OWC Pharmaceutical Research Corp. - Quarter Report: 2017 September (Form 10-Q)

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

 
FORM 10-Q

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

For the quarterly period ended September 30, 2017

Commission file number 0-54856

OWC PHARMACEUTICAL RESEARCH CORP.
(Exact Name Of Registrant As Specified In Its Charter)

Registrant’s Telephone Number, Including Area Code: +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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [  ] No

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.

On November 14, 2017, the Registrant had 146,316,600 shares of common stock outstanding.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS Back to Table of Contents

OWC PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

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

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

OWC PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

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

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)

OWC Pharmaceutical Research Corp. (“OWCP” or the “Company”) is a Delaware corporation and was incorporated under the laws of the State of Delaware on March 7, 2008. On July 6, 2014, the Company established a wholly-owned subsidiary, One World Cannabis Ltd. (“OWC” or the “Israeli subsidiary”) under the laws of the State of Israel. The Company is a medical cannabis research and development company that applies conventional pharmaceutical research protocols and disciplines to the field of medical cannabis with the objective of establishing a leadership position in the research and development of medical cannabis therapies, products and delivery technologies. The Company is currently engaged in the research and development of cannabis-based medical products (the “Product Prospects”) for the treatment of multiple myeloma, psoriasis and fibromyalgia as well as development of a cannabis soluble tablet delivery system and topical cream for localized external treatment that may have applications for other indications. The Company also provides consulting services to governmental and private entities to assist them with developing and implementing tailor-made comprehensive medical cannabis programs.

The development and commercialization of the Company’s product is expected to require substantial expenditures. The Company has not yet generated material revenues from operations, and therefore is dependent upon external sources for financing its operations. As of September 30, 2017, the Company has an accumulated deficit of $13,040,025, and its stockholders’ equity is $1,010,237. In addition, in each year since its inception the Company has reported losses and negative cash flows from operating activities. Management considered the significance of such conditions in relation to the Company’s ability to meet its current and future obligations and determined that such conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.Until such time as the Company generates sufficient revenue to fund its operations (if ever), the Company plans to finance its operations through the sale of equity or equity-linked securities and/or debt securities and, to the extent available, short-term and long-term loans. There can be no assurance that the Company will succeed in obtaining the necessary financing to continue its operations as a going concern.

During the first nine months of 2017, the Company raised a total amount of $1,667,525 (net of related expenses), from the issuance of units that included Common Stock and detachable warrants. In addition, during 2017 the Company received $77,083 through the exercise of warrants. However, the Company also paid net amount of $250,000 in connection with repayment of a Non-recourse loan (see Note 3D).

As described in the above paragraph, 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. The Company has not yet generated material revenues from its operations to fund its activities and therefore is dependent on the receipt of additional funding from its stockholders and/ or new investors in order to continue its operations.

OWC PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. As applicable to these consolidated financial statements, the most significant estimates and assumptions relate to (i) stock-based compensation and (ii) the going concern assumptions.

Accounting Principles

The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with our consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) related to interim financial statements. As permitted under those rules, certain information and footnote disclosures normally required or included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The financial information contained herein is unaudited; however, management believes all adjustments have been made that are considered necessary to present fairly the results of the Company’s financial position and operating results for the interim periods. All such adjustments are of a normal recurring nature. The accompanying condensed consolidated balance sheet as of December 31, 2016 has been derived from the consolidated financial statements contained in our Annual Report on form 10-K.

The results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017 or for any other interim period in the future.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiary. All intercompany balances and transactions have been eliminated in consolidation.

Certain reclassifications from the prior year presentation have been made to conform to the current year presentation. These reclassifications did not have material impact on the Company’s equity, net assets, results of operations or cash flows.

