$CURR Press Release; 10-K: CURE PHARMACEUTICAL HOLDING CORP.
Published: April 1, 2022 at 7:24 a.m. ET
(EDGAR Online via COMTEX) -- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information necessary to understand our audited consolidated financial statements for the two-year period ended December 31, 2021 and highlight certain other information which, in the opinion of management, will enhance a reader's understanding of our financial condition, changes in financial condition and results of operations. In particular, the discussion is intended to provide an analysis of significant trends and material changes in our financial position and the operating results of our business during the year ended December 31, 2021, as compared to the year ended December 31, 2020. This discussion should be read in conjunction with our consolidated financial statements for the two-year period ended December 31, 2021 and related notes included in Part II, Item 8 of this annual report on Form 10-K.
Cautionary Notice Regarding Forward Looking Statements
The information contained in this Item 7 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
We desire to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. This filing contains a number of forward-looking statements that reflect management's current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this filing other than statements of historical fact, including statements addressing operating performance, clinical developments, which management expects or anticipates will or may occur in the future, including statements relating to our technology, market expectations, future revenues, financing alternatives, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements. In particular, the words, "believe," "expect," intend," "anticipate," "estimate," "may," variations of such words, and similar expressions identify forward-looking statements, but are not exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements. We do not undertake any obligations to revise these forward-looking statements to reflect any future events or circumstances.
Readers should not place undue reliance on these forward-looking statements, which are based on management's current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (particularly in "Item 1A - Risk Factors"
and apply only as of the date of this filing. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors which could cause or contribute to such differences could include, but are not limited to, the risks to be discussed in this Annual Report on Form 10-K and in the press releases and other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks and factors, which may affect our business. We undertake no obligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. For additional information regarding forward-looking statements, see Item 1 - Our Business - "Forward-Looking Statements."
Corporate Overview
Overview
We are a biopharmaceutical company focusing the development and manufacturing of drug formulation and drug delivery technologies in novel dosage forms to improve drug safety, efficacy and patient adherence. Our mission 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 and market, sell and distribute branded health, wellness, and beauty products through Sera Labs. We operate in a 25,000 square foot cGMP manufacturing plant in Oxnard, CA.
We were incorporated in the State of Nevada on May 15, 2014. The Company was formerly named Makkanotti Group Corp., which was formed to engage in the business of manufacturing food paper bags in Nicosia, Cyprus. On November 7, 2016, the Board of Directors and the majority stockholder of the then outstanding shares of our common stock executed a written consent to change our name from Makkanotti Group Corp. to CURE Pharmaceutical Holding Corp. The Certificate of Amendment to the Articles of Incorporation was filed with the State of Nevada on November 30, 2016. On September 27, 2019, we reincorporated from the State of Nevada to the State of Delaware.
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Further, on November 7, 2016, we, in a reverse take-over transaction, acquired a specialty pharmaceutical and bioscience company based in California that specializes in drug delivery technologies, by executing a Share Exchange Agreement and Conversion Agreement ("Exchange Agreement" by and among us and a holder of a majority of our issued and outstanding capital stock prior to the closing (the "Majority Stockholder", on the one hand, and CURE Pharmaceutical, all of the shareholders of CURE Pharmaceutical's issued and outstanding share capital (the "CURE Pharm Shareholders" and the holders of certain convertible promissory notes of CURE Pharmaceutical ("CURE Pharm Noteholders", on the other hand. Hereinafter, this share exchange transaction is described as the "Share Exchange."
As a result of the Share Exchange, CURE Pharmaceutical became a wholly owned subsidiary of the Company, and the CURE Pharm Shareholders and CURE Pharm Noteholders became our controlling shareholders owning, at such time, approximately 65% of our issued and outstanding common stock. For accounting purposes, CURE Pharmaceutical was the surviving entity. As a result of the recapitalization and change in control, CURE Pharmaceutical was deemed to be the accounting acquirer in accordance with ASC 805, Business Combinations.
On May 14, 2019, the Company, and Merger Sub, a Delaware corporation and wholly owned subsidiary of the Company, completed the transactions contemplated in the Merger Agreement with CHI, a Delaware corporation. As agreed in the Merger Agreement and pursuant to the Merger, CHI became a wholly-owned subsidiary of the Company and the stockholders of CHI received shares of the Company's common stock, par value $0.001 per share in exchange for all of the issued and outstanding shares of CHI.
On October 2, 2020, the Company completed its acquisition of Sera Labs, a Delaware corporation pursuant to the Sera Labs Merger Agreement, by and among the Company, Sera Labs Merger Sub, a Delaware corporation and a wholly owned subsidiary of the Company, Sera Labs and Mrs. Nancy Duitch, in her capacity as the security holder's representative regarding the Sera Labs Merger.
Nature of Business
We are a biopharmaceutical company focusing on the development and manufacturing of drug formulation and drug delivery technologies in novel dosage forms to improve drug safety, efficacy and patient adherence. Our mission is to improve lives by redefining how medications are delivered and experienced. Our primary business model is to develop wellness and drug products using our proprietary technology, which development may include preclinical and clinical studies and regulatory approval, and grant product rights to partners responsible for marketing, sales and distribution, while retaining exclusive manufacturing rights and to market, sell and distribute branded health, wellness, and beauty products through Sera Labs.
Our technology platform includes oral dissolving film ("OTF", and encapsulation systems ("microCURE" compatible with OTF, chews, oral solutions, topical and transdermal dose forms. We apply our technology to pharmaceutical drugs and dietary supplements for the wellness market. OTF products are about the size of a postage stamp and composed of excipients such as polymers, stabilizers, lipids and surfactants, which are all generally recognized as safe. They can be designed to deliver active ingredients to the gastrointestinal, or GI, tract when placed on the tongue and swallowed, or directly to the blood stream when placed under the tongue (sublingual) or on the inner lining of the cheek and lip (buccal).
We sell multiple commercial wellness products under our distribution partners' brands. We are developing a 50,000IU, once per week, Vitamin D3 OTF for oral administration to be distributed by Meroven Pharmaceuticals in the United States and the MENA region. Our pharmaceutical drug program includes:
CUREfilm Blue
A 25mg and 50 mg sildenafil OTF for the treatment of erectile dysfunction. We have completed our pre-IND meeting with the U.S. Food and Drug Administration ("FDA", confirming a 505(b)(2) regulatory path.
CUREfilm Canna
We are developing several cannabinoid products with optimized pharmacokinetic profiles using microCURE and CUREfilm technology.
CUREfilm Anti-Viral We are developing an orally bio-available anti-viral of an existing therapeutic leveraging existing pre-clinical/clinical safety and toxicity data.
CUREfilm Central Nervous System (CNS)
In the area of CNS indications, we are developing a novel dosage form of a difficult to treat disease states utilizing our proprietary CUREfilm dosage form. These could include but are not limited to mental health disorders such as depression, PTSD, addiction disorders, obsessive compulsive disorder, and anxiety.
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Impact of COVID-19
Our financial results and operations for the fiscal year ended December 31, 2021 were not significantly impacted by the COVID-19 pandemic. The measures we have taken to ensure the availability and functioning of our critical infrastructure, and to promote the safety and security of our employees remain in place. In accordance with public and private sector policies and initiatives to reduce the transmission of COVID-19, we have imposed travel restrictions, adopted policies aimed at promoting social distancing, and implemented work-from-home arrangements for employees where practicable. These measures and our compliance with local and national guidelines aimed at containing the virus could impact our operations and disrupt our business. Currently, our single operating facility is operational, and no reduction in our work force has taken place.
Results of Operations
Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020
Revenue
Revenues for the year ended December 31, 2021 were $6.6 million as compared to $2.1 million for the year ended December 31, 2020. The increase in revenue included approximately $5.0 million of revenue attributed to the Sera Labs acquisition on October 2, 2020 as we were able to recognize a full year's worth of revenue in fiscal year ending 2021 compared to the fiscal year ending 2020. However, this increase was offset by a decrease in CURE Pharmaceutical product sales mainly due to the decrease in one of our larger customers of approximately $0.3 million.
Cost of Goods Sold
Cost of goods sold was $2.2 million for the year ended December 31, 2021 compared to $1.1 million, for the year ended December 31, 2020. Cost of goods sold increased by $1.1 million for the year ended December 31, 2021 compared to the same period in 2020, which was due to (i) the acquisition of Sera Labs on October 2, 2020, which added additional $1.7 million of cost of goods sold and
Research and Development Expenses
Research and development expenses were $2.4 million for the year ended December 31, 2021, as compared to $2.8 million for the year ended December 31, 2020. Research and development expenses decreased by $0.4 million, compared to the year ended December 31, 2020. The decrease in research and development expenses is mainly due to the Company not incurring the same third-party contractor expenses for our CUREfilm Blue product during the year ended December 31, 2021 compared to the December 31, 2020. During the year ended December 31, 2020, we engaged a third-party contractor to assist in the development in our CUREfilm Blue that will take us into our pre-clinical trials, which all services ended in 2020. However, the decrease in spend with this third-party contractor was offset with continuing the development various other OTF and other delivery forms during the year ended December 31, 2021 compared to the year ended December 31, 2020.
Selling, General and Administrative Expenses
Our expenses for the year ended December 31, 2021 are summarized as follows in
comparison to our expenses for the year ended December 31, 2020.
