UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended: December 31, 20192021

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

For the transition period from _____________ to _____________

Commission File No. 000-52545001-40849

Registrant’s telephone number, including area code: +972 (72) 260-0536+61 2 8624 6130

Securities Registered pursuant to Section 12(b) of the Act: None

Securities Registered pursuant to Section 12(g) of the Exchange Act: None

Common Stock, par value $0.001

(Title of each class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐  No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes ☐  No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☒☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐  No ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $5,231,546approximately $339.3 million computed by reference to the price at which the common equity was last sold, as of the last business day of the registrant’s most recently completed second fiscal quarter.

As of March 30, 2020,15, 2022, there were 15,995,92871,580,295 shares of the registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: NONE Portions of the registrant’s definitive proxy statement to be delivered to stockholders in connection with its Annual Stockholders’ Meeting to be held in 2022 are incorporated by reference into Part III of this Annual Report on Form 10-K. Only those portions of the definitive proxy statement that are specifically incorporated by reference herein shall constitute a part of this Annual Report on Form 10-K. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2021. 

TABLE OF CONTENTS

INTRODUCTION

Throughout this Annual Report, unless otherwise designated, the terms “we”, “us”, “our”, the “Company”, “Wize”“Mawson” and “our company” refer to Wize Pharma,Mawson Infrastructure Group, Inc., a Delaware corporation, and its wholly-owned Israeli subsidiary, Wize Pharma Ltd. (“Wize Israel”), and the wholly-owned subsidiary of Wize Israel, OcuWize Ltd. (“OcuWize”)consolidated subsidiaries (unless otherwise indicated).

All dollar amounts refer to U.S. dollars unless otherwise indicated.

Unless derived from Wize’s financial statements or otherwise indicated, U.S. dollar translations of New Israeli Shekels (“NIS”) amounts presented in this Annual Report are translated using the rate of NIS 3.5860 to one U.S. dollar, the exchange rate reported by the Bank of Israel for March 30, 2020. 

On March 5, 2018,August 11, 2021, we effected a reverse stock split of our Common Stock at a ratio of one for twenty-fourten (1:24)10) (the “Reverse Stock Split”). Unless otherwise indicated, all share and per share amounts included in this Annual Report reflect the effects of the Reverse Stock Split.

Wize Pharma, Inc.^®, the Wize logo and other trademarks or service marks of Wize appearingStatements made in this Annual Report concerning the contents of any contract, agreement or other document are summaries of such contracts, agreements or documents and are not complete descriptions of all of their terms.  If we filed any of these documents as an exhibit to this Annual Report or to any registration statement or annual report that we previously filed, you may read the propertydocument itself for a complete description of Wize Pharma, Inc. or its subsidiaries. Trade names, trademarksterms, and service marksthe summary included herein is qualified by reference to the full text of other companies appearingthe document which is incorporated by reference into this Annual Report.

Unless otherwise indicated, information contained in this Annual Report concerning our industry and the markets in which we operate, including our competitive position and market opportunity, is based on information from our own management estimates and research, as well as from industry and general publications and research, surveys and studies conducted by third parties. Management estimates are the propertyderived from publicly available information, our knowledge of their respective holders.our industry and assumptions based on such information and knowledge, which we believe to be reasonable. Our management estimates have not been verified by any independent source, and we have not independently verified any third-party information. In addition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in Item 1A “Risk Factors” below.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (“(this “Annual Report”) contains forward-looking statements, about our expectations, beliefs or intentions regarding, among other things, our product development efforts, business, financial condition, results of operations, strategies or prospects. Forward-looking statements can be identified by the use of forward-looking words such as “believe”, “expect”, “intend”, “plan”, “may”, “should” or “anticipate” or their negatives or other variations of these words or other comparable words or by the fact that these statements do not relate strictly to historical or current matters. These forward-looking statements may be included in, but are not limited to, various filings made by us with the United States Securities and Exchange Commission (the “SEC”), press releases or oral statements made by or with the approval of one of our authorized executive officers. Forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to, the factors summarized below.

This Annual Report identifies important factors which could cause our actual results to differ materially from those indicated by the forward-looking statements, particularly those set forth under Item 1A - “RISK FACTORS” beginning on page 24 of this Annual Report.below. The risk factors included in this Annual Report are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Given these uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to:

All forward-looking statements attributable to us or persons acting on our behalf speak only as of the date of this Annual Report and are expressly qualified in their entirety by the cautionary statements included in this Annual Report. We undertake no obligations to update or revise forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. In evaluating forward-looking statements, you should consider these risks and uncertainties.

iii

PART I

ITEM 1. BUSINESS.

Overview

General

On December 30, 2020, Mawson (formerly known as Wize Pharma, Inc.) entered into the Bid Agreement (as amended) with Mawson AU. Under the Bid Agreement Mawson acquired all of the Shares of Mawson AU. This transaction closed on March 9, 2021. Shares of our common stock have been listed on The Nasdaq Capital Market since September 29, 2021.

Mawson is a ‘Digital Asset Infrastructure’ business. We own and operate facilities with modular data centers (MDCs).

Within the MDCs Mawson operates Application-Specific Integrated Circuit (“ASIC”) computers known as Miners. The Miners are a clinical-stage biopharmaceutical company currently focused on the treatmentprocess of ophthalmic disorders,digital mining, specifically for Bitcoin.

As of December 31, 2021

We have in-licensed certain rightsan interest in Cosmos Asset Management Pty Ltd (“Cosmos Asset Management “), an Australia based crypto investment manager. Cosmos Asset Management has listed one unlisted crypto related fund and one listed crypto related exchange traded fund on an Australian exchange (Cosmos Global Digital Miners Access ETF), and it is seeking to purchase, market, sell and distribute a formula known as LO2A, a drug developed for the treatment of DES, and other ophthalmological illnesses, including Conjunctivochalasis (“CCH”) and Sjögren’s syndrome (“Sjögren’s”).

LO2A is currently registered and marketed by its inventor in Germany and Switzerland for the treatment of DES, in Hungary for the treatment of DES, CCH and ophthalmological symptoms of Sjögren’s andlist more in the Netherlands forfuture.

As of December 31, 2021, Cosmos Asset Management’s funds under management were approximately AUD$8.65 million.

We have a circa 20.06% interest in an Australian filecoin mining business, Distributed Storage Solutions Pty Ltd (“DSS”). Filecoin is an open-source, public cryptocurrency and digital payment system. Filecoins may be used to rent unused hard drive space.

Research and Development

Our research and development, or R&D, program is focused on researching and exploring opportunities to improve the treatmentefficiency of DEShardware and protection from dry eye assoftware and MDC’s, including the development of technology to enable us to operate liquid immersion cooled MDCs. We have also begun research into the software element of computing and are in the initial stages of researching a resultrange of Sjögren’s.programs to improve efficiency.

We intendare conducting research in both Australia and the United States. By conducting research in different countries, we are able to market LO2A as a treatment for DESresearch improvements in efficiencies across varying climates. We have partnered with leading design firms in both Australia and other ophthalmic inflammations, including CCH and/or Sjögren’s, in the United States to ensure our MDCs can be efficiently deployed in different climates. Using global designers and vendors provides us the opportunity to seek to enhance the design to ensure success of the technology in multiple jurisdictions, climates and scenarios.

