounted to $2,194,950 and $4,597,497, respectively. For the three and six months ended June 30, 2018 and 2017, selling, general and administrative expenses were mainly comprised of amortization, commission, insurance, payroll, consulting, investor relation services, PR services and rent expenses. The decrease in the three and six months ended June 30, 2018 compared to the three months and six months ended June 30, 2017 was mainly due to the decrease in noncash transactions relating to common stock issued for consulting services and recording the fair value of warrants issued for services recorded in the three and six months ended June 30, 2017 compared to the same period in 2018. However, the decrease was offset by the increases in payroll, legal, accounting, investor relations, and PR services.

Research and Development Expenses

For the three and six months ended June 30, 2018, research and development expenses increased to $376,840 and $803,369, respectively, compared to the three and six months ended June 30, 2017 of $205,648 and $425,268, respectively. The increase in research and development expenses is due to the Company’s focus on developing potential partnerships with pharmaceutical and bioscience companies and new OTC and prescription products. This is evident by our research and development deals for the development of a Sildenafil CUREfilm, a Palmitoylethanolamine (PEA) & Dronabinol (THC) CUREfilm ODF for buccal administration, a novel CUREfilm ODF substrate with an undisclosed partner, and a CUREfilm ODF for mood enhancement as a dietary supplement once per week. In addition, the Company continues to work on the development of a 50,000IU vitamin D3 CUREfilm ODF for p.o. administration as well as developing a novel sleep aid CUREfilm ODF that will be manufactured and sold as a dietary supplement.

LIQUIDITY AND CAPITAL RESOURCES

For the Six Months ended June 30, 2018

As of June 30, 2018, our total assets were $2,976,725 comprised of cash of $161,051, accounts receivable of $66,165, inventory of $99,827, prepaid expenses and other assets of $1,215,379, net property and equipment of $311,125, net intangibles of $1,022,593, and other assets of $100,585. Our total liabilities were $6,473,376 comprised of accounts payable of $601,291, accrued expenses of $264,328, current portion of loan and note payables of $716,323, convertible promissory notes, net, of $3,741,221, derivative liability of $181,950, deferred revenue of $408,263 and license fees of $560,000.

Cash flows used in operating activities

For the six months ended June 30, 2018, operating activities consumed $2,267,047 of cash. This was primarily the result of a net loss of $4,318,742, offset by depreciation and amortization of $72,164, amortization of stock based compensation – prepaid expenses of $713,537, amortization of loan discounts of $519,770, noncash compensation of $461,268, common stock issued for services of $45,615, change in derivative liabilities of $206,441, warrants granted for commission expense of $94,277 as well as the changes in accounts receivable of $61,801, inventory of $54,831, prepaid expenses of $153,705, other assets of $16,970, accounts payable of $106,311, accrued expenses of $144,350 and deferred revenue of $46,801. For the six months ended June 30, 2017, operating activities consumed $2,075,795 of cash. This was primarily the result of a net loss of $5,161,425, offset by depreciation and amortization of $98,161, amortization of prepaid stock-based compensation of $552,010, amortization of loan discounts of $82,933, warrants issued for services of $2,717,620 as well as the changes in inventory of $22,704, prepaid expenses of $594,061, accounts payable of $151,350 and deferred revenue of $18,982.

Cash flows used in investing activities

Investment activities used an additional $71,049 of cash during the six months ended June 30, 2018, primarily as a result of payments for patents and costs associated in the development and improvement of our intellectual property of $47,632 and acquisition of property and equipment of $23,417. Investment activities used an additional $64,350 of cash during the six months ended June 30, 2017, primarily as a result of payments for patents and costs associated in the development and improvement of our intellectual property of $16,555, payment to joint venture investment of $5,000 and acquisition of property and equipment of $42,795.

Cash flows provided by financing activities

Financing activities provided $2,390,898 of cash for the six months ended June 30, 2018, primarily as the result of proceeds from the issuance of convertible promissory notes of $2,775,000 and repayments of convertible promissory note and loan payables of $384,102. Financing activities provided $1,311,964 of cash for the six months ended June 30, 2017, primarily as the result of proceeds from loans of $1,340,000 and repayments of loan and capital lease payables of $28,036.

CRITICAL ACCOUNTING POLICIES

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

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 six months ended June 30, 2018 and for the year ended December 31, 2017.

Going Concern

For the year ended December 31, 2017, 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, 2018. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable. The Company is continually analyzing its current costs and is attempting to make additional cost reductions where possible. We expect that we will continue to generate losses from operations throughout the remainder of 2018.

Historically, the Company has had operating losses and negative cash flows from operations which cast significant doubt upon the Company’s ability to continue as a going concern. The Company will need to raise capital in order to fund its operations. This need may be adversely impacted by uncertain market conditions and changes in the regulatory environment. To address its financing requirements, the Company intends to seek financing through debt and equity issuances to existing stockholders.

Specifically, management has identified that a minimum of $4,000,000 of capital is needed over the next 12 months in order sustain operations. These capital needs take into account, among other things, management’s plans to advance intellectual property, maintenance of patents, upgrades for manufacturing and to hire personnel for business development. Management has outlined a plan to raise $6,000,000 to $8,000,000 in capital over the next 12 months through the issuance of shares of the Company’s common stock to accredited investors. Management believes that the capital raised through these methods will be sufficient to sustain operations for the next 12 months. If we cannot raise additional funds when we need or want them, our operations and prospects could be negatively affected. However, the outcome of these matters cannot be predicted with certainty at this time.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that might be necessary if the Company is unable to continue as a going concern.

OFF-BALANCE SHEET ARRANGEMENTS

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES

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

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 June 30, 2018. Based on this assessment, management concluded that the Company did not maintain effective internal controls over financial reporting as a result of the identified material weakness in our internal control over financial reporting described below. In making this assessment, management used the framework set forth in the report entitled Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication and (v) monitoring.

Identified Material Weakness

A material weakness in our internal control over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement or the financial statements will not be prevented or detected. Management identified the segregation of duties as a material weakness during its assessment of internal controls over financial reporting as of June 30, 2018. As of June 30, 2018, we had one full-time employee with the requisite expertise in the key functional areas of finance and accounting. As a result, there is a lack of proper segregation of duties necessary to ensure that all transactions are accounted for accurately and in a timely manner. As our resources allow, we will add financial personnel to our management team.

Management, with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a15(e) and 15d15(e)) as of June 30, 2018, the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based upon that evaluation, the Company’s Principal Executive Officer and Principal Financial Officer have concluded that as of the Evaluation Date, the Company’s disclosure controls are not effective as a result of the identified material weakness described herein.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting during the fiscal quarter ended June 30, 2018 that materially affected, or is reasonably likely to have a material effect, on our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth under Note 13 of Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report, is incorporated herein by reference.

ITEM 1A. RISK FACTORS

Not Applicable.

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

On January 24, 2018, the Company issued 50,000 common stock shares at $1.48 per share for consulting services to be performed over a one year period.

The shares of common stock described above were issued without registration under the Securities Act of 1933 (the “Securities Act”) in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act promulgated thereunder and in reliance on similar exemptions under applicable state laws.

On January 24, 2018, the Company issued an additional 55,000 warrants in connection with the issuance of $1,100,000 convertible promissory notes issued in 2017. The warrants have an exercise price of $1.00 per share and a term of 3 years.

From January 30, 2018 to March 28, 2018, the Company issued up to $2,025,000 convertible promissory notes with investors (“Investors”) due November 30, 2018. The notes bear interest at 9% per year and are convertible into common stock at either a 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. The Investors in this offering also received warrants (the “Warrants”) for the option to purchase equal to 50% of the shares of Common Stock that the Investor is entitled to receive in connection with the conversion of the Investor’s Note. The Warrants’ price per share shall equal the lower of (a) $2.00 or (b) 125% of the price per share of the Qualified Offering. The Warrants will have a three year term and shall be exercisable in cash.

The Company has previously adopted and maintains the CURE Pharmaceutical Holding Corp. 2017 Equity Incentive Plan (the “Plan”), pursuant to which an aggregate of 5,000,000 shares of the common stock of the Company were authorized to be granted. 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. On April 6, 2018, the Company awarded 500,000 Restricted Common Stock (“RCS”), 1,251,700 Nonstatutory Stock Options (“NSO”) and 804,000 Incentive Stock Options (“ISO”) to employees, including executive officers, non-employee members of the Board of Directors of the Company, members of the Advisory Board Committee and consultants at a $0.74 price per share. Vesting period for the awarded RCS, NSO and ISO’s range from immediate to quarterly over a 4 year period. For NSO’s and ISO awarded, the term to exercise their NSO or ISO is 10 years.

On April 15, 2018, the Company amended six convertible promissory notes totaling $1,100,000 to extend the maturity dates to May 31, 2018. For extending the maturity date, the Company granted an additional 275,000 warrants to purchase common stock of the Company at a strike price of $1.00 per share. In addition, the Company extended the term of the warrant agreements for one additional year for each of the convertible promissory notes. On April 23, 2018, the Company repaid two of these convertible promissory notes totaling $250,000.

On April 24, 2018, the Company received in total $500,000 (“Investment Amount”) by issuing a convertible promissory note (“Convertible Note”) to a Company, Therapix Biosciences Ltd., (“Investor”) that is due April 30, 2019 (“Maturity Date”). The Convertible Note shall accrue interest at 9% per annum and is unsecured. Unless earlier converted, at the election of the Investor, 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 (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.

On May 1, 2018, the Company issued 110,000 warrants at a fair market value of $27,479 and with an exercise price of $1.00 per share in connection with convertible promissory notes purchased issued by the Company.

On May 15, 2018, the Company issued a $250,000 convertible promissory note with an investor (“Investor”) due December 31, 2018. The notes bear interest at 9% per year and are convertible into common stock at either a 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. The Investors in this offering also received warrants (the “Warrants”) for the option to purchase equal to 50% of the shares of Common Stock that the Investor is entitled to receive in connection with the conversion of the Investor’s Note. The Warrants’ price per share shall equal the lower of (a) $2.00 or (b) 125% of the price per share of the Qualified Offering. If the Qualified Offering has not occurred, then the Exercise Price shall be $2.00. The Warrants will have a three-year term and shall be exercisable in cash.

From May 18, 2018 to June 29, 2018, the Company issued a total of $250,000 convertible promissory notes (“Convertible Notes”) with an investor (“Investor”) due December 31, 2018. The Convertible Notes are secured by all of the assets of the Company and Subsidiaries, including ownership of the Subsidiaries The notes bear interest at 9% per year and are convertible into common stock at either a 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. The Investors in this offering also received warrants (the “Warrants”) for the option to purchase equal to 50% of the shares of Common Stock that the Investor is entitled to receive in connection with the conversion of the Investor’s Note. The Warrants’ price per share shall equal the lower of (a) $2.00 or (b) 125% of the price per share of the Qualified Offering. If the Qualified Offering has not occurred, then the Exercise Price shall be $2.00. The Warrants will have a three-year term and shall be exercisable in cash.

On May 16, 2018, the Company issued 1,000,000 common stock shares at $0.97 per share for investor relation services to be performed over 30 month period.

On May 16, 2018, the Company issued 70,175 common stock shares at $0.65 per share for consulting services performed.

The warrants and notes described above were issued and sold without registration under the Securities Act in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws.

ITEM 3. DEFAULTS UPON SENIOR SECURITES

None.

ITEM 4. MINE SAFETY DISCLOSURE

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

SIGNATURES

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

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: