Legal
Proceedings
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 pleading stages. 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.
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.
Government
Laws and Regulations Relating to the Cannabis Industry
Israel
To
date, our research and development activities have been conducted in and limited to Israel. The cannabis-based products we are
developing contain controlled substance (cannabis) as defined in the Israeli Dangerous Drugs Ordinance [New Version], 5733 - 1973.
In Israel, licenses to cultivate, possess and to use cannabis for medical research are granted by the Ministry of Health, IMCU
- Israel Medical Cannabis Unit, on an ad-hoc basis. OWC obtained necessary IMCU licenses in order to carry out the research in
collaboration with Sheba Academic Medical Center and with G.C. Group. OWC is acquiring the cannabis needed for its research activities
from G.K. Medical Cannabis, a government-licensed Israeli medical cannabis grower. Because we do not have a license to possess
cannabis, the cannabis that is required for the studies must be transported from the licensed grower directly to Sheba’s
laboratories, in compliance with our license to use cannabis for medical research. We have applied for additional licenses in
order to continue our activities in collaboration with Sheba Academic Medical Center and with G.C. Group.
Although
we have been successful in obtaining a license to use cannabis for medical research, there can be no assurance that we will be
able to continue to maintain this license in the future.
United
States
In
the event that we seek to conduct any product-related activities in the United States in the future, the research and development,
manufacturing, distribution and sale of our Product Prospects will become subject to the United States’ Federal Controlled
Substances Act of 1970 and regulations promulgated thereunder. While cannabis is a Schedule I controlled substance, products approved
for medical use in the United States that contain cannabis or cannabis extracts must be placed in Schedules II-V, since approval
by the FDA satisfies the “accepted medical use” requirement. If approved by the FDA, we expect the products to be
listed by the Drug Enforcement Agency or DEA as a Schedule II or III controlled substance. Consequently, the manufacture, importation,
exportation, domestic distribution, storage, sale and legitimate use of our future products will be subject to a significant degree
of regulation by the DEA. In addition, individual states in the United States have also established controlled substance laws
and regulations. Though state-controlled substances laws often mirror federal law, because the states are separate jurisdictions,
they may separately schedule our products. To date, a total of 23 states, the District of Columbia and Guam allow for comprehensive
public medical cannabis programs. In addition, 16 states allow use of “low THC, high cannabidiol (CBD)” products for
medical reasons in limited situations.
As
of the date of this filing, the Company has provided consulting services to a medical marijuana program with locations in Hawaii
and Pennsylvania. We do not grow or distribute cannabis. However, our providing of ancillary products and services to state-approved
programs could be deemed to be aiding and abetting illegal activities, a violation of federal law. We intend to remain within
the guidelines outlined in the Cole Memo (see “The Cole Memo”), however, we cannot provide assurance that the Company
is in full compliance with the Cole Memo or any other federal laws or regulations. Where applicable, we will apply for state licenses
that are necessary to conduct our business in compliance with local laws.
The
Cole Memo
We
intend to conduct rigorous due diligence to verify the legality of all activities that we engage in. We realize that there is
a discrepancy between the laws in some states, which permit the distribution and sale of medical and recreational cannabis, from
federal law that prohibits any such activities. As discussed above, the CSA makes it illegal under federal law to manufacture,
distribute, or dispense cannabis. Many states impose and enforce similar prohibitions. Notwithstanding the federal ban, as of
the date of this filing, twenty-three states and the District of Columbia have legalized certain cannabis-related activity.
In
light of these developments, DOJ Deputy Attorney General James M. Cole issued a memorandum (the “Cole Memo”) to all
United States Attorneys providing updated guidance to federal prosecutors concerning cannabis enforcement under the CSA. The Cole
Memo guidance applies to all of DOJ’s federal enforcement activity, including civil enforcement and criminal investigations
and prosecutions, concerning cannabis in all states.
The
Cole Memo reiterates Congress’s determination that cannabis is a dangerous drug and that the illegal distribution and sale
of cannabis is a serious crime that provides a significant source of revenue to large-scale criminal enterprises, gangs, and cartels.
The Cole Memo notes that DOJ is committed to enforcement of the CSA consistent with those determinations. It also notes that DOJ
is committed to using its investigative and prosecutorial resources to address the most significant threats in the most effective,
consistent, and rational way. In furtherance of those objectives, the Cole Memo provides guidance to DOJ attorneys and law enforcement
to focus their enforcement resources on persons or organizations whose conduct interferes with any one or more of the following
important priorities:
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Preventing
the distribution of cannabis to minors;
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Preventing
revenue from the sale of cannabis from going to criminal enterprises, gangs, and cartels;
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Preventing
the diversion of cannabis from states where it is legal under state law in some form to other states;
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Preventing
state-authorized cannabis activity from being used as a cover or pretext for the trafficking of other illegal drugs or other
illegal activity;
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Preventing
violence and the use of firearms in the cultivation and distribution of cannabis;
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Preventing
drugged driving and the exacerbation of other adverse public health consequences associated with cannabis use;
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Preventing
the growing of cannabis on public lands and the attendant public safety and environmental dangers posed by cannabis production
on public lands; and
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Preventing
cannabis possession or use on federal property.
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Deputy
Attorney General Cole is issuing supplemental guidance directing that prosecutors also consider the Enforcement Priorities with
respect to federal money laundering, unlicensed money transmitter, and BSA offenses predicated on cannabis-related violations
of the CSA.
FinCEN
Since
the use of cannabis is illegal under federal law, we or our consulting clients may have difficulty acquiring or maintaining bank
accounts in the United States. The Financial Crimes Enforcement Network (“FinCEN”) provided guidance on February 14,
2014 about how financial institutions can provide services to cannabis-related businesses consistent with their Bank Secrecy Act
obligations (“BSA”). In general, the decision to open, close, or refuse any account or relationship should be made
by each financial institution based on several factors specific to that institution. These factors may include its business objectives,
an evaluation of the risks associated with offering a particular product or service, and its capacity to manage those risks effectively.
Thorough customer due diligence is a critical aspect of making this assessment.
In
assessing the risk of providing services to a cannabis-related business, a financial institution should conduct customer due diligence
that includes: (i) verifying with the appropriate state authorities whether the business is duly licensed and registered; (ii)
reviewing the license application (and related documentation) submitted by the business for obtaining a state license to operate
its cannabis-related business; (iii) requesting from state licensing and enforcement authorities available information about the
business and related parties; (iv) developing an understanding of the normal and expected activity for the business, including
the types of products to be sold and the type of customers to be served (e.g., medical versus recreational customers); (v) ongoing
monitoring of publicly available sources for adverse information about the business and related parties; (vi) ongoing monitoring
for suspicious activity, including for any of the red flags described in this guidance; and (vii) refreshing information obtained
as part of customer due diligence on a periodic basis and commensurate with the risk. With respect to information regarding state
licensure obtained about such customer due diligence, a financial institution may reasonably rely on the accuracy of information
provided by state licensing authorities, where states make such information available.
Europe
Even
though we do not currently intend to distribute any future products or provide consulting services in Europe, we may do so in
the future. Approximately 250 substances, including cannabis, are listed in the Schedules annexed to the United Nations Single
Convention on Narcotic Drugs (New York, 1961, amended 1972), the Convention on Psychotropic Substances (Vienna, 1971) and the
Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (introducing control on precursors) (Vienna,
1988). The purpose of these listings is to control and limit the use of these drugs according to a classification of their therapeutic
value, risk of abuse and health dangers, and to minimize the diversion of precursor chemicals to illegal drug manufacturers. The
1961 UN Single Convention on Narcotic Drugs, as amended in 1972 classifies cannabis as Schedule I (“substances with addictive
properties, presenting a serious risk of abuse”) and as Schedule IV (“the most dangerous substances, already listed
in Schedule I, which are particularly harmful and of extremely limited medical or therapeutic value”) narcotic drug. The
1971 UN Convention on Psychotropic Substances classifies tetrahydrocannabinol (THC) - the principal psychoactive cannabinoid of
cannabis - as schedule I psychotropic substance (Substances presenting a high risk of abuse, posing a particularly, serious threat
to public health which are of very little or no therapeutic value).
Most
countries in Europe are parties to these conventions, which govern international trade and domestic control of these substances,
including cannabis. They may interpret and implement their obligations in a way that creates a legal obstacle to our obtaining
manufacturing and/or marketing approval for our products in those countries or to providing consulting services in those countries.
These countries may not be willing or able to amend or otherwise modify their laws and regulations to permit our products to be
manufactured and/or marketed, or for us to provide consulting services, or achieving such amendments to the laws and regulations
may take a prolonged period. While some countries in Europe such as the United Kingdom, Germany, the Czech Republic, France, Romania,
and Finland have decriminalized cannabis or permit its use for medical purposes, no country has completely legalized it.
Regulations
Related to the Drug Regulatory Process
We
operate in a highly controlled regulatory environment. Stringent regulations establish requirements relating to analytical, toxicological
and clinical standards and protocols in respect of the testing of pharmaceuticals. Regulations also cover research, development,
manufacturing and reporting procedures, both pre- and post-approval. Failure to comply with regulations can result in stringent
sanctions, including product recalls, withdrawal of approvals, seizure of products and criminal prosecution. Further, may countries
have stringent regulations relating to the possession and use of cannabis.
Before
obtaining regulatory approvals for the commercial sale of our future product candidates, we must demonstrate through preclinical
studies and clinical trials that our product candidates are safe and effective. Historically, the results from preclinical studies
and early clinical trials often have not accurately predicted results of later clinical trials. In addition, a number of pharmaceutical
products have shown promising results in clinical trials but subsequently failed to establish sufficient safety and efficacy results
to obtain necessary regulatory approvals. We expect to incur substantial expense for, and devote a significant amount of time
to, preclinical studies and clinical trials. Many factors can delay the commencement and rate of completion of clinical trials,
including the inability to recruit patients at the expected rate, the inability to follow patients adequately after treatment,
the failure to manufacture sufficient quantities of materials used for clinical trials, and the emergence of unforeseen safety
issues and governmental and regulatory delays. If a product candidate fails to demonstrate safety and efficacy in clinical trials,
this failure may delay development of other product candidates and hinder our ability to conduct related preclinical studies and
clinical trials. Additionally, as a result of these failures, we may also be unable to obtain additional financing.
Governmental
authorities in all major markets require that a new pharmaceutical product be approved or exempted from approval before it is
marketed, and have established high standards for technical appraisal, which can result in an expensive and lengthy approval process.
The time to obtain approval varies by country and some products are never approved. The lengthy process of conducting clinical
trials, seeking approval and the subsequent compliance with applicable statutes and regulations, if approval is obtained, are
very costly and require the expenditure of substantial resources.
A
summary of the Israeli, U.S. and EU regulatory processes follow below:
Israel
In
order to conduct clinical testing on humans in Israel, special authorization must first be obtained from the ethics committee
and general manager of the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines
for Clinical Trials in Human Subjects implemented pursuant to the Israeli Public Health Regulations (Clinical Trials in Human
Subjects), as amended from time to time, and other applicable legislation. These regulations also require authorization from the
Israeli Ministry of Health, except in certain circumstances, and in the case of genetic trials, special fertility trials and similar
trials, an additional authorization of the overseeing institutional ethics committee. The institutional ethics committee must,
among other things, evaluate the anticipated benefits that are likely to be derived from the project to determine if it justifies
the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists
for the rights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical
testing. Since, at this time, we intend to perform all of the clinical studies in Israel, we will be required to obtain authorization
from the ethics committee and general manager of each institution in which we intend to conduct our clinical trials, and in most
cases, from the Israeli Ministry of Health.
Israel’s
Ministry of Health, which regulates medical testing, has adopted protocols that correspond, generally, to those of the FDA and
the EMA, making it comparatively straightforward for studies conducted in Israel to satisfy FDA and the European Medicines Agency
requirements, thereby enabling medical technologies subjected to clinical trials in Israel to reach U.S. and EU commercial markets
in an expedited fashion. Many members of Israel’s medical community have earned international prestige in their chosen fields
of expertise and routinely collaborate, teach and lecture at leading medical centers throughout the world. Israel also has free
trade agreements with the United States and the European Union.
Currently
we do not conduct any product-related activities such as research, development, manufacturing or marketing activities outside
of Israel, nor do we expect to for the foreseeable future.
United
States
In
the United States, the Public Health Service Act and the Federal Food, Drug, and Cosmetic Act, as amended, and the regulations
promulgated thereunder, and other federal and state statutes and regulations govern, among other things, the safety and effectiveness
standards for our products and the raw materials and components used in the production of, testing, manufacture, labeling, storage,
record keeping, approval, advertising and promotion of product candidates on a product-by-product basis.
Preclinical
tests include in vitro and in vivo evaluation of the product candidate, its chemistry, formulation and stability, and animal studies
to assess potential safety and efficacy. Certain preclinical tests must be conducted in compliance with good laboratory practice
regulations. Violations of these regulations can, in some cases, lead to invalidation of the studies, requiring them to be replicated.
After laboratory analysis and preclinical testing, testing, a sponsor files an Investigational New Drug application, or IND, to
begin human testing. Typically, a manufacturer conducts a three-phase human clinical testing program which itself is subject to
numerous laws and regulatory requirements, including adequate monitoring, reporting, record keeping and informed consent. In Phase
I, small clinical trials are conducted to determine the safety and proper dose ranges of product candidates. In Phase II, clinical
trials are conducted to assess safety and gain preliminary evidence of the efficacy of product candidates. In Phase III, clinical
trials are conducted to provide sufficient data for the statistically valid evidence of safety and efficacy. The time and expense
that will be required for us to perform this clinical testing can vary and is substantial. We cannot be certain that we will successfully
complete Phase I, Phase II or Phase III testing within any specific period, if at all. Furthermore, the FDA, the Institutional
Review Board responsible for approving and monitoring the clinical trials at a given site, the Data Safety Monitoring Board, where
one is used, or we may suspend the clinical trials at any time on various grounds, including a finding that subjects or patients
are exposed to unacceptable health risk.
If
the clinical data from these clinical trials (Phases I, II and III) are deemed to support the safety and effectiveness of the
candidate product for its intended use, then we may proceed to seek to file with the FDA, a New Drug Application, or NDA, seeking
approval to market a new drug for one or more specified intended uses. We have not completed our clinical trials for any candidate
product for any intended use and therefore, we cannot ascertain whether the clinical data will support and justify filing an NDA.
Nevertheless, if and when we are able to ascertain that the clinical data supports and justifies filing an NDA, we intend to make
such appropriate filings.
The
purpose of the NDA is to provide the FDA with sufficient information so that it can assess whether it ought to approve the candidate
product for marketing for specific intended uses. The fact that the FDA has designated a drug as an orphan drug for a particular
intended use does not mean that the drug has been approved for marketing. Only after an NDA has been approved by the FDA is marketing
appropriate. A request for orphan drug status must be filed before the NDA is filed. The orphan drug designation, though, provides
certain benefits, including a seven-year period of market exclusivity subject to certain exceptions.
The
NDA normally contains, among other things, sections describing the chemistry, manufacturing, and controls, non-clinical pharmacology
and toxicology, human pharmacokinetics and bioavailability, microbiology, the results of the clinical trials, and the proposed
labeling which contains, among other things, the intended uses of the candidate product.
We
cannot take any action to market any new drug or biologic product in the United States until our appropriate marketing application
has been approved by the FDA. The FDA has substantial discretion over the approval process and may disagree with our interpretation
of the data submitted. The process may be significantly extended by requests for additional information or clarification regarding
information already provided. As part of this review, the FDA may refer the application to an appropriate advisory committee,
typically a panel of clinicians. Satisfaction of these and other regulatory requirements typically takes several years, and the
actual time required may vary substantially based upon the type, complexity and novelty of the product. Government regulation
may delay or prevent marketing of potential products for a considerable period and impose costly procedures on our activities.
We cannot be certain that the FDA or other regulatory agencies will approve any of our products on a timely basis, if at all.
Success in preclinical or early stage clinical trials does not assure success in later-stage clinical trials. Even if a product
receives regulatory approval, the approval may be significantly limited to specific indications or uses and these limitations
may adversely affect the commercial viability of the product. Delays in obtaining, or failures to obtain regulatory approvals,
would have a material adverse effect on our business.
Even
after we obtain FDA approval, we may be required to conduct further clinical trials (i.e., Phase IV trials) and provide additional
data on safety and effectiveness. We are also required to gain separate approval for the use of an approved product as a treatment
for indications other than those initially approved. In addition, side effects or adverse events that are reported during clinical
trials can delay, impede or prevent marketing approval. Similarly, adverse events that are reported after marketing approval can
result in additional limitations being placed on the product’s use and, potentially, withdrawal of the product from the
market. Any adverse event, either before or after marketing approval, can result in product liability claims against us.
As
an alternate path for FDA approval of new indications or new formulations of previously-approved products, a company may file
a Section 505(b)(2) NDA, instead of a “stand-alone” or “full” NDA. Section 505(b)(2) of the Food, Drug,
and Cosmetic Act, or FDC, was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise
known as the Hatch-Waxman Amendments. Section 505(b)(2) permits the submission of an NDA where at least some of the information
required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a
right of reference. Some examples of products that may be allowed to follow a 505(b)(2) path to approval are drugs that have a
new dosage form, strength, route of administration, formulation or indication. The Hatch-Waxman Amendments permit the applicant
to rely upon certain published nonclinical or clinical studies conducted for an approved product or the FDA’s conclusions
from prior review of such studies. The FDA may require companies to perform additional studies or measurements to support any
changes from the approved product. The FDA may then approve the new product for all or some of the labeled indications for which
the reference product has been approved, as well as for any new indication supported by the NDA. While references to nonclinical
and clinical data not generated by the applicant or for which the applicant does not have a right of reference are allowed, all
development, process, stability, qualification and validation data related to the manufacturing and quality of the new product
must be included in an NDA submitted under Section 505(b)(2).
To
the extent that the Section 505(b)(2) applicant is relying on the FDA’s conclusions regarding studies conducted for an already
approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the
FDA’s Orange Book publication. Specifically, the applicant must certify that: (i) the required patent information has not
been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date
and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product.
The Section 505(b)(2) application also will not be approved until any non-patent exclusivity, such as exclusivity for obtaining
approval of a new chemical entity, listed in the Orange Book for the reference product has expired. Thus, the Section 505(b)(2)
applicant may invest a significant amount of time and expense in the development of its products only to be subject to significant
delay and patent litigation before its products may be commercialized.
In
addition to regulating and auditing human clinical trials, the FDA regulates and inspects equipment, facilities, laboratories
and processes used in the manufacturing and testing of such products prior to providing approval to market a product. We have
currently received no approvals to market our products from the FDA or other foreign regulators.
We
may also be subject to various federal, state and international laws pertaining to health care “fraud and abuse,”
including anti-kickback laws and false claims laws. The federal Anti-kickback law, which governs federal healthcare programs (e.g.,
Medicare, Medicaid), makes it illegal to solicit, offer, receive or pay any remuneration in exchange for, or to induce, the referral
of business, including the purchase or prescription of a particular drug. Many states have similar laws that are not restricted
to federal healthcare programs. Federal and state false claims laws prohibit anyone from knowingly and willingly presenting, or
causing to be presented for payment to third party payers (including Medicare and Medicaid), claims for reimbursement, including
claims for the sale of drugs or services, that are false or fraudulent, claims for items or services not provided as claimed,
or claims for medically unnecessary items or services. If the government or a whistleblower were to allege that we violated these
laws there could be a material adverse effect on us, including our stock price. Even an unsuccessful challenge could cause adverse
publicity and be costly to respond to, which could have a materially adverse effect on our business, results of operations and
financial condition. A finding of liability under these laws can have significant adverse financial implications for us and can
result in payment of large penalties and possible exclusion from federal healthcare programs. We will consult counsel concerning
the potential application of these and other laws to our business and our sales, marketing and other activities and will make
good faith efforts to comply with them. However, given their broad reach and the increasing attention given by law enforcement
authorities, we cannot assure you that some of our activities will not be challenged or deemed to violate some of these laws.