Suppliers

Mawson engages a range of suppliers for access to hardware and software required to mine Bitcoin. This includes the manufacturers of the Miners, MDCs and transformers. Mawson has several power suppliers with which it has Power Purchase Agreements (“PPA”) that set out the terms and duration of the supply or power.

Government Regulation

Government regulation of blockchain and cryptocurrency is being actively considered by the United States (federal and state) and international governments, and their agencies and regulatory bodies.

Regulations may substantially change in the future and it is presently not possible to know how regulations will apply to our businesses, or when they will be effective. As the regulatory and legal environment evolves, we may become subject to purchasingnew laws, further regulation by the rightsSEC and other agencies, which may affect our mining and other activities. For instance, various bills have also been proposed in Congress related to market, sellour business, which may be adopted and distribute LO2Ahave an impact on us. For additional discussion regarding the potential risks existing and future regulation pose to our business, see the Section entitled “Risk Factors” herein.

Competition

The cryptocurrency industry, in additional territories (collectively,particulate Bitcoin mining, is dynamic and global. The Bitcoin mining network is made up of a variety of competitors, from individual ’sub-scale’ hobbyists to large, listed mining operations. We compete with them directly for the “Licensed Territories”).acquisition of new Miners, and raising capital. Bitcoin miners, including Mawson, also compete with more traditional industries, for example, when obtaining the lowest cost of sustainable electricity, or access to sites with reliable sources of power. Many mining operations are not publicly operated, and therefore data is not readily available.

Listed companies operating comparable businesses include:

Human Capital

Our employees are critical to our success. As of February 28, 2022, we had 40 employees and contractors based in the U.S. and Australia. We further rely on the extensive expertise of our external advisers, including legal, audit, financial and compliance consultants, who may be engaged on an hourly basis, or on a project basis.

We want to attract a committed and talented workforce. We believe that the biggest potential for economic successour ability to attract and retain such a workforce is in marketing the LO2A for the treatmentdependent on our ability to foster an environment that is sustainably safe, respectful, fair and inclusive of DES patients suffering from CCH and/or Sjögren’s. The registration process in certain countries, including the United States, requires us to conduct additional clinical trial, in addition to Phase II clinical trials that we have already completedeveryone and Phase IV clinical trial that we are currently conducting.promotes diversity, equity and inclusion.

We plan, subjectare committed to successful studies results,providing a safe workplace for our employees. The Company identifies potential risks associated with workplace activities in order to engage local or multinational distributorsdevelop measures to handlemitigate possible hazards. The Company has taken additional measures during the distribution of LO2A. In particular, we intend to engage, subject to obtainingCOVID-19 pandemic, including providing information resources, testing, and personal protective equipment.

ESG

There has been recent commentary about cryptocurrency mining and its impact on the requisite rights in LO2A, pharmaceutical companies or distributorsenvironment. Governments and related government bodies around the world with relevant marketing capabilitiesare introducing or contemplating legislative and regulatory changes related to cryptocurrency mining in the pharmaceutical field, in order for such pharmaceutical companiesresponse to sell LO2A, with us prioritizing those territories where we may expedite the registration processa variety of LO2A based on existing knowledge and studies previously conducted on LO2A, without requiring additional studies.pressures.

We are currently conducting a phase IV study, which is a multi-center, randomized, double-masked trialAny legislative changes regarding climate change could add significant burden and costs to our business, including costs related to making our energy consumption more efficient and lower impact on the environment, environmental monitoring and reporting, and other costs to comply with such changes. Further, there could be reputational damage to our business caused by increased negative publicity surrounding cryptocurrency and the apparent effects on the environment.

Corporate Information

On March 17, 2021, we changed our name to Mawson Infrastructure Group Inc. from Wize Pharma, Inc in Israel and will evaluate the safety and efficacyconnection with our acquisition of LO2A for symptomatic improvement of DES in 69 adult patients with Sjögren’s, expected to publish topline results in the second quarter of 2020.

On September 4, 2019, the Company entered into an exclusive license agreement with Copernicus Therapeutics, Inc. (“Copernicus”)Mawson Infrastructure Group Pty Ltd (then known as Cosmos Capital Limited), a U.S.-based privately held gene therapy company (the “Copernicus License Agreement”). The execution of the Copernicus License Agreement and the grant of license are subject to the satisfaction of certain customary closing conditions, including the completion of a due diligence investigation of Copernicus and its technology to our satisfaction. As of today, this license agreement was not executed, and itdigital infrastructure provider based in Sydney, Australia.

Our head office is uncertain whether it will be executed in the future.  

located at Level 5, 97 Pacific Highway, North Sydney New South Wales 2060. Our corporate headquarters are located in Hod Hasharon, Israel. Our telephone numbercontact email is +(972)-72-2600536,info@mawsoninc.com, and our website address is www.wizepharma.com.www.mawsoninc.com.

Shares of our common stock have been listed on The Nasdaq Capital Market since September 29, 2021.

Available Information

Our investor relations website is an inactive textual reference only, and not an active hyperlink.available at mawsoninc.com. The information on, or that canmay be accessed throughfrom, our website is specifically not incorporated by reference into this Annual Report, and is not a part of this report.

The Market Opportunity

We, through OcuWize, have licensed certain rights to purchase, market, sellAnnual Report. Investors can find a range of information about us there. Available on this website, free of charge, are the reports that we file or furnish with the Securities and distribute LO2A for the treatmentExchange Commission (“SEC”), corporate governance information (including our Code of DESBusiness Conduct and Ethics), and select press releases and other ophthalmological illnesses, including CCH and Sjögren’s in the United States, and have an option to purchase the rights to additional territories as further described below under “Item 1. BUISNESS — LO2A License Agreement” beginning on page 4 of this Annual Report.relevant information.

DES is an eye disease caused by eye dryness, which, in turn, is caused by either decreased tear production or increased tear film evaporation. The tear film is comprised of the lower mucous layer which helps the tear film adhere to the eyes, a middle layer of water and an upper oil layer that seals the tear film and prevents evaporation. The tear film keeps the eye moist, creates a smooth surface for light to pass through the eye, nourishes the front of the eye and provides protection from injury and infection. DES is usually caused by aqueous tear deficiency, or inadequate tear production, whereby the lachrymal gland, the gland that secretes the aqueous layer of the tear film, does not produce sufficient tears to keep the entire conjunctiva, or the tissue inside the eyelids that covers the sclera, and cornea covered by a complete layer of tear film. In rare cases, aqueous tear deficiency may be a symptom of collagen vascular diseases, including rheumatoid arthritis, Wegener’s granulomatosis, an incurable form of vasculitis (the inflammatory destruction of blood vessels), systemic lupus erythematosus, an autoimmune connective tissue disease, Sjögren’s, an autoimmune process in which patients suffer from mouth and eye dryness, and autoimmune diseases associated with Sjögren’s. DES can also be caused by abnormal tear composition resulting in rapid evaporation or premature destruction of tears. Additional causes include, but are not limited to, age, use of certain drugs and the use of contact lenses.