Year Ended
December 31, December 31,
2021 2020
(in thousands)
Consulting $ 587 $ 948
Salaries and wages 2,702 1,420
Selling, general and administrative 10,396 3,805
Professional and investor relations 1,462 2,352
Noncash compensation 3,733 2,840
Total operating expenses $ 18,880 $ 11,365
Consulting
Consulting expenses decreased by approximately $0.4 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The decrease was due to the Company decreasing the number of consultants used during the year ended December 31, 2021 compared to the same period in 2020. In addition, a majority of the expenses related to noncash consulting services where the Company issued common stock shares in exchange for services performed over a period of time. The Company did not issue as many common stock shares in exchange for services during the year ended December 31, 2021.
Salaries and wages
Salaries and wages expense increased by approximately $1.3 million during the year ended December 31, 2021 as compared to the year ended December 31, 2020. The increase was primarily due to the Company adding approximately $1.5 million of salaries and wages from the acquisition of Sera Labs on October 2, 2020, which was a full year's worth of salaries and wages during the year ended December 31, 2021 compared to only approximately 3 months of salaries and wages during the year ended December 31, 2020.
Selling, General and Administrative
Selling, general and administrative ("SG&A" expense increased by approximately $6.6 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020. This was mainly due to the Company recognizing a full year's worth of SG&A expenses from Sera Labs during the year ended December 31, 2021 compared to only 3 months of SG&A expenses from Sera Labs during the year ended December 31, 2020. The main factors for the increase in SG&A expenses incurred by Sera Labs during the year ended December 31, 2021 compared to the same period in 2020 are (i) marketing and advertising expenses increased by approximately $3.1 million, (ii) increase in amortization expenses of $2.3 million and (iii) increase in brand ambassador expenses of approximately $1.0 million.
Professional and Investor Relations
Professional and investor relations expenses decreased by approximately $0.9 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The decrease was a result of the Company incurring less legal expenses during the year ended December 31, 2021 compared to the same period in 2020. The decrease in legal expenses was due the following factors occurring during the year ended December 31, 2020 and not during the year ended December 31, 2021: (i) incurring legal costs for the Sera Labs acquisition and (ii) the CHI settlement for their earnout shares.
Non-cash Compensation
Non-cash compensation expense increased by approximately $0.9 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The increase is mainly due to the Company recording the fair value of vested stock options, restricted stock and restricted stock units issued from our 2017 Equity Incentive Plan during the year ended December 31, 2021. The fair values of the vested stock options, restricted stock and restricted stock units during the year ended 2022 were more compared to the fair values of the vested stock options, restricted stock and restricted stock units in the same period in 2020.
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Change in Fair Value Contingent Stock Consideration
Change in fair value stock consideration decreased by approximately $7.5 million for the year ended December 31, 2021 as compared to the same time period in 2020. The decrease was primarily due to the settlement with CHI on June 5, 2020, which resulted in a significant decrease in the change in fair value of contingent stock consideration during the year ended December 31, 2021 compared to the same period in 2020. In addition, during the year ended December 31, 2021, the fair value of the contingent shares to be issued to Sera Labs also decreased mainly due to the decrease in the stock price during the year ended December 31, 2021.
Other Expense
Year Ended
December 31, December 31,
(in thousands) 2021 2020
Interest income $ 62 $ 37
Settlement income 2,434 -
Gain on extinguishment of debt 741 -
Gain from settlement of payables - 61
Loss on sale of property, plant and equipment (41 ) -
Change in fair value of derivative liability - 91
Change in fair value of convertible promissory
notes (393 ) (9,380 )
Reserve on investment (350 ) -
Interest expense (554 ) (2,472 )
Total other income (expense) $ 1,899 $ (11,663 )
Other income/(expense) for the year ended December 31, 2021 increased approximately $13.6 million, as compared to the year ended December 31, 2020. The increase is due to (i) recording the change in fair value of the Series A and Series B Notes at issuance during the year ended December 31, 2021, on the date of the partial conversion of the Series A Note and on December 31, 2020, and (ii) recording the debt discounts, transaction costs and fair value of placement agent warrants issued in connection to the Series A and Series B Notes as interest expense during the year ended December 31, 2020, (iii) a gain on extinguishment of the PPP loan that was forgiven during the year ended December 31, 2021, (iv) reserve on investment relating to Releaf Europe b.v. of approximately $0.4 million during the year ended December 31, 2021 and (v) a gain on settlement of approximately $2.4 million relating to the settlement reached between the Company and Canopy during the year ended December 31, 2021.
