PART
I - FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands, except share and per share amounts)
|
|
US dollars (except share data)
|
|
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
1,840
|
|
|
|
3,464
|
|
Other current assets
|
|
|
409
|
|
|
|
52
|
|
Total Current Assets
|
|
|
2,249
|
|
|
|
3,516
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
33
|
|
|
|
37
|
|
Operating lease right-of-use assets, net
|
|
|
53
|
|
|
|
-
|
|
Total Assets
|
|
|
2,335
|
|
|
|
3,553
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, SERIES A CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
104
|
|
|
|
98
|
|
Operating lease liabilities, current
|
|
|
26
|
|
|
|
-
|
|
Other current liabilities
|
|
|
286
|
|
|
|
240
|
|
Deferred revenue
|
|
|
100
|
|
|
|
100
|
|
Total Current Liabilities
|
|
|
516
|
|
|
|
438
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
Operating lease liabilities, non-current
|
|
|
27
|
|
|
|
-
|
|
Liability related to shares to be issued
|
|
|
725
|
|
|
|
725
|
|
Liability related to warrants to purchase Common Stock (Note 3)
|
|
|
190
|
|
|
|
1,475
|
|
Embedded derivative related to price protection feature (Note 5B3)
|
|
|
4
|
|
|
|
-
|
|
Bifurcated embedded derivative related to Series A Convertible Preferred Stock, at fair value (Note 3)
|
|
|
288
|
|
|
|
8,129
|
|
Total Liabilities
|
|
|
1,750
|
|
|
|
10,767
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Convertible Preferred Stock (Note 4B):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Convertible Preferred Stock, $0.00001 par value; 20,000,000 shares authorized at June 30, 2019 (Unaudited) and December 31, 2018; 431 and 490 shares issued and outstanding at June 30, 2019 (Unaudited) and December 31, 2018, respectively; Aggregate liquidation preference $5,172 at June 30, 2019 (Unaudited) (Note 4B)
|
|
|
3,628
|
|
|
|
2,226
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit:
|
|
|
|
|
|
|
|
|
Common stock, $0.00001 par value; 500,000,000 shares authorized at June 30, 2019 (unaudited) and December 31, 2018; 216,265,874 and 150,207,393 shares issued and outstanding at June 30, 2019 (unaudited) and December 31, 2018, respectively
|
|
|
4
|
|
|
|
2
|
|
Additional paid-in capital
|
|
|
19,625
|
|
|
|
18,137
|
|
Services receivable
|
|
|
(50
|
)
|
|
|
(121
|
)
|
Common stock subscriptions receivable
|
|
|
(239
|
)
|
|
|
(239
|
)
|
Accumulated deficit
|
|
|
(22,384
|
)
|
|
|
(27,222
|
)
|
Accumulated other comprehensive income
|
|
|
1
|
|
|
|
3
|
|
Total Stockholders’ Deficit
|
|
|
(3,043
|
)
|
|
|
(9,440
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities, Series A Convertible Preferred Stock, and Stockholders’ Deficit
|
|
|
2,335
|
|
|
|
3,553
|
|
The
accompanying notes are an integral part of the condensed consolidated financial statements.
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In
thousands, except share and per share amounts)
(unaudited)
Six
Months Ended June 30, 2019
|
|
US
dollars (except share data)
|
|
|
|
For
the Three Months
Ended June 30,
|
|
|
For
the Six Months
Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
(320
|
)
|
|
|
(212
|
)
|
|
|
(605
|
)
|
|
|
(368
|
)
|
General
and administrative
|
|
|
(395
|
)
|
|
|
(756
|
)
|
|
|
(893
|
)
|
|
|
(1,577
|
)
|
Total
operating expenses
|
|
|
(715
|
)
|
|
|
(968
|
)
|
|
|
(1,498
|
)
|
|
|
(1,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(expenses) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
costs related to April 30, 2018 Redeemable Convertible Series A Preferred Stock (Note 4)
|
|
|
-
|
|
|
|
(823
|
)
|
|
|
-
|
|
|
|
(823
|
)
|
Revaluation
of liability related to warrants to purchase common stock (Note 3)
|
|
|
210
|
|
|
|
150
|
|
|
|
1,285
|
|
|
|
150
|
|
Revaluation
of bifurcated embedded derivative related to Series A Convertible Preferred Stock (Note 3)
|
|
|
8,217
|
|
|
|
(1,567
|
)
|
|
|
6,927
|
|
|
|
(1,567
|
)
|
Other
finance expenses, net
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
(7
|
)
|
|
|
(1
|
)
|
Total
other (expenses) income, net
|
|
|
8,422
|
|
|
|
(2,241
|
)
|
|
|
8,205
|
|
|
|
(2,241
|
)
|
Net
(loss) income
|
|
|
7,707
|
|
|
|
(3,209
|
)
|
|
|
6,707
|
|
|
|
(4,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
(loss) income
|
|
|
7,704
|
|
|
|
(3,210
|
)
|
|
|
6,705
|
|
|
|
4,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
on Redeemable Convertible Series A Preferred Stock (Note 4)
|
|
|
(65
|
)
|
|
|
(45
|
)
|
|
|
(130
|
)
|
|
|
(45
|
)
|
Accretion
of Redeemable Convertible Series A Preferred Stock to redemption value (Note 4)
|
|
|
(748
|
)
|
|
|
(532
|
)
|
|
|
(1,737
|
)
|
|
|
(532
|
)
|
Net
(loss) income attributable to common stockholders
|
|
|
6,891
|
|
|
|
(3,787
|
)
|
|
|
4,838
|
|
|
|
(4,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net (loss) income
|
|
$
|
0.04
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net (loss) income
|
|
$
|
0.00
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding (basic)
|
|
|
194,980,860
|
|
|
|
147,758,908
|
|
|
|
178,444,380
|
|
|
|
147,758,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding (diluted)
|
|
|
202,954,745
|
|
|
|
148,619,380
|
|
|
|
187,323,354
|
|
|
|
149,169,470
|
|
The
accompanying notes are an integral part of the condensed consolidated financial statements.
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF SERIES A CONVERTIBLE PREFERRED
STOCK
AND STOCKHOLDERS’ DEFICIT
(In
thousands, except share and per share amounts)
(Unaudited)
Six
Months Ended June 30, 2019
|
|
Series
A Convertible
Preferred Stock
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional
Paid-in Capital
|
|
|
Services
Receivable
|
|
|
Common
Stock Subscriptions Receivable
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other Comprehensive Income (Loss)
|
|
|
Total
Stockholders’ Deficit
|
|
Balance at December 31, 2018
|
|
|
490
|
|
|
|
2,226
|
|
|
|
150,207,393
|
|
|
|
2
|
|
|
|
18,137
|
|
|
|
(121
|
)
|
|
|
(239
|
)
|
|
|
(27,222
|
)
|
|
|
3
|
|
|
|
(9,440
|
)
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
109
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
109
|
|
Amortization of services receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
71
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
71
|
|
Dividend on Series A redeemable convertible preferred stock (see
also Note 4B)
|
|
|
-
|
|
|
|
-
|
|
|
|
4,396,217
|
|
|
|
2
|
|
|
|
130
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(132
|
)
|
|
|
-
|
|
|
|
-
|
|
Accretion of Series A convertible preferred stock to redemption
value (see also Note 4B)
|
|
|
-
|
|
|
|
1,737
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,737
|
)
|
|
|
-
|
|
|
|
(1,737
|
)
|
Partial conversion of Series A Convertible Preferred stock into
common stock (see also Note 4B)
|
|
|
(59
|
)
|
|
|
(335
|
)
|
|
|
61,662,264
|
|
|
|
*)
|
|
|
|
1,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,249
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,707
|
|
|
|
-
|
|
|
|
6,707
|
|
Balance at June 30, 2019 (unaudited)
|
|
|
431
|
|
|
|
3,628
|
|
|
|
216,265,874
|
|
|
|
4
|
|
|
|
19,625
|
|
|
|
(50
|
)
|
|
|
(239
|
)
|
|
|
(22,384
|
)
|
|
|
1
|
|
|
|
(3,043
|
)
|
The
accompanying notes are an integral part of the condensed consolidated financial statements.
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF SERIES A CONVERTIBLE PREFERRED
STOCK
AND STOCKHOLDERS’ DEFICIT
(In
thousands, except share and per share amounts)
(Unaudited)
Six
Months Ended June 30, 2018
|
|
Series
A Convertible
Preferred Stock
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional
Paid-in Capital
|
|
|
Services
Receivable
|
|
|
Common
Stock Subscriptions Receivable
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other Comprehensive Income (Loss)
|
|
|
Total
Stockholders’ Deficit
|
|
Balance at December 31, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
147,758,908
|
|
|
|
2
|
|
|
|
16,169
|
|
|
|
(525
|
)
|
|
|
(344
|
)
|
|
|
(14,517
|
)
|
|
|
6
|
|
|
|
791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
585
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
585
|
|
Amortization of services receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
331
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
331
|
|
Payments received on subscriptions receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
105
|
|
|
|
-
|
|
|
|
-
|
|
|
|
105
|
|
Issuance of Series A redeemable convertible preferred stock, net
of fair value of bifurcated embedded derivative, fair value of and detachable warrants, beneficial conversion feature on Redeemable
Convertible Series A Preferred Stock and net of issuance costs (see also Note 4B)
|
|
|
500
|
|
|
|
*)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Beneficial Conversion Feature on Redeemable Convertible Series A
Preferred Stock (see also Note 4B)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
773
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
773
|
|
Dividend on Series A redeemable convertible preferred stock (see
also Note 4B)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(45
|
)
|
|
|
-
|
|
|
|
(45
|
)
|
Accretion of Series A redeemable convertible preferred stock to
redemption value (see also Note 4B)
|
|
|
-
|
|
|
|
532
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(532
|
)
|
|
|
-
|
|
|
|
(532
|
)
|
Foreign Currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,186
|
)
|
|
|
-
|
|
|
|
(4,186
|
)
|
Balance at June 30, 2018 (unaudited
|
|
|
500
|
|
|
|
532
|
|
|
|
147,758,908
|
|
|
|
2
|
|
|
|
17,527
|
|
|
|
(194
|
)
|
|
|
(239
|
)
|
|
|
(19,280
|
)
|
|
|
3
|
|
|
|
(2,181
|
)
|
The
accompanying notes are an integral part of the condensed consolidated financial statements.
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF SERIES A CONVERTIBLE PREFERRED
STOCK
AND STOCKHOLDERS’ DEFICIT
(In
thousands, except share and per share amounts)
(Unaudited)
Three
Months Ended June 30, 2019
|
|
Series A Convertible
Preferred Stock
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional
Paid-in
Capital
|
|
|
Services Receivable
|
|
|
Common
Stock Subscriptions Receivable
|
|
|
Accumulated Deficit
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
|
Total Stockholders’ Deficit
|
|
Balance at March 31, 2019 (unaudited)
|
|
|
440
|
|
|
|
2,940
|
|
|
|
176,001,007
|
|
|
|
2
|
|
|
|
19,353
|
|
|
|
(86
|
)
|
|
|
(239
|
)
|
|
|
(29,276
|
)
|
|
|
4
|
|
|
|
(10,242
|
)
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
69
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
69
|
|
Amortization of services receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36
|
|
Dividend on Series A redeemable convertible preferred stock (see
also Note 4B)
|
|
|
-
|
|
|
|
-
|
|
|
|
3,563,950
|
|
|
|
2
|
|
|
|
65
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(67
|
)
|
|
|
-
|
|
|
|
-
|
|
Accretion of Series A convertible preferred stock to redemption
value (see also Note 4B)
|
|
|
-
|
|
|
|
748
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(748
|
)
|
|
|
-
|
|
|
|
(748
|
)
|
Partial conversion of Series A Convertible Preferred stock into
common stock (see also Note 4B)
|
|
|
(9
|
)
|
|
|
(60
|
)
|
|
|
36,700,917
|
|
|
|
*)
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,707
|
|
|
|
-
|
|
|
|
7,707
|
|
Balance at June 30, 2019 (unaudited)
|
|
|
431
|
|
|
|
3,628
|
|
|
|
216,265,874
|
|
|
|
4
|
|
|
|
19,625
|
|
|
|
(50
|
)
|
|
|
(239
|
)
|
|
|
(22,384
|
)
|
|
|
1
|
|
|
|
(3,043
|
)
|
The
accompanying notes are an integral part of the condensed consolidated financial statements.
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF SERIES A CONVERTIBLE PREFERRED
STOCK
AND STOCKHOLDERS’ DEFICIT
(In
thousands, except share and per share amounts)
(Unaudited)
Three
Months Ended June 30, 2018
|
|
Series
A Convertible
Preferred Stock
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional
Paid-in
Capital
|
|
|
Services
Receivable
|
|
|
Common
Stock Subscriptions Receivable
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other Comprehensive Income (Loss)
|
|
|
Total
Stockholders’ Deficit
|
|
Balance at March 31, 2018 (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
139,447,782
|
|
|
|
2
|
|
|
|
16,514
|
|
|
|
(284
|
)
|
|
|
(239
|
)
|
|
|
(15,494
|
)
|
|
|
3
|
|
|
|
502
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
240
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
240
|
|
Amortization of services receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
90
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
90
|
|
Issuance of Series A Convertible Preferred Stock, net of fair value
of embedded derivative related to contingent redemption feature, fair value of and detachable warrants, beneficial conversion
feature on Redeemable Convertible Series A Preferred Stock and net of issuance costs (see also Note 4B)
|
|
|
500
|
|
|
|
*-)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Beneficial Conversion Feature on Series A Convertible Preferred
Stock (see also Note 4B)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
773
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
773
|
|
Dividend on Series A redeemable convertible preferred stock (see
also Note 4B)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(45
|
)
|
|
|
-
|
|
|
|
(45
|
)
|
Accretion of Series A convertible preferred stock to redemption
value (see also Note 4B)
|
|
|
-
|
|
|
|
532
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(532
|
)
|
|
|
-
|
|
|
|
(532
|
)
|
Net income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,209
|
)
|
|
|
-
|
|
|
|
(3,209
|
)
|
Balance at June 30, 2018 (unaudited)
|
|
|
500
|
|
|
|
532
|
|
|
|
147,758,782
|
|
|
|
2
|
|
|
|
17,527
|
|
|
|
(194
|
)
|
|
|
(239
|
)
|
|
|
(19,280
|
)
|
|
|
3
|
|
|
|
(2,181
|
)
|
*)
Representing an amount lower than $1
The
accompanying notes are an integral part of the condensed consolidated financial statements.
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands, except share and per share amounts)
(Unaudited)
|
|
US dollars
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
6,707
|
|
|
|
(4,186
|
)
|
Adjustments to reconcile net income (loss) to cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
6
|
|
|
|
4
|
|
Stock-based compensation
|
|
|
109
|
|
|
|
585
|
|
Amortization of services receivable
|
|
|
71
|
|
|
|
331
|
|
Direct and incremental issuance cost related to April 2018 PIPE transaction
|
|
|
-
|
|
|
|
483
|
|
Revaluation of liability related to warrants to purchase common stock
|
|
|
(1,285
|
)
|
|
|
(150
|
)
|
Revaluation of bifurcated embedded derivative related to Series A Convertible Preferred Stock
|
|
|
(6,927
|
)
|
|
|
1,568
|
|
Revaluation of embedded derivative related to price protection feature
|
|
|
4
|
|
|
|
-
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease in lease right-of-use assets, net
|
|
|
14
|
|
|
|
-
|
|
Decrease (increase) in other current assets
|
|
|
(357
|
)
|
|
|
(18
|
)
|
Increase in accounts payable
|
|
|
6
|
|
|
|
62
|
|
Increase in other current liabilities
|
|
|
46
|
|
|
|
-
|
|
Decrease in lease liabilities
|
|
|
(14
|
)
|
|
|
-
|
|
Cash used in operating activities:
|
|
|
(1,620
|
)
|
|
|
(1,321
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(2
|
)
|
|
|
(20
|
)
|
Cash used in investing activities
|
|
|
(2
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Series A redeemable convertible preferred stock, bifurcated embedded derivative and detachable warrants, net of issuance costs
|
|
|
|
|
|
|
4,918
|
|
Proceeds from the payments of stock subscriptions
|
|
|
-
|
|
|
|
105
|
|
Cash provided by financing activities
|
|
|
-
|
|
|
|
5,023
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments on cash and cash equivalents
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
(1,624
|
)
|
|
|
3,679
|
|
Balance of cash and cash equivalents at beginning of period
|
|
|
3,464
|
|
|
|
970
|
|
Balance of cash and cash equivalents at end of period
|
|
|
1,840
|
|
|
|
4,649
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
Beneficial Conversion Feature on Redeemable Convertible Series A Preferred Stock
|
|
|
-
|
|
|
|
773
|
|
Issuance costs in form of liability related to warrants
|
|
|
-
|
|
|
|
117
|
|
Dividend on Series A Convertible Preferred Stock
|
|
|
132
|
|
|
|
45
|
|
Accretion of Series A Convertible Preferred Stock to redemption value
|
|
|
1,737
|
|
|
|
532
|
|
Partial conversion of shares of Series A Convertible Preferred Stock into shares of common stock (Note 4B)
|
|
|
1,249
|
|
|
|
-
|
|
The
accompanying notes are an integral part of the condensed consolidated financial statements.
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
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. The Company is a medical cannabis-based 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 “Products Prospects”)
for the treatment of multiple myeloma, psoriasis, chronic pain syndromes, fibromyalgia PTSD and development of unique delivery
systems. These include a cannabis-based topical ointment, cannabis sublingual disintegrating tablet and advanced nasal delivery.
The
accompanying condensed consolidated financial statements of OWCP and its wholly owned subsidiary One World Cannabis, Ltd. (“OWC”
or the “Israeli subsidiary”) were prepared from the accounts of the Company under the accrual basis of accounting.
|
B.
|
Liquidity
and Going Concern
|
The
development and commercialization of the Company’s products 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 June 30, 2019, the Company has an accumulated deficit of $22,384. In addition, in each year since its inception the Company
reported losses from operations and negative cash flows from operating activities. Moreover, the Company is not in compliance
with the Equity Conditions (as defined in the Series A Certificate of Designation) and therefore the Purchaser in the April 2018
PIPE transaction (each as defined below) can elect to redeem its outstanding Series A Convertible Preferred Stock in a cash amount
that will not allow the Company to maintain its operation for the next 12-month period (see Note 4). 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
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 the Company generates sufficient revenues 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.
On
April 30, 2018, the Company entered into a Securities Purchase Agreement with an investor (the “Purchaser”), pursuant
to which, the Company issued (i) 500 shares of Preferred Stock designated as Series A Convertible Preferred Stock that were initially
convertible into 25,000,000 shares of common stock and (ii) Warrants that were eligible for conversion initially into 12,500,000
shares of common stock for an aggregate purchase price of $5,000 (see also Note 4C) (the “April 2018 PIPE”). In addition,
during the six months ended June 30, 2018, the Company received $105 through payment of stock subscriptions.
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
Company has a limited operating history and faces several 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.
NOTE
2
|
-
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
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, 2018.
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 accompanying condensed
consolidated balance sheet as of December 31, 2018 has been derived from the consolidated financial statements contained in our
Annual Report on form 10-K.
The
results for the six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ending
December 31, 2019 or for any other interim period in the future.
Use
of Estimates
The
preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect amounts reported of assets and liabilities at the date of the financial statements and the reported amount of revenues
and expenses during the reporting periods. Actual results could differ from those estimates and be based on events different from
those assumptions. As part of these financial statements, the more significant estimates include (1) identification of financial
instruments in liabilities (including embedded derivative), equity and mezzanine transactions and proper classification and measurement
of financial instruments; (2) evaluation of going concern; and (3) contingencies.
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2
|
-
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
Net
(Loss) Income Per Share
The
Company computes net (loss) income per share in accordance with ASC 260, “Earnings per share”. Basic (loss) income
per share is computed by dividing net (loss) income attributable to common stockholders by the weighted-average number of common
shares outstanding during the period, net of the weighted average number of treasury shares (if any). Securities that may participate
in dividends with the common stock (such as the Series A Convertible Preferred Stock) are considered in the computation of basic
income per share using the two-class method. However, in periods of net loss, participating securities are included only if the
holders of such securities have a contractual obligation to share the losses of the Company. Accordingly, the outstanding Series
A Convertible Preferred Stock, which was issued on April 30, 2018 was excluded from the computation of the net loss per share
for the three and six months ended June 30, 2018.
Diluted
(loss) income per common share is computed similar to basic (loss) income per share, except that the denominator is increased
to include the number of additional potential common shares that would have been outstanding if the potential common shares had
been issued and if the additional common shares were dilutive. Potential common shares are excluded from the computation for a
period in which a net loss is reported or if their effect is anti-dilutive. The Company’s potential common shares consist
of stock options, certain stock warrants and restricted stock awards issued under the Company’s 2016 Plan and their potential
dilutive effect is considered using the treasury method and of the Series A Convertible Preferred Stock, certain stock warrants,
bifurcated embedded derivative related to the Series A Convertible Preferred Stock and embedded derivative related to price protection
feature which their potential dilutive effect is considered using the “if-converted method”.
The
net (loss) income attributable to common stockholders and the weighted average number of shares used in computing basic and diluted
net (loss) income per share for the three and six months ended June 30, 2019 and 2018, are as follows:
|
|
Three Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
Unaudited
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
7,707
|
|
|
$
|
(3,209
|
)
|
Accretion of Redeemable Convertible Series A Preferred Stock to redemption value (*)
|
|
|
(748
|
)
|
|
|
(532
|
)
|
Dividend on Redeemable Convertible Series A Preferred Stock (**)
|
|
|
(65
|
)
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders for basic net (loss) income per share
|
|
$
|
6,894
|
|
|
$
|
(3,786
|
)
|
Revaluation of liability related to warrants to purchase common stock
|
|
|
-
|
|
|
|
(150
|
)
|
Accretion of Redeemable Convertible Series A Preferred Stock to redemption value (*)
|
|
|
748
|
|
|
|
-
|
|
Dividend on Redeemable Convertible Series A Preferred Stock (**)
|
|
|
65
|
|
|
|
-
|
|
Revaluation of bifurcated embedded derivative
|
|
|
(8,217
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders for diluted net loss per share
|
|
$
|
(510
|
)
|
|
$
|
(3,936
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Shares of common stock used in computing basic net (loss) income per share
|
|
|
194,980,860
|
|
|
|
147,758,908
|
|
Incremental shares from assumed exercise of warrants to purchase common stock
|
|
|
-
|
|
|
|
860,472
|
|
Incremental shares from assumed conversion of bifurcated embedded derivative
|
|
|
7,973,885
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock used in computing diluted net loss (income) per share
|
|
|
202,954,745
|
|
|
|
148,619,380
|
|
|
|
|
|
|
|
|
|
|
Net loss (income) per share of common stock from continuing operations, basic
|
|
$
|
0.04
|
|
|
$
|
(0.03
|
)
|
Net loss (income) per share of common stock from continuing operations, diluted
|
|
$
|
0.00
|
|
|
$
|
(0.03
|
)
|
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2
|
-
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
Unaudited
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
6,707
|
|
|
$
|
(4,186
|
)
|
Accretion of Redeemable Convertible Series A Preferred Stock to redemption value (*)
|
|
|
(1,737
|
)
|
|
|
(532
|
)
|
Dividend on Redeemable Convertible Series A Preferred Stock (**)
|
|
|
(130
|
)
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
Net loss (income) attributable to common stockholders for basic net loss (income) per share
|
|
$
|
4,840
|
|
|
$
|
(4,763
|
)
|
Revaluation of liability related to warrants to purchase common stock
|
|
|
-
|
|
|
|
(150
|
)
|
Accretion of Redeemable Convertible Series A Preferred Stock to redemption value (*)
|
|
|
1,737
|
|
|
|
-
|
|
Dividend on Redeemable Convertible Series A Preferred Stock (**)
|
|
|
130
|
|
|
|
-
|
|
Revaluation of bifurcated embedded derivative
|
|
|
(6,927
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders for diluted net loss per share
|
|
$
|
(220
|
)
|
|
$
|
(4,913
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Shares of common stock used in computing basic net (loss) income per share
|
|
|
178,444,380
|
|
|
|
147,758,908
|
|
Incremental shares from assumed exercise of warrants to purchase common stock
|
|
|
-
|
|
|
|
1,410,562
|
|
Incremental shares from assumed conversion of bifurcated embedded derivative
|
|
|
8,878,974
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock used in computing diluted net (loss) income per share
|
|
|
187,323,354
|
|
|
|
149,619,470
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share of common stock from continuing operations, basic
|
|
$
|
0.03
|
|
|
$
|
(0.03
|
)
|
Net (loss) income per share of common stock from continuing operations, diluted
|
|
$
|
0.00
|
|
|
$
|
(0.03
|
)
|
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2
|
-
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
(*)
|
As
discussed in Note 4, beginning January 31, 2019, and continuing every thirtieth day thereafter, the Company is required to
offer to redeem 1/12 of the Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock shall be redeemed
for an amount equal to 110% of the stated value ($10) of such Series A Convertible Preferred Stock plus any unpaid accrued
dividend. The Series A Convertible Preferred Stock may be redeemed in cash, or in the sole discretion of the Company, in Common
Stocks, so long as the Company is in compliance with all Equity Conditions.