DES is characterized by eye irritation symptoms, blurred and fluctuating vision, tear film instability, increased tear osmolarity and ocular surface epithelial disease. DES causes constant ocular discomfort, typically dryness, burning, a sandy-gritty eye irritation and a decrease in visual function. Over an extended period of time, DES can lead to tiny abrasions on the surface of the eyes. In advanced cases, the epithelium undergoes pathologic changes, namely squamous metaplasia, a non-cancerous change of surface-lining cells, and loss of goblet cells, which secrete mucin, which in turn dissolves in water to form mucous. Some severe cases result in thickening of the corneal surface, corneal erosion, epithelial defects, corneal ulceration (sterile and infected), corneal neovascularization, or excessive ingrowth of blood vessels, corneal scarring, corneal thinning, and even corneal perforation. In the most severe cases, DES may result in deterioration of vision.

In a GlobalData DES report (the “GlobalData Report”), it was estimated that in 2016, pharmaceutical sales within the DES market were approximately $2.2 billion across the 8 major markets, with the United States contributing 79.6% of these sales, and GlobalData expects that by 2026 those sales are expected to grow to $5.6 billion. According to the GlobalData Report, the major drivers of growth of DES include the introduction of novel drugs, an increasingly aging society and increasing urbanized living with greater use of computers and better disease awareness leading to increased diagnosis and treatment rates. In addition, extended viewing of television, computer and smartphone screens, weather conditions, exposure to air conditioning and increased life expectancy are additional factors that contribute to the increase in the number of those suffering from DES.

CCH refers to the presence of redundant folds of loose conjunctiva. CCH is thought to be caused by both a gradual thinning and stretching of the conjunctiva that accompanies age and a loss of adhesion between the conjunctiva and underlying sclera due to the dissolution of Tenon’s capsule. A correlation may also exist between eye inflammation and CCH, though it is unclear if this correlation is causal. CCH may also be associated with previous surgery, blepharitis, Meibomian gland disorder, Ehlers-Danlos Syndrome and aqueous tear deficiency. The resulting loose, excess conjunctiva may mechanically irritate the eye and disrupt the tear film and its outflow, leading to dry eye and excess tearing. Most patients with CCH complain of foreign body sensation, tearing, difficulty reading, blurred vision, “red eyes” and general irritation.

Lid Parallel Conjunctival Folds (“LIPCOF”) grading measures the number and severity of the lid-parallel conjunctival folds. LIPCOF grade 0 signifies the absence of conjunctival folds, LIPCOF grade 1 signifies just one conjunctival fold, LIPCOF grade 2 signifies for multiple conjunctival folds, not extending beyond the tear meniscus, and LIPCOF grade 3 signifies multiple conjunctival folds extending above the tear meniscus. The LIPCOF grades show a strong correlation with both the subjective and objective complaints of DES, as well as with the severity of the disease.

The treatment of LIPCOF grade 3 CCH usually requires invasive therapies like surgery or treatment of the conjunctival folds with argon laser or with heat cauterization. A previous study conducted by Resdevco Ltd., a company controlled by Professor Shabtay Dikstein, the inventor of LO2A (“Resdevco”) in 2013, has shown Conheal® (Hungarian brand name for LO2A) to be effective in reducing the severity of CCH as measured by a reduction in the (i) LIPCOF score, (ii) Oxford scheme grade and (iii) ocular surface disease index (“OSDI”) and an increase in tear film break-up time (“TFBUT”). This raises the possibility that vision-related quality of life can be significantly improved by conservative therapies even in severe CCH.

There is little epidemiological data for CCH. A community based study in Shanghai reported that in patients over the age of 60, 4% had LIPCOF grade 3 CCH and 16% had LIPCOF grade 2 CCH. In the EU, about 20% of the population is over the age of 65. From the aforementioned data, it might be assumed, as presented in a study conducted by Dr. Huba J. Kiss and János Németh, that in the total EU population, 0.8% have LIPCOF grade 3 CCH and 3.2% have LIPCOF grade 2 CCH. Since DES complaints occur in 5.5% to 33.7% of the population, Dr. Kiss and Németh further assumed that the incidence of the CCH-caused DES in the population is about one-third of all DES cases.

Sjögren’s is a heterogeneous, chronic, inflammatory, autoimmune disease characterized by lymphocytic infiltration of exocrine glands and expression of autoantibodies including antinuclear antibody (ANA), anti-Ro (also termed anti SSA), anti-La (also termed anti SSB) as well as rheumatoid factor (RF). Hypergammaglobulinemia is common as well. Sjögren’s may be an isolated disease, termed primary Sjögren’s or may accompany another autoimmune diseases, such as lupus, rheumatoid arthritis, or scleroderma, thus termed secondary Sjögren’s. Clinical presentation varies from mild symptoms such as classic sicca symptoms of dry eyes (xerophthalmia), dry mouth (xerostomia) and parotid gland enlargements to severe systemic symptoms involving multiple organ systems such as fever, fatigue, malaise, arthritis, arthralgia, myalgia, interstitial lung disease, kidney disease, gastrointestinal disease and neurological manifestations. Sjögren’s treatment is highly individualized and is based on a patient’s disease severity, organ involvement and previous response. Mild forms of Sjögren’s may be treated symptomatically with artificial tears and salivary flow stimulation. More severe, systemic manifestations may be treated with high-dose glucocorticoids and immunosuppressive or cytotoxic drugs to suppress the immune system.

Estimations of Sjögren’s prevalence vary from 2.5 million to 4 million patients (Sjögren’s Syndrome Foundation) in the United States alone, with a worldwide estimate of up to 7.7 million in the seven major markets (United States, France, Germany, Italy, Spain, the UK and Japan) by the year 2024 (Global Data Report). Sjögren’s affects mostly middle aged women (40-50 years of age) with a female to male prevalence ratio of 9:1.

Global Data estimates the drug sales for Sjögren’s in 2014 were approximately $1.1 billion across the markets covered in its forecast. By the end of the forecast period of 2024, sales are estimated to grow to $2.2 billion across the markets covered in its forecast with a Compound Annual Growth Rate of 7.2%. The market size estimate in 2014 includes Salagen (pilocarpine) and Evoxac (cevimeline), the only two agents to ever be approved for Sjögren’s, and the use of off-label agents, such as biologics approved for other autoimmune diseases, and systemic and topical immunosuppressants and corticosteroids. This growth is expected to be driven by the anticipated approval of Orencia for use in patients with Sjögren’s in the United States and the EU in 2021 and Japan in 2022.

LO2A License Agreement

The following summary of the LO2A License Agreement as well as all summaries of agreements provided herein are qualified to the full text of the agreements, which are filed as exhibits hereto.

In May 2015, Wize Israel entered into an Exclusive Distribution and Licensing Agreement with Resdevco (as amended, the “LO2A License Agreement”). In August 2016, Wize Israel and Resdevco entered into an agreement pursuant to which Wize Israel assigned all of its rights and obligations under the LO2A License Agreement to OcuWize. Pursuant to the LO2A License Agreement, Resdevco granted to Wize Israel (and thereafter, to OcuWize) an exclusive license to develop in the United States, under the LO2A licensed technology, products in the field of ophthalmic disorders, to mutually agree upon a manufacturer and to purchase, market, sell and distribute LO2A in finished product form in the Licensed Territories in the field of ophthalmic disorders.

