OWC Pharmaceutical Research Corp. - Quarter Report: 2016 March (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________

FORM 10-Q
___________________

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

Commission file number 0-54856

OWC PHARMACEUTICAL RESEARCH CORP.
(Exact Name of Registrant in its Charter)

Delaware	98-0573566
(State or other Jurisdiction of Incorporation)	(IRS Employer Identification No.)

22 Shaham Steet, P.O. Box 8324, Petach Tikva, 4918103, Israel
(Address of Registrant’s Principal Executive Offices and Principal Place of Business)

Registrant's Telephone Number, Including Area Code: Phone: +972 (0) 3-758-2657

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act) or a smaller reporting company.

Large accelerated filer ¨

Accelerated filer ¨

Non-Accelerated filer ¨

Smaller reporting company x

On May 16, 2016, the Registrant had 81,460,875 shares of common stock outstanding.

TABLE OF CONTENTS

Item	Description

	PART I - FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS - UNAUDITED.	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive Loss	5
	Consolidated Statements of Cash Flows	6
	Notes to Unaudited Interim Consolidated Financial Statements	7
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS.	13
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	18
ITEM 4.	CONTROLS AND PROCEDURES.	18

	PART II - OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS.	18
ITEM 1A.	RISK FACTORS.	18
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	18
ITEM 3.	DEFAULT UPON SENIOR SECURITIES.	18
ITEM 4.	MINE SAFETY DISCLOSURE.	18
ITEM 5.	OTHER INFORMATION.	18
ITEM 6.	EXHIBITS.	19

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS Back to Table of Contents

OWC Pharmaceutical Research Corp.
Consolidated Balance Sheets
At March 31, 2016 (Unaudited) and December 31, 2015 (Audited)
Back to Table of Contents
		March 31, 2016		December 31, 2015
		(Unaudited)		(Audited)
ASSETS
Current assets:
Cash	$	266,373	$	357,161
Other receivables		15,842		11,797
Prepaid expenses		38,591		38,591
Total current assets		320,806		407,549

Property and equipment, net		22,367		22,899

Total Assets	$	343,173	$	430,448

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable - trade	$	9,117	$	28,125
Accrued expenses		26,799		24,607
Customer deposit		150,000		50,000
Advances and account payable to related parties		-		1,820
Derivatives		70,219		-
Convertible notes payable, net of discount		58,896		3,074
Total current liabilities		315,031		107,626

Total liabilities		315,031		107,626

Stockholders' equity (deficit):
Preferred stock, $0.00001 par value; 20,000,000 shares authorized; no shares issued and outstanding		-		-
Common stock, $0.00001 par value; 500,000,000 shares authorized; and
81,460,875 issued and outstanding at March 31, 2016 and December 31, 2015		815		815
Additional paid in capital		8,541,599		8,533,525
Common stock subscription receivable		(651,730)		(651,730)
Accumulated deficit		(7,863,253)		(7,548,866)
Accumulated other comprehensive income (loss)		711		(10,922)
Total stockholders' equity		28,142		322,822
Total Liabilities and Stockholders' equity	$	343,173	$	430,448

See notes to unaudited interim consolidated financial statements.

Page 3

OWC Pharmaceutical Research Corp.
Consolidated Statements of Operations
For the Three Months Ended March 31, 2016 and 2015
(Unaudited)
Back to Table of Contents
		For the three months		For the three months
		ended March 31, 2016		ended March 31, 2015

Revenues	$	-	$	-

Expenses
General and administrative		221,556		305,479
Research and development		37,043		99,124
Loss from operations		(258,599)		(404,603)

Other income (expense):
Interest expense		(998)		-
Change in fair market value of derivative liabilities		(28,245)		-
Amortization of debt discount		(26,546)		-
Total other expense		(55,789)		-
Total costs and expenses		(314,388)		(404,603)

Net loss before income taxes		(314,388)		(404,603)
Income tax		-		-

Net loss	$	(314,388)	$	(404,603)

Basic and diluted per share amounts:
Basic and diluted net loss	$	(0.00)	$	(0.01)

Weighted average shares outstanding (basic and diluted)		81,460,843		79,729,241

See notes to unaudited interim consolidated financial statements.

Page 4

OWC Pharmaceutical Research Corp.
Consolidated Statements Comprehensive Loss
For the Three Months Ended March 31, 2016 and 2015
(Unaudited)
Back to Table of Contents
		For the three months		For the three months
		ended March 31, 2016		ended March 31, 2015

Net loss	$	(314,388)	$	(404,603)

Other comprehensive income, net of tax:
Foreign currency translation adjustments		11,633		(4,958)
Total other comprehensive income, net of tax		11,633		(4,958)

Comprehensive loss	$	(302,755)	$	(409,561)

See notes to unaudited interim consolidated financial statements.