Liquidity & Capital Resources
Working Capital Deficit
December 31, December 31,
(in thousands) 2021 2020
Current assets $ 1,781 $ 3,850
Current liabilities (24,261 ) (14,467 )
Working capital (deficiency) $ (22,480 ) $ (10,617 )
Working capital deficit as of December 31, 2021 was approximately $22.5 million, as compared to a working capital deficit of approximately $10.6 million as of December 31, 2020. As of December 31, 2021, current assets were approximately $1.8 million, comprised primarily of (i) cash of approximately $0.02 million,
As of December 31, 2021, current liabilities were approximately $24.3 million, comprised primarily of (i) approximately $13.6 million in loans, notes, related party payables, convertible notes payable and fair value of convertible promissory notes, (ii) approximately $2.8 million in accounts payable; (iii) approximately $0.5 million in contract liabilities, (iv) approximately $3.8 million in accrued expenses, (v) approximately $0.1 million of finance and operating lease payables and (vi) contingent share considerations of approximately $1.4 million. Comparatively, as of December 31, 2020, current liabilities were approximately $14.5 million, comprised primarily of (i) approximately $9.9 million in loans, notes and convertible notes payable, (ii) approximately $2.1 million in accounts payable; (iii) approximately $1.0 million in contract liabilities, (iv) approximately $1.3 million in accrued expenses, payroll liabilities and sales tax payable and (v) approximately $0.1 million of finance and operating lease payables.
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Cash Flows and liquidity
Year Ended
December 31, December 31,
2021 2020
(in thousands)
Net cash used in operating activities $ (4,315 ) $ (9,722 )
Net cash used in investing activities (175 ) (131 )
Net cash provided by financing activities 2,781 7,482
Decrease in cash $ (1,709 ) $ (2,371 )
Net cash used in Operating Activities
Net cash used in operating activities was approximately $4.3 million during the year ended December 31, 2021. This was primarily due to the net loss of approximately $12.8 million, including changes from (i) gain from extinguishment of debt of approximately $0.7, (ii) stock based compensation of approximately $0.8 million, (iii) change in fair value of convertible promissory notes of approximately $0.4 million, (iv) the fair value of vested stock options, restricted stocks and restricted stock units of approximately $3.1 million, (v) change in fair value of contingent share consideration of approximately $1.8 million, (vi) reserve on investment of approximately $0.4 million, (vii) depreciation and amortization of approximately $3.6 million, (viii) a decrease in prepaid expenses of approximately $0.9 million, (ix) an increase in accounts payable of approximately $0.7 million, (x) an increase in accrued expenses of approximately $2.8 million and (xi) an decrease in contract liabilities of approximately $0.5 million.
Net cash used in operating activities was approximately $9.7 million during the year ended December 31, 2020. This was primarily due to the net loss of approximately $30.6 million, partially offset by (i) the amortization of the debt discount of approximately $1.5 million, (ii) stock based compensation of approximately $0.6 million, (iii) change in fair value of convertible promissory notes of approximately $9.4 million, (iv) the fair value of vested stock options, restricted stocks and restricted stock units of approximately $2.8 million, (v) change in fair value of contingent share consideration of approximately $5.8 million, (vi) an increase in prepaid expenses of approximately $0.3 million, (vii) an increase in accounts payable of approximately $0.5 million, (viii) an increase in accrued expenses of approximately $0.5 million and (ix) an decrease in contract liabilities of approximately $1.4 million.
Net cash used in Investing Activities
Net cash used from investing activities of approximately of $0.2 million during the year ended December 31, 2021 was due to (i) collection of note receivable of approximately $0.2 million, which was offset by (i) the purchase of property and equipment for approximately $0.04 million; (ii) purchase of note receivable of approximately $0.2 million, (iii) purchase of intangible assets of $0.1 million and (iv) investment of $0.1 million.
Net cash used from investing activities of approximately of $0.1 million during the year ended December 31, 2020 was due to (i) cash acquired from the acquisition of Sera Labs of approximately of $1.4 million and (ii) collection of note receivable of approximately $1.0 million, which was offset by (i) the purchase of property and equipment for approximately $0.7 million; (ii) purchase of note receivable of approximately $1.5 million and (iii) investment of $0.3 million.
Net cash provided by Financing Activities
Net cash provided by financing activities of approximately $2.8 million during the year ended December 31, 2021 was primarily due to (i) approximately $3.1 million in proceeds from issuance of notes, related party payable and loans payable and (ii) approximately $0.3 million for repayment of loans payables.
Net cash provided by financing activities of approximately $7.5 million during the year ended December 31, 2020 was primarily due to (i) approximately $5.0 million received from the issuances of new convertible notes payable, (ii) approximately $2.6 million in proceeds from issuance of notes and loans payable,
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We may need to raise additional operating capital in calendar year 2022 in order to maintain our operations and to realize our business plan. Without additional sources of cash and/or the deferral, reduction, or elimination of significant planned expenditures, we may not have the cash resources to continue as a going concern thereafter.
Going Concern
The accompanying consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At December 31, 2021, we had an accumulated deficit of approximately $94.4 . . .