The LO2A License Agreement also grants Wize Israel the right to purchase Resdevco’s agreements with its existing distributors of LO2A in Germany, Hungary, Netherlands and Switzerland (the “Reserved Territories”) for (10) ten times the greater of the net royalties received in the previous twelve (12) months or the minimum royalty payment under such agreements. The LO2A License Agreement furthermore grants Wize Israel a right of first negotiation with potential distributors to whom Resdevco may in the future grant distribution rights to LO2A outside of the Reserved Territories and the Licensed Territories, subject to the payment of royalties to Resdevco. The LO2A License Agreement provides that Wize Israel is required to pay to Resdevco certain royalties for sales in the Licensed Territories based on an agreed-upon price per unit as well as certain minimum royalty payments.

The LO2A License Agreement has an initial term of seven years that expires in May 2022, and, unless Wize Israel provides prior notice of at least twelve (12) months terminating the agreement, the LO2A License Agreement renews automatically each year. Wize Israel may terminate the LO2A License Agreement prior to May 2022, subject to certain conditions, including, a 180 days prior notice to Resdevco, and penalty payment of $100,000, depending on the timing of termination. The LO2A License Agreement may also be terminated by either party upon the occurrence of certain other customary termination triggers, including material breaches of the LO2A License Agreement by either party.

The LO2A License Agreement contains other provisions, including representations and warranties of the parties, reporting, confidentiality and other covenants, such as an undertaking by Wize Israel not to sell competing products in the Licensed Territories during the term of the agreement and for five years thereafter. The LO2A License Agreement further provides that any improvements or modifications made by Wize Israel to LO2A or any related intellectual property or know-how shall belong to Resdevco and Wize Israel shall receive a license to distribute and sell the same in the Licensed Territories on the same terms set forth in the LO2A License Agreement.  

On September 6, 2017, Resdevco granted to Wize Israel, sole rights to commercialize LO2A in China. By agreement dated September 25, 2017, Wize Israel and Resdevco agreed that Wize Israel’s sole rights to commercialize LO2A in China would be limited to one year if by September 6, 2018, Wize Israel had not signed a distribution agreement for LO2A in China.

On December 26, 2017 Wize Israel, entered into an amendment to the LO2A License Agreement (the “Third Amendment”). The Third Amendment includes: (i) China in the list of Licensed Territories, (ii) the commercial terms of the parties with respect to the activities of Wize Israel in China, including the minimum annual royalty payments from Wize Israel to Resdevco, and, (iii) an undertaking by Wize Israel to include in the Chinese Distribution Agreement, that the Chinese Distributor will transfer the Chinese market license to Resdevco upon termination of the distribution agreement. On May 31, 2018, we entered into an Exclusive Distribution Agreement with HPGC Medical Co., Ltd. (the “Chinese Distributer”), pursuant to which the Chinese Distributor will distribute LO2A in China (the “Chinese Distribution Agreement”). Although the Chinese Distribution Agreement is in force, we have not started yet to operate in the Chinese market.

On January 8, 2018, Wize Israel entered into a Memorandum of Understanding (the “MOU”) with Resdevco. Pursuant to the MOU, Resdevco granted to Wize Israel (and its permitted assignees) an exclusive royalty bearing license to sell and distribute worldwide, excluding the United States, Israel, Ukraine, Switzerland, Germany, Netherlands and China (the “Additional Territories”), under the LO2A licensed technology, products in the field of ophthalmic disorders, under the terms and conditions set forth in the MOU. The MOU provides that it will terminate by June 30, 2019 if the Company has not completed certain clinical trials by such date. The Company did not complete such trials within such time period, and the MOU terminated.

On November 8, 2019, Wize Israel entered into an amendment to the LO2A License Agreement with Resdevco (the “Resdevco Amendment”). Pursuant to the terms and subject to the conditions set forth in the Resdevco Amendment, the royalties payable by Wize Israel to Resdevco shall be reduced from $475,000 per year to $150,000 per year for the years ended 2019 and 2020. Further, the Resdevco Amendment provides that a one-time payment to Resdevco by Wize Israel in an amount of $650,000 shall be due no later than the second anniversary of the receipt of FDA approval (the “Deferred Amount”); however, following the Food and Drug Administration (“FDA”) approval, if annual royalties due to Resdevco by Wize Israel exceed the Minimum Royalties (as defined in the License Agreement), an amount equal to 50% of such excess shall be added towards settlement of the Deferred Amount. As to royalty payments, the Resdevco Amendment provides that Resdevco shall be entitled to the greater of $.60, or a percentage of revenues, not to exceed 10%, from sales made in the United States and other countries, excluding Israel, China and Ukraine with a minimum of the Minimum Royalties. The Resdevco Amendment further provides that Resdevco may terminate the License Agreement upon 30-days’ written notice if certain regulatory and/or sales milestones are not met within certain specified dates.

LO2A

LO2A is a drug developed by Prof. Dikstein in the 1990s, initially for the treatment of DES, and later on for other ophthalmological disorders, including CCH and Sjögren’s. LO2A is a sterile, preservative-free, single-dose artificial tear preparation containing 0.015% SH as the drug substance. It has been developed as a substitute for natural tears, in order to lubricate and protect the ocular surface tissues.

SH is a salt of hyaluronic acid (“HA”). HA is present in the extracellular matrix (“ECM”) of all tissues and is particularly abundant in vitreous humour, skin, cartilage and the synovial fluid of joints. HA’s long chain molecules form a filter matrix interspersed with cellular fluids, which provide visco-elastic properties to the tissues. In the eye, endogenous HA forms a layer over the surface of the cornea. It serves to protect the corneal cells and reduce cell damage; so it is important in maintaining cell viability.

HA is an important pericellular and cell-surface constituent and is involved in the regulation of cellular activity through its interaction with other macromolecules. Recently, nonclinical pharmacological experiments have shown that HA promotes the viability of corneal cells and corneal epithelial wound healing by direct interaction with cell receptors. It acts as a signaling molecule in the ECM and is a ligand for specific receptor molecules, notably CD44, a cell surface adhesion molecule found on human corneal cells. Increased expression of CD44 receptors has been shown to be associated with corneal re-epithelialization. Any disruption of corneal integrity, as may occur with dry eyes, triggers the re-synthesis of HA and increases cell proliferation. These effects have been demonstrated to be dose-dependent.

LO2A eye drops incorporate a high molecular weight SH (1.5-1.65 million Da), which enables it to be effective in solution at a low concentration. It confers specific physical properties upon a solution. Its complex molecular structure adsorbs a relatively high volume of water, so that the solution takes on a gelatinous form. This water is released upon an increase in pressure. The viscosity of high MW SH is affected by shear rate; at high shear rate the macromolecules change their shape, align in the treatment of flow and its viscosity decreases. This enables the LO2A solution to flow across the corneal surface immediately after blinking. The physiochemical property of SH is similar to that of mucin, which constitutes the base layer of the lacrimal film and interacts strongly with the corneo-conjunctival surface. Molecules of mucin are able to bind water molecules up to 80 times greater in weight than their own. This is due to a large number of negatively-charged glycoside groups that are attached to the terminal section of the polypeptide skeleton.

All excipients included in LO2A eye drops comply with the relevant monographs of the European Pharmacopoeia. None of the excipients are of animal or human origin. They are established excipients for pharmaceutical products, including those approved for ocular use. Their functions include adjusting tonicity and increasing the viscosity of the formulation. This allows the LO2A eye drops to have a lubricating effect that is compatible with the external ocular environment. The visco-elasticity of LO2A eye drops ensures that they are retained on the corneal surface for a period of 4-6 hours, as demonstrated in a Phase I clinical pharmacology study conducted with LO2A in the University Hospital of Antwerp, Belgium in 1992. In this Phase I, randomized, blinded, cross-over study, fluorescence was used to measure pre-corneal retention time in healthy volunteers following a single instillation of LO2A and placebo (isotonic phosphate buffered saline) both labeled with fluorescein. The study compared the elimination coefficient and area under fluorescence decay curve for LO2A versus placebo.

LO2A eye drops do not contain any preservatives. This is an important feature of the formulation as preservatives have a recognized potential for irritation and sensitization and can damage the ocular surface and the cornea. This is of particular relevance to patients with symptoms of DES, in whom the corneal surface is already compromised.

The adverse events reported both from clinical trials of LO2A and from literature reports of different eye drop formulations containing SH, were minor ocular events which are expected to occur with any ophthalmic formulation. LO2A eye drops are presented in sterile, unit-dose vials to minimize the risk of infection and contamination.

We believe that the properties of the LO2A formulation described above make it a suitable candidate for use in a variety of dry eye indications including those with an inflammatory component. LO2A is currently registered and marketed in Germany and Switzerland for the treatment of DES, in Hungary for the treatment of DES, CCH and Sjögren’s and in the Netherlands for the treatment of DES and Sjögren’s. LO2A is sold under the brand name Hylan^® in Germany and the Netherlands, Lacrycon^® in Switzerland, and Conheal^® in Hungary (the "Approved Territories"). LO2A has been sold by Resdevco through local distributors in these countries for a number of years. In these countries, the drug is sold in a unit dose format, and is manufactured in Germany and France. We currently intend to market LO2A as a treatment for DES, CCH and Sjögren’s in the Licensed Territories, and believe that LO2A for treatment of ophthalmic inflammatory disorders such as CCH and Sjögren’s presents a significant market opportunity.

We intend to distribute LO2A via local or multi-national distributors, including by cooperation with a major medical company with means and experience in the end processes of approving and marketing drugs. In order to register LO2A for the treatment of dry eye patients suffering from CCH and Sjögren’s, we estimate that LO2A will be required to undergo additional clinical trials in addition to our completed Phase II and ongoing Phase IV clinical trials.

Our Clinical Trials

In November 14, 2018, we completed a multi-center trial at five different medical centers in Israel (the “Multi-Center Trial”). The Multi-Center Trial was a Phase II randomized, double-blind, placebo-controlled study carried out in parallel groups that evaluated the safety and efficacy of LO2A for patients suffering from moderate to severe CCH. The primary efficacy endpoint for this study was the change from baseline in lissamine green conjunctival staining score at 3 months; secondary endpoints include change from baseline in lissamine green conjunctival staining score at 1 month, change from baseline in LIPCOF score at 1 and 3 months, change from baseline in TFBUT at 1 and 3 months and change from baseline in OSDI questionnaire score at 1 and 3 months. Safety endpoints include adverse events recorded throughout the trial, best-corrected visual acuity, slit lamp biomicroscopy findings, undilated fundoscopy findings and intraocular pressure measurements. We consulted with ophthalmology consultants from the United States in the preparation of the protocol for the Multi-Center Trial.

In November 2018 we received the top line results for the Multi-Center Trial which describe analysis of the primary endpoint. The originally planned primary analysis was based upon recruitment of a sample size of 62 patients. Analysis was performed on the 49 fully evaluable patients using a mixed model with repeated measures (MMRM) and utilized all post baseline observations, (1-month and 3-month follow-ups) demonstrating statistical significance between the LO2A group and the placebo group (P=0.0079). The planned primary endpoint analysis compared average reduction in LGCS score from baseline to three months. This analysis also demonstrated a strong trend towards significance (P=0.0713) with average reduction in LGCS score between baseline and 3 months of -3.5 and -1.6 in the LO2A and placebo groups, respectively.

In March 2018, we commenced our Phase IV Study, which is a randomized, double-masked, study of LO2A versus Alcon’s Systane^® Ultra UD, an over-the-counter lubricant eye drop product used to relieve dry and irritated eyes. The Phase IV Study takes place in Israel and evaluates the safety and efficacy of LO2A for symptomatic improvement of DES in 60 adult patients with Sjögren’s. In January 2020 we enrolled our last patient to the study. Patients were randomized in a 1:1 ratio to one of two treatment groups, LO2A or Systane^® Ultra UD. Drops are administered topically to the eye over a three month period. The primary efficacy endpoint for this study is change from baseline in corneal and conjunctival staining score at 3 months. Secondary efficacy endpoints include change from baseline in corneal and conjunctival staining score at 1 month, change from baseline in eye dryness score (visual analogue scale) at 1 and 3 months and change from baseline in OSDI questionnaire score at 1 and 3 months. Safety will be evaluated by collection of adverse event data throughout the study, best-corrected visual acuity and slit lamp biomicroscopy findings.

This Phase IV Study is designed to support our clinical approval pathway for LO2A for the treatment of DES in patients with Sjögren’s within certain markets including the U.S. Data obtained from this study will be included in the clinical data package submitted during interactions with the FDA. The study is considered necessary as the existing clinical data in this indication is considered of insufficient quality for submission to the regulatory agencies mentioned above.

Research and development expenses for the year ended December 31, 2019 were approximately $492,000, and for the year ended December 31, 2018 were approximately $694,000.

Clinical Data

The safety and efficacy of LO2A has been shown in several clinical trials, conducted by Prof. Dikstein, the inventor of LO2A. The following paragraphs describe the clinical and non-clinical data upon which approvals were granted in the Approved Territories.

A pivotal clinical trial conducted with LO2A eye drops in six centers in France, is summarized below. There are a further seven published clinical studies on LO2A, which are also summarized. Six of these studies documented the efficacy of LO2A eye drops by both the investigators and the patients. Adverse events and tolerance parameters were also recorded. The remaining study specifically investigated tolerance parameters after application of LO2A eye drops. No clinical Pharmacokinetics studies have been conducted for LO2A eye drops. The PK profile of SH is well established. Extensive safety monitoring in both animal and human studies have shown that, after ocular application, no clinically meaningful systemic absorption is expected.

A Phase I study was performed at the University of Antwerp, Belgium in 1992 to measure the pre-corneal residence time of LO2A eye drops versus placebo in healthy volunteers (Study EC-914-1B). This was a single blind study in which 6 healthy volunteers received a single administration of LO2A eye drops to one eye and placebo to the other eye, both labeled with fluorescein. Variance analysis (ANOVA) for the area under the fluorescence delay curve demonstrated that LO2A was retained on the corneal surface significantly longer than placebo eye drops (p=0.048; significance level p=0.05). No adverse events were reported.

Six Phase II studies were performed. These are described below:

Randomized Controlled Trial of High Molecular Weight Hyaluronic Acid (LO2A) in DES

This study was performed in 1992 at the Hospital San Biagio, Domodossola, Italy. The objectives of the study were to evaluate the efficacy of 30-day treatment with LO2A in reducing the severity of DES, to confirm an optimum dosing schedule for LO2A (3, 4, 6 or 8 drops/day) and to assess the interference of LO2A with other ocular therapies. One hundred patients with moderate-to-severe DES were randomized 1:1 to treatment (LO2A) or comparator (Hyalistil containing 0.2% SH and the preservative thimerosal at 0.005%). Statistical analyses were performed using Wilcoxon, Mann-Whitney U test and Chi square test. The significance level was p=0.05.