Page 5

OWC Pharmaceutical Research Corp.
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2016 and 2015
(Unaudited)
Back to Table of Contents
		For the three months		For the three months
		ended March 31, 2016		ended March 31, 2015

Cash flows from operating activities:
Net loss	$	(314,388)	$	(404,603)
Adjustments to reconcile net loss to net cash used in operating activities:
Derivative valuation adjustments		28,245		-
Amortization of debt discount		26,546		-
Depreciation expense		2,389		2,181
Common stock issued for services		-		500
Options and warrants issued for services		8,074		10,839
Changes in net assets and liabilities:
(Increase) decrease in accounts receivable		(4,045)		-
(Increase) decrease in prepaid expenses		-		24,090
Increase (decrease) in accounts payable - related party		(1,820)		(138)
Increase (decrease) in accounts payable		(19,004)		20,788
Increase (decrease) in customer deposits		100,000		-
Increase (decrease) in accrued expenses		2,192		(40,697)
Cash used in operating activities		(171,811)		(387,040)

Cash flow from investing activities:
Purchase of equipment		(1,860)		(1,630)
Cash used in investing activities		(1,860)		(1,630)

Cash flow from financing activities:
Proceeds from issuance of common stock		-		90,000
Proceeds of debt borrowings		71,250		-
Cash provided by financing activities		71,250		90,000

Foreign currency translation		11,633		(4,958)

Change in cash		(90,788)		(303,628)
Cash - beginning of period		357,161		1,469,267
Cash - end of period	$	266,373	$	1,165,638

Supplement cash flow information:
Non-cash transactions:
Debt discount arising from derivatives	$	41,974	$	-

See notes to unaudited interim consolidated financial statements.

Page 6

OWC Pharmaceutical Research Corp.
Notes to Unaudited Interim Consolidated Financial Statements
Back to Table of Contents

1. The Company and Significant Accounting Policies

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 engaged in research and development of cannabis-based medical products for the treatment of a variety of medical conditions such as multiple myeloma, psoriasis, fibromyalgia, post-traumatic stress disorder (PTSD) and migraine, and (ii) consulting services to companies and governmental agencies with respect to complex international medical cannabis protocols and regulations.

The accompanying financial statements of OWCP were prepared from the accounts of the Company under the accrual basis of accounting.

Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has not established any source of revenue to cover its operating costs, and as such, has incurred an operating loss since inception. These and other factors 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.

Principles of Consolidation

The financial statements include the accounts of OWC Pharmaceutical Research Corp. and its wholly owned subsidiary One World Cannabis, Inc. (OWC). All significant inter-company balances and transactions have been eliminated.

Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.

Cash and Cash Equivalents

For financial statement presentation purposes, the Company considers those short-term, highly liquid investments with original maturities of three months or less to be cash or cash equivalents. There were no cash equivalents at March 31, 2016 and December 31, 2015.

Property and Equipment

New property and equipment are recorded at cost. Property and equipment included in the bankruptcy proceedings and transferred to the Trustee had been valued at liquidation value. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 5 years. Expenditures for renewals and betterments are capitalized. Expenditures for minor items, repairs and maintenance are charged to operations as incurred. Gain or loss upon sale or retirement due to obsolescence is reflected in the operating results in the period the event takes place.

Valuation of Long-Lived Assets

We review the recoverability of our long-lived assets including equipment, goodwill and other intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. Our primary measure of fair value is based on discounted cash flows. The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations.

Foreign Currency

Non-U.S. entity operations are recorded in the functional currency of each entity. Results of operations for non-U.S. dollar functional currency entities are translated into U.S. dollars using average currency rates. Assets and liabilities are translated using currency rates at period end. Foreign currency translation adjustments are recorded as a component of other comprehensive income (loss) within stockholders' equity.

Stock Based Compensation

Stock-based awards are accounted for using the fair value method in accordance with ASC 718, Share-Based Payments. Our main type of share-based compensation consists of stock options. We use the Black-Scholes option pricing model in valuing options. The valuation analysis of the options include the market value of the Company's common stock, the estimated volatility of the Company's common stock, the exercise price of the warrants and the risk free interest rate.

Accounting For Obligations And Instruments Potentially To Be Settled In The Company's Own Stock

We account for obligations and instruments potentially to be settled in the Company's stock in accordance with FASB ASC 815, Accounting for Derivative Financial Instruments. This issue addresses the initial balance sheet classification and measurement of contracts that are indexed to, and potentially settled in, the Company's own stock.

