# China Pharma Holdings, Inc.: Form 10-Q for the period ended Mar 31, 2016

- Company: [China Pharma Holdings, Inc.](/companies/cphi.md) (CIK 1106644)
- Form: 10-Q
- Filed: 2016-05-16
- Accepted by EDGAR: May 16, 2016, 16:41 ET
- Period: 2016-03-31
- Accession: 0001010549-16-000606
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1106644/000101054916000606/cphi10q033116.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1106644/000101054916000606/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-01-01 to 2016-03-31 | $3.6m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2016-01-01 to 2016-03-31 | $3.1m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2016-01-01 to 2016-03-31 | $640.8k | us-gaap:GrossProfit |
| Research and development | 3 months, 2016-01-01 to 2016-03-31 | $93.4k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2016-01-01 to 2016-03-31 | −$1.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2016-01-01 to 2016-03-31 | $242.3k | us-gaap:InterestExpense |
| Net income | 3 months, 2016-01-01 to 2016-03-31 | −$1.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2016-01-01 to 2016-03-31 | −$0.04 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2016-01-01 to 2016-03-31 | −$0.04 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2016-01-01 to 2016-03-31 | 43,579,557 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2016-01-01 to 2016-03-31 | $1.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2016-01-01 to 2016-03-31 | $39.2k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2016-03-31 | $7.3m | us-gaap:Cash |
| Current assets | at 2016-03-31 | $25.1m | us-gaap:AssetsCurrent |
| Total assets | at 2016-03-31 | $97.0m | us-gaap:Assets |
| Current liabilities | at 2016-03-31 | $14.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2016-03-31 | $25.5m | us-gaap:Liabilities |
| Shareholders' equity | at 2016-03-31 | $71.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 26,791 characters.

The statements contained in this report with respect to our financial condition, results of operations and business that are not historical facts are forward-looking statements. Forward-looking statements can be identified by the use of forward-looking terminology, such as "anticipate", "believe", "expect", "plan", "intend", "seek", "estimate", "project", "could", "may" or the negative thereof or other variations thereon, or by discussions of strategy that involve risks and uncertainties. Management wishes to caution the readers of the forward-looking statements that any such statements that are contained in this report reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors, including, but not limited to, economic, competitive, regulatory, technological, key employees, and general business factors affecting our operations, markets, growth, services, products, licenses and other factors, some of which are described in this report and some of which are discussed in our other periodic filings with the Securities and Exchange Commission. These forward-looking statements are only estimates or predictions. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of risks facing our company, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events.

These risk factors should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. All written and oral forward looking statements made in connection with this report that are attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given these uncertainties, we caution investors not to unduly rely on our forward-looking statements. We do not undertake any obligation to review or confirm analysts' expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required by applicable law or regulation.

### Business Overview & Recent Developments

The China Food and Drug Administration ("CFDA") promulgated *Good Manufacturing Practices for Pharmaceutical Products (2010 revised version*) (the "New GMP Standards") on February 12, 2011, which became effective on March 1, 2011. The New GMP Standards outlines the basic principles and standards for the manufacturing of pharmaceutical products and the management of quality controls in the manufacturing process in the PRC. Pursuant to those mandatory requirements, the upgrading of our two sterilization production lines was required to be completed by the end of 2013; and the upgrading of our oral solution production lines was required to be completed by the end of 2015. Per CFDA, there were over 7,000 Chinese pharmaceutical enterprises by the end of 2015. The competition in this industry is fierce. One of the key controls adopted by the CFDA to promote industry consolidation and improve the quality of drugs was to implement the New GMP Standards. Although 2015 was the deadline for new GMP upgrading, there were only approximately 1,200 pharmaceutical companies which received the new GMP certificates by the end of 2014. Insiders believed that thousands of pharmaceutical companies might be forced to shut down or merge with other entities due to unfulfilled new GMP upgrading.

Under this unfavorable economic environment, we aggressively promoted our sales efforts since 2015. Due to the fact that we only received new GMP certificate for the injectable production lines at our new manufacturing facility in November 2014, we missed drug biddings in several provinces prior to November 2014. Those missed biddings negatively impacted our market shares previously secured in those provinces, and dragged our sales in 2015. Nevertheless, we continued concentrating on enhancing our fundamentals. In January and December 2015, we completed the upgrading and received new GMP certificates for the tablet and capsule production lines, and cephalosporin production lines at our old factories, respectively. The upgrading of these oral solution production lines was completed before the deadline, which positioned us to better meet market demand.

In order to support our existing products package, we have remained focused on pipeline development. We have experienced delays in obtaining approval for products in our pipeline due to revisions and enhancements in the approval criteria and processes issued by CFDA. These revisions result in additional supplemental materials and trials, higher cost, and longer approval time for certain applications. On March 5, 2016, the PRC State Council issued "*Opinions on Carrying out Consistency Evaluation on Quality and Efficacy of Generic Drugs*" (the "Opinions"). The Opinions require all chemical generic pipeline products to carry out "Consistency Evaluation" before final registration approval, which will further prolong the registration process. "Consistency Evaluation" requires currently marketed generic products to prove consistency in terms of quality, therapeutic effect, and substitutability during clinical trials with the original drug, which could enhance development of the pharmaceutical industry, ensure drug safety and effectiveness, promote the upgrading and restructuring of the pharmaceutical industry, and improve international competitiveness.

The status of our pipeline products remains the same as we reported in our Annual Report on Form 10-K for the year ended December 31, 2015.

### Market Trends

Pharmaceutical is one of the most stable industries for future growth. However, its growth rate has declined year by year recently due to certain negative impacts such as medical insurance cost control. According to the medicine research data firm Sinohealth CMH, the 2015 Chinese pharmaceutical market reached a scale of RMB1.38 trillion (in terms of retail pricing), which increased by 7.6% compared to prior year. The growth rate declined by 5.6% compared to prior year, and was a record low in a decade. National Bureau of Statistics data shows that the overall main business revenue of China's pharmaceutical industry was RMB2.55 trillion in 2015, increased by 9.1% compared to RMB 2.33 trillion in 2014. However, for 2015, the annual growth rate is 9.1%, declined by 3.8% compared to 12.9% in 2014.

The Chinese People's Political Consultative Conference (CPPCC) held a special meeting titled "To Deepen Health Reform" in Beijing on May 10, 2016 with National Development and Reform Commission (NDRC), Ministry of Finance (MOF), CFDA and other governmental departments participated. The participants concluded that China's healthcare reform had achieved significant initial results; however, the results so far had not fulfilled people's expectations. To be specific, the problems of inadequate and overly expensive medical services have not been fundamentally resolved. The participants therefore suggested:

(a) deepen reform of management model and compensation system of healthcare institutions

(b) promote the reform of medical insurance payment

(c) strengthen basic-level health care services, and promote the establishment of diagnosis and treatment hierarchy

(d) strengthen medical and health information technology to promote the realization of information sharing among different healthcare institutions

(e) strengthen the leadership of healthcare reform to reduce cost and form synergy

We believe that Chinese pharmaceutical enterprises have the opportunity to enjoy a "golden decade" along with China's economic growth, consumption upgrade, aging population, healthcare reform progress, and urbanization; however, the challenges remain due to low industrial concentration, small company size, unfulfilled financing leverage, industrial upgrading and M&A demands.

### Results of Operations for the Three months ended March 31, 2016

Under the industrial reform and modification background guided by the government's healthcare reform policies, we actively completed the new GMP upgrading for the majority of our current production facility, and have been aggressively promoting our sales to regain our original market shares. Although there was no immediate reversal of sales trends so far due to the special characteristics of pharmaceutical industry, we strongly believe that our current operations and financial position will allow us to have a foundation for steady business growth in the future.

Net loss for the three months ended March 31, 2016 was $1.6 million, compared to net loss of $4.1 million for three months ended March 31, 2015. Our net loss for the three months ended March 31, 2016 was significantly less than that in the same period 2015, which was mainly due to the decrease in bad debt expense.

### Revenue

Revenue decreased by 36.1% to $3.6 million for the three months ended March 31, 2016, as compared to $5.7 million for the three months ended March 31, 2015. This decrease was primarily caused by several missed provincial tenders back in 2014 due to the fact that our new GMP certificates were not received until November 2014, therefore we lost related market share and negatively impacted sales afterwards. To be specific, the original tender practice actually lasted until April 2015 given the necessary process and timing of tender and therefore did not create significant negative impact on the sales in first quarter 2015. Therefore, the sales decrease in the first quarter of 2016 compared to its corresponding period in 2015 reflected the outcome of that event. In addition, the government's healthcare-cost-controls also maintained continuous pressure upon our sales.

Set forth below are our revenues by product category in millions USD for the three months ended March 31, 2016 and 2015:

| Product Category 2016 | Three Months Ended March 31, 2015 |  | Net Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| CNS, Cerebral & Cardio Vascular | $ 0.60 | $ 0.70 | $ -0.10 | -14% |
| Anti-Viro/Injection & Respiratory | 2.53 | 4.05 | -1.52 | -38% |
| Digestive Diseases | 0.19 | 0.14 | 0.05 | 36% |
| Other | 0.31 | 0.80 | -0.49 | -61% |

The most significant revenue decrease in terms of dollar amount was in our "Anti-Viro/Infection & Respiratory" product category, which generated $2.53 million in sales revenue in the first quarter 2016 compared to $4.05 million a year ago, a decrease of $1.52 million. This decrease was mainly due to the decrease in sales of Cefaclor dispersible tablets in this category, which was caused by market fluctuation .

Sales in the "Other" category decreased by $0.49 million to $0.31 million in the first quarter 2016 compared to $0.80 million in the same period 2015, which was mainly due to the decrease in sales of Vitamin B6, primarily affected by the market loss due to the missed drug tenders back in late 2014. Our "Digestive Diseases" category generated $0.19 million of sales in the first quarter 2016, compared to $0.14 million in the same period previous year, which represented an increase of $0.05 million.

Sales in our "CNS Cerebral & Cardio Vascular" category decreased by $0.10 million to $0.60 million in the first quarter 2016 compared to $0.70 million in the same period 2015.

| Product Category 2016 | Three Months Ended March 31, 2015 |  |
| --- | ---: | ---: |
| CNS, Cerebral & Cardio Vascular | 17% | 12% |
| Anti-Viro/ Infection & Respiratory | 70% | 71% |
| Digestive Diseases | 5% | 3% |
| Other | 9% | 14% |

For the three months ended March 31, 2016, revenue breakdown by product category remained close to that of the prior year. Sales of the "Anti-Viro/Infection & Respiratory" products category represented 70% and 71% of total sales in the three months ended March 31, 2016 and 2015. The "CNS, Cerebral & Cardio Vascular" category represented 17% and 12% of total sales in the three months ended March 31, 2016 and 2015. The "Digestive Diseases" category represented 5% of total revenue in first quarter 2016 compared to 3% in first quarter 2015. The "Other" category represented 9% and 14% of revenues in the three months ended March 31, 2016 and 2015.

### Cost of Revenue

For the three months ended March 31, 2016, our cost of revenue was $3.1 million, or 84.4% of total revenue, which represented a decrease of $1.4 million from $4.4 million, or 77.9% of total revenue, in the same period 2015. The decrease in cost of revenue during first quarter 2016 was due to the revenue decrease. The decrease in gross profit margin for the three months ended March 31, 2016 compared to the same period last year was mainly caused by the decrease in sales prices of certain products due to market fluctuation.

### Inventory Obsolescence

We have had decreases in the sales estimates between the time when raw materials were purchased and the time when the sales performance is realized for certain products. We have also assessed the market value of our raw materials. As a result, we determined that certain inventory was slow moving or obsolete. Based on the developed estimates as of March 31, 2016 and 2015, we recognized an additional inventory obsolescence expense of ($0.1) million and $0.2 million for the three months ended March 31, 2016 and 2015, respectively.

### Gross Profit and Gross Margin

Gross profit for the three months ended March 31, 2016 was $0.6 million, compared to $1.1 million in the same period 2015. Our gross profit margin in first quarter 2016 was 17.6% compared to 18.6% in the same period 2015. Without the effect of inventory obsolescence, management estimates that our gross profit would have been approximately 15.6% in the first quarter 2016 and 22.1% in the first quarter 2015.

On May 5, 2015, the National Development and Reform Commission issued "Notice on Enhancing Drug Price Reform" with the National Health and Family Planning Commission, Human Resources and Social Security and other departments, announced to cancel the government pricing upon the majority of drugs from June 1, 2015, and to improve drug purchasing mechanism, strengthen the medical insurance cost-control, enhance medical practices and price behavior regulation, and establish a market-oriented pricing mechanism for drugs. Going forward, under the macro-environment of medical insurance cost-control, we expect to see continued pricing pressures on most products.

### Selling Expenses

Our selling expenses for the three months ended March 31, 2016 and 2015 were both $1.0 million, which accounted for 26.6% and 17.4% of the total revenue in first quarter 2016 and 2015 respectively. Due to many adjustments in our selling processes under healthcare reform policies, despite the decrease in sales, we still need to maintain personnel and continue our sales activity to support the sales and collection of accounts receivable.

### General and Administrative Expenses

Our general and administrative expenses for the three months ended March 31, 2016 were $0.3 million, compared to $0.5 million in the three months ended March 31, 2015. General and administrative expenses accounted for 8.8% and 8.3% of our total revenues in first quarter 2016 and 2015, respectively.

### Research and Development Expense

Our research and development expenses for the three months ended March 31, 2016 were $0.1 million, a decrease of $0.1 million from $0.2 million in the three months ended March 31, 2015. Research and development expenses accounted for 2.6% and 2.8% of our total revenues in the first quarter 2016 and 2015, respectively.

### Bad Debt Expense

Our bad debt expense for the three months ended March 31, 2016 was $0.6 million, compared to $3.2 million in the three months ended March 31, 2015. The decrease was due to having majority of accounts receivable balance fully allowed in 2014 and 2015 under the Company's revised allowance policy as they were over 720 days old.

In general, our normal credit or payment terms extended to customers are 90 days. This has not changed in recent years. Due to the peculiarity of the Chinese pharmaceutical market environment, deferred payments to pharmaceutical companies by state-owned hospitals and local medicine distributors are a normal phenomenon. Our customers are primarily pharmaceutical distributors who sell our products to mostly government-backed hospitals. Therefore, the aging of our receivables from our customers tend to be long.

The amount of accounts receivable that were past due (or the amount of accounts receivable that were more than 90 days old) was $5.8 million and $5.6 million as of March 31, 2016 and December 31, 2015, respectively.

The following table illustrates our accounts receivable aging distribution in terms of percentage of total accounts receivable as of March 31, 2016 and December 31, 2015:

|  | March 31, 2016 | December 31, 2015 |
| --- | ---: | ---: |
| 1 - 90 Days | 3.2% | 4.0% |
| 90 - 180 Days | 2.7% | 2.2% |
| 180 - 360 Days | 4.2% | 7.9% |
| 360 - 720 Days | 16.1% | 14.6% |
| \> 720 Days | 73.8% | 71.3% |
| Total | 100.0% | 100.0% |

Our bad debt allowance estimate is currently the sum of 10% of accounts receivable that are less than 365 days old, 70% of accounts receivable that are between 365 days and 720 days old and 100% of accounts receivable that are greater than 720 days old.

We recognize bad debt expense per actual write-offs as well as the changes of allowance for doubtful accounts. To the extent that our current allowance for doubtful accounts is higher than that of the previous period, we recognize a bad debt expense for the difference during the current period, and when the current allowance is lower than that of the previous period, we recognize a bad debt benefit for the difference. The allowance for doubtful accounts was $29.6 million and $28.6 million as of March 31, 2016 and December 31, 2015, respectively. The changes in the allowance for doubtful accounts during the years ended March 31, 2016 and 2015 were as follows:

|  | For the Three Months Ended March 31, 2016 | 2015 |
| --- | ---: | ---: |
| Balance, Beginning of Period | $28,644,398 | $44,347,451 |
| Bad debt expense | 581,300 | 3,200,003 |
| Foreign currency translation adjustment | 373,005 | 220,035 |
| Balance, End of Period | $29,598,703 | $44,767,489 |

### Loss from Operations

Our operating loss for the three months ended March 31, 2016 was $1.3 million, compared to $3.8 million in the same period 2015. The decrease in operating loss for this period is mainly due to the decrease in bad debt expense.

### Interest Expense

Interest expense for the three months ended March 31, 2016 was $0.2 million, compared to $0.3 million in the same period 2015, which represented a decrease of $0.1 million.

### Income Tax Expense

For the three months ended March 31, 2016 and 2015, our income tax rate was 15%. Income tax expense was ($0.02) million both for the three months ended March 31, 2016 and 2015, respectively. We renewed our "National High-Tech Enterprise" status from the PRC government in the third quarter of 2013. With this designation, for the years ending December 31, 2014, 2015 and 2016, we enjoy a preferential tax rate of 15% which is notably lower than the statutory income tax rate of 25%.

### Net Loss

Net Loss for three months ended March 31, 2016 was $1.6 million, compared to net loss of $4.1 million for the three months ended March 31, 2015. The reduction in net loss was mainly due to the decrease in bad debt expense, which was partially offset by the decreased revenue.

For the three months ended March 31, 2016, loss per basic and diluted common share was $0.04, compared to loss per basic and diluted share of $0.09 for the three months ended March 31, 2015.

The number of basic and diluted weighted-average outstanding shares used to calculate loss per share was 43,579,557 for both the three months ended March 31, 2016 and 2015.

### Liquidity and Capital Resources

Our principal sources of liquidity are cash generated from operations and short-term bank loans. Our cash and cash equivalents was $7.3 million, which represents 7.5% of our total assets as of March 31, 2016, as compared to $6.2 million, which represents 6.4% of our total assets as of December 31, 2015. All of the $7.3 million of cash and cash equivalents as of March 31, 2016 is considered to be reinvested indefinitely in Helpson and is not expected to be available for payment of dividends, for other payments to our parent company or to its shareholders.

As of March 31, 2016, we had a principal balance of $4.7 million in short-term bank loans. This loan is due on October 19, 2016. In addition, we entered into an eight-year construction loan facility with a bank on September 21, 2013. The total loan facility amount is RMB80,000,000 (approximately $13 million), which had been fully utilized through May 7, 2014. The current portion of the construction loan facility is $1.6 million as of March 31, 2016. Both the short-term bank loan and the construction loan facility are from the same bank. The cash flow generated from operating activities was used to fund the remaining construction of our GMP upgrading project in our new facility.

Based on our current operating plan, management believes that our cash provided by operations will be sufficient to meet our working capital needs and our anticipated capital expenditures, including expenditures for new formula acquisitions and the remaining new GMP upgrading related construction and equipment in our prior facility for the next twelve months. However, if circumstances change and we do not meet our operating plan as expected, we may be required to seek additional capital and/or to reduce certain discretionary spending, which could have a material adverse effect on our ability to achieve our business objectives. Notwithstanding the foregoing, we may seek additional financing as necessary for expansion purposes and when we believe market conditions are most advantageous, which may include debt and/or equity financing. There can be no assurance that any additional financing will be available on acceptable terms, if at all.

### Operating Activities

Net cash provided by operating activities was $1.3 million in the three months ended March 31, 2016 compared to ($2,239) for the three months ended March 31, 2015. This is mainly due to lower net loss and the outcome of the changes in our sales strategy: we enhanced the control of sales on credit, therefore improved the collection of accounts receivable and advances from customers; and we also enhanced the control over accounts payable in this period.

As of March 31, 2016, our accounts receivable was $4.8 million, compared to $5.9 million as of December 31, 2015.

As of March 31, 2016, net inventory was $9.9 million, remaining close to $9.7 million as of December 31, 2015.

### Investing Activities

During the three months ended March 31, 2016, net cash used in investing activities was $39,248, compared to $47,106 for the three months ended March 31, 2015.

### Financing Activities

Cash flow used in financing activities was ($305,835) in the three months ended March 31, 2016, while there was no comparable activity incurred in the three months ended March 31, 2015.

According to relevant PRC laws, companies registered in the PRC, including our PRC subsidiary, Helpson, are required to allocate at least ten percent (10%) of their after-tax net income, as determined under accounting standards and regulations in the PRC, to statutory surplus reserve accounts until the reserve account balances reach fifty percent (50%) of the companies' registered capital prior to their remittance of funds out of the PRC. Allocations to these reserves and funds can only be used for specific purposes and are not transferrable to the parent company in the form of loans, advances or cash dividends. As of March 31, 2016 and December 31, 2015, the net assets of Helpson were $67,294,0000 and $68,240,000 respectively. Due to the restriction on dividend distribution to overseas shareholders, the amount of Helpson's net assets that were designated for general and statutory capital reserves, and thus could not be transferred to our parent company as cash dividends, were $8,145,000 and $8,145,000 (50% of registered capital) as of March 31, 2016 and December 31, 2015 respectively. Since the amount that Helpson must set aside for the statutory surplus fund only accounts for 12.1% and 11.9%, respectively, of its total net assets as of March 31, 2016 and December 31, 2015, this reserve does not have a major impact on our liquidity. There were no allocations to the statutory surplus reserve accounts during the three months ended March 31, 2016.

The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Our businesses and assets are primarily denominated in RMB. All foreign exchange transactions take place either through the People's Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People's Bank of China. Approval of foreign currency payments by the People's Bank of China or other regulatory institutions requires submitting a payment application form together with applicable invoices and signed contracts. These currency exchange control procedures imposed by the PRC government authorities may restrict the ability of Helpson, our PRC subsidiary, to transfer its net assets to our parent company through loans, advances or cash dividends.

### Off-Balance Sheet Arrangements

As of March 31, 2016, we did not have any off-balance sheet arrangements.

### Commitments

As of March 31, 2016, we were obligated to pay laboratories and others approximately $4.8 million over approximately the next four years upon completion of the various phases of contracts to provide CFDA production approval of medical formulas.

### Critical Accounting Policies

Management's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. Our financial statements reflect the selection and application of accounting policies which require management to make significant estimates and judgments. The discussion of our critical accounting policies contained in Note 1 to our consolidated financial statements, "Organization and Significant Accounting Policies", is incorporated herein by reference.

## Market risk

As filed, 139 characters.

As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.

## Controls and procedures

As filed, 1,920 characters.

### Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and interim Chief Financial Officer, evaluated the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this quarterly report. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act (a) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and (b) is accumulated and communicated to management, including our Chief Executive Officer and interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as described above. Based on this evaluation, our Chief Executive Officer and interim Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2016.

### Changes in Internal Controls over Financial Reporting

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

Filed May 16, 2016.
Source: SEC EDGAR, the filing index for accession 0001010549-16-000606. Last ingested by Listed: Nov 11, 2026, 00:23 ET. No prices; not investment advice.