The study demonstrated significant improvement in composite score from objective parameters including Schirmer test, fluorescein staining, TFBUT and Rose Bengal staining (p<0.001 for both treatments using Wilcoxon test), but no significant difference between treatment groups in the reduction in total scores at Day 30 (p=0.998 using Mann-Whitney U test). For LO2A, a dosing schedule of four applications/day reduced scores at Day 30 significantly more than lower dosing schedules (p=0.02 using Mann-Whitney U test). There was no significant difference between 4 applications/day and higher dosing schedules. The number of patients rating tolerance as ‘good’ or above was significantly higher for LO2A (96%) than the comparator (78%)(p = 0.029 using Chi square test). Adverse events were experienced by two patients in the LO2A group (both “sticky eye”) and 11 patients in the comparator group. There were no serious adverse events (“SAEs”) or apparent interactions between LO2A and concomitant eye treatments.

Double-Masked, Crossover Comparison of a New Artificial Tear Preparation containing Hyaluronic Acid (LO2A) and Lacrisol® in DES Treatment

This study was performed in 1992 at the University of Florence, Italy. The objectives of the study were to compare the efficacy of LO2A with Lacrisol^® at reducing the severity of DES and reducing ocular signs and symptoms. Thirty-five patients with moderate-to-severe DES were treated alternately with LO2A for a 30-day treatment period and then Lacrisol^® for a further 30-day treatment period. The trial was double-blind and allocation of treatments at Day 0 was randomized. Lacrisol^® is an eye drop product containing 0.5% Hydroxypropyl Methylcellulose (“HPMC”). Statistical analyses were performed using Wilcoxon tests. All analyses were performed using two-sided tests and results were considered to be statistically significant if the p value was less than or equal to 0.05.

This study demonstrated a statistically significant improvement in mean, objective dry eye score (based on Schirmer test, fluorescein staining, TFBUT and Rose Bengal staining) following LO2A treatment compared to the Lacrisol^® group (p<0.001). The severity of ocular signs and symptoms including redness, burning, foreign body sensation and photophobia was significantly less following LO2A treatment (p<0.02 for photophobia and p<0.01 for other symptoms). Adverse events were experienced by 4 patients treated with LO2A (two patients with mild burning, one patient with blurred vision and one patient with “thread sensation”) and 10 patients treated with Lacrisol^®. There were no SAEs reported.

Double-Masked Clinical Trial of an Unpreserved Hyaluronic Acid Based Eye Drops (LO2A) in DES

This study was performed in 1992 at the University of Genoa, Italy. The objective of the study was to compare the efficacy of LO2A with Lacrisol^® in reducing the severity of DES and ocular symptoms. Twenty-three patients with moderate to severe DES applied LO2A to the first eye and Lacrisol^® (0.5% HPMC) to the second eye. The trial was double-blind and the treatment regime was five applications/day for 30 days. The recorded data were statistically analyzed by using the Student’s t test and Mann-Whitney U test. The threshold for clinical significance was p=0.05.

This study demonstrated that after 30 days of treatment the mean, objective dry eye scores (based on measurement of meniscal thickness, fluorescein staining, TFBUT and Rose Bengal staining) for LO2A treatment were significantly lower than for Lacrisol^® treatment for three out of the four tests (p=0.011 for TFBUT [Student t test], p=0.046 for fluorescein staining [Mann-Whitney U test] and p=0.032 for Rose Bengal staining [Mann-Whitney U test]). The thickness of the lacrimal meniscus did not change significantly in any patient; however, the range of values recorded at Day 0 (0.1-0.2 mm) was not indicative of pathological changes. The severity of the ocular symptoms (burning, foreign body sensation and photophobia) was also significantly reduced for LO2A treatment compared to Lacrisol^® at Day 30 (p=0.009 for burning, p=0.006 for foreign body sensation and p=0.025 for photophobia using Mann-Whitney U test). There were no adverse events associated with LO2A treatment.

Clinical Evaluation of LO2A Eye Drops versus Reference in Patients suffering from DES

This study was performed in 1992 at the University of Rome “Tor Vergata”, Italy. The objective of the study was to compare the efficacy of LO2A with eye drops containing 0.5% HPMC in reducing the severity of DES. Sixteen patients were treated with LO2A or HPMC eye drops. The study was double blind and assessed the treatment of 5 drops/day for 3-4 weeks. The data were statistically analyzed by comparing the scores obtained by the Wilcoxon test and adopting a significance threshold of p = 0.05. This study demonstrated that LO2A eye drops had significantly lower scores than HPMC in the fluorescein (p=0.001), TFBUT (p=0.015) and Rose Bengal test (p=0.007). There was no difference between treatments in meniscal thickness measurements and Schirmer tests. Adverse events were reported by one patient treated with LO2A (blurred vision). There were no SAEs reported.

Assessment of Tolerance to LO2A Eye Drops

This study was performed at the University of Catania, Italy in 1992. The objective of the study was to assess the ocular tolerance of patients with moderate to severe DES to the application of LO2A drops compared with eye drops containing 0.5% HPMC. Eighteen patients applied LO2A drops to the first eye and HPMC in the second eye. The study was double-blind and assessed treatment of 4 drops/day for 20 days. This study demonstrated that 11 out of 18 patients (61.1%) experienced no discomfort upon application of LO2A compared to 1 out of 18 patients (5.6%)) with HPMC eye drops. This difference was found to be highly significant (p=0.0004) according to chi-squared test (significance level was p=0.05). The subjective symptoms reported at the time of HPMC instillation included blurred vision (16/18; 89%), foreign body sensation (11/18; 61%), stinging (7/18; 39%), photophobia (2/18; 11%) itching (1/18; 6%) and pain (1/18; 6%). The subjective symptoms reported at the time of LO2A instillation included foreign body sensation (5/18; 28%), stinging (4/18; 22%), blurred vision (3/18; 17%) and photophobia (2/18; 11%). No SAEs were reported.

The Effect of a New Tear Substitute Containing Glycerol and Hyaluronate on Keratoconjunctivitis Sicca

This study was performed in 1998 at Hadassah University Hospital, Jerusalem, Israel. The objective of the study was to evaluate the efficacy of LO2A in patients suffering from keratoconjunctivitis sicca compared to their current tear substitute. Twenty-five patients with a history of dry eye symptoms for at least one year who were using a known tear substitute preparation (containing either cellulose derivatives or polyvinylpyrolidone plus hydroxyethylcellulose) and had positive Rose Bengal staining were included. One eye was randomized to topical treatment with LO2A and the other “control” eye to continued treatment with the pre-existing tear substitute preparation. In the first stage of the study, 15 patients received treatment for one week and in the second stage, 10 patients received treatment for two weeks. Statistical analysis of the results included the Wilcoxon signed rank test for comparison between scores for the same eye at different times, and Mann-Whitney test for comparison between scores of study versus control eyes adopting a significance threshold of p = 0.05.

The average patient satisfaction score for LO2A was significantly higher compared to the control preparation at 1 week (p=0.0003) and at 2 weeks (p=0.0232). A highly significant reduction in Rose Bengal staining was demonstrated following one week of treatment with LO2A (p<0.0001) and the LO2A-treated eyes had significantly less staining compared to control eyes at both one (p=0.021) and two weeks (p=0.023). The paper did not report any adverse events associated with LO2A treatment.