European
Economic Area
Although
we are not currently seeking regulatory approval in the EU, we or our potential future licensees may do so in the future. As such,
a summary of the EU regulatory processes follows below.
A
medicinal product may only be placed on the market in the European Economic Area, or EEA, composed of the 27 EU member states,
plus Norway, Iceland and Lichtenstein, when a marketing authorization has been issued by the competent authority of a member state
pursuant to Directive 2001/83/EC (as recently amended by Directive 2004/27/EC), or an authorization has been granted under the
centralized procedure in accordance with Regulation (EC) No. 726/2004 or its predecessor, Regulation 2309/93. There are essentially
three community procedures created under prevailing European pharmaceutical legislation that, if successfully completed, allow
an applicant to place a medicinal product on the market in the EEA.
Centralized
Procedure
Regulation
726/2004/EC now governs the centralized procedure when a marketing authorization is granted by the European Commission, acting
in its capacity as the European Licensing Authority on the advice of the EMA. That authorization is valid throughout the entire
community and directly or (as to Norway, Iceland and Liechtenstein) indirectly allows the applicant to place the product on the
market in all member states of the EEA. The EMA is the administrative body responsible for coordinating the existing scientific
resources available in the member states for evaluation, supervision and pharmacovigilance of medicinal products. Certain medicinal
products, as described in the Annex to Regulation 726/2004, must be authorized centrally. These are products that are developed
by means of a biotechnological process in accordance with Paragraph 1 to the Annex to the Regulation. Medicinal products for human
use containing a new active substance for which the therapeutic indication is the treatment of acquired immune deficiency syndrome,
or AIDS, cancer, neurodegenerative disorder or diabetes must also be authorized centrally. Starting on May 20, 2008, the mandatory
centralized procedure was extended to autoimmune diseases and other immune dysfunctions and viral diseases. Finally, all medicinal
products that are designated as orphan medicinal products pursuant to Regulation 141/2000 must be authorized under the centralized
procedure. An applicant may also opt for assessment through the centralized procedure if it can show that the medicinal product
constitutes a significant therapeutic, scientific or technical innovation or that the granting of authorization centrally is in
the interests of patients at the community level. For each application submitted to the EMA for scientific assessment, the EMA
is required to ensure that the opinion of the Committee for Medicinal Products for Human Use, or CHMP, is given within 210 days
after receipt of a valid application. This 210 days period does not include the time that the applicant to answer any questions
raised during the application procedure, the so-called ‘clock stop’ period. If the opinion is positive, the EMA is
required to send the opinion to the European Commission, which is responsible for preparing the draft decision granting a marketing
authorization. This draft decision may differ from the CHMP opinion, stating reasons for diverging for the CHMP opinion. The draft
decision is sent to the applicant and the member states, after which the European Commission takes a final decision. If the initial
opinion of the CHMP is negative, the applicant is afforded an opportunity to seek a re-examination of the opinion. The CHMP is
required to re-examine its opinion within 60 days following receipt of the request by the applicant. All CHMP refusals and the
reasons for refusal are made public on the EMA website. Without a centralized marketing authorization it is prohibited to place
a medicinal product that must be authorized centrally on the market in the EU.
Mutual
Recognition and Decentralized Procedures
With
the exception of products that are authorized centrally, the competent authorities of the member states are responsible for granting
marketing authorizations for medicinal products placed on their national markets. If the applicant for a marketing authorization
intends to market the same medicinal product in more than one member state, the applicant may seek an authorization progressively
in the community under the mutual recognition or decentralized procedure. Mutual recognition is used if the medicinal product
has already been authorized in a member state. In this case, the holder of this marketing authorization requests the member state
where the authorization has been granted to act as reference member state by preparing an updated assessment report that is then
used to facilitate mutual recognition of the existing authorization in the other member states in which approval is sought (the
so-called concerned member state(s)). The reference member state must prepare an updated assessment report within 90 days of receipt
of a valid application. This report together with the approved Summary of Product Characteristics, or SmPC (which sets out the
conditions of use of the product), and a labeling and package leaflet are sent to the concerned member states for their consideration.
The concerned member states are required to approve the assessment report, the SmPC and the labeling and package leaflet within
90 days of receipt of these documents. The total procedural time is 180 days.
The
decentralized procedure is used in cases where the medicinal product has not received a marketing authorization in the EU at the
time of application. The applicant requests a member state of its choice to act as reference member state to prepare an assessment
report that is then used to facilitate agreement with the concerned member states and the grant of a national marketing authorization
in all of these member states. In this procedure, the reference member state must prepare, for consideration by the concerned
member states, the draft assessment report, a draft SmPC and a draft of the labeling and package leaflet within 120 days after
receipt of a valid application. As in the case of mutual recognition, the concerned member states are required to approve these
documents within 90 days of their receipt.
For
both mutual recognition and decentralized procedures, if a concerned member state objects to the grant of a marketing authorization
on the grounds of a potential serious risk to public health, it may raise a reasoned objection with the reference member state.
The points of disagreement are in the first instance referred to the Co-ordination Group on Mutual Recognition and Decentralized
Procedures, or CMD, to reach an agreement within 60 days of the communication of the points of disagreement. If member states
fail to reach an agreement, then the matter is referred to the EMA and CHMP for arbitration. The CHMP is required to deliver a
reasoned opinion within 60 days of the date on which the matter is referred. The scientific opinion adopted by the CHMP forms
the basis for a binding European Commission decision.
Irrespective
of whether the medicinal product is assessed centrally, de-centrally or through a process of mutual recognition, the medicinal
product must be manufactured in accordance with the principles of good manufacturing practice as set out in Directive 2003/94/EC
and Volume 4 of the rules governing medicinal products in the European community. Moreover, community law requires the clinical
results in support of clinical safety and efficacy based upon clinical trials conducted in the European community to be in compliance
with the requirements of Directive 2001/20/EC, which implements good clinical practice in the conduct of clinical trials on medicinal
products for human use. Clinical trials conducted outside the European community and used to support applications for marketing
within the EU must have been conducted in a way consistent with the principles set out in Directive 2001/20/EC. The conduct of
a clinical trial in the EU requires, pursuant to Directive 2001/20/EC, authorization by the relevant national competent authority
where a trial takes place, and an ethics committee to have issued a favorable opinion in relation to the arrangements for the
trial. It also requires that the sponsor of the trial, or a person authorized to act on his behalf in relation to the trial, be
established in the community.
National
Procedure
This
procedure is available for medicinal products that do not fall within the scope of mandatory centralized authorization and are
intended for use in only one EU member state. Specific procedures and timelines differ between member states, but the duration
of the procedure is generally 210 days and based on a risk/efficacy assessment by the competent authority of the member state
concerned, followed by determination of SmPC, package leaflet and label text/layout and subsequently grant of the marketing authorization.
Marketing authorizations granted on this basis are not mutually recognized by other member states.
There
are various types of applications for marketing authorizations:
Full
Applications. A full application is one that is made under any of the community procedures described above and “stands alone”
in the sense that it contains all of the particulars and information required by Article 8(3) of Directive 2001/83 (as amended)
to allow the competent authority to assess the quality, safety and efficacy of the product and in particular the balance between
benefit and risk. Article 8(3)(l) in particular refers to the need to present the results of the applicant’s research on
(i) pharmaceutical (physical-chemical, biological or microbiological) tests, (ii) preclinical (toxicological and pharmacological)
studies and (iii) clinical trials in humans. The nature of these tests, studies and trials is explained in more detail in Annex
I to Directive 2001/83/EC. Full applications would be required for products containing new active substances not previously approved
by the competent authority, but may also be made for other products.
Abridged
Applications. Article 10 of Directive 2001/83/EC contains exemptions from the requirement that the applicant provide the results
of its own preclinical and clinical research. There are three regulatory routes for an applicant to seek an exemption from providing
such results, namely (i) cross-referral to an innovator’s results without consent of the innovator, (ii) well established
use according to published literature and (iii) consent to refer to an existing dossier of research results filed by a previous
applicant.
Cross-referral
to Innovator’s Data
Articles
10(1) and 10(2)(b) of Directive 2001/83/EC provide the legal basis for an applicant to seek a marketing authorization on the basis
that its product is a generic medicinal product (a copy) of a reference medicinal product that has already been authorized, in
accordance with community provisions. A reference product is, in principle, an original product granted an authorization on the
basis of a full dossier of particulars and information. This is the main exemption used by generic manufacturers for obtaining
a marketing authorization for a copy product. The generic applicant is not required to provide the results of preclinical studies
and of clinical trials if its product meets the definition of a generic medicinal product and the applicable regulatory results
protection period for the results submitted by the innovator has expired. A generic medicinal product is defined as a medicinal
product:
●
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having
the same qualitative and quantitative composition in active substance as the reference medicinal product;
|
|
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●
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having
the same pharmaceutical form as the reference medicinal product; and
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whose
bioequivalence with the reference medicinal product has been demonstrated by appropriate bioavailability studies.
|
Applications
in respect of a generic medicinal product cannot be made before the expiry of the protection period. Where the reference product
was granted a national marketing authorization pursuant to an application made before October 30, 2005, the protection period
is either 6 years or 10 years, depending upon the election of the particular member state concerned. Where the reference product
was granted a marketing authorization centrally, pursuant to an application made before November 20, 2005, the protection period
is 10 years. For applications made after these dates, Regulation 726/2004 and amendments to Directive 2001/83/EC provide for a
harmonized protection period regardless of the approval route utilized. The harmonized protection period is in total 10 years,
including eight years of research data protection and two years of marketing protection. The effect is that the originator’s
results can be the subject of a cross-referral application after eight years, but any resulting authorization cannot be exploited
for a further two years. The rationale of this procedure is not that the competent authority does not have before it relevant
tests and trials upon which to assess the efficacy and safety of the generic product, but that the relevant particulars can, if
the research data protection period has expired, be found on the originator’s file and used for assessment of the generic
medicinal product. The 10-year protection period can be extended to 11 years where, in the first eight years, post-authorization,
the holder of the authorization obtains approval for a new indication assessed as offering a significant clinical benefit in comparison
with existing products.
If
the copy product does not meet the definition of a generic medicinal product or if certain types of changes occur in the active
substance(s) or in the therapeutic indications, strength, pharmaceutical form or route of administration in relation to the reference
medicinal product, Article 10(3) of Directive 2001/83/EC provides that the results of the appropriate preclinical studies or clinical
trials must be provided by the applicant.
Well-Established
Medicinal Use
Under
Article 10a of Directive 2001/83/EC, an applicant may, in substitution for the results of its own preclinical and clinical research,
present detailed references to published literature demonstrating that the active substance(s) of a product have a well-established
medicinal use within the community with recognized efficacy and an acceptable level of safety. The applicant is entitled to refer
to a variety of different types of literature, including reports of clinical trials with the same active substance(s) and epidemiological
studies that indicate that the constituent or constituents of the product have an acceptable safety/efficacy profile for a particular
indication. However, use of the published literature exemption is restricted by stating that in no circumstances will constituents
be treated as having a well-established use if they have been used for less than 10 years from the first systematic and documented
use of the substance as a medicinal product in the EU. Even after 10 years’ systematic use, the threshold for well-established
medicinal use might not be met. European pharmaceutical law requires the competent authorities to consider among other factors
the period over which a substance has been used, the amount of patient use of the substance, the degree of scientific interest
in the use of the substance (as reflected in the scientific literature) and the coherence (consistency) of all the scientific
assessments made in the literature. For this reason, different substances may reach the threshold for well-established use after
different periods, but the minimum period is 10 years. If the applicant seeks approval of an entirely new therapeutic use compared
with that to which the published literature refers, additional preclinical and/or clinical results would have to be provided.
Informed
Consent
Under
Article 10c of Directive 2001/83/EC, following the grant of a marketing authorization the holder of such authorization may consent
to a competent authority utilizing the pharmaceutical, preclinical and clinical documentation that it submitted to obtain approval
for a medicinal product to assess a subsequent application relating to a medicinal product possessing the same qualitative and
quantitative composition with respect to the active substances and the same pharmaceutical form.
Law
Relating to Pediatric Research
Regulation
(EC) 1901/2006 (as amended by Regulation (EC) 1902/2006) was adopted on December 12, 2006. This Regulation governs the development
of medicinal products for human use in order to meet the specific therapeutic needs of the pediatric population. It requires any
application for marketing authorization made after July 26, 2008 in respect of a product not authorized in the European Community
on January 26, 2007 (the time the Regulation entered into force), to include the results of all studies performed and details
of all information collected in compliance with a pediatric investigation plan agreed by the Pediatric Committee of the EMA, unless
the product is subject to an agreed waiver or deferral or unless the product is excluded from the scope of Regulation 1902/2006
(generics, hybrid medicinal products, biosimilars, homeopathic and traditional (herbal) medicinal products and medicinal products
containing one or more active substances of well-established medicinal use). Waivers can be granted in certain circumstances where
pediatric studies are not required or desirable. Deferrals can be granted in certain circumstances where the initiation or completion
of pediatric studies should be deferred until appropriate studies in adults have been performed. Moreover, this regulation imposes
the same obligation from January 26, 2009 on an applicant seeking approval of a new indication, pharmaceutical form or route of
administration for a product already authorized and still protected by a supplementary protection certificate granted under Regulation
EC 469/2009 and its precursor (EEC) 1768/92 or by a patent that qualifies for the granting of such a supplementary protection
certificate. The pediatric Regulation 1901/2006 also provides, subject to certain conditions, a reward for performing such pediatric
studies, regardless of whether the pediatric results provided resulted in the grant of a pediatric indication. This reward comes
in the form of an extension of six months to the supplementary protection certificate granted in respect of the product, unless
the product is subject to orphan drug designation, in which case the 10-year market exclusivity period for such orphan products
is extended to 12 years. If any of the non-centralized procedures for marketing authorization have been used, the six-month extension
of the supplementary protection certificate is only granted if the medicinal product is authorized in all member states.
Post-authorization
Obligations
In
the pre-authorization phase the applicant must provide a detailed pharmacovigilance plan that it intends to implement post-authorization.
An authorization to market a medicinal product in the EU carries with it an obligation to comply with many post-authorization
organizational and behavioral regulations relating to the marketing and other activities of authorization holders. These include
requirements relating to post-authorization efficacy studies, post-authorization safety studies, adverse event reporting and other
pharmacovigilance requirements, advertising, packaging and labeling, patient package leaflets, distribution and wholesale dealing.
The regulations frequently operate within a criminal law framework and failure to comply with the requirements may not only affect
the authorization, but also can lead to financial and other sanctions levied on the company in question and responsible officers.
As a result of the currently on-going overhaul of EU pharmacovigilance legislation the financial and organizational burden on
market authorization holders will increase significantly, such as the obligation to maintain a pharmacovigilance system master
file that applies to all holders of marketing authorizations granted in accordance with Directive 2001/83/EC or Regulation (EC)
No 726/2004. Marketing authorization holders must furthermore collect data on adverse events associated with use of the authorized
product outside the scope of the authorization. Pharmacovigilance for biological products and medicines with a new active substance
will be strengthened by subjecting their authorization to additional monitoring activities. The EU is currently in the process
of issuing implementing regulations for the new pharmacovigilance framework.
Any
authorization granted by member state authorities, which within three years of its granting is not followed by the actual placing
on the market of the authorized product in the authorizing member state ceases to be valid. When an authorized product previously
placed on the market in the authorizing member state is no longer actually present on the market for a period of three consecutive
years, the authorization for that product shall cease to be valid. The same two three year periods apply to authorizations granted
by the European Commission based on the centralized procedure.
ITEM
1A. RISK FACTORS
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Risks
Related to Our Financial Position and Capital Requirements
Our
independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern.
The
audited financial statements included in this annual report have been prepared assuming that we will continue as a going concern
and do not include any adjustments that might result if we cease to continue as a going concern. We believe that in order to continue
as a going concern, including the costs of being a public company, we will need approximately $65,000 per year simply to cover
our administrative, legal and accounting fees. We have incurred significant losses since our inception. We have funded these losses
primarily through the sale of restricted shares of our Common Stock and the issuance of convertible notes, which have subsequently
been converted into restricted shares of Common Stock.
Based
on our financial history and other factors described in the audited financial statements as of and for the year ended December
31, 2016, our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a
going concern in its report on the financial statements and elsewhere in the financial statements. To date, we have not generated
significant revenues and we do not anticipate generating any significant revenues in 2017.
Notwithstanding
our success in raising $325,000 from the sale of our securities in 2016, and in excess of $1,700,000 during 2017 through the date
of this Annual Report, there can be no assurance that we will be able to continue to raise equity and/or debt capital from investors
on terms and conditions satisfactory to the Company, or otherwise, and/or have adequate capital resources required by us to fund
our current and future planned operations. If we are unable to obtain adequate capital resources to fund operations, we may be
required to delay, scale back or eliminate some or all of our plan of operations, which may have a material adverse effect on
our business, results of operations and ability to continue as a going concern.
We
face many of the risks and difficulties frequently encountered by relatively new companies with respect to our operations.
The
Company’s business involves two distinct operations: (i) conducting scientific research and development in collaboration
with leading universities and institutions in Israel on the use of cannabis for medical treatment and (ii) providing consulting
services to assist clients with establishing their own medical cannabis treatment programs. We have not yet generated significant
revenues from any of our two distinct business operations. Notwithstanding the significant scientific and medical experience of
OWC’s management and research collaborators, neither the Company nor OWC have significant operating history as a medical
research company engaged in cannabis research or a consulting firm providing advisory services related to medical cannabis upon
which an evaluation of the Company and its prospects could be based. There can be no assurance that our management will be successful
in being able to commercially exploit the results, if any, from our medical and scientific research projects or that we will be
able to develop products and treatments that will enable us to generate sufficient revenues to meet our expenses or to achieve
and/or maintain profitability.
If
we are unable to raise sufficient capital as needed, we may be required to reduce the scope of our research and development activities,
which could harm our business plans, financial condition and operating results, or cease our operations entirely, in which case,
you will lose all your investment.
Risks
Relating to Our Product Prospects and Future Products, Our Services and the Cannabis Industry
Changes
in consumer preferences and acceptance of cannabis-based medical products and treatments and any negative trends will adversely
affect our business.
We
are substantially dependent on continued market acceptance and proliferation of cannabis-based medical products and treatments.
We believe that as cannabis-based products and treatments become more widely accepted by the medical/scientific communities and
the public at large, the stigma associated with cannabis-based medical products and treatments will moderate and, as a result,
consumer demand will likely continue to grow. However, we cannot predict the future growth rate and size of the market, assuming
that the regulatory climate permits, of which there can be no assurance. Any negative outlook on cannabis-based medical products
will adversely affect our business prospects.
In
addition, we believe that large, well-funded pharmaceutical and other related businesses and industries may have a strong economic
reasons to be in strong opposition to cannabis-based medical products. We believe that the pharmaceutical industry may not easily
surrender control of any product, such as cannabis-based products, that could generate significant revenue. The pharmaceutical
industry is well-funded with a strong and experienced lobby presence at both the federal and state levels as well as internationally,
that surpasses financial resources of the current group of medical cannabis research and development companies. Any effort the
pharmaceutical lobby could or might undertake to halt or delay the newly developing medical cannabis industry could have a detrimental
impact on our business.
These
pressures could also limit or restrict the introduction and marketing of any such product. Adverse publicity from cannabis misuse
or adverse side effects from cannabis or other cannabinoid products may adversely affect the commercial success or marketability.
The nature of our business attracts and may be expected to continue to attract a high level of public and media interest and,
in the event of any related adverse publicity, we may not succeed in monetizing our products.
Our
involvement in the cannabis industry may make it difficult to obtain insurance coverage.
In
the event that we decide to commence business operations in the U.S., of which there can be no assurance, obtaining and maintaining
necessary insurance coverage, for such things as workers compensation, general liability, product liability and directors and
officers insurance, may be more difficult and/or expensive for us to find because we are involved in the cannabis industry. There
can be no assurance that we will be able to find such insurance in the near future, if needed, or that the cost of coverage will
be affordable or cost-effective. If, either because of unavailability or cost prohibitive reasons, we are compelled to operate
without insurance coverage, we may be prevented from entering certain business sectors, experience inhibited growth potential
and/or expose us to additional risks and financial liabilities.
We
are entering a potentially highly competitive market.
Demand
for medical cannabis-based products is dependent on a number of social, political and economic factors that are beyond our control.
While we believe that demand for such medical products will continue to grow, there is no assurance that such increase in demand
will happen, that we will benefit from any demand increase or that our business, in fact, will ever become profitable.
The
emerging markets for cannabis-related medical research and development is and will likely remain both competitive and evolve into
becoming even more so. In particular, we face strong competition from larger and better funded companies that may be in the process
of offering similar products and treatments that we intend to offer. Many of our current and potential competitors have longer
operating histories, significantly greater financial, marketing and other resources than we may be expected to have for the foreseeable
future, notwithstanding our belief in the strength of our management team.
These
competitors may be able to react to market changes, respond more rapidly to new regulations and/or allocate greater resources
to the development and promotion of their products than we can. Furthermore, some of these competitors may make acquisitions or
establish collaborative relationships among themselves or with third parties to increase their ability to rapidly gain market
share.
Given
the rapid changes affecting the cannabis-related medical research and development industry, we may not be able to create and maintain
a competitive advantage in the marketplace. Our success will depend on our ability to develop innovative cannabis-related products
and treatments working with our university and institutional partners that will be accepted, especially with ever-changing legal
and regulatory environment. Our success will depend on our ability to respond to, among other things, changes in the economy,
market conditions, and competitive pressures. Any failure by us to anticipate or respond adequately to such changes could have
a material adverse effect on our financial condition, operating results, liquidity, cash flow and our operational performance.
Changes
in legislation or regulation in the health care systems in the United States and foreign jurisdictions may affect us.
Our
ability to successfully commercialize our cannabis-based medical products and treatments may depend on how Israel, the US and
other respective governments and/or health administrations provide coverage and/or reimbursements for our cannabis-based Product
Prospects and treatments. The ongoing efforts of governments, insurance companies, and other participants in the health care services
industry to trim health care costs may adversely affect our ability to achieve profitability.
In
certain foreign markets, including major markets in the European Union, pricing of prescription pharmaceuticals is subject to
governmental control. Price negotiations with governmental authorities may range from 6 to 12 months or longer after the receipt
of regulatory marketing approval for a product. Our business could be detrimentally effected if reimbursements of our cannabis-based
products is unavailable or limited if pricing is set at unacceptable levels.
We
depend substantially on collaboration with our research and development partners.
We
do not have in-house research facilities and, as a consequence, we must rely on collaboration agreements with industry partners,
as well as leading academic medical centers, in order to develop, research, produce and commercialize our novel cannabinoid-based
therapies targeting a variety of different indications and effectively help patients in need.
Dr.
Yehuda Baruch, the Registrant’s Chief Science Officer and OWC’s Director of Research and Regulatory Affairs, who is
highly qualified by both training and experience, is monitoring the progress of the investigation and research of our medical
cannabis development. In addition, Alon Sinai, Chief Operating Officer of OWC, serves as our key liaison with our collaboration
partners at the major Israeli hospitals and medical centers. See the disclosure under “Item 10. Directors, Executive Officers,
Promoters and Control Persons - Key Medical Personnel of One World Cannabis” below.
To
date, OWC has signed three research collaboration and license agreements with Sheba Academic Medical Center located in Tel Hashomer,
Israel (“Sheba”). Sheba is a university-affiliated hospital that serves as one of Israel’s national medical
centers and is widely recognized as one of the most advanced medical centers in the Middle East. Within the framework of the agreements
with Sheba, OWC will initiate two studies at the Sheba facilities to explore the effect of three formulations, all based on active
ingredients in the cannabis extracts, on multiple myeloma and psoriasis.
In
August 6, 2015, OWC signed a Memorandum of Understanding 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 entered into
a binding agreement with Emilia Cosmetics, which set forth all terms, in the fourth quarter of 2016.Emilia Cosmetics labs located
in Yerucham, Israel. The Company completed the development process in the fourth quarter of 2016 and then initiated a phase I
study at the Sheba facilities to explore the efficacy of the topical cream on psoriasis. However, we do not know if our expectations
with respect to the development process will be fulfilled in a timely manner, if at all, or if the costs of development will exceed
our anticipation.
While
we retain full ownership of our intellectual property, or other proprietary rights and trade secrets that were conceived prior
to entry into the agreements with Sheba, the psoriasis and fibromyalgia research agreements with Sheba provide that all intellectual
property and other rights that are conceived during the collaboration will be jointly owned by Sheba and OWC Ltd.
Collaboration
agreements that we may enter into in the future may not be successful, which could adversely affect our ability to develop and
commercialize cannabis-based medical products.
We
may also enter into collaboration agreements with pharmaceutical companies and/or biotechnology institutions for the development
or commercialization of our cannabis-based Product Prospects and treatments, which agreements may contain provisions based upon,
among other things, the merits of retaining certain rights. We will face significant competition in seeking appropriate collaborators
and in negotiating agreements at acceptable terms, if at all. We may not be successful in our efforts to enter, implement and
maintain collaboration agreements. Disagreements stemming from collaboration agreements concerning development, intellectual property,
regulatory or commercialization matters can lead to delays and, in some cases, termination of our collaboration agreements or
otherwise result in the potentially significant costs and fees in seeking to enforce or protect our rights, if any. Any such disagreements
can be difficult if, in fact, neither of the parties has final decision making authority. The resulting outcome of any disputes
and/or disagreements would in all likelihood adversely affect our business.
Clinical
trials of cannabis-based medical products and treatments are novel terrain with very limited or non-existing clinical trials history;
we face a significant risk that the trials will not result in commercially viable products and treatments.
At
present, there is no documented history of clinical trials from which we can derive any scientific conclusions, or prove that
our present assumptions for the current and planned research are scientifically compelling. The results from our 2015 in vitro
studies on the effect of a formulation comprised of Cannabidiol (CBD) and tetrahydrocannabinol (THC) on multiple myeloma cells
studied outside their normal biological context indicated a 100% mortality rate of myeloma cells in 60% of the cultured cells
within a 24 to 48 hour period, and highlight the potential abilities of cannabis oil extract to successfully fight multiple myeloma
cancer cells and, hopefully treat multiple myeloma in patients, when and if approved. 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; or
●
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.
Our
failure to comply with existing and potential future laws and regulations relating to drug development could harm our plan of
operations.
Our
business is, and will be, subject to wide-ranging, existing laws and regulations of the State of Israel, the U.S. (federal and
states), and other governments in each of the countries we may develop and market our Product Prospects. We must comply to all
regulatory requirements if we expect to be successful.
If
any of our cannabis-based Product Prospects and treatments is approved in the United States, it will be subject to ongoing regulatory
requirements including federal and state requirements. As a result, we and our collaborators and/or joint venture partners must
continue to expend time, money and effort in all areas of regulatory compliance, including, if applicable, manufacturing, production,
quality control and assurance and, of upmost importance, clinical trials. We will also be required to report certain adverse reactions
and production problems, if any and applicable, to the FDA, and to comply with advertising and promotion requirements for our
cannabis-based Product Prospects and treatments.
Any
failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to conduct clinical
trials which are prerequisite to our ability to commercialize our cannabis-based medical products and related treatments. If regulatory
sanctions are applied or if regulatory approval, once obtained, is for any reason withdrawn, the value of our business and our
operating results could be materially adversely affected.
The FDA has not approved cannabis as a safe and effective drug for any indication.
The
FDA has not approved the whole-plant extract of Cannabis as a safe and effective drug for any indication.
Although
the FDA has not approved any drug product containing or derived from botanical cannabis, the FDA is aware that there is considerable
interest in its use to attempt to treat a number of medical conditions. Before conducting testing in humans of a drug that has
not been approved by the FDA, we will need to submit an investigational new drug (IND) application, which is reviewed by the FDA.
Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions,
such as FDA refusal to approve pending NDAs, warning letters, product recalls, product seizures, total or partial suspension of
production or distribution, injunctions, fines, civil penalties and criminal prosecution.
Failure
to secure the necessary Israeli licenses to use cannabis for medical research could limit our ability to execute our research
and development activities, delay the launch of our products and adversely affect the results of our business operations.
To
date, we are only conducting our research in Israel and, in fact, have limited our activities to Israel. The medical products
we are developing contain cannabis, a “controlled substance” as defined in the Israeli Dangerous Drugs Ordinance [New
Version], 5733 - 1973. In Israel, licenses to cultivate, possess and to use cannabis for medical research are granted by the Ministry
of Health, Israel Medical Cannabis Unit (IMCU), on an ad-hoc basis. OWC acquires the cannabis needed for its research activities
from G.K. Medical Cannabis, a government-licensed Israeli medical cannabis grower. OWC obtained necessary IMCU licenses in order
to carry out the research in collaboration with Sheba and with G.C. Group. Because OWC does not have a license to possess cannabis,
the cannabis is transported from the grower directly to the labs at Sheba and at G.C. Group, in accordance with our license to
use cannabis for medical research. We have applied for further licenses in order to continue our activities. Although we have
an established track record of successfully obtaining the requisite licenses as required, there can be no assurance that we will
continue to be able to secure licenses in the future. If we fail to comply with Israeli rules and regulations related to the licensing
of cannabis, we may not be able to research and develop our Product Prospects as we intend or at all. We have been successful
in obtaining a license to use cannabis for medical research, but there can be no assurances that we will be able to continue to
maintain this license in the future.
If
we choose to distribute our future products in the United States, we will be subject to controlled substance laws and regulations;
failure to receive necessary approvals may delay the launch of our products and failure to comply with these laws and regulations
may adversely affect the results of our business operations.
Our
future products will contain controlled substances as defined in the federal Controlled Substances Act of 1970, or CSA. Controlled
substances that are pharmaceutical products are subject to a high degree of regulation under the CSA, which establishes, among
other things, certain registration, manufacturing quotas, security, recordkeeping, reporting, import, export and other requirements
administered by the DEA. The DEA classifies controlled substances into five schedules: Schedule I, II, III, IV or V substances.
Schedule I substances by definition have a high potential for abuse, have no currently “accepted medical use” in the
United States, lack accepted safety for use under medical supervision, and may not be prescribed, marketed or sold in the United
States. Pharmaceutical products approved for use in the United States may be listed as Schedule II, III, IV or V, with Schedule
II substances considered to present the highest potential for abuse or dependence and Schedule V substances the lowest relative
risk of abuse among such substances. Schedule I and II drugs are subject to the strictest controls under the CSA, including manufacturing
and procurement quotas, security requirements and criteria for importation. In addition, dispensing of Schedule II drugs is further
restricted. For example, they may not be refilled without a new prescription.
While
Cannabis is a Schedule I controlled substance, products approved for medical use in the United States that contain Cannabis or
Cannabis extracts must be placed in Schedules II - V, since approval by the FDA satisfies the “accepted medical use”
requirement. If and when our Product Prospects receive FDA approval, the DEA will make a scheduling determination and place it
in a schedule other than Schedule I in order for it to be prescribed to patients in the United States. If approved by the FDA,
we expect the finished dosage forms of our Product Prospects to be listed by the DEA as a Schedule II or III controlled substance.
Consequently, their manufacture, importation, exportation, domestic distribution, storage, sale and legitimate use will be subject
to a significant degree of regulation by the DEA. The scheduling process may take one or more years beyond FDA approval, thereby
significantly delaying the launch of our Product Prospects. Furthermore, if the FDA, DEA or any foreign regulatory authority determines
that Product Prospects may have potential for abuse, it may require us to generate more clinical data than that which is currently
anticipated, which could increase the cost and/or delay the launch of our Product Prospects.
We
expect that our Product Prospects will be scheduled as Schedule II or III, as a result of which we will also need to identify
wholesale distributors with the appropriate DEA registrations and authority to distribute the products to pharmacies and other
healthcare providers, and these distributors would need to obtain Schedule II or III distribution registrations. The failure to
obtain, or delay in obtaining, or the loss of any of those registrations could result in increased costs to us. If a Product Prospects
is a Schedule II drug, pharmacies would have to maintain enhanced security with alarms and monitoring systems and they must adhere
to recordkeeping and inventory requirements. This may discourage some pharmacies from carrying the product. Furthermore, state
and federal enforcement actions, regulatory requirements, and legislation intended to reduce prescription drug abuse, such as
the requirement that physicians consult a state prescription drug monitoring program, may make physicians less willing to prescribe,
and pharmacies to dispense, Schedule II products.
We
may manufacture the commercial supply of our Product Prospects outside of the United States. If a Product Prospect is approved
by the FDA and classified as a Schedule II or III substance, an importer can import for commercial purposes if it obtains from
the DEA an importer registration and files an application with the DEA for an import permit for each import. The DEA provides
annual assessments/estimates to the International Narcotics Control Board which guides the DEA in the amounts of controlled substances
that the DEA authorizes to be imported. The failure to identify an importer or obtain the necessary import authority, including
specific quantities, could affect the availability of a Product Prospect and have a material adverse effect on our business, results
of operations and financial condition. In addition, an application for a Schedule II importer registration must be published in
the Federal Register, and there is a waiting period for third party comments to be submitted.
Individual
states have also established controlled substance laws and regulations. Though state-controlled substance laws often mirror federal
law, because the states are separate jurisdictions, they may separately schedule our product candidates as well. While some states
automatically schedule a drug based on federal action, other states schedule drugs through rulemaking or a legislative action.
State scheduling may delay commercial sale of any product for which we obtain federal regulatory approval and adverse scheduling
could have a material adverse effect on the commercial attractiveness of such product. We or our potential future partners would
also need to obtain separate state registrations, permits or licenses in order to be able to obtain, handle, and distribute controlled
substances for clinical trials or commercial sale, and failure to meet applicable regulatory requirements could lead to enforcement
and sanctions by the states in addition to those from the DEA or otherwise arising under federal law.
Our
ability to provide consulting services in the United States is dependent on additional states legalizing medical marijuana.
While
continuing with scientific investigations into medical effects and benefits of cannabis, the Company anticipates that it will
begin generating revenue through providing consulting services related to medical marijuana programs. Continued development of
the medical marijuana market is dependent upon continued legislative authorization of marijuana at the state level for medical
purposes and, in certain states, including California, based on the specifics of the legislation passed in that state. Any number
of factors could slow or halt the progress. Furthermore, progress, while encouraging, is not assured, and the process normally
encounters set-backs before achieving success. While there may be ample public support for legislative proposals, key support
must be created in the legislative committee or a bill may never advance to a vote. Numerous factors impact the legislative process.
Any one of these factors could slow or halt the progress and adoption of marijuana for medical purposes, which would limit the
market for our services and products and negatively impact our business and revenues.
State
and municipal governments in which we provide consulting services or seek to provide consulting services may have, or may adopt
laws that adversely affect our ability to do business.
While
the federal government has the right to regulate and criminalize marijuana, which it has in fact done, state and municipal governments
may adopt additional laws and regulations that further criminalize or negatively affect marijuana businesses. States that currently
have laws that decriminalize or legalize certain aspects of marijuana, such as medical marijuana, could in the future, reverse
course and adopt new laws that further criminalize or negatively affect marijuana businesses. Additionally, municipal governments
in these states may have laws that adversely affect marijuana businesses, even though there are no such laws at the state level.
For example, municipal governments may have zoning laws that restrict where marijuana operations can be located and the manner
and size of which they can expand and operate. These municipal laws, like the federal laws, may adversely affect our ability to
do business, and adverse enforcement actions under these laws may lead to costly litigation and a closure of the businesses with
which we have contracts or royalty-fee structures in place, in turn, affecting our own business. Moreover, if additional states
do not adopt laws that legalize certain aspects of the marijuana industry, we may not be able to expand our business in the manner
in which we prefer.
Also,
given the complexity and rapid change of the federal, state and local laws pertaining to marijuana, the Company may incur substantial
legal costs associated with complying with these laws and in acquiring the necessary state and local licenses required by our
business endeavors. For example, some states permit entities to enter into joint venture relationships with individual license
holders that provide for revenue sharing arrangements. In other states, revenue sharing is not permitted, and we will accept fee-for-service
arrangement on a cost-plus basis for our services. State and municipal governments may also limit the number of specialized licenses
available or apply stringent compliance requirements necessary to maintain the license. These developments may limit our ability
to expand our negatively affect our business model.
The
businesses for which we plan to provide consulting services may have difficulty accessing the services of banks in the United
States, which may make it difficult for them to purchase our products and services.
As
discussed above, the use of marijuana is illegal under federal law. Therefore, there is a strong argument that banks cannot accept
for deposit funds from the drug trade and therefore cannot do business with our clients that operate medical marijuana programs.
On February 14, 2014, the U.S. Department of the Treasury Financial Crimes Enforcement Network (“FinCEN”) released
guidance to banks “clarifying Bank Secrecy Act (“BSA”) expectations for financial institutions seeking to provide
services to marijuana-related businesses.” In addition, U.S. Rep. Jared Polis (D-CO) has stated he will seek an amendment
to banking regulations and laws in order to allow banks to transact business with state-authorized medical marijuana treatment
programs. While these are positive developments, there can be no assurance this legislation will be successful, or that, even
with the FinCEN guidance, banks will decide to do business with medical marijuana retailers, or that, in the absence of actual
legislation, state and federal banking regulators will not strictly enforce current prohibitions on banks handling funds generated
from an activity that is illegal under federal law. The inability of potential clients in our target markets to open accounts
and otherwise use the services of banks may make it difficult for such potential clients to purchase our products and services
and could materially harm our business.
If
we choose to engage in research and development or consulting activities in Europe, controlled substance legislation may restrict
or limit our ability to provide consulting services or to research, manufacture and develop a commercial market for our products.
Approximately
250 substances, including cannabis, are listed in the Schedules annexed to the United Nations Single Convention on Narcotic Drugs
(New York, 1961, amended 1972), the Convention on Psychotropic Substances (Vienna, 1971) and the Convention against Illicit Traffic
in Narcotic Drugs and Psychotropic Substances (introducing control on precursors) (Vienna, 1988). The purpose of these listings
is to control and limit the use of these drugs according to a classification of their therapeutic value, risk of abuse and health
dangers, and to minimize the diversion of precursor chemicals to illegal drug manufacturers. The 1961 UN Single Convention on
Narcotic Drugs, as amended in 1972 classifies cannabis as Schedule I (“substances with addictive properties, presenting
a serious risk of abuse”) and as Schedule IV (“the most dangerous substances, already listed in Schedule I, which
are particularly harmful and of extremely limited medical or therapeutic value”) narcotic drug. The 1971 UN Convention on
Psychotropic Substances classifies tetrahydrocannabinol (THC) - the principal psychoactive cannabinoid of cannabis - as schedule
I psychotropic substance (Substances presenting a high risk of abuse, posing a particularly, serious threat to public health which
are of very little or no therapeutic value). Most countries in Europe are parties to these conventions, which govern international
trade and domestic control of these substances, including cannabis. They may interpret and implement their obligations in a way
that creates a legal obstacle to our obtaining manufacturing and/or marketing approval for our products in those countries. These
countries may not be willing or able to amend or otherwise modify their laws and regulations to permit our products to be manufactured
and/or marketed, or achieving such amendments to the laws and regulations may take a prolonged period of time.
Laws
and regulations affecting therapeutic uses of marijuana are constantly evolving.
The
constant evolution of laws and regulations affecting the research and development of cannabis-based medical products and treatments
could detrimentally affect our business. Laws and regulations related to the therapeutic uses of marijuana are subject to changing
interpretations. These changes may require us to incur substantial costs associated with legal and compliance fees and ultimately
require us to alter our business plan. Furthermore, violations or alleged violation of these laws could disrupt our business and
result in a material adverse effect on our operations. In addition, we cannot predict the nature of any future laws, regulations,
interpretations or applications of laws and regulations and it is possible that new laws and regulations may be enacted in the
future that will be directly applicable to our business.
Risks
Related to Intellectual Property
Costly
litigation may be necessary to protect our intellectual property rights and we may be subject to claims alleging the violation
of the intellectual property rights of others.
We
may face significant expense and liability as a result of litigation or other proceedings relating to patents and other intellectual
property rights of others. In the event that another party has also filed a patent application or been issued a patent relating
to an invention or technology claimed by us in pending applications, we may be required to participate in an interference proceeding
declared by the U.S. Patent and Trademark Office to determine priority of invention, which could result in substantial uncertainties
and costs for us, even if the eventual outcome were favorable to us. We, or our licensors, also could be required to participate
in interference proceedings involving issued patents and pending applications of another entity. An adverse outcome in an interference
proceeding could require us to cease using the technology or to license rights from prevailing third parties.
The
cost to us of any patent litigation or other proceeding relating to our licensed patents or patent applications, even if resolved
in our favor, could be substantial. Our ability to enforce our patent protection could be limited by our financial resources,
and may be subject to lengthy delays.
A
third party may claim that we are using inventions claimed by their patents and may go to court to stop us from engaging in our
normal operations and activities, such as research, development and the sale of any future products. Such lawsuits are expensive
and would consume time and other resources. There is a risk that the court will decide that we are infringing the third party’s
patents and will order us to stop the activities claimed by the patents, redesign our products or processes to avoid infringement
or obtain licenses (which may not be available on commercially reasonable terms). In addition, there is a risk that a court will
order us to pay the other party damages for having infringed their patents.
Moreover,
there is no guarantee that any prevailing patent owner would offer us a license so that we could continue to engage in activities
claimed by the patent, or that such a license, if made available to us, could be acquired on commercially acceptable terms. In
addition, third parties may, in the future, assert other intellectual property infringement claims against us with respect to
our product candidates, technologies or other matters.
We
rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties
using our intellectual property to compete against us.
Although
we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the
non-disclosure of confidential information to third parties, as well as agreements that purport to require the disclosure and
assignment to us of the rights to the ideas, developments, discoveries and inventions of our employees and consultants while we
employ them, the agreements can be difficult and costly to enforce. Although we seek to obtain these types of agreements from
our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize or independently
develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights
associated with our products. If a dispute arises, a court may determine that the right belongs to a third party. In addition,
enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary know-how that we seek
to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the
protective measures we employ, we still face the risk that:
●
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these
agreements may be breached;
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these agreements
may not provide adequate remedies for the applicable type of breach;
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our trade secrets
or proprietary know-how will otherwise become known; or
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our competitors
will independently develop similar technology or proprietary information.
|
If
we are unable to protect our intellectual property adequately, our business and commercial prospects will suffer.
Other
parties may claim that our cannabis-based medical products infringe on their proprietary and perhaps patent protected rights.
We may be subject to claims and costly legal proceedings regarding alleged infringement by us of the intellectual property rights
and patents of third parties. Such claims, whether or not meritorious, may result in the expenditure of significant financial
and managerial resources, legal fees, result in injunctions, temporary restraining orders and/or require the payment of damages.
In the event that our patents do not fully protect us, we may need to obtain licenses from third parties who allege that we have
infringed on their lawful rights. However, such licenses may not be available on terms acceptable to us or at all. In addition,
we may not be able to obtain or utilize on terms that are favorable to us, or at all, licenses or other rights with respect to
intellectual property we do not own.
Risks
Related to Management and Personnel
If
we are unable to hire and retain key personnel, we may not be able to implement our business plan and our business may fail.
Our
future success depends, to a significant extent, on our ability to attract, train and retain capable scientists and physicians,
enter into collaboration agreements for our research and managerial personnel. Recruiting and retaining capable personnel, particularly
those with expertise with medical research, is vital to our success. If we are unable to attract and retain qualified employees,
our business may fail and our investors could lose their entire investment.
At
present, we believe to have the necessary key personal to carry out our business plans but there can be no assurance that our
beliefs prove unfounded. If we are unable to protect our intellectual property, our business will be materially adversely affected.
Our
future success is dependent, in part, on the performance and continued service of Dr. Yehuda Baruch, OWC’s director of research
and regulatory affairs and Alon Sinai, OWC’s Chief Operating Officer.
The
Company is dependent to a great deal on Dr. Yehuda Baruch, OWC’s Director of Research and Regulatory Affairs, to conduct
and oversee our clinical studies. We are also dependent on the services of Alon Sinai, OWC’s Chief Operating Officer, in
negotiating and serving as our liaison with our collaboration partners at major Israeli medical centers. The loss of Dr. Baruch’s
services and those of Mr. Sinai could have a material adverse effect on the operations and prospects of the Company. Dr. Baruch
is expected to handle all aspects of our research and regulatory affairs related to developing our Product Prospects. At this
time, the Company does not currently have “key man” life insurance for Dr. Baruch or Mr. Sinai.
Risks
Related to Our Common Stock
There
can be no assurance of a liquid public trading market for our common stock or whether investors will be able to readily be able
to sell their shares of common stock.
At
present, our Common Stock is subject to quotation on the OTCQB market under the symbol OWCP. There is only a limited, liquid public
trading market for our Common Stock and there can be no assurance that a more liquid market will ever develop or be sustained.
Market liquidity will depend on the perception of our business and any steps that our management might take to bring public awareness
of our business to the investing public within the parameters of the federal securities laws. There can be given no assurance
that there will be any awareness generated or sustained. Consequently, investors may not be able to liquidate their investment
or liquidate it at a price paid by investors equal to or greater than their initial investment in our Common Stock. As a result,
holders of our Common Stock may not find purchasers for their shares should they to decide to sell the Common Stock held by them
at any particular time if ever. Consequently, our Common Stock should be purchased only by investors who have no immediate need
for liquidity in their investment and who can hold our Common Stock, possibly for a prolonged period of time.
In
the event an active trading market develops for our common stock, the market price may, from time-to-time, be volatile.
In
the event an active trading market develops for our Common Stock, the market price of our Common Stock may be highly volatile,
as is the market for securities subject to quotation on OTC Markets in particular. Some of the factors that may materially affect
the market price of our Common Stock are beyond our control, such as changes in conditions or trends in the industry in which
we operate, general market and economic conditions in the United States and world-wide as well as the number of our shares of
Common Stock being purchased and sold at any particular time. These factors may materially adversely affect the market price of
our Common Stock, regardless of our historic business performance or future prospects. In addition, the public stock markets have
experienced and may be expected to experience extreme price and trading volume volatility. This volatility has significantly affected
the market prices of securities of many companies for reasons frequently unrelated to their operating performance. These market
fluctuations may adversely affect the market price of our Common Stock.
A
large number of additional shares will be available for resale into the public market pursuant to Rule 144, which may cause the
market price of our common stock to decline significantly.
Sales
of a substantial number of shares of our Common Stock in the public market will become available pursuant to Rule 144 promulgated
by the SEC under the Act, could adversely affect the market price of our Common Stock. As of December 31, 2016, we had 81,460,875
shares of Common Stock outstanding, of which 51,278,458 shares of Common Stock are restricted and are subject to the resale provisions
of Rule 144 and Regulations D and S under the united States federal securities laws and the rules and regulations promulgated
by the SEC thereunder. As restrictions on resale of other shares of Common Stock expire, pursuant to the provisions of Rule 144
or otherwise, the market price could drop significantly if the holders of these restricted shares sell them or are perceived by
the market as intending to sell them at any given date or over any particular period of time. When restrictions on resale lapse,
and if holders of previously restricted securities sell a large number of shares pursuant to Rule 144 under the Act, they
could adversely affect the market price for our Common Stock, which adverse affect could be sustained and over which we have no
control.
You
will experience dilution of your ownership interest because of the future issuance of additional shares of our common stock or
our preferred stock.
In
the future, we may issue our authorized but previously unissued equity securities, including shares of our Common Stock, resulting
in the dilution of the ownership interests of our present shareholders. We are authorized to issue an aggregate of 500,000,000
shares of Common Stock, par value $0.00001 per share, of which 144,719,287 shares are outstanding at March 31, 2017. In addition,
current holders of our common stock will experience dilution in their equity ownership from the exercise of outstanding common
stock purchase warrants and stock options granted under our 2016 ESOP.
We
may also issue additional shares of our Common Stock, warrants or other securities that are convertible into or exercisable for
the purchase of shares of our Common Stock in connection with hiring and/or retaining employees or consultants, future acquisitions,
future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional
shares of our Common Stock or other securities, for any reason including those stated above, may have a negative impact on the
market price of our Common Stock. There can be no assurance that the issuance of any additional shares of Common Stock, warrants
or other convertible securities may not be at a price (or exercise prices) below the then prevailing price at which shares of
our Common Stock will be quoted on the OTCQB Market.
We
may never pay any dividends to our shareholders.
We
currently intend to retain any future earnings for use in the operation and expansion of our business. Accordingly, we do not
expect to pay any dividends in the foreseeable future, but will review this policy as circumstances dictate. The declaration and
payment of all future dividends, if any, will be at the sole discretion of our board of directors, which retains the right to
change our dividend policy at any time. Consequently, shareholders must rely on sales of their Common Stock after price appreciation,
which may never occur, as the only way to realize any future gains on their investment.
Insiders
will continue to have substantial control over us after this offering and will be able to influence corporate matters.
Our
directors and executive officers and present shareholders holding more than 5% of our Common Stock will continue to own of record
and beneficially, in the aggregate, approximately 12.97% of our outstanding Common Stock As a result, if these shareholders were
to choose to act together, they would be able to exercise significant influence over all matters requiring shareholder approval,
including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our
Company or all or a significant percentage of our assets. This concentration of ownership could limit your ability to influence
corporate matters and may have the effect of delaying or preventing a third party from acquiring control over us. For information
regarding the ownership of our outstanding stock by our executive officers and directors and their affiliates, see the disclosure
under the caption
Security
Ownership of Certain Beneficial Owners and Management.
We
cannot assure you that the interests of our management and affiliated persons will coincide with the interests of the investors.
So long as our management and affiliated persons collectively controls a significant portion of our Common Stock, these individuals
and/or entities controlled by them, will continue to collectively be able to strongly influence or effectively control our decisions.
Anti-takeover
provisions of the Delaware General Corporation Law may discourage or prevent a change of control, even if an acquisition would
be beneficial to our shareholders, which could reduce our stock price.
We
are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations
with shareholders owning 15% or more of our outstanding voting stock. These and other provisions in our amended and restated certificate
of incorporation, amended and restated bylaws and Delaware law could make it more difficult for shareholders or potential acquirers
to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including
a merger, tender offer or proxy contest involving our Company. Any delay or prevention of a change of control transaction or changes
in our board of directors could cause the market price of our Common Stock to decline.
State
Blue Sky registration and potential limitations on resale of our common stock.
The
holders of our shares of common stock and those persons who desire to purchase our common stock in any trading market that might
develop, should be aware that there may be state blue-sky law restrictions upon the ability of investors to resell our securities.
Accordingly, investors should consider the secondary market our securities to be a limited one.
It
is the present intention of management after the active commencement of operations in to seek coverage and publication of information
regarding the Company in an accepted publication manual, which permits a manual exemption. The manual exemption permits a security
to be distributed in a particular state without being registered if the Registrant issuing the security has a listing for that
security in a securities manual recognized by the state.
However,
it is not enough for the security to be listed in a recognized manual. The listing entry must contain (1) the names of issuer’s
officers, and directors, (2) an issuer’s balance sheet, and (3) a profit and loss statement for either the fiscal year preceding
the balance sheet or for the most recent fiscal year of operations. Furthermore, the manual exemption is a non-issuer exemption
restricted to secondary trading transactions, making it unavailable for issuers selling newly issued securities.
Most
of the accepted manuals are those published in Standard and Poor’s, Moody’s Investor Service, Fitch’s Investment
Service, and Best’s Insurance Reports, and many states expressly recognize these manuals. A smaller number of states declare
that they “recognize securities manuals” but do not specify the recognized manuals. The following states do not have
any provisions and therefore do not expressly recognize the manual exemption: Alabama, Georgia, Illinois, Kentucky, Louisiana,
Montana, South Dakota, Tennessee, Vermont and Wisconsin.
Our
common stock is considered a Penny Stock, which may be subject to restrictions on marketability, so you may not be able to sell
your shares.
We
may be subject now and in the future to the Penny Stock rules if our shares of Common Stock sell below $5.00 per share. Penny
stocks generally are equity securities with a price of less than $5.00. The penny stock rules require broker-dealers to deliver
a standardized risk disclosure document prepared by the SEC which provides information about penny stocks and the nature and level
of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for
the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market
value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given
to the customer in writing before or with the customer’s confirmation.
In
addition, the penny stock rules require that prior to a transaction, the broker dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.
The penny stock rules are burdensome and may reduce purchases of any Offerings and reduce the trading activity for shares of our
Common Stock. As long as our shares of Common Stock are subject to the penny stock rules, the holders of such shares of Common
Stock may find it more difficult to sell their securities.
The
material weaknesses in our internal control over financial reporting may until remedied cause errors in our financial statements
or cause our filings with the SEC to not be timely.
We
have identified material weaknesses in our internal control over financial reporting as of the evaluation done by management as
of December 31, 2016. If our internal control over financial reporting or disclosure controls and procedures are not effective,
there may be errors in our financial statements that could require a restatement or our filings may not be timely made with the
SEC. Based on the work undertaken and performed by us, however, we believe the financial statements contained in our reports filed
with the SEC are fairly stated in all material respects in accordance with GAAP for each of the periods presented. We intend to
implement additional corporate governance and control measures to strengthen our control environment as we are able, but we may
not achieve our desired objectives. We may identify other material weaknesses and control deficiencies in our internal control
over financial reporting in the future that may require remediation and could result in investors losing confidence in our reported
financial information, which could lead to a decline in our stock price.
Our
shares of common stock are thinly traded, so stockholders may be unable to sell at or near ask prices or at all if they need to
sell shares to raise money or otherwise desire to liquidate their shares.
Our
common stock is “thinly-traded,” meaning that the number of persons interested in purchasing our common stock at or
near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors,
including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors
and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such
persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend
the purchase of our shares until such time as we become more seasoned and viable. As a consequence, there may be periods of several
days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large
and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We
cannot give stockholders any assurance that a broader or more active public trading market for our common shares will develop
or be sustained, or that current trading levels will be sustained.
Reporting
requirements under the Exchange Act and compliance with the Sarbanes-Oxley Act of 2002, including establishing and maintaining
acceptable internal controls over financial reporting, are costly and may increase substantially.
The
rules and regulations of the SEC require a public company to prepare and file periodic reports under the Exchange Act, which will
require that the Company engage legal, accounting, auditing and other professional service providers. The engagement of such services
is costly and continuing. Additionally, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires, among
other things, that we design, implement and maintain adequate internal controls and procedures over financial reporting. The costs
of complying with the Sarbanes-Oxley Act and the limited technically qualified personnel we have may make it difficult for us
to design, implement and maintain adequate internal controls over financial reporting. We expect these costs to be approximately
$25,000 per year or perhaps more as our operations increase in scope and magnitude. In the event that we fail to maintain an effective
system of internal controls or discover material weaknesses in our internal controls, we may not be able to produce reliable financial
reports and/or discover and report fraud, which may harm our overall financial condition and result in loss of investor confidence
and a decline in our share price.
As
a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act
of 2010 and other applicable securities rules and regulations. Our legal and financial compliance costs related to these rules
and regulations may increase, make some activities more difficult, time-consuming or costly and increase demand on our systems
and resources. The Exchange Act requires, among other things, that we file annual and quarterly, and, from time-to-time, current
reports with respect to our business and operating results.
We
are working with our legal, independent accounting and financial advisors to identify those areas in which changes should or could
be made to improve our financial and management control systems in order to manage our growth and our legal obligations as a public
company. These areas include corporate governance, corporate control, disclosure controls and procedures and financial reporting
and accounting systems. We have made, and will continue to make, changes in these and other areas, if and when any perceived deficiencies
are discovered. However, we anticipate that the expenses associated with being a reporting public company are expected to be both
material and continuing. We estimate that the aggregate cost of legal services; accounting and audit functions; personnel, such
as a chief financial officer familiar with the obligations of public company reporting; and consultants to design and implement
internal controls could be material. In addition, if and when we retain independent directors and/or additional members of senior
management, we may incur additional expenses related to director compensation and/or premiums for directors’ and officers’
liability insurance (“D&O Insurance”), the costs of which we cannot estimate at this time. We may also incur additional
expenses associated with investor relations and similar functions, the cost of which we also cannot estimate at this time. However,
these additional expenses individually, or in the aggregate, may also be expected to be material. In addition, being a public
company could make it more difficult or more costly for us to obtain certain types of insurance, including D&O Insurance,
and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar
coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve
on our board of directors, our board committees or as executive officers.
The
increased costs associated with operating as a public company may decrease our net income or increase our net loss, and may cause
us to reduce costs in other areas of our business or increase the prices of our product to offset the effect of such increased
costs. Additionally, if these requirements divert our management’s attention from other business concerns, they could have
a material adverse effect on our business, financial condition and results of operations.
Our
by-laws provide for indemnification of our directors and the purchase of D&O insurance at our expense and limit their potential
or actual liability which may result in a significant cost to us and damage the interests of our shareholders.
The
Company’s By-Laws include provisions that eliminate the personal liability of the directors of the Company for monetary
damages to the fullest extent possible under the laws of the State of Delaware as well as other applicable laws. These provisions
eliminate the liability of directors to the Company and its shareholders for monetary damages arising out of any violation of
a director of his fiduciary duty of due care. Under Delaware law, however, such provisions do not eliminate the personal liability
of a director for: (i) breach of the director’s duty of loyalty; (ii) acts or omissions not in good faith or involving intentional
misconduct or knowing violation of law; (iii) payment of dividends or repurchases of stock other than from lawfully available
funds; or (iv) any transaction from which the director derived an improper benefit. These provisions do not affect a director’s
liabilities under the federal securities laws or the recovery of damages by third parties.
Upon
dissolution of the Company, our stockholders may not recoup all or any portion of their investment.
In
the event of a liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the proceeds and/or assets
of the Company remaining after giving effect to such transaction, and the payment of all of our debts and liabilities will be
distributed to the holders of common stock on a pro rata basis. There can be no assurance that we will have available assets to
pay to the holders of common stock, or any amounts, upon such a liquidation, dissolution or winding-up of the Company. In this
event, our stockholders could lose some or all of their investment.
ITEM
1B. UNRESOLVED STAFF COMMENTS
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None.
ITEM
2. PROPERTIES
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Our
principal executive office is located at 30 Shacham Street, P.O. Box 8324, Petach Tikva, 4918103, Israel. Our telephone number
in Israel is +972 (0)3-758-2657/9. We pay $1,586 per month for 90 square meterS of office space to a related party. We believe
that this space (used with additional company) is adequate for our current and immediately foreseeable operating needs.
ITEM
3. LEGAL PROCEEDING
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The
Company has filed an action 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”) in New York State Supreme Court, New York
County. 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 a 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 pleading stages. 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 Mr. Ross prior to the commencement of the lawsuit. We cannot predict the ultimate outcome of this matter.
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
4. MINE SAFETY DISCLOSURES
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Not
Applicable.