TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
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to Table of Contents
OWC Pharmaceutical Research Corp. and Subsidiary
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Condensed Consolidated Balance Sheets
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Table of Contents
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US dollars (except share data)
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March 31, 2017 (Unaudited)
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December 31,
2016
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ASSETS
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Current assets:
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Cash and cash equivalents
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2,048,146
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472,282
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Other current assets
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13,662
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9,413
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Total current assets
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2,061,808
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481,695
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Property and equipment
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13,703
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15,073
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Total
assets
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2,075,511
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496,768
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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Current liabilities:
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Accounts
payable
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5,063
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7,694
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Other
current liabilities
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43,420
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38,086
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Deferred revenues
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100,000
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100,000
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Current
portion of long-term debt (Note 4)
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300,000
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-
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Total current liabilities
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448,483
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145,780
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Non-recourse loan (Note 4)
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-
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250,000
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Total liabilities
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448,483
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395,780
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Commitments
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Stockholders' equity:
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Preferred stock,
$0.00001 par value; 20,000,000 shares authorized; no shares issued and outstanding
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-
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-
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Common stock,
$0.00001 par value; 500,000,000 shares authorized;
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144,819,287 and 139,447,782 issued and outstanding at March 31, 2017 and December 31, 2016,
respectively
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1,447
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1,395
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Additional paid-in
capital
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14,302,693
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11,039,102
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Common stock subscription receivable
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(395,011)
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(395,011)
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Services receivable
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(901,290)
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(592,083)
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Accumulated
deficit
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(11,393,830)
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(9,958,465)
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Accumulated
other comprehensive income
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13,019
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6,050
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Total
stockholders' equity
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1,627,028
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100,988
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Total liabilities and stockholders' equity
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2,075,511
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496,768
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The
accompanying notes are an integral part of the condensed consolidated financial
statements.
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Page 3
OWC Pharmaceutical Research Corp. and Subsidiary
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Condensed Consolidated Statements of Operations and Comprehensive Loss
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Back to Table of Contents
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US dollars (except share data)
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For the three
months
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For the three
months
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ended March 31, 2017
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ended March 31, 20165
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(Unaudited)
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Revenues
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-
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-
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Operating expenses:
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Research and development
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34,016
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37,043
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General and
administrative
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1,401,349
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221,556
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Total
operating expenses
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1,435,365
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258,599
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Total
operating loss
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(1,435,365)
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(258,599)
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Other expense:
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Financing expenses, net
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-
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(55,789)
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Net loss
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(1,435,365)
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(314,388)
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Other
comprehensive income (loss):
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Foreign currency translation adjustments
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6,969
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11,633
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Comprehensive
loss
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(1,428,396)
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(302,755)
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Basic and diluted per share amounts:
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Basic and diluted net
loss
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(0.01)
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(0.00)
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Weighted average shares outstanding (basic and diluted)
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143,028,447
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81,460,843
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The
accompanying notes are an integral part of the condensed consolidated financial
statements.
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Page 4
OWC Pharmaceutical Research Corp.
and Subsidiary
|
Condensed
Consolidated Statements
of Stockholders' Equity
|
Back to
Table of Contents
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Common
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Accumulated
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Total
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Additional
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Subscription
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Accumulated
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Services
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Other
Compre-
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Stockholders'
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(US dollars (except share data)
(Unaudited)
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Shares
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Common Stock
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paid-in capital
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Receivable
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Deficit
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Receivables
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hensive income
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Equity
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Balance
at December 31, 2016
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139,447,782
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1,395
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11,039,102
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(395,011)
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(9,958,465)
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(592,083)
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6,050
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100,988
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Stock-based compensation
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-
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-
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1,057,904
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-
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-
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-
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-
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1,057,904
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Financial instruments issued for services to be received
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300,000
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3
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488,170
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-
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-
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(488,173)
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-
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-
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Amortization of services
receivable
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-
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-
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-
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-
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-
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178,966
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-
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178,966
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Stock
issued upon exercise of warrants (Note 3C)
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601,117
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6
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66,660
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-
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-
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-
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-
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66,666
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Stock issued for cash at $0.13 together with detachable warrants
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904,924
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9
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117,631
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-
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-
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-
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-
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117,640
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Stock issued for cash at $0.17 together with detachable warrants
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588,237
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6
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99,994
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-
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-
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-
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-
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100,000
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Stock issued for cash at $0.25 together with detachable warrants
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520,000
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5
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129,995
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-
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-
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-
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-
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130,000
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Stock issued for cash at $0.50 together with detachable warrants
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1,734,000
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17
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866,983
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-
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-
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-
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-
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867,000
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Stock issued for cash at $0.70 together with detachable warrants
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623,227
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6
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436,254
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-
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-
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-
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-
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436,260
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Foreign currency translation
adjustments
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-
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-
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-
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-
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-
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-
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6,969
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6,969
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Net loss
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-
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-
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-
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-
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(1,435,365)
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-
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-
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(1,435,365)
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Balance
at March 31, 2017
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144,719,287
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1,447
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14,302,693
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(395,011)
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(11,393,830)
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(901,290)
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13,019
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1,627,028
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The accompanying notes are an integral part of the
condensed consolidated
financial statements.
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Page 5
OWC Pharmaceutical Research Corp. and Subsidiary
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Condensed Consolidated Statements of
Cash Flows
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Back to Table of Contents
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US dollars (except share data)
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For the three
months
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For the three
months
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ended March 31, 2017
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ended March 31, 2016
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(Unaudited)
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Cash
flows from operating activities:
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Net loss
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(1,435,365)
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(314,388)
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Adjustments to reconcile
net loss to net cash used in operating activities:
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Foreign currency translation adjustments
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6,969
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11,633
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Adjustments of convertible loans
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-
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54,791
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Depreciation expense
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2,450
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2,389
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Amortization
of services receivable
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178,866
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-
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Stock-based compensation
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1,057,904
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8,074
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Changes in net assets and
liabilities:
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Increase in accounts receivable
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-
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(4,045)
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Increase in other assets
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(4,246)
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(1,820)
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Decrease in accounts payable
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(2,631)
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(19,004)
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Increase in deferred revenue
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-
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100,000
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Increase
in other liabilities
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5,334
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2,193
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Cash used in operating
activities
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(190,622)
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(160,178)
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Cash flow from
investing activities:
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Purchase of equipment
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(1,080)
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(1,860)
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Cash
used in investing activities
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(1,080)
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(1,860)
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Cash flow from
financing activities:
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Proceeds
from issuance of common stock and warrants
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1,650,900
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-
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Proceeds
from exercise of warrants
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66,666
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-
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Proceeds of debt borrowings
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50,000
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71,250
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Cash provided by
financing activities
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1,767,566
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71,250
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Net increase
(decrease) in cash and cash equivalents
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1,575,864
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(90,788)
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Balance of cash
and cash equivalents
- beginning of
period
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472,282
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|
357,161
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Balance of cash
and cash equivalents
-
end of period
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2,048,146
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266,373
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Supplementary
information on financing activities not involving cash flows:
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Debt discount arising from derivatives
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-
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41,974
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Net share settlement of warrants exercise
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130,000
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-
|
|
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|
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The
accompanying notes are an integral part of the condensed consolidated financial
statements.
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Page 6
OWC Pharmaceutical Research Corp. and Subsidiary.
Notes to
Condensed Consolidated Financial Statements
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Table of Contents
NOTE 1 - GENERAL
A. Organizational Background
OWC Pharmaceutical Research Corp. ("OWCP" or the
"Company") is a Delaware corporation and was incorporated under the laws of
the State of Delaware on March 7, 2008. On July 6, 2014 the Company
established a wholly-owned subsidiary, One World Cannabis Ltd. ("OWC" or the
"Israeli subsidiary") under the laws of the State of Israel. The Company is
a medical cannabis research and development company that applies
conventional pharmaceutical research protocols and disciplines to the field
of medical cannabis with the objective of establishing a leadership position
in the research and development of medical cannabis therapies, products and
delivery technologies. The Company is currently engaged in the research and
development of cannabis-based medical products (the "Product Prospects") for
the treatment of multiple myeloma, psoriasis and fibromyalgia as well as
development of a cannabis soluble tablet delivery system that may have
applications for other indications. The Company also provides consulting
services to governmental and private entities to assist them with developing
and implementing tailor-made comprehensive medical cannabis programs.
B. Liquidity and going concern uncertainty
The development and commercialization of the Company's
product is expected to require substantial expenditures. The Company has not
yet generated material revenues from operations, and therefore is dependent
upon external sources for financing its operations. As of March 31, 2017,
the Company has an accumulated deficit of $11,393,830, and its stockholders'
equity is $1,627,028. In addition, in each year since its inception the
Company reported losses and negative cash flows from operating
activities. Management considered the significance of such conditions in
relation to the Company's ability to meet its current and future obligations
and determined that such conditions raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying condensed
consolidated financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from
the possible inability of the Company to continue as a going concern. Until
such time as the Company generates sufficient revenue to fund its operations
(if ever), the Company plans to finance its operations through the sale of
equity or equity-linked securities and/or debt securities and, to the extent
available, short-term and long-term loans. There can be no assurance that
the Company will succeed in obtaining the necessary financing to continue
its operations as a going concern.
During the first three months of 2017, the Company raised
a total amount of approximately $1,650,900 (net of related expenses), from
the issuance of units that included Common Stock and warrants. In addition,
during 2017 the Company received $66,666 through the exercise of warrants
and $50,000 from debt.
C. Risk factors
As described in the above paragraph, the Company has a
limited operating history and faces a number of risks and uncertainties,
including risks and uncertainties regarding continuation of the development
process, demand and market acceptance of the Company's products, the effects
of technological changes, competition and the development of products by
competitors. Additionally, other risk factors also exist, such as the
ability to manage growth and the effect of planned expansion of operations
on the Company's future results and the availability of necessary financing.
In addition, the Company expects to continue incurring significant operating
costs and losses in connection with the development and marketing of its
products. The Company has not yet generated material revenues from its
operations to fund its activities and therefore is dependent on the receipt
of additional funding from its stockholders and/ or new investors in order
to continue its operations.
D. Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from the
estimates. As applicable to these condensed consolidated financial
statements, the most significant estimates and assumptions relate to (i)
stock-based compensation (ii) the going concern assumptions.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Presentation
Accounting Principles
The accompanying unaudited condensed consolidated
financial statements and related notes should be read in conjunction with
our consolidated financial statements and related notes contained in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2016. The
unaudited condensed consolidated financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission ("SEC") related to interim financial statements. As permitted
under those rules, certain information and footnote disclosures normally
required or included in financial statements prepared in accordance with
U.S. GAAP have been condensed or omitted. The financial information
contained herein is unaudited; however, management believes all adjustments
have been made that are considered necessary to present fairly the results
of the Company's financial position and operating results for the interim
periods. All such adjustments are of a normal recurring nature.
The results for the three months ended March 31, 2017 are
not necessarily indicative of the results to be expected for the year ending
December 31, 2017 or for any other interim period or for any future period.
Principles of Consolidation
The consolidated financial statements include the
accounts of the Company and its subsidiary. All intercompany balances and
transactions have been eliminated in consolidation.
B. Reclassifications
Certain reclassifications from the prior year
presentation have been made to conform to the current year presentation.
These reclassifications did not have material impact on the Company's
equity, net assets, results of operations or cash flows.
C. Recently Issued Accounting Standards
1. Effective January, 2017, the Company adopted
Accounting Standards Update (ASU) No. 2015-17, Income Taxes (Topic 740):
Balance Sheet Classification of Deferred Taxes, which changes how deferred
taxes are classified in organizations' balance sheets. The ASU eliminates
the current requirement for organizations to present deferred tax
liabilities and assets as current and noncurrent in a classified balance
sheet. Instead, all deferred tax assets and liabilities will be required to
be classified as noncurrent. The amendments apply to all organizations that
present a classified balance sheet. For public companies, the amendments are
effective for financial statements issued for annual periods beginning after
December 15, 2016, and interim periods within those annual periods (i.e., in
the first quarter of 2017 for calendar year-end companies).Early adoption is
permitted for all entities as of the beginning of an interim or annual
reporting period. The guidance may be applied either prospectively, for all
deferred tax assets and liabilities, or retrospectively (i.e., by
reclassifying the comparative balance sheet). If applied prospectively,
entities are required to include a statement that prior periods were not
retrospectively adjusted. If applied retrospectively, entities are also
required to include quantitative information about the effects of the change
on prior periods. The adoption of this ASU did not have a significant impact
on the condensed consolidated financial statements.
2. Effective January, 2017, the Company adopted
Accounting Standards Update (ASU) No. 2016-09, Compensation - Stock
Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting. The amendments are intended to improve the accounting for
employee share-based payments and affect all organizations that issue
share-based payment awards to their employees.
Several aspects of the accounting for share-based payment
award transactions are simplified, including: (a) income tax consequences;
(b) classification of awards as either equity or liabilities; and
(c) classification on the statement of cash flows. The amendments also
simplify two areas specific to private companies.
For public business entities, the amendments are
effective for annual periods beginning after December 15, 2016, and interim
periods within those annual periods. Early adoption is permitted in any
interim or annual period periods (i.e., in the first quarter of 2017 for
calendar year-end companies).
The adoption of this ASU did not have a significant
impact on the condensed consolidated financial statements.
3. In May 2014, The FASB issued Accounting Standard
Update 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU
2014-09").
ASU 2014-09 outlines a single comprehensive model to use
in accounting for revenue arising from contracts with customers and
supersedes most current revenue recognition guidance, including
industry-specific guidance. ASU 2014-09 also requires entities to disclose
sufficient information, both quantitative and qualitative, to enable users
of financial statements to understand the nature, amount, timing, and
uncertainty of revenue and cash flows arising from contracts with customers.
During 2016, the FASB issued several Accounting Standard
Updates that focuses on certain implementation issues of the new revenue
recognition guidance including Narrow-Scope Improvements and Practical
Expedients, Principal versus Agent Considerations and Identifying
Performance Obligations and Licensing.
An entity should apply the amendments in this ASU using
one of the following two methods: 1. Retrospectively to each prior reporting
period presented with a possibility to elect certain practical expedients,
or, 2. Retrospectively with the cumulative effect of initially applying ASU
2014-09 recognized at the date of initial application. If an entity elects
the latter transition method, it also should provide certain additional
disclosures.
For a public business entity, the amendments in ASU
2014-09 (including the amendments introduced through recent ASU's) are
effective for annual reporting periods beginning after December 15, 2017,
including interim periods within that reporting period (the first quarter of
fiscal year 2018 for the Company). Early application is permitted only as of
annual reporting periods beginning after December 15, 2016, including
interim reporting periods within that reporting period.
The Company intends to adopt ASU 2014-09 as of January 1,
2018.
The Company is in the process of evaluating the impact of
ASU 2014-09 on its revenue streams and selling contracts, if any, and on its
financial reporting and disclosures. Management is expecting to complete the
evaluation of the impact of the accounting and disclosure changes on the
business processes, controls and systems throughout 2017. Since the Company
did not report so far, material revenues, management believes that the
adoption of ASU 2014-09 will not have significant impact on its financial
statements.