The pivotal, Phase III study is described below:

Acceptability and Efficacy of LO2A Eye Drops vs Gel-Larmes® in Moderate to Severe DES - Clinical Trial Protocol No. EC-921-3

This study was performed in 1993 at the Hospital Hôtel-Dieu, Paris, France with additional sites in Brest, Montpellier, Limoges, Lyon and Nice. The objective of this study was to demonstrate the superiority of LO2A to Gel-Larmes^® (0.3% Carbomer containing the preservative thimerosal at 0.005%) in improving patient symptoms and to demonstrate equivalence of the study treatments in reducing the severity of DES. One hundred patients with moderate to severe DES were randomized 1:1 to treatment (LO2A) or Gel-Larmes^®. The study assessed treatment of four applications/day for 12 weeks. Differences between the study treatment groups were analyzed statistically using either the Student’s t test (means) or Chi squared test (percentages). Equivalence between the treatment groups was tested by comparison of distributions using the Dunett and Gent’s Chi squared test. Probability level was 0.05.

This study demonstrated that LO2A was significantly superior to Gel-Larmes^® in improving patient symptoms (p=0.024). The severity of DES was measured using Schirmer test, fluorescein staining, TFBUT and Rose Bengal staining. A reduction in total score of ≥4, obtained from these four objective tests, was achieved by 17 patients (left eye) and 23 patients (right eye) in the LO2A group and by 20 patients (left eye) and 16 patients (right eye) in the Gel-Larmes^® group, demonstrating that LO2A and Gel-Larmes^® were equivalent in improving signs of DES (probability of equivalence: p=0.039 right eye and p=0.00002 left eye). The number of patients rating tolerance as ‘good’ or above was significantly higher in the LO2A group compared to Gel-Larmes^® at all time points (Days 15 - p=0.031; Day 45 -p=0.00006; Day 90 - p=0.0004). Adverse events were experienced by 10 patients (21.7%) in the LO2A group and 17 patients (36.2%) in the Gel-Larmes^® group. The adverse events experienced by patients in the LO2A group included inflammatory reaction (2 patients), burning/itching/stinging sensation (7 patients) and secretions (1 patient). One unrelated SAE was reported in this study (chest pain) in a patient randomized to the Gel-Larmes^® group. In conclusion, this study demonstrated that LO2A was significantly better than Gel-Larmes^® in terms of subjective symptoms and tolerability in treating DES with a treatment regimen of four drops/day for 12 weeks and equivalent in improving signs of DES.

A Phase II study was performed at Semmelweis University, Budapest, Hungary between 2012-2013 to assess the efficacy of LO2A eye drops in patients with severe CCH. Twenty patients with Grade 2 or 3 CCH (according to LIPCOF score), who had previously failed treatment on a variety of artificial tear preparations, applied LO2A eye drops to both eyes in a single arm, open label study. Patients applied 4 drops/day for each eye for 3 months. A mean decrease from baseline of one LIPCOF degree was assumed to be clinically relevant. Statistical comparisons were performed using a paired t-test (TFBUT) or Wilcoxon Signed Rank Test (LIPCOF degree, Oxford grade and OSDI score) at a two-sided significance level of 5% (p=0.05).

This study demonstrated that after 3 months, CCH decreased from a mean LIPCOF degree of 2.9±0.4 in both eyes to 1.4±0.6 on the right (median decrease of -2 points, 95% confidence interval (“CI”) from -2.0 to -1.0), and to 1.4±0.7 on the left eye (median decrease of -1 points, 95% CI from -2.0 to -1.0) (p< 0.001 for both sides). The TFBUT increased significantly after one-month treatment (right eye median increase of 1.1 sec, 95% CI from 0.2 to 1.0 sec; left eye median increase of 0.9 sec, 95% CI from 0.3 to 1.5 sec)(p=0.02 right eye; p=0.004 left eye). The mean Oxford Scheme grade staining decreased significantly during the entire period of the examination (right eye median decrease of -1.0 grade, 95% CI from -1.0 to -1.0 grade; left eye median decrease of -1.0 grade, 95% CI from -1.0 to -1.0 grade after three months)(p<0.001 both sides). The subjective complaints of the patients measured with the OSDI questionnaire showed a significant improvement after 3 months’ treatment (median decrease of -13.1 scores, 95% CI from -25.0 to -8.3 scores)(p<0.001). During the study period, two patients complained of a greasy sensation on their eyelids, but they did not stop the treatment. No other adverse reactions were reported.

Based on the results of this trial, the Hungarian health authorities approved the amendment of the LO2A labeling to include the treatment of DES patients suffering from CCH, and patents were filed in the United States, Israel and Japan for the use of the active component of the drug for treating CCH.

A further Phase II study was performed at Semmelweis University, Budapest, Hungary in 2016. This study explored the safety and efficacy of LO2A in patients with moderate severity dry eye associated with Sjögren’s where the ocular surface showed Lissamine Green staining causing marked subjective symptoms using the OSDI questionnaire. Twenty-one patients applied LO2A eye drops to both eyes in a single arm, open label study. Patients applied 4 drops a day to each eye for 3 months. LIPCOF score, Lissamine Green staining, tear production and OSDI questionnaire were measured. The study demonstrated a reduction in the LIPCOF score, a decrease in Lissamine Green staining according to the Oxford scale and mitigation of subjective symptoms of dry eye according to the OSDI questionnaire. However, there was no change in tear production during the study.

We are evaluating such information and are considering the potential consequences on our business. In addition, we plan to use the clinical results and approval received in the Netherlands the treatment of Sjögren’s to assist our Company in the registration of LO2A as a treatment for Sjögren’s in the Licensed Territories.

Raw Materials and Suppliers

We believe that the raw materials that would be required to manufacture LO2A are widely available from numerous suppliers and are generally considered to be generic industrial chemical supplies.

Manufacturing

There can be no assurance that LO2A can be manufactured in sufficient commercial quantities, in compliance with regulatory requirements and at an acceptable cost. We and our contract manufacturers are, and will be, subject to extensive governmental regulation in connection with LO2A. We and our manufacturer must ensure that all of the processes, methods and equipment are compliant with both current Good Manufacturing Practices (“cGMP”), as required by the FDA, and current Good Laboratory Practices for drugs on an ongoing basis, as mandated by the applicable regulatory authorities, and conduct extensive audits of vendors, contract laboratories and suppliers. We have entered into agreements with a manufacturer in Germany relating to the manufacturing of LO2A. We have completed the production of LO2A for purposes of our ongoing Phase II clinical trial and expect to begin production for commercial use only after obtaining the requisite regulatory approvals in Israel to market LO2A and receive orders from the distributors (for more information, see “Item 1. BUISNESS — Marketing, Sales and Distribution”).

Marketing, Sales and Distribution

We plan to engage local or multinational distributors to handle the distribution of LO2A. In particular, we intend to enter into agreements with pharmaceutical companies with relevant marketing capabilities in the field of pharmaceuticals in order to have them distribute and sell LO2A in the Licensed Territories. The registration process in certain countries, including the United States, requires us to undertake additional clinical trials, in addition to the completed Phase II and Phase IV clinical trials that we are currently conducting.