Apr 01, 2022
Published: April 1, 2022 at 7:24 a.m. ET
(EDGAR Online via COMTEX) -- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information necessary to understand our audited consolidated financial statements for the two-year period ended December 31, 2021 and highlight certain other information which, in the opinion of management, will enhance a reader's understanding of our financial condition, changes in financial condition and results of operations. In particular, the discussion is intended to provide an analysis of significant trends and material changes in our financial position and the operating results of our business during the year ended December 31, 2021, as compared to the year ended December 31, 2020. This discussion should be read in conjunction with our consolidated financial statements for the two-year period ended December 31, 2021 and related notes included in Part II, Item 8 of this annual report on Form 10-K.
Cautionary Notice Regarding Forward Looking Statements
The information contained in this Item 7 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
We desire to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. This filing contains a number of forward-looking statements that reflect management's current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this filing other than statements of historical fact, including statements addressing operating performance, clinical developments, which management expects or anticipates will or may occur in the future, including statements relating to our technology, market expectations, future revenues, financing alternatives, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements. In particular, the words, "believe," "expect," intend," "anticipate," "estimate," "may," variations of such words, and similar expressions identify forward-looking statements, but are not exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements. We do not undertake any obligations to revise these forward-looking statements to reflect any future events or circumstances.
Readers should not place undue reliance on these forward-looking statements, which are based on management's current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (particularly in "Item 1A - Risk Factors"
and apply only as of the date of this filing. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors which could cause or contribute to such differences could include, but are not limited to, the risks to be discussed in this Annual Report on Form 10-K and in the press releases and other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks and factors, which may affect our business. We undertake no obligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. For additional information regarding forward-looking statements, see Item 1 - Our Business - "Forward-Looking Statements." Corporate Overview
Overview
We are a biopharmaceutical company focusing the development and manufacturing of drug formulation and drug delivery technologies in novel dosage forms to improve drug safety, efficacy and patient adherence. Our mission 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 and market, sell and distribute branded health, wellness, and beauty products through Sera Labs. We operate in a 25,000 square foot cGMP manufacturing plant in Oxnard, CA.
We were incorporated in the State of Nevada on May 15, 2014. The Company was formerly named Makkanotti Group Corp., which was formed to engage in the business of manufacturing food paper bags in Nicosia, Cyprus. On November 7, 2016, the Board of Directors and the majority stockholder of the then outstanding shares of our common stock executed a written consent to change our name from Makkanotti Group Corp. to CURE Pharmaceutical Holding Corp. The Certificate of Amendment to the Articles of Incorporation was filed with the State of Nevada on November 30, 2016. On September 27, 2019, we reincorporated from the State of Nevada to the State of Delaware.
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Further, on November 7, 2016, we, in a reverse take-over transaction, acquired a specialty pharmaceutical and bioscience company based in California that specializes in drug delivery technologies, by executing a Share Exchange Agreement and Conversion Agreement ("Exchange Agreement"
by and among us and a holder of a majority of our issued and outstanding capital stock prior to the closing (the "Majority Stockholder", on the one hand, and CURE Pharmaceutical, all of the shareholders of CURE Pharmaceutical's issued and outstanding share capital (the "CURE Pharm Shareholders" and the holders of certain convertible promissory notes of CURE Pharmaceutical ("CURE Pharm Noteholders", on the other hand. Hereinafter, this share exchange transaction is described as the "Share Exchange." As a result of the Share Exchange, CURE Pharmaceutical became a wholly owned subsidiary of the Company, and the CURE Pharm Shareholders and CURE Pharm Noteholders became our controlling shareholders owning, at such time, approximately 65% of our issued and outstanding common stock. For accounting purposes, CURE Pharmaceutical was the surviving entity. As a result of the recapitalization and change in control, CURE Pharmaceutical was deemed to be the accounting acquirer in accordance with ASC 805, Business Combinations.
On May 14, 2019, the Company, and Merger Sub, a Delaware corporation and wholly owned subsidiary of the Company, completed the transactions contemplated in the Merger Agreement with CHI, a Delaware corporation. As agreed in the Merger Agreement and pursuant to the Merger, CHI became a wholly-owned subsidiary of the Company and the stockholders of CHI received shares of the Company's common stock, par value $0.001 per share in exchange for all of the issued and outstanding shares of CHI.
On October 2, 2020, the Company completed its acquisition of Sera Labs, a Delaware corporation pursuant to the Sera Labs Merger Agreement, by and among the Company, Sera Labs Merger Sub, a Delaware corporation and a wholly owned subsidiary of the Company, Sera Labs and Mrs. Nancy Duitch, in her capacity as the security holder's representative regarding the Sera Labs Merger.