NOTE 3 - EVENTS DURING THE PERIOD
A. Common stock and Warrants Issued for cash
1. During the first quarter of 2017, the Company received
$117,640 through a placement of 904,924 common stock units to four investors
for the offering price of $0.13 per unit. Each unit consisted of one share
of common stock and two (one "G" and one "H") warrants to purchase common
stock. The 904,924 "G" warrants are exercisable at $0.25 and expire two
years from the date of issuance. The 904,924 "H" warrants are exercisable at
$0.40 and expire three years from the date of issuance. Such warrants were
classified within stockholders' equity.
2. During the first quarter of 2017, the Company received
$100,000 through a placement of 588,237 common stock units to three
investors for the offering price of $0.17 per unit. Each unit consisted of
one share of common stock and one "H" warrant to purchase common stock. The
588,237 "H" warrants are exercisable at $0.40 and expire three years from
the date of issuance. Such warrants were classified within stockholders'
equity.
3. During the first quarter of 2017, the Company received
$130,000 through a placement of 520,000common stock units to five investors
for the offering price of $0.25 per unit. Each unit consisted of one share
of common stock and one "I" warrant to purchase common stock. The 520,000
"I" warrants are exercisable at $0.50 and expire two years from the date of
issuance. Such warrants were classified within stockholders' equity.
4. During the first quarter of 2017, the Company received
$867,000 through a placement of 1,734,000 common stock units to twenty
investors for the offering price of $0.50 per unit. Each unit consisted of
one share of common stock and one "K" warrant to purchase common stock. The
1,734,000 "K" warrants are exercisable at $1.00 and expire eighteen months
from the date of issuance. Such warrants were classified within
stockholders' equity.
5. During the first quarter of 2017, the Company received
$436,260 through a placement of 623,227 common stock units to eleven
investors for the offering price of $0.70 per unit. Each unit consisted of
one share of common stock and one "L" warrant to purchase common stock. The
623,227 "L" warrants are exercisable at $1.40 and expire eighteen months
from the date of issuance. Such warrants were classified within
stockholders' equity.
B. Stock-based compensation
1. During the first quarter of 2017 the Company issued
300,000 fully vested shares of the Company common stock and 400,000 warrants
(200,000 "G" warrants with exercise price of $0.25and 200,000 "H" warrants
with exercise price of $0.40) to consultant as payment for services. As the
equity instruments issued are fully vested and non-forfeitable, the fair
value of the grant was recognized as an increase to stockholders' equity at
the measurement date with an offsetting amount as a deduction from
stockholders' equity within the caption "Services receivable". This amount
will be recognized as consulting expense over the terms of the agreements.
The shares were valued at the closing price as of the date of the agreements
($0.67) and resulted in current recognition of $33,592 in consulting
services expense and $167,408 as future services receivable. This amount
will be recognized as consulting expense over the terms of the agreement.
The warrants were valued using the Black-Scholes-Merton pricing model to
estimate the fair value of $153,963 and resulted in current recognition of
$32,902 in additional consulting services expense and $121,061 as additional
future services receivable. This amount will be recognized as consulting
expense over the terms of the agreement. The Black-Sholes-Merton pricing
model assumptions used are as follows: expected dividend yield of 0%;
risk-free interest rate of 0.10% - 0.11%; expected volatility of 282%, and
warrant exercise period based upon the stated terms. See also C1 bellow.
2. Under additional Consulting agreement executed in
November of 2016 the Company became obligated to issue 100,000 additional
shares to the consultant as of February 28, 2017. The shares were valued at
$262,000 and were issued during April, 2017.
3. During the three months ended March 31, 2017 the
Company issued 350,000"E" warrants that are exercisable at $0.25 and expire
two years from the date of issuance to purchase the Company's common stock
to two unrelated parties as payment for services. The aggregate fair value
of the warrants was $133,210. As the equity instruments issued are fully
vested and non-forfeitable, the fair value of the grant was recognized as an
increase to stockholders' equity at the measurement date with an offsetting
amount as a deduction from stockholders' equity within the caption "Services
receivable". This amount will be recognized as consulting expense over the
terms of the agreements. The Company recognized $28,467 in current expense
and $104,743 remains as services receivable as of March 31, 2017.
The Company used the Black-Scholes-Merton pricing model
to estimate the fair value. The Black-Sholes-Merton pricing model
assumptions used are as follows: expected dividend yield of 0%; risk-free
interest rate of 0.10%-.0.11%; expected volatility of 282%, and warrant
exercise period based upon the stated terms.
C. Exercise of Warrants
1. In March, 2017, the consultant mentioned in Note 3B1
above exercised their 400,000 warrants and acquired 334,450 shares of common
stock in accordance with the original terms of the warrant agreement. The exercise of the warrants was made on a net share settlement basis
and resulted in delivery to the Company of 65,550 shares by the consultant
for a total exercise price of $130,000, based on the average market value of the common
shares for the ten-day period preceding the date of exercise.
2. During the first quarter of 2017 the Company received
$66,666 through the exercise of 266,666 warrants to purchase 266,667 shares
of common stock. The warrants carried an exercise price of $0.25.