Fair Value of Financial Instruments

FASB ASC 825, "Financial Instruments," requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value. FASB ASC 825 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. At March 31, 2016 and December 31, 2015, the carrying value of certain financial instruments (cash and cash equivalents, accounts payable and accrued expenses.) approximates fair value due to the short-term nature of the instruments or interest rates, which are comparable with current rates.

Fair Value Measurements

The Company measures fair value under a framework that utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of inputs which prioritize the inputs used in measuring fair value are:

Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

Level 2: Inputs to the valuation methodology include:

- Quoted prices for similar assets or liabilities in active markets;
- Quoted prices for identical or similar assets or liabilities in inactive markets;
- Inputs other than quoted prices that are observable for the asset or liability;
- Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The assets or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The following table presents assets that were measured and recognize at fair value on March 31, 2016 and December 31, 2015 and the year then ended on a recurring basis:

Fair Value Measurements at March 31, 2016
				Quoted Prices in Active		Significant Other		Significant
				Markets for Identical Assets		Observable Inputs		Unobservable Inputs
		Total		(Level 1)		(Level 2)		(Level 3)
Derivative liabilities	$	-	$	-	$	70,219	$	-
Total assets and liabilities at fair value	$	-	$	-	$	70,219	$	-

Fair Value Measurements at December 31, 2015
				Quoted Prices in Active		Significant Other		Significant
				Markets for Identical Assets		Observable Inputs		Unobservable Inputs
		Total		(Level 1)		(Level 2)		(Level 3)
Derivative liabilities	$	-	$	-	$	-	$	-
Total assets and liabilities at fair value	$	-	$	-	$	-	$	-

When the Company changes its valuation inputs for measuring financial assets and liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the fiscal periods ended March 31, 2016 and December 31, 2015, there were no significant transfers of financial assets or financial liabilities between the hierarchy levels.

Earnings per Common Share

We compute net income (loss) per share in accordance with ASC 260, Earning per Share. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

Income Taxes

We have adopted ASC 740, Accounting for Income Taxes. Pursuant to ASC 740, we are required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax basis of assets and liabilities using the tax rates and laws in effect when the differences are expected to reverse. ASC 740 provides for the recognition of deferred tax assets if realization of such assets is more likely than not to occur. Realization of our net deferred tax assets is dependent upon our generating sufficient taxable income in future years in appropriate tax jurisdictions to realize benefit from the reversal of temporary differences and from net operating loss, or NOL, carryforwards. We have determined it more likely than not that these timing differences will not materialize and have provided a valuation allowance against substantially all of our net deferred tax asset.

Management will continue to evaluate the realizability of the deferred tax asset and its related valuation allowance. If our assessment of the deferred tax assets or the corresponding valuation allowance were to change, we would record the related adjustment to income during the period in which we make the determination. Our tax rate may also vary based on our results and the mix of income or loss in domestic and foreign tax jurisdictions in which we operate.

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and to the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we will reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We will record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.

ASC 740 which requires recognition of estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income tax is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized.

Uncertain Tax Positions

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of FASB ASC 740-10, Accounting for Uncertain Income Tax Positions, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Our federal and state income tax returns are open for fiscal years ending on or after December 31, 2010. We are not under examination by any jurisdiction for any tax year. At March 31, 2016 we had no material unrecognized tax benefits and no adjustments to liabilities or operations were required under FASB ASC 740-10.

Recent Accounting Pronouncements

Share-Based Payments: In March 2016, amended guidance was issued for employee share-based payment awards. The amended guidance makes several modifications related to the accounting for forfeitures, employer tax withholding on share-based compensation and excess tax benefits or deficiencies. The amended guidance also clarifies the statement of cash flows presentation for share-based awards. The amended guidance is effective for us prospectively commencing in the first quarter of 2018. Early adoption is permitted.

Deferred Income Taxes: In November 2015, amended guidance was issued for the balance sheet classification of deferred income taxes. The amended guidance requires the classification of all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. Early adoption is permitted.

In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-03, "Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs." ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Currently, debt issuance costs are recognized as deferred charges and recorded as other assets. The guidance is effective for annual and interim periods beginning after December 15, 2015 with early adoption permitted and is to be implemented retrospectively. Adoption of the new guidance will only affect the presentation of the Company's consolidated balance sheets and will have no impact to our financial statements.

Management does not anticipate that the adoption of these standards will have a material impact on the financial statements.

The preparation of these financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related intangible assets, income taxes, insurance obligations and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other resources. Actual results may differ from these estimates under different assumptions or conditions.

The Financial Statements presented herein have been prepared by us in accordance with the accounting policies described in our December 31, 2015 Annual Report and should be read in conjunction with the Notes to Financial Statements which appear in that report.