Nature of Business
We are a biopharmaceutical company focusing on the development and manufacturing of drug formulation and drug delivery technologies in novel dosage forms to improve drug safety, efficacy and patient adherence. Our mission is to improve lives by redefining how medications are delivered and experienced. Our primary business model is to develop wellness and drug products using our proprietary technology, which development may include preclinical and clinical studies and regulatory approval, and grant product rights to partners responsible for marketing, sales and distribution, while retaining exclusive manufacturing rights and to market, sell and distribute branded health, wellness, and beauty products through Sera Labs.
Our technology platform includes oral dissolving film ("OTF"
, and encapsulation systems ("microCURE" compatible with OTF, chews, oral solutions, topical and transdermal dose forms. We apply our technology to pharmaceutical drugs and dietary supplements for the wellness market. OTF products are about the size of a postage stamp and composed of excipients such as polymers, stabilizers, lipids and surfactants, which are all generally recognized as safe. They can be designed to deliver active ingredients to the gastrointestinal, or GI, tract when placed on the tongue and swallowed, or directly to the blood stream when placed under the tongue (sublingual) or on the inner lining of the cheek and lip (buccal). We sell multiple commercial wellness products under our distribution partners' brands. We are developing a 50,000IU, once per week, Vitamin D3 OTF for oral administration to be distributed by Meroven Pharmaceuticals in the United States and the MENA region. Our pharmaceutical drug program includes:
CUREfilm Blue
A 25mg and 50 mg sildenafil OTF for the treatment of erectile dysfunction. We have completed our pre-IND meeting with the U.S. Food and Drug Administration ("FDA"
, confirming a 505(b)(2) regulatory path. CUREfilm Canna
We are developing several cannabinoid products with optimized pharmacokinetic profiles using microCURE and CUREfilm technology.
CUREfilm Anti-Viral We are developing an orally bio-available anti-viral of an existing therapeutic leveraging existing pre-clinical/clinical safety and toxicity data.
CUREfilm Central Nervous System (CNS)
In the area of CNS indications, we are developing a novel dosage form of a difficult to treat disease states utilizing our proprietary CUREfilm dosage form. These could include but are not limited to mental health disorders such as depression, PTSD, addiction disorders, obsessive compulsive disorder, and anxiety.
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Impact of COVID-19
Our financial results and operations for the fiscal year ended December 31, 2021 were not significantly impacted by the COVID-19 pandemic. The measures we have taken to ensure the availability and functioning of our critical infrastructure, and to promote the safety and security of our employees remain in place. In accordance with public and private sector policies and initiatives to reduce the transmission of COVID-19, we have imposed travel restrictions, adopted policies aimed at promoting social distancing, and implemented work-from-home arrangements for employees where practicable. These measures and our compliance with local and national guidelines aimed at containing the virus could impact our operations and disrupt our business. Currently, our single operating facility is operational, and no reduction in our work force has taken place.
Results of Operations
Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020
Revenue
Revenues for the year ended December 31, 2021 were $6.6 million as compared to $2.1 million for the year ended December 31, 2020. The increase in revenue included approximately $5.0 million of revenue attributed to the Sera Labs acquisition on October 2, 2020 as we were able to recognize a full year's worth of revenue in fiscal year ending 2021 compared to the fiscal year ending 2020. However, this increase was offset by a decrease in CURE Pharmaceutical product sales mainly due to the decrease in one of our larger customers of approximately $0.3 million.
Cost of Goods Sold
Cost of goods sold was $2.2 million for the year ended December 31, 2021 compared to $1.1 million, for the year ended December 31, 2020. Cost of goods sold increased by $1.1 million for the year ended December 31, 2021 compared to the same period in 2020, which was due to (i) the acquisition of Sera Labs on October 2, 2020, which added additional $1.7 million of cost of goods sold and
Research and Development Expenses
Research and development expenses were $2.4 million for the year ended December 31, 2021, as compared to $2.8 million for the year ended December 31, 2020. Research and development expenses decreased by $0.4 million, compared to the year ended December 31, 2020. The decrease in research and development expenses is mainly due to the Company not incurring the same third-party contractor expenses for our CUREfilm Blue product during the year ended December 31, 2021 compared to the December 31, 2020. During the year ended December 31, 2020, we engaged a third-party contractor to assist in the development in our CUREfilm Blue that will take us into our pre-clinical trials, which all services ended in 2020. However, the decrease in spend with this third-party contractor was offset with continuing the development various other OTF and other delivery forms during the year ended December 31, 2021 compared to the year ended December 31, 2020.
Selling, General and Administrative Expenses
Our expenses for the year ended December 31, 2021 are summarized as follows in
comparison to our expenses for the year ended December 31, 2020.
Year Ended
December 31, December 31,
2021 2020
(in thousands)
Consulting $ 587 $ 948
Salaries and wages 2,702 1,420
Selling, general and administrative 10,396 3,805
Professional and investor relations 1,462 2,352
Noncash compensation 3,733 2,840
Total operating expenses $ 18,880 $ 11,365
Consulting
Consulting expenses decreased by approximately $0.4 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The decrease was due to the Company decreasing the number of consultants used during the year ended December 31, 2021 compared to the same period in 2020. In addition, a majority of the expenses related to noncash consulting services where the Company issued common stock shares in exchange for services performed over a period of time. The Company did not issue as many common stock shares in exchange for services during the year ended December 31, 2021.
Salaries and wages
Salaries and wages expense increased by approximately $1.3 million during the year ended December 31, 2021 as compared to the year ended December 31, 2020. The increase was primarily due to the Company adding approximately $1.5 million of salaries and wages from the acquisition of Sera Labs on October 2, 2020, which was a full year's worth of salaries and wages during the year ended December 31, 2021 compared to only approximately 3 months of salaries and wages during the year ended December 31, 2020.
Selling, General and Administrative
Selling, general and administrative ("SG&A"
expense increased by approximately $6.6 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020. This was mainly due to the Company recognizing a full year's worth of SG&A expenses from Sera Labs during the year ended December 31, 2021 compared to only 3 months of SG&A expenses from Sera Labs during the year ended December 31, 2020. The main factors for the increase in SG&A expenses incurred by Sera Labs during the year ended December 31, 2021 compared to the same period in 2020 are (i) marketing and advertising expenses increased by approximately $3.1 million, (ii) increase in amortization expenses of $2.3 million and (iii) increase in brand ambassador expenses of approximately $1.0 million. Professional and Investor Relations
Professional and investor relations expenses decreased by approximately $0.9 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The decrease was a result of the Company incurring less legal expenses during the year ended December 31, 2021 compared to the same period in 2020. The decrease in legal expenses was due the following factors occurring during the year ended December 31, 2020 and not during the year ended December 31, 2021: (i) incurring legal costs for the Sera Labs acquisition and (ii) the CHI settlement for their earnout shares.
Non-cash Compensation
Non-cash compensation expense increased by approximately $0.9 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The increase is mainly due to the Company recording the fair value of vested stock options, restricted stock and restricted stock units issued from our 2017 Equity Incentive Plan during the year ended December 31, 2021. The fair values of the vested stock options, restricted stock and restricted stock units during the year ended 2022 were more compared to the fair values of the vested stock options, restricted stock and restricted stock units in the same period in 2020.
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Change in Fair Value Contingent Stock Consideration
Change in fair value stock consideration decreased by approximately $7.5 million for the year ended December 31, 2021 as compared to the same time period in 2020. The decrease was primarily due to the settlement with CHI on June 5, 2020, which resulted in a significant decrease in the change in fair value of contingent stock consideration during the year ended December 31, 2021 compared to the same period in 2020. In addition, during the year ended December 31, 2021, the fair value of the contingent shares to be issued to Sera Labs also decreased mainly due to the decrease in the stock price during the year ended December 31, 2021.
Other Expense
Year Ended
December 31, December 31,
(in thousands) 2021 2020
Interest income $ 62 $ 37
Settlement income 2,434 -
Gain on extinguishment of debt 741 -
Gain from settlement of payables - 61
Loss on sale of property, plant and equipment (41 ) -
Change in fair value of derivative liability - 91
Change in fair value of convertible promissory
notes (393 ) (9,380 )
Reserve on investment (350 ) -
Interest expense (554 ) (2,472 )
Total other income (expense) $ 1,899 $ (11,663 )
Other income/(expense) for the year ended December 31, 2021 increased approximately $13.6 million, as compared to the year ended December 31, 2020. The increase is due to (i) recording the change in fair value of the Series A and Series B Notes at issuance during the year ended December 31, 2021, on the date of the partial conversion of the Series A Note and on December 31, 2020, and (ii) recording the debt discounts, transaction costs and fair value of placement agent warrants issued in connection to the Series A and Series B Notes as interest expense during the year ended December 31, 2020, (iii) a gain on extinguishment of the PPP loan that was forgiven during the year ended December 31, 2021, (iv) reserve on investment relating to Releaf Europe b.v. of approximately $0.4 million during the year ended December 31, 2021 and (v) a gain on settlement of approximately $2.4 million relating to the settlement reached between the Company and Canopy during the year ended December 31, 2021.
Liquidity & Capital Resources
Working Capital Deficit
December 31, December 31,
(in thousands) 2021 2020
Current assets $ 1,781 $ 3,850
Current liabilities (24,261 ) (14,467 )
Working capital (deficiency) $ (22,480 ) $ (10,617 )
Working capital deficit as of December 31, 2021 was approximately $22.5 million, as compared to a working capital deficit of approximately $10.6 million as of December 31, 2020. As of December 31, 2021, current assets were approximately $1.8 million, comprised primarily of (i) cash of approximately $0.02 million,
As of December 31, 2021, current liabilities were approximately $24.3 million, comprised primarily of (i) approximately $13.6 million in loans, notes, related party payables, convertible notes payable and fair value of convertible promissory notes, (ii) approximately $2.8 million in accounts payable; (iii) approximately $0.5 million in contract liabilities, (iv) approximately $3.8 million in accrued expenses, (v) approximately $0.1 million of finance and operating lease payables and (vi) contingent share considerations of approximately $1.4 million. Comparatively, as of December 31, 2020, current liabilities were approximately $14.5 million, comprised primarily of (i) approximately $9.9 million in loans, notes and convertible notes payable, (ii) approximately $2.1 million in accounts payable; (iii) approximately $1.0 million in contract liabilities, (iv) approximately $1.3 million in accrued expenses, payroll liabilities and sales tax payable and (v) approximately $0.1 million of finance and operating lease payables.
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Cash Flows and liquidity
Year Ended
December 31, December 31,
2021 2020
(in thousands)
Net cash used in operating activities $ (4,315 ) $ (9,722 )
Net cash used in investing activities (175 ) (131 )
Net cash provided by financing activities 2,781 7,482
Decrease in cash $ (1,709 ) $ (2,371 )
Net cash used in Operating Activities
Net cash used in operating activities was approximately $4.3 million during the year ended December 31, 2021. This was primarily due to the net loss of approximately $12.8 million, including changes from (i) gain from extinguishment of debt of approximately $0.7, (ii) stock based compensation of approximately $0.8 million, (iii) change in fair value of convertible promissory notes of approximately $0.4 million, (iv) the fair value of vested stock options, restricted stocks and restricted stock units of approximately $3.1 million, (v) change in fair value of contingent share consideration of approximately $1.8 million, (vi) reserve on investment of approximately $0.4 million, (vii) depreciation and amortization of approximately $3.6 million, (viii) a decrease in prepaid expenses of approximately $0.9 million, (ix) an increase in accounts payable of approximately $0.7 million, (x) an increase in accrued expenses of approximately $2.8 million and (xi) an decrease in contract liabilities of approximately $0.5 million.
Net cash used in operating activities was approximately $9.7 million during the year ended December 31, 2020. This was primarily due to the net loss of approximately $30.6 million, partially offset by (i) the amortization of the debt discount of approximately $1.5 million, (ii) stock based compensation of approximately $0.6 million, (iii) change in fair value of convertible promissory notes of approximately $9.4 million, (iv) the fair value of vested stock options, restricted stocks and restricted stock units of approximately $2.8 million, (v) change in fair value of contingent share consideration of approximately $5.8 million, (vi) an increase in prepaid expenses of approximately $0.3 million, (vii) an increase in accounts payable of approximately $0.5 million, (viii) an increase in accrued expenses of approximately $0.5 million and (ix) an decrease in contract liabilities of approximately $1.4 million.
Net cash used in Investing Activities
Net cash used from investing activities of approximately of $0.2 million during the year ended December 31, 2021 was due to (i) collection of note receivable of approximately $0.2 million, which was offset by (i) the purchase of property and equipment for approximately $0.04 million; (ii) purchase of note receivable of approximately $0.2 million, (iii) purchase of intangible assets of $0.1 million and (iv) investment of $0.1 million.
Net cash used from investing activities of approximately of $0.1 million during the year ended December 31, 2020 was due to (i) cash acquired from the acquisition of Sera Labs of approximately of $1.4 million and (ii) collection of note receivable of approximately $1.0 million, which was offset by (i) the purchase of property and equipment for approximately $0.7 million; (ii) purchase of note receivable of approximately $1.5 million and (iii) investment of $0.3 million.
Net cash provided by Financing Activities
Net cash provided by financing activities of approximately $2.8 million during the year ended December 31, 2021 was primarily due to (i) approximately $3.1 million in proceeds from issuance of notes, related party payable and loans payable and (ii) approximately $0.3 million for repayment of loans payables.
Net cash provided by financing activities of approximately $7.5 million during the year ended December 31, 2020 was primarily due to (i) approximately $5.0 million received from the issuances of new convertible notes payable, (ii) approximately $2.6 million in proceeds from issuance of notes and loans payable,
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We may need to raise additional operating capital in calendar year 2022 in order to maintain our operations and to realize our business plan. Without additional sources of cash and/or the deferral, reduction, or elimination of significant planned expenditures, we may not have the cash resources to continue as a going concern thereafter.
Going Concern
The accompanying consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At December 31, 2021, we had an accumulated deficit of approximately $94.4 . . .
Apr 01, 2022