NOTE 4 - SUBSEQUENT EVENTS
As previously discussed in Note 6 of the consolidated financial
statements as at December 31, 2016, OWC received $50,000 from Medmar LLC("Medmar")
during February 2017. On April 21, 2017, OWC served written notice to Medmar
of OWC's determination to prepay the non-recourse loan by Medmar to OWC in
the principal amount of $300,000. OWC has elected to exercise what it
believes is its absolute right to terminate certain distribution rights
granted to Medmar under the loan agreement. As a result of the Company
exercising its right to terminate the distribution rights, the loans from
Medmar are no longer considered by the company to be non-recourse, and the
entire amount of the obligation has been classified as a current liability
as of March 31, 2017.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION
Back to Table of Contents
The following discussion contains forward-looking statements.
Forward-looking statements give our current expectations or forecasts of future events.
You can identify these statements by the fact that they do not relate strictly to
historical or current facts. They use of words such as "anticipate",
"estimate", "expect", "project", "intend",
"plan", "believe", and other words and terms of similar meaning in
connection with any discussion of future operating or financial performance. From time to
time, we also may provide forward-looking statements in other materials we release to the
public.
Plan
of Operations
We are engaged in research and development of cannabis-based
medical products for the treatment of a variety of medical conditions such as
multiple myeloma, psoriasis, fibromyalgia, post-traumatic stress disorder (PTSD)
and migraine, and (ii) consulting services to companies and governmental
agencies with respect to complex international medical cannabis protocols and
regulations.
We have not yet commenced any significant activities
related to our consulting services.
Recent Developments
On September 28, 2016, we entered into a loan agreement
(the "Loan Agreement") with Medmar LLC, pursuant to which Medmar has agreed
to loan us a total of $300,000 (the "Loan") on a non-interest bearing basis,
with no conversion rights. The Loan is due in 36 months from the Effective
Date, September 22, 2016, and repayment shall be made only by the set off of
royalties payable by Medmar to us as follows: (i) prior to the full
repayment of the Loan, which OWC Ltd may prepay at any time, if and to the
extent Medmar is required to pay any royalties to OWC under a License
Agreement dated March 17, 2016, Medmar shall set off such royalties from the
outstanding principal balance of the Loan; (ii) OWC shall not be required to
pay the Loan other than through the set off from the royalties; and (iii)
the Loan is a non-recourse loan, meaning that if and to the extent that the
royalties are insufficient for any reason in order to fully repay the Loan,
Medmar waived any right and/or claim to any deficiency.
In addition, the Loan Agreement also provides that: (i)
subject to Medmar funding the entire Loan, Medmar shall receive the
exclusive right to manufacture, produce, publicize, promote and market the
OWC's Licensed Products (as defined in the above-referenced License
Agreement) in any state in the U.S., subject to a new license agreement to
be negotiated and signed between the parties with respect to each and every
state; (ii) the rights to be granted to Medmar under (i) above shall expire
within three (3) years subject to certain conditions and limitations; and
(iii) the right of first refusal agreement between the parties that was
executed on February 8, 2016 providing Medmar certain rights in connection
with the commercialization of Licensed Products in the States of Hawaii and
Pennsylvania be terminated.
On April 21, 2017, OWC served written notice to Medmar of
OWC's determination to prepay the non-recourse loan by Medmar to OWC in the
principal amount of $300,000. OWC has elected to exercise what it believes
is its absolute right to terminate certain distribution rights granted to
Medmar under the loan agreement.
On February 1, 2017, following the very encouraging
results that have been achieved at the mid-point of the Study, the
Registrant's Board of Directors and the management and scientific personnel
of OWC Ltd have determined to extend the size and scope of the Study for the
purpose of, among other things, checking the biological markers that have
been generated to date with respect to the treatment of psoriasis
(proliferation/inhibition and several interleukins). Despite extending its
size and scope of the Study, the Registrant expects to compete the Study
within the same projected time frame.
Our goal is to become a leader in the research and
development of cannabis-based medical drugs and treatments. To achieve our
goal, we plan to focus our activities on the following areas:
Research and Development
Our research and development is focused primarily on
exploring several formulations containing active compounds from the cannabis
plant, including (but not exclusive to) the cannabinoids CBD and THC, and
identifying potential therapeutic applications of the synergistic effects of
these active compounds. The synergistic contributions of our formulations
have not yet been scientifically researched and demonstrated. We aim to
standardize the formulations across the extracts as a whole, not simply by
reference to their key active components (CBD and/or THC).
Although there are existing reports and studies on CBD
and THC, our formulations will contain several active compounds from the
cannabis plant, that must be fully researched and documented in order to
verify its effectiveness to indications, at what doses and which method of
administration will be the most appropriate and effective.
One World Cannabis plans to produce pharmaceutical-grade
cannabinoid-based products and treatments that will be standardized in
composition, formulation and dose, administered by means of an appropriate
and efficient delivery system, and tested in properly controlled
pre-clinical and clinical studies. OWC plans to conduct its research, led by
internationally renowned investigators, at the facilities of leading Israeli
hospitals and scientific institutions. The Company will adhere to
legislation, rules and guidelines regarding the investigations. Dr. Baruch,
OWC's Director of Research and Regulatory Affairs, and Alon Sinai, OWC's
Chief Operating Officer, will monitor the investigations and researches.
To date, OWC has signed three research collaboration and
license agreements with Sheba Academic Medical Center, Tel Hashomer, Israel
("Sheba"). Sheba is a university-affiliated hospital that serves as Israel's
national medical center and the most comprehensive medical center in the
Middle East. Within the framework of the agreements with Sheba, OWC will
initiate three studies at the Sheba facilities to explore the effect of
three formulations, all based on active ingredients in the cannabis
extracts, on multiple myeloma, psoriasis and fibromyalgia (a specific
formulation to each indication).
The Company expects to start developing other delivery
systems, designed for different indications, during 2017.
Pursuant to the Research Agreement, the Fund shall
perform a Phase I, double blind, randomized, placebo-controlled, maximal
dose study (the "Study") to determine the safety, tolerability of topical
cream containing MGC ("Medical Grade Cannabis" or the "Study Drug") in
healthy volunteers, employing the services of Dr. Aviv Barzilay, Director of
the Department of Dermatology- Chaim Sheba Medical Center, Tel Hashomer,
Israel, to lead the Study (the "Investigator"). The Study shall be conducted
in compliance with the following, as defined in the Research Agreement: (1)
the Protocol; (2) the Ministry Guidelines; (3) the instructions and terms
specified in the Helsinki Committee's approval; (4) the ICH-GCP; (5) the
Helsinki Declarations; (6) the applicable laws, rules and regulations
regulating such studies which are applicable in Israel (the "Applicable
Laws"); and (7) written instructions and prescriptions issued by the OWC and
governing the administration of the Study Drug.
On February 1, 2017, following the very encouraging
results that have been achieved at the mid-point of the Study, the Company
determined to extend the size and scope of the Study for the purpose, among
other things, of checking the biological markers that have been generated to
date with respect to the treatment of psoriasis (proliferation/ inhibition
and several interleukins). Despite extending its size and scope of the
Study, we expect to complete the Study during the 2nd or 3rd quarters of
2017.
To date, One World Cannabis has filed eight provisional
patents with the United States Patent and Regulatory Office (USPTO), all
related to its line of activity related to cannabis-based medical products.
Assuming the successful completion of the clinical trials, of which there
can be no assurance, the Company believes that it will be able to retain the
intellectual rights and secure patent protections.
While we retain full ownership on our intellectual
property rights that we conceived prior to the signing of the research
collaboration and license agreements with Sheba Academic Medical Center, the
psoriasis and fibromyalgia agreements with Sheba provide that all
intellectual property rights that is conceived during the course of the
research is to be jointly owned by Sheba and One World Cannabis.
Pursuant to the collaboration agreements, we are expected
to pay Sheba $170,000 for conducting the multiple myeloma trial between the
3rd quarter of 2015 and the second quarter of 2016. In addition, we
commenced pre-clinical studies on the treatment of psoriasis during the
second quarter of 2016. Pursuant to the collaboration agreements, we are
obliged to pay Sheba $85,000 throughout 2017 for conducting the safety study
for the cream. We currently have the financial resources to fund our current
obligations under these agreements, but anticipate that we will require
additional funding during the next 12 months for our continuing and planned
expanded operations. As of March 31, 2017, we have paid Sheba $65,669
according Sheba's payment requests.
We currently have the financial resources to fund our
obligations under these agreements, but anticipate that we will require
additional funding during the next 12 months for our continuing and planned
expanded operations.
Research and Development Status
The following table summarizes the stages of development
for each of our current Product Prospects.
Target
Indication
|
|
Collaborator
|
|
Status
|
|
|
|
|
|
|
Multiple
Myeloma
|
|
Sheba
|
|
●
|
Entered
into a research agreement for in vitro studies
|
|
|
Academic
|
|
●
|
Negotiating
terms of a research agreement for in vivo studies
|
|
|
Medical
Center
|
|
●
|
Completed
one in vitro study
|
|
|
|
|
●
|
Proceeding
with further pre-clinical in vitro studies (safety and toxicity, pharmacokinetic, and pharmacodynamic)
|
|
|
|
|
●
|
Expect to submit
a clinical trial protocol to the Israeli Institutional Review Board and receive its approval to commence a clinical study
|
|
|
|
|
●
|
Intend
to commence a clinical study in the third quarter of 2017
|
|
|
|
|
●
|
Drafted
a clinical trial protocol synopsis, which we believe will assist us
in preparing an application for orphan status designation
|
|
|
|
|
|
|
Psoriasis
|
|
Sheba
Academic Medical Center
|
|
●
|
Entered
into a Research Collaboration and License Agreement but have not commenced any studies to date
|
|
|
|
|
●
|
Received an IRB approval for a Phase I, double blind, randomized, placebo
controlled, multiple escalating dose study to determine the safety,
tolerability and pharmacokinetic profile of medical grade cannabis in
healthy volunteers. The study began in April 2017.
|
|
|
|
|
|
|
Psoriasis
|
|
Emilia
Cosmetics Ltd.
|
|
●
|
Entered
into a nonbinding memorandum of understanding for the development, manufacture and marketing of a cannabinoid-based topical
cream.
|
|
|
|
|
●
|
We finished the development of the topical cream in the first quarter of
2016.
|
|
|
|
|
|
|
Fibromyalgia
|
|
Sheba
Academic Medical Center
|
|
●
|
Drafted
a clinical trial protocol synopsis.
|
|
|
|
|
|
|
New
delivery system - cannabis soluble tablet
|
|
G.C.
Group Ltd.
|
|
●
|
Completed
a proof of concept (the R=Research phase) of the desired end product
(the soluble tablet) to test the
fabric, durability, solidification and other features of the cannabis
soluble tablet.
|
OWC's
Investigation on Multiple Myeloma
Dr. Merav Leiba, Head of Multiple Myeloma Outpatient Clinic
and Multiple Myeloma Research Lab at Sheba's Hematology Institute, led the in
vitro tests on multiple myeloma. Dr. Leiba, a specialist in Internal Medicine
and Hematology, was a postdoctoral fellow at the Jerome Lipper Multiple Myeloma
Center at Dana Farber Cancer Institute, Boston, Massachusetts (2006-2008). Dr.
Leiba has participated in numerous clinical and investigational studies aimed at
developing novel drugs for multiple myeloma.
Our in vitro tests results on multiple myeloma cells
studied outside their normal biological context, on which we announced on
June 17, 2015, led us to proceed with further pre-clinical study (safety and
toxicity, PK, PD) of our formulation, to find out whether it has scientific
merit for further development as an investigational new drug. While we are
encouraged by the results of the limited in vitro tests, there can be no
assurance that any clinical trial will result in commercially viable
products or treatments.
Clinical trials are expensive, time consuming and
difficult to design and implement. We, as well as the regulatory authorities
in Israel and elsewhere, such as an IRB (Helsinki committee), IMCU - Israel
Medical Cannabis Unit, or the FDA, may suspend, delay or terminate our
clinical trials at any time, may require us, for various reasons, to conduct
additional clinical trials, or may require a particular clinical trial to
continue for a longer duration than originally planned, including, among
others:
● lack
of effectiveness of any formulation or delivery system during clinical trials;
●
discovery of serious or unexpected toxicities or side effects experienced by trial participants or other safety issues;
●
slower than expected rates of subject recruitment and enrollment rates in clinical trials;
● delays
or inability in manufacturing or obtaining sufficient quantities of materials for use in clinical trials due to regulatory and
manufacturing constraints;
●
delays in obtaining regulatory authorization to commence a trial, including IRB approvals, licenses required for obtaining and
using cannabis for research, either before or after a trial is commenced;
●
unfavorable results from ongoing pre-clinical studies and clinical trials.
●
patients or investigators failing to comply with study protocols;
● patients
failing to return for post-treatment follow-up at the expected rate;
● sites
participating in an ongoing clinical study withdraw, requiring us to engage new sites;
● third-party
clinical
investigators decline to participate in our clinical studies, do not
perform the clinical studies on the anticipated
schedule, or act in ways inconsistent with the established investigator
agreement, clinical study protocol, good clinical practices,
and other Institutional Review Board requirements;
●
third-party entities do not perform data collection and analysis in a timely or accurate manner or at all;
● regulatory
inspections of our clinical studies require us to undertake corrective action or suspend or terminate our clinical studies;
Any
of the foregoing could have a material adverse effect on our business, results of operations and financial condition.
Consulting
Services
OWCP believes that the complexity of the medical cannabis
programs has created a demand for consulting and advisory services in
different aspects of the medical cannabis industry. The Company's services
are designed to help government officials, policy-makers and regulatory
agencies develop and implement tailor-made comprehensive medical cannabis
programs. In addition, One World Cannabis offers medical cannabis regulatory
compliance services and patient-care consultancy services.
Our initial activities to secure consulting contracts
will be in member states of the European Union and states of the United
States that allow for public medical cannabis programs.
OWC management has the expertise in designing training
programs for physicians, caregivers, and researches that are essential to
the establishment of a successful, patient-focused medical cannabis program.
By working with policy-makers, government officials, public agencies, and
privately owned businesses, we believe we can also raise the public's
awareness of the benefits of cannabis-based treatments and products.
In furtherance of our plans, we may, in the future,
consider strategic acquisitions and joint ventures as well as other projects
to grow our business activities including but not limited to: product
licensing and royalty agreements, consulting, and strategic alliances to
support our Product Prospect development. However, there can be no assurance
that this strategy will be successful in generating any revenues or growing
our business.
Results of Operations during the three months ended
March 31, 2017 as compared to the three months ended March 31, 2016
We have not generated any revenue during the three months
ended March 31, 2017 and 2016. We have operating expenses related to general
and administrative expenses and research and development expenses. During
the three months ended March 31, 2017, we incurred a net loss of $1,435,365
due to general and administrative expenses of $1,401,349, and research and
development expenses of $34,016. During the three months ended March 31,
2016, we incurred a net loss of $314,388 due to general and administrative
expenses of $221,556, research and development expenses of $37,043.
Our general and administrative expenses increased by
$1,179,793 or 532% during the three months ended March 31, 2017 as compared
to the same period in the prior year due to an increase in non-cash
stock-based compensation expense. During the three months ended March 31,
2017, our research and development expenses decreased by $3,027 or 8% as
compared to the same period in the prior year.
Liquidity and Capital Resources
On March 31, 2017, we had current assets of $2,061,808
consisting of $2,048,146 in cash and other current assets of $13,662. We had
property and equipment, net of accumulated depreciation, valued at $13,703
as of March 31, 2017. We had total assets of $2,075,511 as of March 31,
2017.