OWC PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

OWC PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

OWC PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

OWC PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

OWC PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

OWC PHARMACEUTICAL RESEARCH CORP. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In October 2017, the Company initiated a Phase I safety study at Sheba,blind, randomized, placebo controlled, multiple escalating dose study to determine the safety, tolerability and pharmacokinetic profile of medical grade cannabis in healthy volunteers.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. The use of words such as “anticipate”, “estimate”, “expect”, “project”, “intend”, “plan”, “believe”, and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. From time to time, we also may provide forward-looking statements in other materials we release to the public.

Plan of Operations

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

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

Recent Developments

On September 28, 2016, we entered into a loan agreement (the “Loan Agreement”) with Medmar LLC, pursuant to which Medmar agreed to loan us a total of $300,000 (the “Loan”) on a non-interest bearing basis, with no conversion rights. The Loan was due in 36 months from the Effective Date, September 22, 2016, and repayment would have been made only by the set off of royalties payable by Medmar to us as follows: (i) prior to the full repayment of the Loan, which OWC Ltd may prepay at any time, if and to the extent Medmar is required to pay any royalties to OWC under a License Agreement dated March 17, 2016, Medmar shall set off such royalties from the outstanding principal balance of the Loan; (ii) OWC shall not be required to pay the Loan other than through the set off from the royalties; and (iii) the Loan is a non-recourse loan, meaning that if and to the extent that the royalties are insufficient for any reason in order to fully repay the Loan, Medmar waived any right and/or claim to any deficiency.

In addition, the Loan Agreement also provided that: (i) subject to Medmar funding the entire Loan, Medmar shall receive the exclusive right to manufacture, produce, publicize, promote and market the OWC’s Licensed Products (as defined in the above-referenced License Agreement) in any state in the U.S., subject to a new license agreement to be negotiated and signed between the parties with respect to each and every state; (ii) the rights to be granted to Medmar under (i) above shall expire within three (3) years subject to certain conditions and limitations; and (iii) the right of first refusal agreement between the parties that was executed on February 8, 2016 providing Medmar certain rights in connection with the commercialization of Licensed Products in the States of Hawaii and Pennsylvania be terminated.

On April 21, 2017, OWC served written notice to Medmar of OWC’s determination to repay the non-recourse loan by Medmar to OWC in the principal amount of $300,000. OWC exercised what it believes is its absolute right to terminate certain distribution rights granted to Medmar under the loan agreement and has repaid the entire principle balance of $300,000, during the period.

On February 1, 2017, following the very encouraging results that have been achieved at the mid-point of the psoriasis related study conducted by OWC with an Israeli research institute, the Registrant’s Board of Directors and the management and scientific personnel of OWC Ltd have determined to extend the size and scope of the Study for the purpose of, among other things, checking the biological markers that have been generated to date with respect to the treatment of psoriasis (proliferation/inhibition and several interleukins).

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 been scientifically researched and demonstrated in a preclinical model concerning our topical cream formulation. 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).In addition, we are developing unique delivery systems for our pharmaceutical grade products.

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

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

To date, OWC has signed three research collaboration and license agreements as well as service agreements with Sheba Academic Medical Center, Tel Hashomer, Israel (“Sheba”), with respect to two potential indications. 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 abovementioned agreements with Sheba, as well as other potentially negotiated agreements, OWC intends to initiate two studies at the Sheba facilities to explore the effect of two formulations, all based on active ingredients in the cannabis extracts, on multiple myeloma and psoriasis.

Pursuant to the above-mentioned research agreement in connection with the psoriasis indication, the Medical Research Infrastructure Development and Health Services of the Chaim Sheba Center (the “Fund”) shall perform a Phase I, randomized, placebo-controlled, maximal dose study (the “Study”) to determine the safety and tolerability of topical cream containing MGC (“Medical Grade Cannabis” or the “Study Drug”) in healthy volunteers. Dr. Aviv Barzilay, Director of the Department of Dermatology at the Chaim Sheba Medical Center will lead the Study (the “Investigator”). The Study as defined in the Research Agreement, shall be conducted in compliance with the following: (1) the Protocol; (2) the Ministry Guidelines; (3) the instructions and terms specified in the Helsinki Committee’s approval; (4) the ICH-GCP; (5) the Helsinki Declarations; (6) the applicable laws, rules and regulations regulating such studies which are applicable in Israel (the “Applicable Laws”); and (7) written instructions and prescriptions issued by the OWC and governing the administration of the Study Drug.

On February 1, 2017, following the very encouraging results that were achieved by OWC at the mid-point of the psoriasis related study conducted by OWC with an Israeli research institute, the Company determined to extend the size and scope of the Study for the purpose, among other parameters, of checking the biological markers that have been generated to date with respect to the treatment of psoriasis (proliferation/ inhibition and several interleukins) which was conducted by such institute. Such trial results concluded that application of OWC’s unique active cannabinoid-based topical cream formulation, resulted in up to 70% improvement in a variety of inflammation markers directly associated with Psoriasis and inhibition of proliferation.

To date, our intellectual property portfolio comprises 7 patent families and includes 21 filings in selected domains at various stages from PCT filings, National Phase filings and Continuations in Part (CIP). Two of the patent families are in the field of Multiple Myeloma and the other families are in the fields of pharmaceutical emulsions, Fibromyalgia, Migraine, Sexual Function and Skin Disorders. These filings encompass pharmaceutical compositions and devices in these fields.

The national phase is the second of the two main phases of the Patent Cooperation Treaty procedure. It follows the international phase and consists in the processing of the international application before each office of or acting for a contracting state of the PCT that has been designated in the international application. Assuming the successful completion of the clinical trials, of which there can be no assurance, we believe that we will be able to retain the intellectual rights and secure patent protection for our proprietary developments.

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 agreement with Sheba provide that all intellectual property that is conceived during the course of the research is to be jointly owned by Sheba and One World Cannabis.

Pursuant to the collaboration agreements, we are expected to pay Sheba $170,000 for conducting the multiple myeloma trial between the 3rd quarter of 2015 and the second quarter of 2016. Pursuant to the collaboration agreements, we are obliged to pay Sheba $85,000 throughout 2017 for conducting the safety study for the cream for treatment of psoriasis. We currently have the financial resources to fund our current obligations under these agreements, but anticipate that we will require additional funding during the next 12 months for our continuing and planned expanded operations. As of September 30, 2017, we have paid Sheba $65,669 as per Sheba’s payment requests.

Research and Development Status

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

OW C’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 test results on multiple myeloma cells studied in vitro, which we announced on June 17, 2015, led us to proceed with further pre-clinical studies (safety and toxicity, PK, PD) of our formulation, to assess the scientific merit for further development as an investigational new drug. Whilst we are encouraged by the results of the limited in vitro tests, there can be no assurance that any clinical trial will result in commercially viable products or treatments.

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

● lack of effectiveness of any formulation or delivery system during clinical trials;
● discovery of serious or unexpected toxicities or side effects experienced by trial participants or other safety issues;
● slower than expected rates of subject recruitment and enrollment rates in clinical trials;
● delays or inability in manufacturing or obtaining sufficient quantities of materials for use in clinical trials due to regulatory and manufacturing constraints;
● delays in obtaining regulatory authorization to commence a trial, including IRB approvals, licenses required for obtaining and using cannabis for research, either before or after a trial is commenced;
● unfavorable results from ongoing pre-clinical studies and clinical trials.
● patients or investigators failing to comply with study protocols;
● patients failing to return for post-treatment follow-up at the expected rate;
● sites participating in an ongoing clinical study withdraw, requiring us to engage new sites;
● third-party clinical investigators decline to participate in our clinical studies, do not perform the clinical studies on the anticipated schedule, or act in ways inconsistent with the established investigator agreement, clinical study protocol, good clinical practices, and other Institutional Review Board requirements;
● third-party entities do not perform data collection and analysis in a timely or accurate manner or at all;
● regulatory inspections of our clinical studies require us to undertake corrective action or suspend or terminate our clinical studies;

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

Consulting Services

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

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

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

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

Results of Operations during the three months ended September 30, 2017 as compared to the three months ended September 30, 2016

We have not generated any revenue during the three months ended September 30, 2017 and 2016. We have operating expenses related to general and administrative expenses and research and development. During the three months ended September 30, 2017, we incurred a net loss of $1,201,067 due to general and administrative expenses of $1,105,794,research and development expenses of $94,475, and financial expenses of $798 as compared to a net loss of $140,794 due to general and administrative expenses of $74,898, research and development expenses of $30,363 and financial expenses of $35,533.

Our general and administrative expenses increased by $1,030,896 during the three months ended September 30, 2017 as compared to the same period in the prior year. This increase of 1,376% is primarily the result of increased stock-based compensation and amortization of services receivable expenses. The charge relating to stock-based compensation and services receivable expenseswere$550,809 and $378,513, respectively,for the three months ended September 30, 2017, compared to $0 for the three months ended September 30, 2016.

Our research and development expenses increased to $94,475 during the three months ended September 30, 2017, compared to $30,363 during the same period in the prior year. The increase by $64,112 or 211% was primarily due to increased payments related to our collaboration agreements, consultancy and patent applications.

Results of Operations during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016

We have not generated any revenue during the nine months ended September 30, 2017 and 2016. We have operating expenses related to general and administrative expenses and research and development. During the nine months ended September 30, 2017, we incurred a net loss of $3,081,560 due to general and administrative expenses of $2,738,731, research and development expenses of $340,436, and financial expenses of $2,393 as compared to a net loss of $628,912 due to general and administrative expenses of $380,920, research and development expenses of $102,182, and financial expenses of $145,810.

Our general and administrative expenses increased by $2,357,811 during the nine months ended September 30, 2017 as compared to the same period in the prior year. This increase of 619% is primarily the result of increased stock-based compensation and amortization of services receivable expenses. The charges relating to stock-based compensation and services receivable expenseswere $1,319,745 and $877,500, respectively,for the nine months ended September 30, 2017, compared to stock-based compensation and services receivable expenses of $8,074 and $0, respectively,for the nine months ended September 30, 2016.

Our research and development expenses increased to $340,436 during the nine months ended September 30, 2017, compared to $102,182 during the same period in the prior year. The increase by $238,254 or 233% was primarily due to increased payments related to our collaboration agreements, consultancy and patent applications.

Liquidity and Capital Resources

On September 30, 2017, we had current assets of $1,208,901;consisting of $1,113,372 in cash and other current assets of $95,529. We had property and equipment valued at $9,539, net of $28,163 in accumulated depreciation, as of September 30, 2017. We had total assets of $1,218,440 as of September 30, 2017.

On December 31, 2016, we had current assets of $481,695 consisting of $472,282 in cash and other current assets of $9,413. We had property and equipment valued at $15,073, net of $21,549 in accumulated depreciation as of December 31, 2016. We had total assets of $496,768 as of December 31, 2016.

On September 30, 2017, we had $208,203 in current liabilities consisting of $39,847 in accounts payable, $68,356 in other current liabilities and deferred revenues of $100,000.

On December 31, 2016, we had $145,780 in current liabilities consisting of $7,694 in accounts payable, $38,086 in other current liabilities and deferred revenues of $100,000. We also had a non-recourse loan of $250,000 that was classified as a noncurrent liability.

We had positive working capital of $1,000,698 on September 30, 2017 compared to positive working capital of $335,915 on December 31, 2016. Our accumulated deficit as of September 30, 2017 and December 31, 2016 was $13,040,025 and $9,958,465, respectively.

We used $860,022 in our operating activities during the nine months ended September 30, 2017, which was due to a net loss of $3,081,560 offset by amortization of services receivable of $877,500, stock-based compensation of $1,319,745, depreciation expense of $9,027, an increase in accounts payable of $32,153, an increase in other assets of $46,127, an increase in foreign currency translation adjustments of $1,030 and an increase in other liabilities of $30,270.

We used $386,224 in our operating activities during the nine month ended September 30, 2016, which was due to a net loss of $628,912 offset by adjustments of convertible loans of $102,195, Stock based compensation of $8,074, depreciation expense of $7,255, a decrease in accounts payable of $21,078, a decrease in other assets of $29,454, an increase in deferred revenue of $100,000 a decrease in foreign currency translation adjustments of $11,614, an increase in accounts receivable of $421 and an increase in other liabilities of $5,595.

We used $3,493 and $1,860 during the nine months ended September 30, 2017 and 2016, respectively, to purchase property and equipment.

Our financing activities during the nine months ended September 30, 2017 provided us with $1,504,605 through proceeds of $1,667,525 from issuance of common stock and warrants, $77,083 from exercise of warrants, $50,000 from non-recourse loan, a repayment of non-recourse loan of $300,000, and $9,997 from collection of common stock subscriptions receivable. Based upon our cash position of $1,113,372 on September 30, 2017, we believe that we have sufficient cash to fund our operation in the next 12 months, however 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.

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 entered into a collaboration agreement with Sheba Academic Medical Center, a hospital in Tel-Aviv, Israel, relating to the use of cannabis to treat Myeloma. Pursuant to the collaboration agreement, we are expected to pay Sheba $170,000 for conducting the multiple myeloma trial between the 3rd quarter of 2015 and the second quarter of 2016. In addition, we commenced pre-clinical studies on the treatment of psoriasis during the second quarter of 2016. Pursuant to the collaboration agreements, we are obliged to pay Sheba $85,000 throughout 2017 for conducting the safety study for the cream for treatment of psoriasis. We currently have the financial resources to fund our current obligations under these agreements, but anticipate that we will require additional funding during the next 12 months for our continuing and planned expanded operations. As of September 30, 2017, we have paid Sheba $65,669 according Sheba’s payment requests.

Our expenditures allocated to our corporate activities conducted through our facilities in Petach Tikva were $39,752 for the year ended December 31, 2016 and we expect will be approximately $40,000 for the year ending December 31, 2017.

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

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

None.

ITEM 4. CONTROLS AND PROCEDURES Back to Table of Contents

Evaluation of Disclosure Controls and Procedures

As of September 30, 2017, the Company’s chief executive officer and chief financial officer conducted an evaluation regarding the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures required by Rules 13a-15 or 15d-15, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were ineffective as of the end of September 30, 2017 under the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013).

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS Back to Table of Contents

The Company has filed an action in the Supreme Court of the State of New York, New York County for alleged legal malpractice against the NYC law firm of Sichenzia Ross Ference Kesner LLP and Marc J. Ross, Esq. a partner at Sichenzia Ross (collectively, the “Defendants”). Our claims arise out of legal services allegedly negligently performed by the Defendants related to the: (i) filing of a registration statement on Form S-1; (ii) the withdrawal of the S-1; (iii)delayed filing of a second S-1; and (iv)related contracts and convertible note instrument that resulted in OWCP suffering damages in excess of $2 million in equity and the issuance of approximately 35 million shares upon conversion of a note without any consideration or benefit to OWCP. We 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. The action is now in the discovery stage. Reference is made to our Form 8-K filed with the SEC on November 30, 2016, and specifically to the details contained in our attorney’s demand letter to Sichenzia Ross and Ross prior to the commencement of the lawsuit. No changes have incurred related to this matter since the Company’s last report on Form 10-K as filed with the SEC on April 17, 2017.

On August 10, 2017, the Company filed an action in the Supreme Court of the State of New York, New York County seeking to recover unpaid shares due the Company from former employees Ziv Turner, Uri Geller and Dubi Kochvar. The Company has settled the matter with defendant Jeffrey Low, who has agreed to set aside shares of the Company to fund any judgment received by the Company against defendant Turner. The action is currently pending and the Company is pursuing default judgments or settlements with the remaining defendants.

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. We are currently not aware of any legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

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, 2016, 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 DISCLOSURES 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.

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.