|
|
|
|
|
(**)
|
The
net loss used for the computation of basic and diluted net loss per share for the three and six months ended June 30, 2019,
includes the preferred dividend requirement of 5% per share per annum for the Series A Convertible Preferred Stock, which
shall be due and payable in cash or in Common Stock of the Company in the sole discretion of the Company, as defined in the
certificate of designation (see also Note 4B).
|
For
the three and six months ended June 30, 2019, diluted loss per share excludes the impact of stock options, stock warrants and
Series A Convertible Preferred Stock totaling 47,352,136 and 47,420,535 shares, respectively, as the effect of their inclusion
would be anti-dilutive. For the three and six months ended June 30, 2018, diluted loss per share excludes the impact of stock
options, certain stock warrants, Series A Convertible Preferred Stock and bifurcated embedded derivative related to Series
A Convertible Preferred Stock totaling 75,700,870 as the effect of their inclusion would be anti-dilutive.
Recently
Adopted Accounting Pronouncements
|
A.
|
On
January 1, 2019, the Company adopted Accounting Standards Update No. 2016-02, Leases
(Topic 842) (ASU 2016-02), as amended, which supersedes the lease accounting guidance
under Topic 840, and generally requires lessees to recognize operating and financing
lease liabilities and corresponding Right-of-Use (ROU) assets on the balance sheet and
to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash
flows arising from leasing arrangements. The Company adopted the new guidance using the
modified retrospective transition approach by applying the new standard to leases existing
at the date of initial application and not restating comparative periods. The most significant
impact was the recognition of ROU assets and lease liabilities for operating leases,
while the Company’s accounting for finance leases remained substantially unchanged
(as of the adoption date the Company is not involved in finance leases as lessee or as
lessor).
|
The
Company elected the package of practical expedients permitted under the transition guidance, which allowed the Company to carryforward
its historical lease classification, its assessment on whether a contract was or contains a lease, and its initial direct costs
for any leases that existed prior to January 1, 2019. The Company also elected to keep leases with an initial term of 12 months
or less off the balance sheet and recognize the associated lease payments in the consolidated statements of comprehensive loss
on a straight-line basis over the lease term.
Upon
adoption, the Company recognized total ROU assets of $67, with corresponding liabilities of $67 on the condensed consolidated
balance sheets. The adoption did not impact our beginning retained earnings, or our prior year condensed consolidated statements
of comprehensive loss and condensed consolidated statements of cash flows.
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2
|
-
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
Under
Topic 842, the Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement
date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only
payments that are fixed and determinable at the time of commencement. As most of the Company’s leases do not provide an
implicit rate, the Company use its incremental borrowing rate based on the information available at commencement date in determining
the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on the Company’s
understanding of what its credit rating would be. The Company’s lease terms may include options to extend or terminate the
lease when it is reasonably certain that we will exercise such options.
Operating
leases are included in operating lease right-of-use assets, operating lease liabilities, current and operating lease liabilities,
non-current on the condensed consolidated balance sheets.
The
components of lease costs, lease term and discount rate are as follows:
|
|
Six Months
Ended
|
|
|
|
June 30, 2019
|
|
|
|
|
(unaudited)
|
|
Operating lease cost:
|
|
|
|
|
Vehicles
|
|
|
14
|
|
|
|
|
14
|
|
Remaining Lease Term
|
|
|
|
|
vehicles
|
|
|
1.5-2.5 years
|
|
|
|
|
|
|
Weighted Average Discount Rate
|
|
|
|
|
vehicles
|
|
|
5
|
%
|
The
following is a schedule, by years, of maturities of operating lease liabilities as of June 30, 2019:
Period:
|
|
|
|
The remainder of 2019
|
|
|
14
|
|
2020
|
|
|
28
|
|
2021
|
|
|
17
|
|
Total operating lease payments
|
|
|
59
|
|
Less: imputed interest
|
|
|
6
|
|
Present value of lease liabilities
|
|
|
53
|
|
|
B.
|
In
June 2018, the FASB issued Accounting Standard Update 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to
Non-employee Share-Based Payment Accounting (ASU 2018-07). ASU 2018-07 aligns the measurement and classification guidance
for share-based payments to nonemployees with the guidance for share-based payments to employees, with certain exceptions.
|
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2
|
-
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
Consistent
with the accounting requirement for employee share-based payment awards, awards within the scope of Topic 718 will be measured
at grant-date fair value of the equity instruments that an entity is obligated to issue when the good has been delivered or the
service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied.
Equity-classified nonemployee share-based payment awards will be measured at the grant date.
With
respect to awards with performance conditions ASU 2018-07 concludes that, consistent with the accounting for employee share-based
payment awards, an entity will consider the probability of satisfying performance conditions when nonemployee share-based payment
awards contain such conditions.
ASU
2018-07 also requires that the classification of equity classified nonemployee share-based payment awards will continue to be
subject to the requirements of Topic 718 unless the award was modified after the good has been delivered, the service has been
rendered, any other conditions necessary to earn the right to benefit from the instruments have been satisfied, and the nonemployee
is no longer providing goods or services. This eliminates the requirement to reassess classification of such awards upon vesting.
In
addition, ASU 2018-07 includes certain Non-public Entity-Specific Amendments
ASU
2018-07 is effective for Public entities in annual periods beginning after December 15, 2018, and interim periods within those
years (first quarter of 2019 for the company). Early adoption is permitted, including in an interim period, but not before an
entity adopts the new revenue guidance (which was adopted by the Company in its interim financial statements for 2018).
An
entity should only remeasure liability-classified awards that have not been settled by the date of adoption and equity-classified
awards for which a measurement date has not been established through a cumulative-effect adjustment to retained earnings as of
the beginning of the fiscal year of adoption. Upon transition, the entity is required to measure these nonemployee awards at fair
value as of the adoption date.
The
adoption of ASU 2018-07 did not have a significant impact on its consolidated financial statements.
NOTE
3:
|
|
FAIR
VALUE MEASUREMENTS
|
ASC
820, “Fair Value Measurements and Disclosures” (“ASC 820”), defines fair value as the price that would
be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value,
the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market
participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance.
ASC
820 also establishes the following fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value
hierarchy is based on the lowest level of input that is significant to the fair value measurement.
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
3:
|
|
FAIR
VALUE MEASUREMENTS (Cont.)
|
|
Level
1 -
|
Quoted
prices in active markets for identical assets or liabilities;
|
|
|
|
|
Level
2 -
|
Inputs
other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar
assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other
inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets
or liabilities; or
|
|
|
|
|
Level
3 -
|
Unobservable
inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
The
Warrants and bifurcated embedded derivative related to Series A convertible Preferred Stock (see also Note 4C) have been classified
at Level 3.
In
estimating the fair value of the Warrants as of June 30, 2019 and December 31, 2018, the Company used the following assumptions:
12,500,000
Purchaser Warrants:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Risk-free interest rate (1)
|
|
|
1.72
|
%
|
|
|
2.49
|
%
|
Expected volatility (2)
|
|
|
229.6
|
%
|
|
|
214.5
|
%
|
Expected life (in years) (3)
|
|
|
3.83
|
|
|
|
4.33
|
|
Expected dividend yield (4)
|
|
|
0
|
%
|
|
|
0
|
%
|
Fair value per Warrant
|
|
$
|
0.015
|
|
|
$
|
0.1
|
|
2,500,000
Newbridge Warrants:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Risk-free interest rate (1)
|
|
|
1.78
|
%
|
|
|
2.47
|
%
|
Expected volatility (2)
|
|
|
108.8
|
%
|
|
|
219.9
|
%
|
Expected life (in years) (3)
|
|
|
1.83
|
|
|
|
2.33
|
|
Expected dividend yield (4)
|
|
|
0
|
%
|
|
|
0
|
%
|
Fair value per Warrant
|
|
$
|
0.001
|
|
|
$
|
0.09
|
|
|
1
|
Risk-free
interest rate - based on yield rates of non-index linked U.S. Federal Reserve treasury bonds.
|
|
|
|
|
2
|
Expected
volatility - was calculated based on actual historical stock price movements of the Company over a term that is equivalent
to the expected term of the warrants.
|
|
|
|
|
3
|
Expected
life - the expected life was based on the expiration date of the warrants.
|
|
|
|
|
4
|
Expected
dividend yield - was based on the fact that the Company has not paid dividends to its common stockholders in the past and
does not expect to pay dividends to its common stockholders in the future.
|
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
3:
|
|
FAIR
VALUE MEASUREMENTS (Cont.)
|
The
changes in Level 3 liabilities associated with the April 2018 PIPE warrants are measured at fair value on a recurring basis. The
following tabular presentation reflects the components of the liability associated with such warrants as of June 30, 2019:
|
|
Fair value of liability
related to
warrants
|
|
|
|
|
|
Balance at December 31, 2018
|
|
$
|
1,475
|
|
Revaluation of warrants to purchase Common Stock
|
|
|
(1,285
|
)
|
|
|
|
|
|
Balance at June 30, 2019 (unaudited)
|
|
$
|
190
|
|
In
estimating the fair value of the bifurcated embedded derivative related to Series A Convertible Preferred Stock, the Company used
the following assumptions:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Risk-free interest rate (1)
|
|
|
2.09
|
%
|
|
|
2.62
|
%
|
Expected volatility (2)
|
|
|
119.8
|
%
|
|
|
82.65
|
%
|
Expected life (in years) (3)
|
|
|
0.5
|
|
|
|
1.01
|
|
|
1.
|
Risk-free
interest rate - based on yield rates of non-index linked U.S. Federal Reserve treasury bonds.
|
|
|
|
|
2.
|
Expected
volatility - was calculated based on actual historical stock price movements of the Company over a term that is equivalent
to the expected term of the contingent redemption feature.
|
|
|
|
|
3.
|
Expected
life - the expected life was based on the expiration date of the contingent redemption feature.
|
The
changes in Level 3 liabilities associated with the April 2018 PIPE bifurcated embedded derivatives are measured at fair value
on a recurring basis. The following tabular presentation reflects the components of such liability associated with such bifurcated
embedded derivatives for the six months ended June 30, 2019:
|
|
Fair value of bifurcated
embedded
derivative
|
|
|
|
|
|
Balance at December 31, 2018
|
|
$
|
8,129
|
|
Revaluation of bifurcated embedded derivative related to Series A Convertible Preferred Stock
|
|
|
(6,927
|
)
|
Partial conversion of Preferred Stock into shares of common stock
|
|
|
(914
|
)
|
|
|
|
|
|
Balance at June 30, 2019 (unaudited)
|
|
$
|
288
|
|
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
3:
|
|
FAIR
VALUE MEASUREMENTS (Cont.)
|
The
Company’s management is measuring the fair value of the 2018 Private Placement warrants issued to the Purchaser and Newbridge
Securities Corporation, through LifeTech Capital, the placement agent for the April 2018 PIPE (“Newbridge”) and the
bifurcated embedded derivative related to Series A Convertible Preferred Stock by using the services of external independent appraiser.
During
the period commencing April 30, 2018 and ended June 30, 2019, no warrants have been exercised. As of June 30, 2019, there were
15,000,000 outstanding unexercised Warrants (including Warrants issued to both the Purchaser and Newbridge) related to the April
2018 PIPE.
NOTE
4
|
-
|
SERIES
A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
|
The
Company’s common stock confer upon their holders the following rights:
|
●
|
The
right to participate and vote in the Company’s stockholder meetings, whether annual or special. Each share will entitle
its holder, when attending and participating in the voting in person or via agent or letter, to one vote;
|
|
|
|
|
●
|
The
right to a share in the distribution of dividends, whether in cash or in the form of bonus shares, the distribution of assets
or any other distribution pro rata to the par value of the shares held by them; and
|
|
|
|
|
●
|
The
right to a share in the distribution of the Company’s excess assets upon liquidation pro rata to the par value of the
shares held by them.
|
|
B.
|
Series
A Convertible Preferred Stock
|
The
terms of the Series A Convertible Preferred Stock are governed by a Certificate of Designation (the “Series A Certificate
of Designation”) filed by the Company with the Delaware Secretary of State on April 30, 2018. Pursuant to the Series A Certificate
of Designation, the Company designated 500 shares of the Company’s preferred stock as “Series A Convertible Preferred
Stock”. As more fully described below, on April 30, 2018, the Company issued a total of 500 shares of Series A Convertible
Preferred Stock in connection with the Share Purchase Agreement. Following is a summary of the material terms of the Series A
Convertible Preferred Stock:
|
●
|
Dividends.
Holders of shares of Series A Convertible Preferred Stock (the “Series A Convertible Preferred Shares”) are entitled
to receive dividends on each share of the Series A Convertible Preferred Stock, payable quarterly on March 31, June 30, September
30 and December 31, commencing June 30, 2018 (which was prorated) in an amount equal to 5% per annum of the stated value ($10
per share of the Series A Convertible Preferred Stock) and which shall be cumulative. Such dividends are to be paid in cash
or freely tradeable shares of the Company’s common stock at its sole discretion, subject to certain conditions. If in
the event the Company elects to pay a dividend in shares of its common stock to the holders of the Series A Convertible Preferred
Shares, the number of shares of its common stock will be determined in accordance with the terms of the Series A Certificate
of Designation. The Company may only elect to pay cash dividends to the Series A Convertible Preferred Shares to the extent
there are amounts available for the payment of dividends in accordance with applicable Delaware law.
|
|
|
|
|
|
During
the period commencing April 30, 2018 through December 31, 2018, the Company recorded $179 as dividend on Series A Convertible
Preferred Stock, of which $114 was paid through December 31, 2018 by issuance of 801,230 shares of common stock. The remaining
$65 which represent the dividend accrued as of December 31, 2018, was paid on January 3, 2019 through issuance of 832,368
shares of common stock.
|
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
4
|
-
|
SERIES
A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT (Cont.)
|
|
|
During
the period commencing January 1, 2019 through June 30, 2019, the Company recorded $132 as dividend on Series A Convertible
Preferred Stock, of which $67 was paid through June 30, 2019 by issuance of 3,563,950 shares of common stock. The remaining
$65 which represent the dividend accrued as of June 30, 2019, was partially paid by the Company by issuance of 12,512,000
shares of common stock to the Purchaser during July 2019 (see Note 6A).
|
|
|
|
|
|
As
the obligation for accrued dividend will be settled only through the issuance of the Company’s common stock and as of
June 30, 2019 the number of shares to be issued to the Purchaser is considered as fixed and determinable, the accrued dividend
of $67 was recorded as additional paid-in capital versus deduction of accumulated deficit.
|
|
|
|
|
●
|
Liquidation.
In the event of a Liquidation, the holders of Series A Convertible Preferred Stock (“Holders”) shall be entitled
to receive in cash out of the assets of the Company, whether from capital or from earnings available for distribution to its
stockholders (the “Liquidation Funds”), before any amount shall be paid to the holders of any other shares of
capital stock of the Company (“Junior Stock”), but pari passu with any Parity Stock (preferred shares that are
pari passu rank to the Series A convertible Preferred Stock in respect of the preferences as to dividends, redemption rights,
distributions and payments upon the liquidation, dissolution and winding up of the Company then outstanding), an amount per
Series A Convertible Preferred Stock equal to the greater of (A) the Liquidation Preference thereof on the date of such payment
and (B) the Bankruptcy Redemption Amount (as such term is defined in the Series A Certificate of Designation), provided that
if the Liquidation Funds are insufficient to pay the full amount due to the Holders and holders of shares of Parity Stock,
then each Holder and each holder of Parity Stock shall receive a percentage of the Liquidation Funds equal to the full amount
of Liquidation Funds payable to such Holder and such holder of Parity Stock as a liquidation preference, in accordance with
their respective certificate of designations (or equivalent), as a percentage of the full amount of Liquidation Funds payable
to all holders of Series A Convertible Preferred Stock and all holders of shares of Parity Stock. As of June 30, 2019, the
aggregate Liquidation Preference amounted to $5,172 (unaudited).
|
|
●
|
Voting
Rights. Holders of the Series A Convertible Preferred Stock are entitled to vote on all matters requiring a vote of the
shareholder of the Company as a single stock, and each holder of the Series A Convertible Preferred Stock is entitled to vote
the number of shares of common stock into which such holders Series A Convertible Preferred Stock would be convertible into
as of the record date.
|
|
|
|
|
●
|
Conversion.
The 500 issued shares of the Company’s Series A Convertible Preferred Stock were initially convertible into 25,000,000
shares of the Company’s common stock at a conversion price of $0.20, subject to adjustment pursuant to the anti-dilution
provisions of the Series A Convertible Preferred Stock as provided in the Series A Certificate of Designation. On November
27, 2018, the conversion price was adjusted as result of occurrence of the Trigger Event (see also Note 4C). The Series A
Convertible Preferred Stock have a beneficial ownership limitation such that none of the holders of the Series A Convertible
Preferred Stock have the right to convert the Series A Convertible Preferred Stock to the extent that after giving effect
to such conversion, the holder (together with its affiliates and any other persons acting as a group together with the holder
or any of the holder’s affiliates) would beneficially own in excess of 4.99% (the “Maximum Percentage”)
of the shares of the Company’s common stock outstanding immediately after giving effect to such conversion. However,
by written notice to the Company, a holder of the Series A Convertible Preferred Stock may waive the Maximum Percentage provision,
when such notice will be effective 61 calendar days after the notice date.
|
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
4
|
-
|
SERIES
A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT (Cont.)
|
|
|
Due
to the Trigger Event as discussed below, the conversion price was adjusted to an amount equal to (A) 75% of the quotient determined
by dividing (x) the sum of the 3 lowest Closing Prices of the Common Stock during the period beginning 10 Trading Days prior
to such Triggering Event Conversion Date and ending 3 Trading Days after the shares of Common Stock are received into Holder’s
brokerage account and fully cleared for trading, by (y) 3, minus (B) $0.01.
|
|
|
|
|
|
From
January 1, 2019 through June 30, 2019, the Purchaser converted an aggregate of 59 shares of Preferred Stock into an aggregate
of 61,662,264 shares of the Common Stock at the conversion prices in effect on the respective conversion dates. Consequently,
the Company reclassified an amount of $914 out of the bifurcated embedded derivative related to optional conversion feature
upon triggering event, and amount of $335 out of the mezzanine, into the equity.
|
|
●
|
Redemption.
The terms of the Series A Certificate of Designation contains both mandatory and conditional redemption provisions as follows:
|
|
●
|
Certain
mandatory redemption provisions provide that, beginning January 30, 2019 and continuing for every 30-days period thereafter
(each a “Mandatory Redemption Date”), the Company is required to offer to redeem 1/12th of the outstanding
Series A Convertible Preferred Stock for an amount equal to 110% of the stated value ($10) of such shares of Series A Convertible
Preferred Stock plus any accrued but unpaid dividends to the Mandatory Redemption Date (the “Mandatory Redemption Amount”),
and may be redeemed in cash or, at the Company’s sole discretion in freely tradeable shares of the Company’s common
stock if the Company is in full compliance with all of the Equity Conditions as defined in the Series A Certificate of Designation.
|
|
|
|
|
●
|
Upon
the occurrence of an offering of debt or equity securities of the Company or any of its subsidiaries resulting gross cash
proceeds of not less than $10,000, the Company is required to make an offer to the holders of shares of the Series A Convertible
Preferred Stock to redeem 50% of the outstanding Series A Convertible Preferred Stock at either (i) 115% of the stated value
of each Preferred Share ($10) plus any unpaid accrued dividends if redeemed on or prior to October 30, 2018 or (ii) 120% of
the stated value of each Preferred Share ($10) plus any unpaid accrued dividends if redeemed after October 30, 2018 (the “Redemption
Premium”).
|
|
|
|
|
●
|
Upon
sale of assets (other than products to be sold in the normal course of business) of the Company and its subsidiaries in an
amount of proceeds in excess of $500, the Company is required to offer to redeem to 100% of the outstanding Series A Convertible
Preferred Stock for the Redemption Premium, and may be redeemed in cash or, at the Company’s sole discretion in freely
tradeable shares of the Company’s common stock if the Company is in full compliance with all of the equity conditions
as defined in the Series A Certificate of Designation.
|
|
|
|
|
●
|
The
Company may also be required, at the option of holders of the Series A Convertible Preferred Stock to redeem any outstanding
shares of Series A Convertible Preferred Stock upon a Change of Control or Bankruptcy Event. Each Preferred Stock shall be
redeemed for an amount equal to Redemption Premium, and may be redeemed in cash or, at the Company’s sole discretion
in freely tradeable shares of the Company’s common stock if the Company is in full compliance with all of the equity
conditions as defined in the Series A Certificate of Designation.
|
|
|
|
|
●
|
The
Company may, at any time upon at least 15 trading days prior written notice to each holder, redeem all or portion of the outstanding
Preferred Stock in cash in an amount equal to Redemption Premium.
|
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
4
|
-
|
SERIES
A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT (Cont.)
|
As
of June 30, 2019, the Company is not in compliance with the Equity Conditions and therefore beginning January 31, 2019 for every
30-days period thereafter, at the request of the purchaser, we might be required to redeem in cash, 1/12th of the outstanding
shares of Series A Convertible Preferred Stock for an amount equal to 110% of the stated value ($10) of such shares of Series
A Convertible Preferred Stock plus any accrued but unpaid dividends up to the Mandatory Redemption Date. As of the date of issuance
of these financial statements, the Purchaser has not requested redemption in cash of any shares of Series A Convertible Preferred
Stock.
|
C.
|
Securities
Purchase Agreement
|
On
April 30, 2018 (the “Initial Date”), the Company consummated a private placement transaction (the “April 2018
PIPE”) by entering into a Securities Purchase Agreement (the “Agreement”) with a non-US-based institutional
investor (the “Purchaser”), pursuant to which, the Company sold and the Purchaser bought, (i) 500 shares of Preferred
Stock designated as Series A Convertible Preferred Stock (the “Preferred Stock”), which were initially convertible
into 25,000,000 shares of common stock at a conversion price of $0.20 per share, (the conversion price has been adjusted due to
the Trigger Event described below), subject to adjustment pursuant to the anti-dilution provisions of the Preferred Shares, and
(ii) Warrants (the “Warrants”) representing the right to initially acquire 12,500,000 shares of common stock over
a period of five years from the Initial Date at an exercise price of $0.22 per share, which is subject to certain adjustments
including anti-dilution provisions (since the Initial Date through June 30, 2019, no adjustments have been made to the exercise
price), for an aggregate purchase price of $5,000.
The
Company engaged Newbridge as exclusive placement agent for the aforesaid Agreement, pursuant to which the Company was required
to pay a cash fee to Newbridge and issued to them warrants to purchase 2,500,000 shares of common stock (or 10% of the aggregate
number of fully diluted shares of common stock that have been purchased by an Purchaser) over a period of three years from the
Initial Date at an exercise price of $0.20 per share, which is subject to certain adjustments including anti-dilution provisions
(since the Initial Date through June 30, 2019, no adjustments have been made to the exercise price). In addition, the Company
is also obligated to pay Newbridge a warrants solicitation fee equal to 4% of the gross proceeds received by the Company upon
cash exercise of any Warrants purchased by the Purchaser in connection with the Agreement (since the Initial Date through June
30, 2019, no solicitation fee was earned).
On
November 27, 2018, the Tel Aviv regional Prosecutor’s Service filed criminal charges against Dr. Yehuda Baruch, the Chief
Medical and Regulatory Affairs Officer of the Company, alleging that Dr. Baruch conducted an improper sexual relationship with
a psychiatric patient. Dr. Baruch denies all allegations. The Company together with its legal counsels believe that such criminal
charges are not directed at, and do not concern, the Company, any actions of Dr. Baruch in the Company or any other of the Company’s
directors or officers. The Company is evaluating its proposed response, if any, considering the allegations brought against Dr.
Baruch.
The
aforesaid charges brought against Dr. Baruch are considered a “trigger event” (the “Trigger Event”)
under the Series A Certificate of Designation. Subject to certain beneficial ownership limitations of the Preferred Stock, at
any time during the period commencing on the date of the occurrence of a Trigger Event and ending on the date of the cure of
such Trigger Event, the Purchaser of the Preferred Stock may, at its option, by delivery of notice to the Company, specify a
future date upon which such holder shall require the Company to convert all, or any number of, Preferred Stock into shares of
the Company’s common stock at an adjusted conversion ratio as specified in the Series A Certificate of
Designation.
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
4
|
-
|
SERIES
A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT (Cont.)
|
Due
to the aforesaid Trigger Event, the conversion price was adjusted to an amount equal to (A) 75% of the quotient determined by
dividing (x) the sum of the 3 lowest Closing Prices of the Common Stock during the period beginning 10 Trading Days prior to such
Triggering Event Conversion Date and ending 3 Trading Days after the shares of Common Stock are received into Holder’s brokerage
account and fully cleared for trading, by (y) 3, minus (B) $0.01.
The
Warrants are considered a freestanding instrument, as the Company believes they are legally detachable and separately exercisable.
As
defined in the Agreement, upon certain changes in control events, the Purchaser may elect to receive cash equal to the Black-Scholes
value of the outstanding Warrants. Consequently, the Warrants were accounted for and recognized as a non-current financial liability
on the consolidated balance sheet under ASC 815-40-25 and were measured at fair value at the initial date and subsequently the
Warrants are marked to market in each reporting period until they are exercised or expired, as earlier, with changes in the fair
value of the Warrants charged into the statement of comprehensive loss. Thus, the Warrants amounting to $190 and $1,475 were measured
at fair value on June 30, 2019 and December 31, 2018, respectively. For the three and six months ended June 30, 2019, the Company
recorded income in total amount of $210 and $1,285, respectively, due to revaluation of Warrants to purchase shares of Common
Stock in the statement of operations and comprehensive loss as separate line (see also Note 3).
In
addition, at the Initial Date, the Company identified several embedded features which require separate accounting as derivatives
under ASC 815-15. Nevertheless, except specific embedded feature relating to contingent redemption feature in case of other than
upon bankruptcy triggering event, the Company determined that all remaining embedded features should not bifurcated from the host
contract or the probability of occurrence of such embedded features is low and therefore the fair value of such embedded features
was determined to be immaterial upon initial recognition. In addition, the Company determined that the Trigger Event is considered
as optional conversion feature upon triggering event that should be estimated at fair value. Thus, the bifurcated embedded derivatives
amounting to $288 and $8,129 were measured at fair value on June 30, 2019 and December 31, 2018, respectively. The change in the
fair value is resulted from revaluation of the bifurcated embedded derivatives in total amount of $8,217 and $6,927 which was
recognized under other income in the statement of comprehensive loss in a separate line for the three and six months ended June
30, 2019, respectively. In addition, upon a partial conversion of 59 shares of Series A Convertible Preferred Stock into 61,662,264
shares of common stock, a relative portion of $914 out of the bifurcated embedded derivative related to optional conversion feature
upon triggering event, and an amount of $335 out of the mezzanine were reclassified to equity.
Under
ASC 480-10-S99 “Distinguishing Liabilities from Equity”, since the Series A Convertible Preferred Stock have conditional
redemption provisions which are outside of the control of the Company and also contain a deemed liquidation preference, the Preferred
Stock were classified as mezzanine financing at the initial measurement date at the residual amount, which is the difference between
the total proceeds received, the fair value of the Warrants, the fair value of the embedded derivative related to the contingent
redemption of Series A Convertible Preferred Stock and after consideration with the amount related to the BCF. Subsequently, the
Company accretes changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable
that the instrument will become redeemable, if later) to the earliest redemption date of the instrument using an appropriate methodology.
Changes in the redemption value are considered as changes in accounting estimates.
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
4
|
-
|
SERIES
A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT (Cont.)
|
The
below table outlines the change in the mezzanine account during the six months ended June 30, 2019
|
|
Six months ended
June 30, 2019
|
|
|
|
Unaudited
|
|
|
|
|
|
Balance at December 31, 2018
|
|
$
|
2,226
|
|
Accretion of Preferred Stock to redemption value
|
|
|
1,737
|
|
Partial conversion of Preferred Stock into shares of common stock
|
|
|
(335
|
)
|
Balance at June 30, 2019
|
|
$
|
3,628
|
|
|
D.
|
Stock-based
compensation
|
|
1.
|
In
2019, the Company approved the Amended and Restated 2016 Employee Incentive Plan (the “2016 Plan”) which provides
for the issuance of common stock, stock options and other stock-based awards to employees, officers, directors, consultants,
and advisors. The number of shares reserved for issuance under the 2016 Plan is 36,000,000 shares of common stock.
|
|
|
|
|
2.
|
Stock
options grants:
|
|
A.
|
On
January 14, 2019, the Company granted stock options exercisable into 500,000 shares to several employees under the 2016 Plan
at an exercise price of $0.22 per share. The stock options become vested over a three-year period from the date of grant.
The stock options shall vest 1/3 one year from the grant date and the remaining 2/3 on a quarterly basis (8.33% per quarter).
The Company used the Black-Scholes-Merton pricing model to estimate the fair value of the stock options by taking into account
assumptions as follows: expected dividend yield of 0%; risk-free interest rate of 2.51%; expected volatility of 252% and expected
term of 4.46 years. The fair value of the stock options at the grant date was $64.
|
|
|
|
|
B.
|
On
January 14, 2019, the Company granted stock options exercisable into 1,500,000 shares to its Chief Scientific Officer under
the 2016 Plan at an exercise price of $0.05 per share. 33% of the stock options vested on February 18, 2019 and the remaining
1,000,000 stock options will vest over a 2-year period commencing on the first quarter after the first vesting event, in equal
quarterly installments of 125,000 stock options per quarter. The Company used the Black-Scholes-Merton pricing model to estimate
the fair value of the stock options by taking into account assumptions as follows: expected dividend yield of 0%; risk-free
interest rate of 2.51%; expected volatility of 286% and expected term of 3.35 years. The fair value of the stock options at
the grant date was $194.
|
|
|
|
|
C.
|
On
February 4, 2019, the Company granted stock options exercisable into 1,500,000 shares to its Chief Financial Officer, under
the 2016 Plan at an exercise price of $0.22 per share. The stock options shall vest over a 3-year period from the vesting
start date, such that approximately 166,656 stock options shall vest upon the 1-year anniversary of the start date and the
remaining stock options shall vest in 8 equal quarterly instalments thereafter. The Company used the Black-Scholes-Merton
pricing model to estimate the fair value of the stock options by taking into account assumptions as follows: expected dividend
yield of 0%; risk-free interest rate of 2.51%; expected volatility of 252% and expected term of 4.49 years. The fair value
of the stock options at the grant date was $151.
|
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
4
|
-
|
SERIES
A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT (Cont.)
|
|
3.
|
The
following tables present a summary of the status of the grants to employees, officers and directors as of June 30, 2019:
|
|
|
Shares
|
|
|
Weighted
average
exercise price
|
|
|
Weighted
average
remaining
contractual
term (years)
|
|
|
Aggregate
intrinsic
value (*)
|
|
Options outstanding at December 31, 2018
|
|
|
27,250,000
|
|
|
$
|
0.05
|
|
|
|
8.0
|
|
|
$
|
1,453
|
|
Granted
|
|
|
3,500,000
|
|
|
$
|
0.15
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(1,750,000
|
)
|
|
$
|
0.05
|
|
|
|
-
|
|
|
|
-
|
|
Options outstanding at June 30, 2019
|
|
|
29,000,000
|
|
|
$
|
0.06
|
|
|
|
7.8
|
|
|
$
|
-
|
|
Options exercisable at June 30, 2019
|
|
|
26,000,000
|
|
|
$
|
0.05
|
|
|
|
7.6
|
|
|
$
|
-
|
|
|
(*)
|
The
aggregate intrinsic value represents the total intrinsic value (the difference between the fair value of the Company’s
Ordinary Shares on the last traded day of second quarter of 2019 and the exercise price, multiplied by the number of in-the-money
options) that would have been received by the option holders had all option holders exercised their options on June 30, 2019.
This amount is impacted by the changes in the fair value of the Company’s shares.
|
|
4.
|
The
following table summarizes information about stock options outstanding at June 30, 2019:
|
|
|
Options Outstanding
|
|
|
|
|
|
Options Exercisable
|
|
Range of exercise prices
|
|
Shares
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
life (years)
|
|
|
Shares
|
|
|
Weighted
average
exercise
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.05
|
|
|
27,000,000
|
|
|
$
|
0.05
|
|
|
|
7.67
|
|
|
|
26,000,000
|
|
|
$
|
0.05
|
|
$0.10-$0.30
|
|
|
2,000,000
|
|
|
$
|
0.22
|
|
|
|
9.59
|
|
|
|
-
|
|
|
$
|
-
|
|
Total Shares
|
|
|
29,000,000
|
|
|
$
|
0.06
|
|
|
|
7.8
|
|
|
|
26,000,000
|
|
|
$
|
0.05
|
|
|
5.
|
As
of June 30, 2019, there was $154 of total unrecognized compensation cost related to non-vested stock options granted under
the 2016 Plan. This cost is expected to be recognized over a weighted-average period of 0.92 years.
|
|
|
|
|
6.
|
The
total equity-based compensation expense related to all the Company’s equity-based awards issued to employees, recognized
for the three and six months ended June 30, 2019 amounted to $69 and $109, respectively. The expense for the three and six
months ended June 30, 2019 is net of credit from reversal of previous expense on forfeited option. These expenses have been
recorded as general and administrative expenses as part of the statement of comprehensive loss.
|
|
|
|
|
7.
|
On
December 12, 2017, the Company entered into a new agreement with a service provider, Lyons Capital LLC, pursuant to which
the service provider rendered services in February 2018 relating to the 2018 Wall Street Conference at the Deerfield Beach
Florida Hilton and sponsorship in the conference for consideration of 150,000 fully vested restricted shares of Common Stock
of the Company. The grant was accounted for under ASC 505-50 “share-based payment arrangement with nonemployees”,
when the fair value of the grant amounting to $72 was recorded as part of general and administrative expenses for the year
ended December 31, 2018. As of June 30, 2019, the aforesaid shares have not been issued by the Company.
|
|
E.
|
Common
stock subscriptions receivable
|
|
|
|
|
|
In
January 2018, the Company received a cash payment of $105 for common stock subscriptions receivable from a former employee.
|
|
|
|
|
F.
|
Amortization
of services receivable
|
|
|
|
|
|
Prior
to January 1, 2019, the Company had granted stock awards to non-employees that are being recognized ratably over the requisite
service periods. The Company recognized amortization of services receivable of $36 and $71 for the three and six months ended
June 30, 2019, respectively.
|
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
5
|
-
|
COMMITMENTS
AND CONTINGENCIES
|
|
1.
|
On
October 11, 2015, OWC entered into a memorandum of understanding with Medmar LLC (“Medmar”) for the purpose of
granting an exclusive, non-transferable, royalty-bearing license, to manufacture, produce, publicize, promote and market the
licensed products described therein in the State of Hawaii and the State of Pennsylvania, pursuant to which Medmar has paid
$50 to OWC. On February 8, 2016, OWC and Medmar II, an affiliate of Medmar, executed a right of first refusal agreement providing
Medmar certain rights in connection with the commercialization of OWC’s Cannabis-Based Medical Products in other states
in the USA, pursuant to which Medmar has paid $50 to OWC.
|
|
|
|
|
|
On
March 17, 2016, Medmar and OWC executed a consulting and License Agreement (the “License Agreement”), pursuant
to which OWC granted to Medmar an exclusive, non-transferable, royalty-bearing license, to manufacture, produce, publicize,
promote and market certain of OWC’s products (as defined in the License Agreement) in the State of Maryland, against
payment by Medmar to OWC of a royalty. As part of the License Agreement, OWC received from Medmar an advance amount of $50.