On December 31, 2016, we had current assets of $481,695
consisting of $472,282 in cash and other current assets of $9,413. We had
property and equipment, net of accumulated depreciation of $15,073. We had
total assets of $496,768 as of December 31, 2016.
On March 31, 2017, we had $448,483 in current liabilities
consisting of $5,063 in accounts payable, $43,420 in other current
liabilities, deferred revenue of $100,000, and current portion of long-term
debt of $300,000.
On December 31, 2016, we had $145,780 in current
liabilities consisting of $7,694 in accounts payable, $38,086 in other
current liabilities and deferred revenue of $100,000.
On December 31, 2016, we had a non-recourse loan of
$250,000.
We had positive working capital of $1,613,325 at March
31, 2017 as compared to $335,915 on December 31, 2016. Our accumulated
deficits as of March 31, 2017 and December 31, 2016 were $11,393,830 and
$9,958,465 respectively.
We used $190,622 in our operating activities during the
three month ended March 31, 2017, which was due to a net loss of $1,435,365,
offset by foreign currency translation adjustment of $6,969, depreciation
expenses of $2,450, amortization of services receivable of $178,966,
stock-based compensation $1,057,904, an increase in other assets of $4,249,
an increase in accounts payable of $2,631 and an increase in other
liabilities of $5,334.
We used $160,178 in our operating activities during the
three months ended March 31, 2016, which was due to a net loss of $314,388
offset by foreign currency translation adjustment of $11,633, adjustments of
convertible loans of $54,791 depreciation expenses of $2,389, stock based
compensation $8,074, increase in accounts receivable of $4,045, an increase
in other assets of $1,820 a decrease in accounts payable of $19,004,
increase in deferred revenue of $100,000 and an increase in other
liabilities of $2,192.
We used $1,080 and $1,860 during the three months ended
March 31, 2017 and 2016, respectively, to purchase property and equipment.
Our financing activities during the three months ended
March 31, 2017 provided us with $1,767,566 through net proceeds from
issuances of common stock and warrants in an amount of $1,650,900, proceeds
from exercise of warrants of $66,666 and proceeds of debt borrowings of
$50,000.
Our financing activities during the three months ended
March 31, 2016 provided us with $71,250 through proceeds of debt borrowings.
Based upon our cash position of $2,048,146 at March 31,
2017, we believe that we may need to raise additional capital, either equity
or debt in order to fund repayment of our current liabilities as of March
31, 2017, and our plan of operations, including our research and
development. There can be no assurance, however, that additional capital
will be sufficient to fund our currently anticipated expenditure
requirements nor can there be any assurance that financing will be available
at satisfactory terms and conditions or at all, for that matter.
Our auditors have issued an opinion on our financial
statements which includes a statement describing our going concern status.
This means that there is substantial doubt that we can continue as an
on-going business for the next twelve months unless we obtain additional
capital to pay our bills and meet our other financial obligations. This is
because we have not generated any revenues and no revenues are anticipated
until we begin marketing the product. Accordingly, we must raise capital
from sources other than the actual sale of the product. We must raise
capital to implement our project and stay in business. We do not know how
long the money will last, however, we do believe it will last at least
twelve months.
Our lack of operating history may make it difficult to
raise capital. Our inability to borrow funds or raise equity capital to
facilitate our business plan may have a material adverse effect on our
financial condition and future prospects.
Funding of Our Research Programs
On October 22, 2014, we have entered into a collaboration
agreement with Sheba Academic Medical Center, a hospital in Tel-Aviv,
Israel, relating to the use of cannabis to treat Myeloma. Pursuant to the
collaboration agreements, we are expected to pay Sheba $170,000 for
conducting the multiple myeloma trial between the 3rd quarter of 2015 and
the second quarter of 2016. In addition, we commenced pre-clinical studies
on the treatment of psoriasis during the second quarter of 2016. Pursuant to
the collaboration agreements, we are obliged to pay Sheba $85,000 throughout
2017 for conducting the safety study for the cream. We currently have the
financial resources to fund our current obligations under these agreements,
but anticipate that we will require additional funding during the next 12
months for our continuing and planned expanded operations. As of March 31,
2017, we have paid Sheba $65,669 according Sheba's payment requests.
Our expenditures allocated to our corporate activities
conducted through our facilities in Petach Tikva were $39,752 for the year
ended December 31, 2016 and we expect will be approximately $40,000 for the
year ending December 31, 2017.
At present, we use our available working capital to fund
these studies. However, we will need to raise additional funding prior to or
if clinical studies are to commence.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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None.
ITEM
4. CONTROLS AND PROCEDURES
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Evaluation of Disclosure Controls and Procedures
As of March 31, 2017, the Company's chief executive
officer and chief financial officer conducted an evaluation regarding the
effectiveness of the Company's disclosure controls and procedures (as
defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon
the evaluation of these controls and procedures required by Rules 13a-15 or
15d-15, our chief executive officer and chief financial officer concluded
that our disclosure controls and procedures were ineffective as of the end
of March 31, 2017 under the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control-Integrated Framework (2013).
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over
financial reporting or in other factors identified in connection with the
evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15
that occurred during the quarter ended March 31, 2017 that have materially
affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS