The Company’s working capital at September 30, 2017 was adversely affected by unauthorized payments that were made from the Company’s bank accounts. The Company has identified that certain unauthorized payments were made from the bank account of the Company’s Israeli subsidiary, Kalytera Therapeutics Israel, Ltd. These unauthorized payments occurred during the period of June and July 2017. The Company has also identified that one such payment was made from the Company’s Canadian bank account in September 2017. Management has determined that these diversions of funds were acts of fraud, and the Company is working with the Economic Crimes Unit of the Miami Police Department in Miami, 39161-2001 23978534.1 - 14 - 24563888.1 Florida to recover the misappropriated funds, as well as pursuing civil action against the believed perpetrator of the fraud. The Company has determined the total amount of the funds diverted through September 30, 2017, was approximately $331 (i.e. three hundred and thirty-one thousand U.S. dollars). The Company is not aware of any evidence of employee criminal involvement in the fraud. While we intend to attempt to recover the diverted funds through several avenues, no provision for recoveries of the fraudulently diverted funds are included in these financial statements, nor are the costs of the investigation into the fraud. Such charges, and any potential recovery will be recognized in future reports. However, there can be no assurance at this time that the Company will be able to recover the funds or obtain insurance coverage for the loss. The Company has implemented enhanced procedures and controls in order to reduce the likelihood of any such incidents occurring again in the future.