As OWC did not have any performance obligation in connection with the agreement, OWC recorded revenues in an amount of $50
during the year ended December 31, 2016.
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As
of June 30, 2019, and December 31, 2018, the Company deferred revenue in connection to the license in the State of Hawaii
and the State of Pennsylvania and the right of first refusal in the aggregate amount of $100.
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2.
|
In
August 2017, OWC engaged PharmItBe Ltd, a company specializing in pharmaceutical research and development to develop and produce
a second generation of its cannabis soluble tablet. This development was completed during the second quarter of 2018. The
production of the cannabis soluble tablet for the purpose of clinical trials was completed during the fourth quarter of 2018.
OWC recorded research and development expenses of $119 during the six months ended June 30, 2018.
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3.
|
On
November 3, 2016, OWC entered into a Joint Venture Memorandum of Understanding with Michepro Holding Ltd. (“EU Partner”),
(“JV” or “MOU”). The EU Partner and OWC have agreed as follows: (i) to establish a strategic marketing
and distribution alliance to promote the sale of OWC’s Products in the European Union; (ii) the interest of the parties
in the JV shall be held by the parties such that the EU Partner shall hold 25% of such interest and OWC shall hold the remaining
75% of such interest; (iii) OWC shall provide the JV with OWC’s Products for sale and distribution solely in the EU,
at prices to be agreed between the parties from time to time; and (iv) EU Partner shall be responsible for the day-to-day
management of the JV, at its own costs, and for this purpose shall make available to the JV its knowledge, business connection
and personnel, all in order to maximize the sales of OWC’s Products in the EU through the JV. The JV had not commenced
operations and did not have any assets or liabilities as of June 30, 2019.
|
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5
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-
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COMMITMENTS AND CONTINGENCIES (Cont.)
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4.
|
On August 6, 2015, OWC signed a Memorandum of Understanding with Emilia Cosmetics Ltd. (“Emilia”), a large Israeli private label manufacturer which operates in the field of development, production, manufacturing and packaging of health and beauty products including for treatment of human skin disease, for the development, manufacture and marketing of a cannabis-based topical ointment to treat psoriasis.
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On November 27, 2016, the Company and OWC (the “Group”) entered into a license agreement with Emilia (the “Emilia License Agreement”). During the fourth quarter of 2016, the Group completed the development process and then initiated a phase I study at Chaim Sheba Medical Center (“Sheba”) to explore the safety of the cannabis-based topical ointment on psoriasis. Prior to entering into the Emilia License Agreement, the Group and Emilia conducted a development and evaluation program (as defined in the Emilia License Agreement) for the development of a specific product comprising Emilia’s formulation with certain medical cannabis extract provided by the Group for topical treatment of psoriasis.
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Pursuant to the Emilia License Agreement, Emilia granted a limited license to the Group with respect to Emilia’s licensed intellectual property to be developed and commercialized worldwide in the topical treatment of psoriasis in humans with OWC’s Product, as defined in the Emilia License Agreement. If such trial proves successful, Emilia will grant the Group an exclusive, worldwide, transferable, royalty-bearing license, with the right to grant sublicenses, to use, sell and commercially exploit the Emilia intellectual property, in consideration for which, from and after the first commercial sales of the licensed product, the Group shall pay to Emilia a royalty at the rate of ten percent of net sales during the period beginning upon the first commercial sale and ending ten years thereafter. In the event the sale of the licensed product during the royalty term reaches the minimum sales targets set forth in the Emilia License Agreement, the royalty term will be extended for an additional five-year term.
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No sales have occurred to date and therefore there is no impact on these consolidated financial statements.
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5.
|
On December 29, 2016, OWC entered into a Research Agreement with Medical Research Infrastructure Development and Health Services Fund (the “Fund”) by Chaim Sheba Medical Center (“Sheba”). Pursuant to the Clinical Research Agreement, the Fund shall perform a Phase I, double blind, randomized, placebo-controlled, maximal dose clinical trial (the “Psoriasis Trial”) to determine the safety and tolerability of topical ointment containing MGC (“Medical Grade Cannabis” or the “Drug Trial”) in healthy volunteers, employing the services of Professor Aviv Barzilay, Director of the Department of Dermatology- Chaim Sheba Medical Center, Tel Hashomer, Israel, to lead the Trial (the “Investigator”). The Trial 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 Trials which are applicable in Israel; and (7) written instructions and prescriptions issued by OWC and governing the administration of the Drug Trial. On January 29, 2019, the Company reported positive phase I safety data from the Trial. Pursuant to the Research Agreement, OWC is obliged to pay Sheba $170 for conducting the safety Trial for the ointment, the remainder of payment, $37 was paid through the period of 6 months ended June 30, 2019. The amounts of $37 and $117 have been recorded as research and development expenses related to the Trial during the period of six months ended June 30, 2019 and 2018, respectively.
|
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
5
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-
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COMMITMENTS
AND CONTINGENCIES (Cont.)
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6.
|
On
October 22, 2014, OWC entered into a Service agreement with Sheba Academic Medical Center, a hospital in Tel-Aviv, Israel,
relating to the use of cannabis to treat Myeloma. Within the framework of this Service agreement, OWC is required to conduct
pre-clinical studies on multiple myeloma for total payment of $170. During the six months ended June 30, 2019 and 2018, the
Company has not recorded any research and development expenses related to the Service Agreement.
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7.
|
On
March 14, 2019, OWC executed a clinical trial agreement (the “Clinical Trial Agreement”) with Souraski Medical
Center, a hospital in Tel-Aviv, Israel, relating to a single dose, randomized, crossover study to compare the safety, tolerability
and pharmacokinetics (PK) of OWC’s Medical Grade Cannabis - Orally Disintegrating Tablets (MGC-ODT) versus buccal Sativex®,
in healthy adult volunteers. On April 15, 2019 the Company commenced the study. This is a crossover study in which participants
are administered with Sativex and OWC’s MGC-ODT, randomly, at least two weeks apart. The safety, tolerability and PK
profile following Sativex and MGC-ODT will be compared.
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Pursuant
to the Clinical Trial Agreement, OWC is obliged to pay Souraski $137 for conducting the study. The amounts of $137 and $0
have been recorded as research and development expenses related to the research agreement during the period of six months
ended June 30, 2019 and 2018, respectively.
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At
present, OWC uses its available working capital to fund these studies.
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1.
|
On
February 28, 2017, the Company filed an action for alleged legal malpractice against
the law firm of Sichenzia Ross Ference Kesner LLP (“Sichenzia Ross”) and
Marc J. Ross, Esq. a partner at Sichenzia Ross in New York State Supreme Court in New
York County. The Company’s claims arise out of legal services allegedly negligently
performed by Ross and Sichenzia Ross. The Company brought the action seeking recovery
of monetary damages noted above due to the defendants’ alleged failure to exercise
a professional standard of care in their representation of OWCP.
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The
action is currently pending in the Supreme Court of the State of New York, County of New York and is in the discovery phase.
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2.
|
The
Company has also sued certain individuals in the Supreme Court of the State of New York regarding defaulted loan obligations
related to 2,354,480 shares granted to them. The matter has been settled as against certain individuals, while the Company
is still pursuing its claims against one individual for an outstanding sum of approximately $15. The Company is currently
monitoring the payment of the settlement funds amounting to $121 which are included as part of Common Stock Subscriptions
Receivable.
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3.
|
On
December 6, 2018, the Company has entered into a Settlement Agreement with the “Plaintiff”, in the Tel Aviv Regional
Court of Labor, pursuant to which subject to receiving a withholding tax certificate from the Plaintiff, the Company will
issue to the Plaintiff a number of shares of the Company’s common stock at an aggregate value of $725 on the issuance
date. The price per share will be determined based on the average closing price of the share during the three business days
preceding the issuance date of the shares.
|
OWC
PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
5
|
-
|
COMMITMENTS
AND CONTINGENCIES (Cont.)
|
|
|
In
addition, the Company has provided the Plaintiff a price protection for a period of 6-months (the “Limitation Period”)
commencing the date in which the withholding tax certificate has been received by the Company, under which if the value of
the common stock issued to the Plaintiff falls below $725 at the end of the Limitation Period, in such case the Company will
issue the Plaintiff additional common stock to get the aggregate value back to $725.
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The
Company and the Plaintiff mutually agreed to dismiss all claims other than the Company’s claims against the Plaintiff
in the USA.
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On
June 19, 2019, the withholding tax certificate has been received by the Company. The Company has not yet issued any shares
to the Plaintiff due to an issue that still in progress between the parties. As the obligation will be settled only through
the issuance of the Company’s common stock and as of June 30, 2019 the number of shares to be issued to the Plaintiff
cannot be considered as fixed and determinable, a liability related to shares to be issued was presented as non-current in
total amount of $725.
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In
addition, upon providing the withholding tax certificate, the Plaintiff is entitled to receive the shares. Consequently, the
Company recorded a derivative in total amount of $4 relating to the price protection feature.
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NOTE
6
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-
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SUBSEQUENT
EVENTS
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A.
|
Dividend
distribution on Series A Convertible Preferred Stock
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Ad
discussed in Note 4B, in July 2019, the Company partially paid the dividend of $65 to the Purchaser through issuance of 12,512,000
shares of common stock.
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B.
|
Approval
from the Israeli Medical Cannabis Agency
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On
July 18, 2019, the Company received approval from the Israeli Medical Cannabis Agency to perform an efficacy study with OWC
topical ointment on psoriatic patients. Currently, the study is planned to be conducted at the Kaplan Medical Center, an academic
medical center in Israel. The study will be divided into the following two consecutive stages: (1) a pilot efficacy and dosage
study; and (2) based on the results of the first stage, a double blind, placebo-controlled study.
|
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following information should be read in conjunction with the unaudited condensed consolidated financial information and the notes
thereto included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and the notes thereto
included in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission
(“SEC”) on April 1, 2019. Our actual results could differ materially from those discussed in these forward-looking
statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in
this Quarterly Report on Form 10-Q, particularly in “Cautionary Note Regarding Forward-Looking Statements,” and discussed
in the section entitled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31,
2018 and in Item 1A. Risk Factors.
Overview
We
are an early stage 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. We are currently engaged in the research and development
and have conducted trials on the efficacy of cannabis-based medical products (the “Cannabis-Based Medical Products”)
commencing with our cannabis-based topical ointment for the treatment of psoriasis. In addition, we also are pursuing the use
of our Cannabis-Based Medical Products for the treatment of multiple myeloma, post-traumatic stress disorder (“PTSD”),
chronic pain and fibromyalgia, and have made significant advancements in the development of a cannabis soluble tablet delivery
system that could have applications for other indications. We are also capable of providing consulting and advisory services to
governmental and private entities to assist them with developing and implementing tailor-made, comprehensive medical cannabis
programs, although we have not generated any revenues from such services to date.
We
have been engaged in research and development and consulting and advisory activities through our wholly-owned Israeli subsidiary,
One World Cannabis Ltd., since July 2014. To date, we have entered into binding agreements with major hospitals and medical research
facilities in Israel for the purpose of conducting research studies and trials related to the development and use of Cannabis-Based
Medical Products for the treatment of multiple myeloma, psoriasis, PTSD, chronic pain and fibromyalgia, and for the development
of a cannabis soluble tablet delivery system.
On
July 18, 2019, we received approval from the Israeli Medical Cannabis Agency to perform an efficacy study with OWC topical ointment
on psoriatic patients. Currently, the study is planned to be conducted at the Kaplan Medical Center, an academic medical center
in Israel.
We
believe this is the first time that the Israeli Medical Cannabis Agency has issued a permit for the treatment of psoriasis with
a cannabis-based product. The study will be divided into the following two consecutive stages: (1) a pilot efficacy and dosage
study; and (2) based on the results of the first stage, a double blind, placebo-controlled study.
On
January 29, 2019, we executed a Clinical Trial agreement with the Souraski Medical Center Fund in Tel Aviv to perform a Single-Dose,
Randomized, Crossover Study to compare the Safety, Tolerability and Pharmacokinetics of OWC’s Medical Grade Cannabis - Orally
Disintegrating Tablets (MGC-ODT) with Buccal Sativex®, in Healthy Adult Volunteers. This Clinical Trial Agreement (the “Agreement”)
is entered into by and among One World Cannabis Ltd. and The Medical, Infrastructure and Health Services Fund of the Tel Aviv
Medical Center, Israel, and Prof. Jacob Ablin M.D. as the Principal Investigator. The primary objectives of the study are:
1.
|
To
investigate the pharmacokinetics profile of THC, 11-OH THC and CBD following a single sublingual dose of MGC-ODT.
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|
|
2.
|
To
compare the pharmacokinetic profiles of THC, THC metabolite 11-hydroxy-THC and CBD following a single administration of the
investigational MGC-ODT vs. Sativex® Oromucosal Spray.
|
|
|
3.
|
To
monitor and compare the safety and tolerability of the MGC-ODT and Sativex® in the participating subjects.
|
On
April 15, 2019 we commenced the study.
On
January 29, 2019 we reported positive safety data from our Phase 1 trial for our medical grade cannabis MGC ointment for the treatment
of skin diseases. No severe adverse events were observed in the trial.
April
2018 PIPE
On
April 30, 2018 (the “Initial Date”), we consummated a private placement transaction (the “April 2018 PIPE”)
by entering into a Securities Purchase Agreement (the “Agreement”) with a non-US-based institutional investor (the
“Purchaser”), pursuant to which, we sold and the Purchaser bought, (i) 500 shares of our new series of preferred stock
designated as Series A Convertible Preferred Stock (the “Preferred Stock”), which were initially convertible into
25,000,000 shares of Common Stock at an initial conversion price of $0.20 per share (which was adjusted upon occurrence of the
Triggering Event (as defined below), subject to adjustment pursuant to the anti-dilution provisions of the Preferred Stock, and
(ii) Warrants (the “Warrants”) representing the right to acquire initially 12,500,000 shares of Common Stock over
a period of five years from the Initial Date at an initial exercise price of $0.22 per share, which is subject to certain adjustments
including anti-dilution provisions, for an aggregate purchase price of $5,000,000.
Commencing January 1, 2019 through June 30,
2019, the Purchaser converted an aggregate of 59 shares of Preferred Stock into an aggregate of 61,662,264 shares of the Common
Stock at the conversion prices in effect on the respective conversion dates. Since June 30, 2019 through August 12, 2019,
the Purchaser did not convert any additional shares of Preferred Stock.
Newbridge
Securities Corporation, through LifeTech Capital (“Newbridge”), acted as exclusive placement agent for the April 2018
PIPE and we are obligated to pay a cash fee of $375,000 to Newbridge and issue to them warrants to purchase 2,500,000 shares of
Common Stock (or 10% of the aggregate number of fully diluted shares of Common Stock that have been purchased by the Purchaser)
over a period of three years from the Initial Date at an exercise price of $0.20 per share, which is subject to certain adjustments
including anti-dilution provisions. In addition, we are also obligated to pay Newbridge a warrant solicitation fee equal to 4%
of the gross proceeds that we receive upon cash exercise of any Warrants purchased by the Purchaser in connection with the Agreement
(since the Initial Date through June 30, 2019, no solicitation fee was earned as no warrants were exercised).
In
connection with the Agreement, we entered into a Registration Rights Agreement (the “Registration Rights Agreement”)
with the Purchaser, pursuant to which, among other things, we have agreed to use our commercially reasonable best efforts to (i)
prepare and file with the SEC within 60 calendar days of the offering a registration statement covering the shares of Common Stock
underlying the Preferred Stock and Warrants and (ii) have the registration statement and any amendment thereto to be declared
effective by the SEC within 90 calendar days from the date of the initial filing of such registration statement. We filed a registration
statement covering the shares of Common Stock underlying the Preferred Stock and Warrants, which was declared effective by the
SEC on July 2, 2018.
The
Warrants are considered a freestanding instrument, as we believe they are legally detachable and separately exercisable.
The
accounting effects of the April 2018 PIPE transaction for the six months ended June 30, 2019 are discussed in Note 4 to our Consolidated
Financial Statements included herein.
Going
Concern
The
development and commercialization of our products is expected to require substantial expenditures. We have not yet generated material
revenues from operations and therefore are dependent upon external sources for financing our operations. In addition, in each
year since our inception we reported losses and negative cash flows from operating activities. Moreover, we might be required
to redeem shares of our Series A Convertible Preferred Stock in cash amount that will not allow us to maintain our operations
for the next twelve months. This means that there is substantial doubt that we can continue as a going concern for the next twelve
months unless we obtain additional capital to pay our bills and meet our other financial obligations. Accordingly, we must raise
capital from sources other than the actual sale of the products. We must raise capital to implement our projects and stay in business.
There can be no assurance that we will be able to continue to raise equity and/or debt capital from investors on terms and conditions
satisfactory to us, or otherwise, and/or have adequate capital resources required by us to fund our current and future planned
operations. If we are unable to obtain adequate capital resources to fund operations, we may be required to delay, scale back
or eliminate some or all of our plan of operations, which may have a material adverse effect on our business, results of operations
and ability to continue as a going concern.
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.
Our
Study on Psoriasis
On
June 28, 2018, we announced the successful completion of the first part of our Phase I, placebo controlled, maximal dose trial
(the “Psoriasis Trial”) to determine the safety and tolerability of the topical ointment containing medical grade
cannabis (the “Topical Ointment”) in healthy volunteers. The completed part of our Psoriasis Trial consisted of application
of escalating doses of the Topical Ointment to healthy volunteers and was successfully completed with no adverse effects. After
the completion of the second part of our Psoriasis trial, we plan to initiate a Phase II Trial to demonstrate the efficacy of
the Topical Ointment in treating mild to moderate psoriasis and other inflammatory skin diseases.
On
January 29, 2019 we reported positive Phase 1 safety data for our medical grade cannabis MGC ointment for the treatment of skin
diseases. No severe adverse events were observed in the trial.
On
July 18, 2019, we received approval from the Israeli Medical Cannabis Agency to perform an efficacy study with OWC topical ointment
on psoriatic patients. Currently, the study is planned to be conducted at the Kaplan Medical Center, an academic medical center
in Israel.
We
expect to initiate a Phase 2 trial of MGC ointment for the treatment of psoriasis during the fourth quarter of 2019.
Results
of Operations
Results
of Operations during the three months ended June 30, 2019, as compared to the three months ended June 30, 2018
We
have not generated any revenue during the three months ended June 30, 2019 or 2018. We have operating expenses related to research
and development expenses and general and administrative expenses.
During
the three months ended June 30, 2019, we earned a net income of $7,707,000 due to general and administrative expenses of $395,000,
research and development expenses of $320,000, income of $210,000 from the revaluation of liability related to the warrants,
income of $8,217,000 from revaluation of bifurcated embedded derivative related to Series A Convertible Preferred Stock and financial
expenses of $5,000, as compared to a net loss of $3,209,000 for the three months ended June 30, 2018, due to general and administrative
expenses of $756,000, research and development expenses of $212,000, loss of $823,000 from issuance costs related to April 30,
2018 Series A Convertible Preferred Stock, income of $150,000 from the revaluation of liability related to the warrants, loss
of $1,567,000 from revaluation of bifurcated embedded derivative related to Series A convertible Preferred Stock and financial
expenses of $1,000 during the three months ended June 30, 2018.
Our
general and administrative expenses decreased by $361,000 or 52% during the three months ended June 30, 2019 as compared to the
same period in the prior year, primarily due to decreased of stock-based compensation and amortization of services receivable
expenses. The charges relating to stock-based compensation and services receivable expenses were $105,000 for the three months
ended June 30, 2019, compared to an expense of $330,000 for the three months ended June 30, 2018.
Our
research and development expenses increased by $108,000 or 51% during the three months ended June 30, 2019 as compared to the
same period in the prior year mainly due to increase in head count and to active trials costs.
Results
of Operations during the six months ended June 30, 2019, as compared to the six months ended June 30, 2018
We
have not generated any revenue during the six months ended June 30, 2019 or 2018. We have operating expenses related to research
and development expenses and general and administrative expenses.
During
the six months ended June 30, 2019, we earned a net income of $6,707,000 due to general and administrative expenses of $893,000,
research and development expenses of $605,000, income of $1,285,000 from the revaluation of liability related to the warrants,
income of $6,927,000 from revaluation of bifurcated embedded derivative related to Series A Convertible Preferred Stock and financial
expenses of $7,000, as compared to a net loss of $4,186,000 for the six months ended June 30, 2018, due to general and administrative
expenses of $1,577,000, research and development expenses of $368,000, loss of $823,000 from issuance costs related to
April 30, 2018 Series A Convertible Preferred Stock, income of $150,000 from the revaluation of liability related to the warrants,
loss of $1,567,000 from revaluation of bifurcated embedded derivative related to Series A convertible Preferred Stock and
financial expenses of $1,000 during the six months ended June 30, 2018.
Our
general and administrative expenses decreased by $684,000 or 76.4% during the six months ended June 30, 2019 as compared
to the same period in the prior year, primarily due to decreased of stock-based compensation and amortization of services receivable
expenses. The charges relating to stock-based compensation and services receivable expenses were $180,000 for the six months ended
June 30, 2019, compared to an expense of $916,000 for the six months ended June 30, 2018.
Our
research and development expenses increased by $237,000 or 64.4% during the six months ended June 30, 2019 as compared to the
same period in the prior year mainly due to increase in head count and to active trials costs.
Liquidity
and Capital Resources
As
of June 30, 2019, we had current assets of $2,249,000 consisting of $1,840,000 in cash and cash equivalents and other current
assets of $409,000. As of June 30, 2019, we had property and equipment carried at $74,000, net of $41,000 in accumulated depreciation
and lease right-of-use asset of $53,000. We had total assets of $2,335,000 as of June 30, 2019.
As
of December 31, 2018, we had current assets of $3,516,000 consisting of $3,464,000 in cash and cash equivalents and other current
assets of $52,000. We had property and equipment valued at $73,000, net of $36,000 in accumulated depreciation. We had total assets
of $3,553,000 as of December 31, 2018.
As
of June 30, 2019, we had $516,000 in current liabilities consisting of $104,000 in accounts payable, $286,000 in other current
liabilities, deferred revenues of $100,000 and lease liabilities of $26,000.
As
of December 31, 2018, we had $438,000 in current liabilities consisting of $98,000 in accounts payable, $240,000 in other current
liabilities and deferred revenues of $100,000.
We
had positive working capital of $1,733,000 as of June 30, 2019 compared to positive working capital of $3,078,000 as of December
31, 2018. Our accumulated deficit as of June 30, 2019 and December 31, 2018 was $22,384,000 and $27,222,000, respectively.
As
of June 30, 2019, we had $1,234,000 in non-current liabilities consisting of $288,000 in bifurcated embedded derivative related
to Series A Convertible Preferred Stock, $4,000 in derivative related to price protection, $190,000 in liability related to warrants
to purchase common stock, $27,000 in lease liabilities and $725,000 in liability related to shares to be issued.
We
used $1,620,000 in our operating activities during the six months ended June 30, 2019, which was due to a net income of $6,707,000
,amortization of services receivable of $71,000, stock-based compensation expenses of $109,000, revaluation income of liability
related to warrants to purchase common stock of $1,285,000, revaluation income of bifurcated embedded derivative related to the
Series A Convertible Preferred Stock of $6,927,000, depreciation expense of $6,000, an increase in accounts payable of $6,000,
recording of derivative related to price protection of $4,000, an increase in other current assets of $357,000 and a decrease
in other liabilities of $46,000.
We
used $1,321,000 in our operating activities during the six months ended June 30, 2018, which was due to a net loss of $4,186,000
partially offset by amortization of services receivable of $814,000, stock-based compensation of $585,000, revaluation income
of liability related to warrants to purchase common stock of $150,000, revaluation expense of bifurcated embedded derivative related
to the Series A Convertible Preferred Stock of $1,567,000, depreciation expense of $4,000, an increase in accounts payable of
$63,000 and an increase in other current assets expenses of $18,000.
Our
financing activities during the six months ended June 30, 2018 provided us with $105,000 through collection of a stock subscription
receivable. There were no cash flows from financing activities during the six months ended June 30, 2019.
Based
upon $1,840,000 of cash held by us on June 30, 2019 we believe that we do not have sufficient cash to allow us to maintain our
operations for the next twelve-month period. As of June 30, 2019, we are not in compliance with the Equity Conditions (as defined
in our Series A Certificate of Designation) and therefore beginning January 31, 2019, for every 30-days period thereafter, at
the request of the purchaser, we might be required to redeem in cash, 1/12th of the outstanding shares of Series A Convertible
Preferred Stock, for an amount equal to 110% of the stated value ($10,000) of such shares of Series A Convertible Preferred Stock
plus any accrued but unpaid dividends up to the Mandatory Redemption Date (as defined in the Certificate of Designation). As of
the date of issuance of these financial statements, the Purchaser has not requested redemption in cash of any shares of Series
A Convertible Preferred Stock. Management considered the significance of such conditions in relation to our 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. We believe that in order to execute on our plans we need to raise additional capital, either equity
or debt, and there can be no assurance that additional capital will be sufficient to fund our anticipated expenditure requirements
to execute on our plans. There is also no assurance that additional capital will be on terms and conditions favorable to us.
The
development and commercialization of our products is expected to require substantial expenditures. We have not yet generated material
revenues from operations and do not expect to do so in the foreseeable future, and therefore we dependent upon external sources
for financing our operations. As of June 30, 2019, we have an accumulated deficit of $22,384,000. In addition, during the six
months ended June 30, 2019, excluding the revaluation income of liability related to warrants to purchase common stock in an amount
of $1,285,000, and the revaluation of bifurcated embedded derivative in an amount of $6,927,000, we reported losses, and negative
cash flows from operating activities.
Funding
of Our Research Programs
On
October 22, 2014, we entered into a service agreement with the Sheba Academic Medical Center’s hospital (“Sheba”)
relating to the use of cannabis to treat myeloma. Within the framework of this service agreement, we conducted pre-clinical studies
on multiple myeloma, which have commenced in April 2015. Pursuant to this service agreement, we are obligated to pay Sheba $170,000.
As of June 30, 2019, we have paid Sheba $66,000 as per Sheba’s payment requests.
In
addition, pursuant to another service agreement, we were obliged to pay Sheba $170,000 throughout 2017 and 2018 for conducting
the Study for the cream for treatment of psoriasis. As of June 30, 2019, we have paid the entire amount.
Pursuant
to a Clinical Trial Agreement, we are obligated to pay the Souraski Medical Center $137,000 for conducting the study for the single-dose,
randomized, crossover study to compare the safety, tolerability and pharmacokinetics (PK) of OWC’s Medical Grade Cannabis
- Orally Disintegrating Tablets (MGC-ODT) vs. buccal Sativex®, in healthy adult volunteers. As of June 30, 2019, we have not
made any payments to the Souraski Medical Center.
At
present, we use our available working capital to fund these studies.
Our
expenditures allocated to our corporate activities conducted through our facilities in Ramat Gan were $24,000 for the six months
period ended June 30, 2019 and we expect it will be a total of approximately $49,000 for the year ending December 31, 2019.
Off
Balance Sheet Arrangements
As
of June 30, 2019, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K, promulgated
under the Securities Act of 1934.
Contractual
Obligations and Commitments
There
have been no material changes to our contractual obligations and commitments as reported in our Annual Report on Form 10-K for
the year ended December 31, 2018, filed with the SEC on April 1, 2019.
Critical
Accounting Policies
Our
significant accounting policies are described in Note 2 to our consolidated financial statements as reported in our Annual Report
on Form 10-K for the year ended December 31, 2018, filed with the SEC on April 1, 2019, and in Note 2 to our interim consolidated
financial statements as reported in our Quarterly Report on Form 10-Q for the six months period ended June 30, 2019. There have
been no changes to the policies reported in the 2018 Form 10-K.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
ITEM
4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
As
of June 30, 2019, 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, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures were ineffective as of June 30, 2019.
Material
Weaknesses and Remediation of Material Weaknesses
The
Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting,
as defined in Exchange Act Rule 13a-15. Internal control over financial reporting is defined in Rule 13a-15(f) and 15(d)-15(f)
under the Exchange Act as a process designed to provide reasonable assurance to the Company’s management and Board of Directors
regarding the preparation and fair presentation of published financial statements. Management conducted an assessment of the Company’s
internal control over financial reporting as of June 30, 2019 based on the framework and criteria established by the Committee
of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Management is not permitted
to conclude that the Company’s internal control over financial reporting is effective if there are one or more material
weaknesses in the Company’s internal control over financing reporting. A material weakness is a deficiency, or a combination
of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement
of a company’s annual or interim consolidated financial statements would not be prevented or detected on a timely basis.
Based on our assessment and those criteria, we have concluded that our internal controls over financial reporting were ineffective
because of the identification of material weaknesses including lack of sufficient internal accounting personnel, lack of sufficient
internal controls (including IT general controls) that encompass the Company as a whole with respect to entity and transactions
level controls in order to ensure complete documentation of complex and non-routine transactions and adequate financial reporting
during the six months ended June 30, 2019. Management has identified corrective actions for the weaknesses and intends to implement
procedures to address before mentioned material weaknesses during the remainder of fiscal year 2019.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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 six months ended June 30, 2019 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Mordechai Bignitz
|
|
Chief
Executive Officer (Principal Executive Officer)
|
|
August
13, 2019
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Mordechai
Bignitz
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|
|
|
|
|
|
|
|
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/s/
Sigal Russo
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|
Chief
Financial Officer (Principal Financial and
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|
August
13, 2019
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Sigal
Russo
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|
Principal
Accounting Officer)
|
|
|
Exhibit
31.1
CERTIFICATION
I,
Mordechai Bignitz, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of OWC Pharmaceutical Research Corp.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date:
August 13, 2019
/s/
Mordechai Bignitz
|
|
Chief
Executive Officer – Principal Executive Officer
|
|
Exhibit
31.2
CERTIFICATION
I,
Sigal Russo, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of OWC Pharmaceutical Research Corp.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date:
August 13, 2019
/s/
Sigal Russo
|
|
Chief
Financial Officer – Principal Financial and
Principal Accounting Officer
|
|
Exhibit
32.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 906
OF
THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of OWC Pharmaceutical Research Corp. (the “Company”) on Form 10-Q for the period
ended June 30, 2019 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Mordechai
Bignitz, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, to my knowledge that:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
/s/
Mordechai Bignitz
|
|
Mordechai
Bignitz
|
|
Chief
Executive Officer – Principal Executive Officer
|
|
Dated:
August 13, 2019
A
signed original of this written statement required by Section 906 has been provided to OWC Pharmaceutical Research Corp. and will
be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit
32.2
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 906
OF
THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of OWC Pharmaceutical Research Corp. (the “Company”) on Form 10-Q for the period
ended June 30, 2019 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Sigal
Russo, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, to my knowledge that:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
/s/
Sigal Russo
|
|
Sigal
Russo
|
|
Chief
Financial Officer – Principal Financial and
Principal Accounting Officer
|
|
Dated:
August 13, 2019
A
signed original of this written statement required by Section 906 has been provided to OWC Pharmaceutical Research Corp. and will
be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of report (date of earliest event reported): May 23, 2019
Owc
Pharmaceutical Research Corp.
(Exact
Name of Registrant as Specified in its Charter)
Commission
File No.: 0-54856
Delaware
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|
98-0573566
|
(State
of Incorporation)
|
|
(I.R.S.
Employer Identification No.)
|
2
Ben Gurion Street, Ramat Gan, Israel
|
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5257334
|
(Address
of Principal Executive Offices)
|
|
(Zip
Code)
|
Registrant’s
Telephone Number, including area code: +972 (72) 2608004
Not
Applicable
(Former
name or former address, if changed since last report.)
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions (see General Instruction A.2. below):
[ ]
|
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
|
|
|
[ ]
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
|
|
|
[ ]
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
|
|
|
[ ]
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
|
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
|
|
Trading
Symbol
|
|
Name
of exchange on which registered
|
Common
Stock
|
|
OWCP
|
|
OTCQB
|
Indicate
by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405
of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging
growth company [ ]
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Item
3.02 Sale of Unregistered Securities.
As
previously reported by OWC Pharmaceutical Research Corp. (the “Company”), it sold to Discover Growth Fund (“Discover”)
500 shares of its new series of preferred stock designated as Series A Convertible Preferred Stock (the “Preferred Stock”),
which were initially convertible into an aggregate of 25,000,000 shares of the Company’s common stock, par value $0.00001
per share (“Common Stock”), subject to adjustments. Since May 15, 2019 through June 27, 2019, the Company received
notices of conversion from Discover to convert an aggregate of 4 shares of Preferred Stock, with a stated value of $10,000 per
share, into an aggregate of 21,641,312 shares of Common Stock (the “Conversion”). On May 23, 2019, June 11, 2019 and
June 27, 2019, the Company effected the Conversion and issued the investor 21,641,312 shares of Common Stock, which constitutes
greater than 5% of the number of shares of common stock outstanding as of May 15, 2019, the date we filed our Quarterly Report
on Form 10-Q for the period ended March 31, 2019 with the Securities and Exchange Commission.
These
securities were not registered under the Securities Act of 1933, as amended (the “Securities Act”), but qualified
for exemption under Section 4(a)(2) of the Securities Act. The securities were exempt from registration under Section 4(a)(2)
of the Securities Act because the issuance of such securities by the Company did not involve a “public offering,”
as defined in Section 4(a)(2) of the Securities Act, due to the insubstantial number of persons involved in the transaction, size
of the offering, manner of the offering and number of securities offered. All of the securities were issued without registration
under the Securities Act of 1933 in reliance upon the exemption provided in Section 4(a)(2).
Item
9.01. Exhibits
(d)
Exhibits
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
|
OWC
Pharmaceutical Research Corp.
|
|
|
|
|
By:
|
/s/
Mordechai Bignitz
|
|
Name:
|
Mordechai
Bignitz
|
|
Title:
|
Chief
Executive Officer
|
Date:
August 7, 2019
OWC
PHARMACEUTICAL RESEARCH CORP.
269,739,284
shares of Common stock
Prospectus
Supplement No. 1
August
22, 2019