In the opinion of management, the information furnished in these interim financial statements reflects all adjustments necessary for a fair statement of the financial position and results of operations and cash flows as of and for the three-month periods ended March 31, 2016 and 2015. All such adjustments are of a normal recurring nature. The Financial Statements do not include some information and notes necessary to conform to annual reporting requirements.

2. Stockholders' Equity

Options Issued for Services in 2016:

During the three months ended March 31, 2016 we issued 200,000 common stock options. The options valued at $8,074 were granted for services provided by unrelated parties. The fair value of the options was estimated at the date of grant using the Black-Sholes-Merton pricing model. The Black-Sholes-Merton pricing model assumptions used are as follows: expected dividend yield of 0%; risk-free interest rate of 1.11%; expected volatility of 196%, and option term of 2.75 years.

Stock Issued for Cash in 2015

In February 2015, we sold 800,000 shares to one investor at $0.05 per share or total proceeds of $40,000. We also received $50,000 through a placement of common stock units sold at $0.15 per unit. Each unit consisted of one share of common stock and one warrant to purchase common stock. We issued 333,333 shares through March 31st to one investor of this offering. The warrants are exercisable at $0.25 and expired on December 31, 2016.

Stock Issued for Services in 2015

On February 16, 2015, we issued 500,000 shares for consulting services valued at $500 based on the fair market value of the stock on the date of issuance. These shares were subsequently cancelled in April 2015 and the company issued only 100,000 shares instead in July 2015.

Options Expiration

During 2013 the company issued 600,000 options. 200,000 options expired during the three months ended 3/31/2016 and remaining 400,000 options expired following 3/31/2016 and throughout the date of filling the 10-Q.

3. Related Party Transactions

Due Related Parties

Amounts due related parties totaled $0 at March 31, 2016 and $1,820 at December 31, 2015, respectively. The company paid $21,943 in rent to a related party in 2015. Accounts receivable from related parties was $0 at March 31, 2016 and $0 at December 31, 2015.

4. Convertible Notes Payable

Unsecured Notes Payable With Conversion Rights

A convertible note for $78,500 issued on February 2, 2016, bears interest at 8.0% per annum until paid or converted and matures November 2, 2016. Any or all of the outstanding balance of the note may be converted at the holder's option at any time into common stock of the Company at a variable conversion price of 65% of market price. Upon the issuance of the convertible note, due to anti-dilution provisions, the Company bifurcated the embedded derivative feature and recorded an initial derivative liability of $41,974 (the estimated fair market value at the date of grant based on the Binomial Option Pricing Model) all of which was allocated as debt discount.

During 2015, the Company agreed to provide unsecured promissory note with an unrelated party for $26,546. The note is non-interest bearing and is due on June 16, 2016. The note has a future conversion right that allows the holder to convert the principal balance into the Company's common stock at the lender's sole discretion at 50% of the then market price per share.

For the three months March 31, 2016, the Company amortized $35,264 of the discount arising from the embedded derivative and beneficial conversion features of the two outstanding notes. The carrying value of all convertible notes is as follows:

		March 31, 2016		December 31, 2015
Face amount of the notes	$	(116,000)	$	37,500
Unamortized discount		57,104		(34,426)
Net balance	$	58,896	$	3,074

5. Derivative Liabilities

Anti-Dilution Feature

To properly account for the convertible notes payable discussed in Note 3, the Company performed a detailed analysis to obtain a thorough understanding of the transaction. The Company reviewed FASB ASC 815, to identify whether any equity-linked features in the notes are freestanding or embedded. The notes were then analyzed in accordance with FASB ASC ASC 815 to determine if the anti-dilution feature should be bifurcated and accounted for at fair value and remeasured at fair value in income. The Company determined that the anti-dilution feature met the requirements for bifurcation pursuant to FASB ASC 815 due to the variable conversion price and therefore accounted for the anti-dilution features of the notes as a derivative liability. Changes in fair value of the derivative financial instruments are recognized in the Company's statement of operations as a derivative valuation gain or loss. The adjustment to the fair market value of $70,219 at March 31, 2016 resulted in a charge of $28,245.

The Company values its simple conversion option derivatives using the a lattice model. Assumptions used include:
- life through the note maturity date
- expected volatility: 152%,
- expected dividends: none
- exercise prices as set forth in the agreements,
- common stock price of the underlying share on the valuation date, and
- number of shares to be issued if the instrument is converted

6. Going Concern

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has not established any source of revenue to cover its operating costs, and as such, has incurred an operating loss since inception. Further, as of March 31, 2016, the cash resources of the Company were insufficient to meet its current business plan. These and other factors 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 asset or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

7. Deferred Revenue

During 2015, the Company signed MOUs followed by agreement with Medmar, LLC on March 17, 2016 to provide assistance related to filing an application to grow, process and dispense medical cannabis in the States of Maryland, Hawaii and Pennsylvania as well as a general licensing agreement to market the Company's products in those states when and if the applications are accepted. The Company received $50,000 of cash from Medmar during the year ended December 31, 2015 related to the Hawaii and Pennsylvania application fees of $25,000 for each state, and a total of $100,000 during the three months ended March 31, 2016 related to the $50,000 Maryland application fee and $50,000 for a first refusal to licenses in the USA. As of December 31, 2015 and March 31, 2016, the customer deposit balances were $50,000 and $150,000, respectively.

8. Subsequent Events

There were no subsequent events following the period ended March 31, 2016 and throughout the date of the filing of Form 10-Q.

Page 12

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION Back to Table of Contents

The following discussion contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use of words such as "anticipate", "estimate", "expect", "project", "intend", "plan", "believe", and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. From time to time, we also may provide forward-looking statements in other materials we release to the public.

Plan of Operations

We are engaged in research and development of cannabis-based medical products for the treatment of a variety of medical conditions such as multiple myeloma, psoriasis, fibromyalgia, post-traumatic stress disorder (PTSD) and migraine, and (ii) consulting services to companies and governmental agencies with respect to complex international medical cannabis protocols and regulations.

We have not yet commenced any significant activities related to our consulting services.

Our goal is to become a leader in the research and development of cannabis-based medical drugs and treatments. To achieve our goal, we plan to focus our activities on the following areas:

Research and Development

Our research and development is focused primarily on exploring several formulations containing active compounds from the cannabis plant, including (but not exclusive to) the cannabinoids CBD and THC, and identifying potential therapeutic applications of the synergistic effects of these active compounds. The synergistic contributions of our formulations have not yet been scientifically researched and demonstrated. We aim to standardize the formulations across the extracts as a whole, not simply by reference to their key active components (CBD and/or THC).

Although there are existing reports and studies on CBD and THC, our formulations will contain several active compounds from the cannabis plant, that must be fully researched and documented in order to verify its effectiveness to indications, at what doses and which method of administration will be the most appropriate and effective.

One World Cannabis plans to produce pharmaceutical-grade cannabinoid-based products and treatments, that will be standardized in composition, formulation and dose, administered by means of an appropriate and efficient delivery system, and tested in properly controlled pre-clinical and clinical studies. OWC plans to conduct its researche, led by internationally renowned investigators, at the facilities of leading Israeli hospitals and scientific institutions. The Company will adhere to legislation, rules and guidelines regarding the investigations. Dr. Baruch, OWC's Director of Research and Regulatory Affairs, and Alon Sinai, OWC's Chief Operating Officer, will monitor the investigations and researches.

To date, OWC has signed three research collaboration and license agreements with Sheba Academic Medical Center, Tel Hashomer, Israel ("Sheba"). Sheba is a university-affiliated hospital that serves as Israel's national medical center and the most comprehensive medical center in the Middle East. Within the framework of the agreements with Sheba, OWC will initiate three studies at the Sheba facilities to explore the effect of three formulations, all based on active ingredients in the cannabis extracts, on multiple myeloma, psoriasis and fibromyalgia (a specific formulation to each indication).

In addition, OWC signed an R&D service agreement with G.C. Group Ltd., an Israeli pharmaceutical R&D company, in April 2015, to provide formulation development services for OWC's new delivery system in the form of a cannabis soluble tablet. The cannabis soluble tablet could provide physicians with the ability to control and administrate optimal dosage, to replace the most common usage/delivery method of medical cannabis today, which is not acceptable by scientists and physicians, such as smoking, edibles and oil extracts with no adequate means of dosage control. The agreement was terminated on December 31, 2015.

The Company expects to start developing other delivery systems, designed for different indications, during 2016.

The Company has recently signed a Memorandum of Understanding (MoU) with Emilia Cosmetics Ltd., a large Israeli private label manufacturer, for the development, manufacture and marketing of a cannabinoid-based topical cream to treat psoriasis. The Company will initiate the development of the topical cream by the end of the first quarter of 2016, at Emilia Cosmetics labs located in Yerucham, Israel. After the completion of the formulation development, expected to be during the second quarter of 2016, the Company will initiate a phase I study at the Sheba facilities to explore the effect of topical cream on psoriasis. However, we do not know if our expectations will be fulfilled in a timely manner, if at all, or that the costs of development will exceed our anticipation.

To date, One World Cannabis has filed eight provisional patents with the United States Patent and Regulatory Office (USPTO), all related to its line of activity related to cannabis-based medical products. Assuming the successful completion of the clinical trials, of which there can be no assurance, the Company believes that it will be able to retain the intellectual rights and secure patent protections.

While we retain full ownership on our intellectual property rights that we conceived prior to the signing of the research collaboration and license agreements with Sheba Academic Medical Center, the psoriasis and fibromyalgia agreements with Sheba provide that all intellectual property rights that is conceived during the course of the research is to be jointly owned by Sheba and One World Cannabis.

Pursuant to the collaboration agreements, we expect to pay Sheba $330,000 for conducting the multiple myeloma trial between the 3rd quarter of 2015 and the second quarter of 2016. In addition, we expect to commence pre-clinical studies on fibromyalgia and psoriasis during the second quarter of 2016. Pursuant to the collaboration agreements, we are obliged to pay Sheba $300,000 throughout 2016 for conducting the psoriasis research, and $100,000 for the fibromyalgia research during the two years of the study. We currently have the financial resources to fund our obligations under these agreements, but anticipate that we will require additional funding during the next 12 months for our continuing and planned expanded operations.

Research and Development Status

The following table summarizes the stages of development for each of our current Product Prospects.

Target Indication	Collaborator	Status

Multiple Myeloma	Sheba	●	Entered into a research agreement for in vitro studies
	Academic	●	Negotiating terms of a research agreement for in vivo studies
	Medical Center	●	Completed one in vitro study
		●	Proceeding with further pre-clinical in vitro studies (safety and toxicity, pharmacokinetic, and pharmacodynamic)
		●	Submitted a clinical trial protocol to the Israeli Institutional Review Board and received its approval to commence a clinical study
		●	Intend to commence a clinical study in the first quarter of 2016
		●	Drafted a clinical trial protocol synopsis, which we believe will assist us in preparing an application for orphan status designation

		●	Entered into a Research Collaboration and License Agreement but have not commenced any studies to date
Psoriasis	Sheba Academic Medical Center	●	Drafted a protocol of a Phase I, double blind, randomized, placebo controlled, multiple escalating dose study to determine the safety, tolerability and pharmacokinetic profile of medical grade cannabis in healthy volunteers

		●	Entered into a nonbinding memorandum of understanding for the development, manufacture and marketing of a cannabinoid-based topical cream
Psoriasis	Emilia Cosmetics Ltd.	●	Intend to enter into a binding agreement in the second quarter of 2016
		●	Intend to initiate development of the topical cream in the second quarter of 2016

		●	Entered into a research agreement for in vitro studies \
Fibromyalgia	Sheba Academic Medical Center	●	Drafted a clinical trial protocol synopsis, which we believe will assist us in preparing an application for orphan status designation

New delivery system - cannabis soluble tablet	G.C. Group Ltd.	●	Completed a proof of concept (the R=Research phase) of the desired end product (the soluble tablet) to test the fabric, durability, solidification and other features of the cannabis soluble tablet.

OWC's Investigation on Multiple Myeloma

Dr. Merav Leiba, Head of Multiple Myeloma Outpatient Clinic and Multiple Myeloma Research Lab at Sheba's Hematology Institute, led the in vitro tests on multiple myeloma. Dr. Leiba, a specialist in Internal Medicine and Hematology, was a postdoctoral fellow at the Jerome Lipper Multiple Myeloma Center at Dana Farber Cancer Institute, Boston, Massachusetts (2006-2008). Dr. Leiba has participated in numerous clinical and investigational studies aimed at developing novel drugs for multiple myeloma.

Our in vitro tests results on multiple myeloma cells studied outside their normal biological context, on which we announced on June 17, 2015, led us to proceed with further pre-clinical study (safety and toxicity, PK, PD) of our formulation, to find out whether it has scientific merit for further development as an investigational new drug. While we are encouraged by the results of the limited in vitro tests, there can be no assurance that any clinical trial will result in commercially viable products or treatments.

Clinical trials are expensive, time consuming and difficult to design and implement. We, as well as the regulatory authorities in Israel and elsewhere, such as an IRB (Helsinki committee), IMCU - Israel Medical Cannabis Unit, or the FDA, may suspend, delay or terminate our clinical trials at any time, may require us, for various reasons, to conduct additional clinical trials, or may require a particular clinical trial to continue for a longer duration than originally planned, including, among others:

● lack of effectiveness of any formulation or delivery system during clinical trials;

● discovery of serious or unexpected toxicities or side effects experienced by trial participants or other safety issues;

● slower than expected rates of subject recruitment and enrollment rates in clinical trials;

● delays or inability in manufacturing or obtaining sufficient quantities of materials for use in clinical trials due to regulatory and manufacturing constraints;

● delays in obtaining regulatory authorization to commence a trial, including IRB approvals, licenses required for obtaining and using cannabis for research, either before or after a trial is commenced;

● unfavorable results from ongoing pre-clinical studies and clinical trials.

● patients or investigators failing to comply with study protocols;

● patients failing to return for post-treatment follow-up at the expected rate;

● sites participating in an ongoing clinical study withdraw, requiring us to engage new sites;

● third-party clinical investigators decline to participate in our clinical studies, do not perform the clinical studies on the anticipated schedule, or act in ways inconsistent with the established investigator agreement, clinical study protocol, good clinical practices, and other Institutional Review Board requirements;

● third-party entities do not perform data collection and analysis in a timely or accurate manner or at all;

● regulatory inspections of our clinical studies require us to undertake corrective action or suspend or terminate our clinical studies;

Any of the foregoing could have a material adverse effect on our business, results of operations and financial condition.

Consulting Services

OWCP believes that the complexity of the medical cannabis programs has created a demand for consulting and advisory services in different aspects of the medical cannabis industry. The Company's services are designed to help government officials, policy-makers and regulatory agencies develop and implement tailor-made comprehensive medical cannabis programs. In addition, One World Cannabis offers medical cannabis regulatory compliance services and patient-care consultancy services.

Our initial activities to secure consulting contracts will be in member states of the European Union and states of the United States that allow for public medical cannabis programs.

OWC management has the expertise in designing training programs for physicians, caregivers, and researches that are essential to the establishment of a successful, patient-focused medical cannabis program. By working with policy-makers, government officials, public agencies, and privately owned businesses, we believe we can also raise the public's awareness of the benefits of cannabis-based treatments and products.

In furtherance of our plans, we may, in the future, consider strategic acquisitions and joint ventures as well as other projects to grow our business activities including but not limited to: product licensing and royalty agreements, consulting, and strategic alliances to support our Product Prospect development. However, there can be no assurance that this strategy will be successful in generating any revenues or growing out business.

Results of Operations during the three months ended March 31, 2016 as compared to the three months ended March 31, 2015

We have not generated any revenue during the three months ended March 31, 2016 and 2015. We have operating expenses related to general and administrative expenses and research and development expenses. During the three months ended March 31, 2016, we incurred a net loss of $314,388 due to general and administrative expenses of $221,556, research and development expenses of $37,043, interest expenses of $998, valuation loss on derivatives of $28,245 and expenses due to amortization of debt discount of $26,546 as compared to a net loss of $404,603 due to general and administrative expenses of $305,479 and research and development expenses of $99,124.

Our general and administrative expenses decreased by $83,923 or 27% during the three months ended March 31, 2016 as compared to the same period in the prior year due to a decrease in non-cash compensation expense. During the three months ended March 31, 2016, our research and development expenses decreased by $62,081 or 63% as compared to the same period in the prior year.

Liquidity and Capital Resources

On March 31, 2016, we had current assets of $320,806 consisting of $266,373 in cash, other receivables of $15,842 and prepaid assets of $38,591. We had property and equipment, net of accumulated depreciation, valued at $22,367 as of March 31, 2016. We had total assets of $343,173 as of March 31, 2016.

On December 31, 2015, we had current assets of $407,549 consisting of $357,161 in cash, other receivables of $11,797 and prepaid assets of $38,591. We had property and equipment, net of accumulated depreciation of $11,863, valued at $22,899 as of December 31, 2015. We had total assets of $430,448 as of December 31, 2015.

On March 31, 2016, we had $315,031 in current liabilities consisting of $9,117 in accounts payable, $26,799 in accrued expenses, customer deposits of $150,000, derivatives valued at $70,219 and convertible notes payable of $58,896.

On December 31, 2015, we had $107,626 in current liabilities consisting of $28,125 in accounts payable, $24,607 in accrued expenses, advances and accounts payables to related parties of $1,820, customer deposits of $50,000 and convertible notes payable of $3,074.

We had positive working capital of $5,775 at March 31, 2016 as compared to $349,923 on December 31, 2015. Our accumulated deficits as of March 31, 2016 and December 31, 2015 were $7,863,253 and $7,548,866, respectively.

We used $171,811 in our operating activities during the three month ended March 31, 2016, which was due to a net loss of $314,388 offset by derivative valuations adjustments of $28,245, amortization of debt discount expenses of $26,546, depreciation expenses of $2,389, options and warrants issued for services valued at $8,074, an increase in accounts receivable of $4,045, a decrease in accounts payable to a related party of $1,820, a decrease in accounts payable of $19,004, an increase in customer deposits of $100,000 and an increase in accrued expenses of $2,192.

We used $387,040 in our operating activities during the three months ended March 31, 2015, which was due to a net loss of $404,603 offset by increases in depreciation expenses of $2,181, non-cash compensation expenses valued at $500, options and warrants issued for services valued at $10,839, a decrease in prepaid expenses of $24,090, increase in accounts payable to related party of $138, increase in accounts payable of $20,788 and an increase of accrued expenses of $40,697.

We used $1,860 and $1,630 during the three months ended March 31, 2016 and 2015, respectively, to purchase property and equipment.

Our financing activities during the three months ended March 31, 2016 provided us with $71,250 through proceeds from debt issuance. We financed our negative cash flow from operations during the three months ended March 31, 2015 through proceeds from issuance of common stock of $90,000.

Based upon our cash position of $266,374 at March 31, 2016, we believe that we may need to raise additional capital, either equity or debt during the first half of fiscal year 2016 in order to fund our plan of operations including our research and development initiatives for the next twelve months. There can be no assurance, however, that additional capital will be sufficient to fund our currently anticipated expenditure requirements for the next twelve-month period nor can there be any assurance that financing will be available at satisfactory terms and conditions or at all, for that matter.

Our auditors have issued an opinion on our financial statements which includes a statement describing our going concern status. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills and meet our other financial obligations. This is because we have not generated any revenues and no revenues are anticipated until we begin marketing the product. Accordingly, we must raise capital from sources other than the actual sale of the product. We must raise capital to implement our project and stay in business. Even if we raise the maximum amount of money in this offering, we do not know how long the money will last, however, we do believe it will last at least twelve months.

Our lack of operating history may make it difficult to raise capital. Our inability to borrow funds or raise equity capital to facilitate our business plan may have a material adverse effect on our financial condition and future prospects.

Funding of Our Research Programs

On October 22, 2014, we have entered into a collaboration agreement with Sheba Academic Medical Center, a hospital in Tel-Aviv, Israel, relating to the use of cannabis to treat Myeloma. Within the framework of this collaboration agreement, the Company currently conducts pre-clinical studies on multiple myeloma, which have commenced in April 2015 and we expect to commence pre-clinical studies on fibromyalgia in the first quarter of 2016. Pursuant to the agreement, we are obligated to pay Sheba $330,000 between the third quarter of 2015 and second quarter of 2016.

We are obligated to provide $300,000 in funding in the second quarter of 2016 related to the Psoriasis research conducted at Sheba. We have funding obligations of $100,000 related to the Fibromyalgia research due during two years of the studies.

Our expenditures allocated to our corporate activities conducted through our facilities in Petach Tikva were $1,200,000 for the year ended December 31, 2015 and we expect will be $900,000 for the year ended December 31, 2016.

At present, we use our available working capital to fund these studies. However, we will need to raise additional funding prior to or if clinical studies are to commence.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Back to Table of Contents

None.

ITEM 4. CONTROLS AND PROCEDURES Back to Table of Contents

Evaluation of disclosure controls and procedures. As of March 31, 2016, 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 not effective as of the end of the period covered by this report.

Changes in internal controls. During the quarterly period covered by this report, no changes occurred in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS Back to Table of Contents

We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. However, from time to time, we may become a party to certain legal proceedings in the ordinary course of business.

ITEM 1A. RISK FACTORS Back to Table of Contents

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1. Description of Business, subheading "Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Back to Table of Contents

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES Back to Table of Contents

None.

ITEM 4. MINE SAFETY DISCLOSURE. Back to Table of Contents

Not applicable.

ITEM 5. OTHER INFORMATION Back to Table of Contents

Not applicable.

ITEM 6. EXHIBITS Back to Table of Contents

(a) The following documents are filed as exhibits to this report on Form 10-Q or incorporated by reference herein. Any document incorporated by reference is identified by a parenthetical reference to the SEC filing that included such document.

Exhibit No.	Description
31.1	Section 302 Certification of the Sarbanes-Oxley Act of 2002 of the Company's CEO, Mordechai Bignitz, filed herewith.
31.2	Section 302 Certification of the Sarbanes-Oxley Act of 2002 of the Company's CFO, Shmuel De-Saban, filed herewith.
32.1	Section 906 of the Sarbanes-Oxley Act of 2002 of Mordechai Bignitz as CEO, filed herewith
32.2	Section 906 of the Sarbanes-Oxley Act of 2002 of Shmuel De-Saban as CFO, filed herewith

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)	May 16, 2016
Mordechai Bignitz

/s/ Shmuel De-Saban	Chief Financial Officer (Principal Financial and Principal Accounting Officer)	May 16, 2016
Shmuel De-Saban

Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Mordechai Bignitz	Chief Executive Officer	May 16, 2016
Mordechai Bignitz

/s/ Mordechai Bignitz	Chairman	May 16, 2016
Mordechai Bignitz