We intend to engage pharmaceutical companies or distributors around the world with relevant marketing capabilities in the pharmaceutical field, in order for such pharmaceutical companies to sell LO2A, with us prioritizing those countries where we may expedite the registration process of LO2A based on existing knowledge and studies previously conducted on LO2A, without requiring additional studies. In this respect, we have been studying the possibility of marketing LO2A for DES treatment only in the United States, but have not made any determinations regarding the best route that can be used to obtain FDA approval to market LO2A. Currently, we intend to approach the FDA as part of our preliminary request procedure (Pre-IND) and discuss possible alternatives for approving LO2A for treating DES in the United States. However, as this FDA process is both time consuming and costly, we do not intend to approach the FDA on a Pre-IND basis until we are able to secure additional funding.

Competition

The pharmaceutical industry is characterized by rapidly evolving technology, intense competition and a highly risky, costly and lengthy research and development process. Adequate protection of intellectual property, successful product development, adequate funding and retention of skilled, experienced and professional personnel are among the many factors critical to success in the pharmaceutical industry. We operate in markets featuring competition between competing manufacturers in the field of DES treatment, while, to our knowledge, no therapy is currently approved specifically for Sjögren’s or CCH.

The global DES market features three particularly dominant companies, which are responsible for an estimated 82% of all revenues: Novartis/Alcon (through its Celluvisc®, Hyalein®, Vismed® and Systane® drugs); Allergan (Restasis®, Refresh®) and Santen. In July 2016, the FDA approved an additional medicine, Xiidra®, produced by Shire Plc, for the treatment of DES, and sales began in August 2016.

To date, no therapeutic agent has received approval specifically for Sjögren’s. Drugs that are used for the symptomatic relief of ocular signs and symptoms associated with Sjögren’s include cholinergic agonists e.g. Salagen (pilocarpine) and Evoxac (cevilemine) and the immunomodulatory agent Restasis (cyclosporine). Systemic Immunomodulary treatments, usually for extra-glandular disease, which may be used include hydroxychloroquine (mild inflammatory symptoms of joints, muscles and skin), corticosteroids (rare but serious symptoms: vasculitic rash, interstitial lung disease, interstitial nephritis, glomerulonephritis), immunosuppressive agents e.g. methotrexate, azathioprine, cyclophosphamide (used to treat serious internal organ manifestations) and biologic agents e.g. rituximab. Corticosteroids and immunosuppressants lead to broad, non-selective immunosuppression often associated with significant adverse events.

To the best of our knowledge, the pipeline of drugs in development for the indication of Sjögren’s is relatively small with only one product in Phase III, Orencia, being developed by Bristol-Myers Squibb. There are a number of drugs in Phase I or II stages of development including AMG/MEDI5872 developed by Amgen, BIIB063 developed by Biogen, CFZ533 and VAY736 developed by Novartis, GSK618960 developed by GSK, LY3090106 developed by Eli Lilly, MEDI4920 developed by MedImmune, RG7625 developed by Roche, RSLV developed by Resolve Therapeutics and Actemra developed by the University Hospital of Strasbourg. In addition, there is an ongoing Phase II combination study combining Benlysta and Rituxan.

We believe that LO2A has a number of advantages over competing products in the DES and Sjögren’s markets, including LO2A lacking preservatives, its ability to be used with any contact lenses, its anti-irritant properties and its non-Newtonian viscosity profile. On the other hand, other drugs on the market, including new drugs under development, may all be competitive to LO2A. In fact, some of these drugs are well established and accepted among patients and physicians in their respective markets, can be efficiently produced and marketed, and are relatively safe. Moreover, other companies of various sizes engage in activities similar to ours. Most, if not all, of our competitors have substantially greater financial and other resources available to them. Competitors include companies with marketed products and/or an advanced research and development pipeline.

Intellectual Property

Our success depends in part on our ability (directly or through Resdevco) to obtain and maintain proprietary protection for LO2A and its underlying technology and know-how, and to operate without infringing the proprietary rights of others and to prevent others from infringing such proprietary rights.

The LO2A composition and use thereof for treating or alleviating DES was covered by U.S. Patent No. 5,106,615, which has expired. Accordingly, we are currently focusing our marketing and commercial efforts with respect to CCH and Sjögren’s rather than DES, as more fully described elsewhere in this Annual Report.

The use of LO2A for treating or alleviating CCH is protected by the patent family of International Patent Application WO2012150583, filed on April 5, 2012, assigned to Resdevco, entitled EYE DROPS FOR TREATMENT OF CONJUNCTIVOCHALASIS. Corresponding members include U.S. Patent No. 8,912,166, Israeli Patent No. 212725, Japanese Patent No. 5957517 and European Patent No. 2704747. Patents will expire, without extension, in 2032.

The use of LO2A for treating or alleviating irritation of the eye caused non-infectious diseases, such as Sjögren’s, is covered by the patent family of International Patent Application WO2018163151, filed on February 19, 2018, assigned to Resdevco, entitled EYE DROPS FOR TREATMENT OF IRRITATION NOT DUE TO INFECTION. Corresponding patent applications are pending in the USA, Europe, China and other countries. Patents to issue will expire, without extension, in 2038.

Pursuant to the LO2A License Agreement, Resdevco has contractually agreed to be responsible for the payment of all relevant fees associated with the maintenance of its intellectual property rights. The patent positions of biopharmaceutical companies, such as Resdevco and us, are generally uncertain and involve complex legal and factual questions. Resdevco’s ability to maintain and solidify its proprietary position for LO2A will depend on its success in obtaining effective claims and enforcing those claims once granted. There is no certainty that any of Resdevco’s pending patent applications or those pending patent applications that it licenses will result in the issuance of any patents or that we will obtain rights to any further patents or patent applications. Any issued patents and those that may issue in the future may be challenged, narrowed, circumvented or found to be invalid or unenforceable, which could limit our ability to stop competitors from marketing related products or the length of term of patent protection that we may have for LO2A under the LO2A License Agreement. We cannot be certain that Resdevco was the first to invent the inventions claimed in its owned or licensed patents or pending patent applications. In addition, our competitors may independently develop similar technologies or duplicate any technology developed by Resdevco, and the rights granted under any issued patents may not provide Resdevco or us with any meaningful competitive advantages against these competitors. Please see under “RISK FACTORS – Risks Related to our Intellectual Property” beginning on page 34 of this Annual Report.

Environmental Matters

We and our manufacturers, distributors and other service providers are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges, noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believe that our business, including those of our service providers, are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on our business. However, significant expenditures may be imposed on those third party service providers should they be required to comply with new or more stringent environmental or health and safety laws, regulations or requirements, which may in turn adversely affect us.

Government Regulations

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. In many markets, especially in Europe, marketing and pricing strategies are subject to national legislation or administrative practices that include requirements to demonstrate not only the quality, safety and efficacy of a new product, but also its cost-effectiveness relating to other treatment options. Failure to comply with regulations can result in stringent sanctions, including product recalls, withdrawal of approvals, seizure of products and criminal prosecution.

Before obtaining regulatory approvals for the commercial sale of LO2A or any of our future product candidates, we must demonstrate through clinical trials that any of 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 have incurred and will continue to incur substantial expense for, and devote a significant amount of time to, 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 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 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 regulatory processes in countries where we are seeking or will seek regulatory approval follow below.

United States

In the United States, the Public Health Services 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 quality, safety and effectiveness standards for any of our product candidates and the raw materials and components used in the production of, testing, manufacture, labeling, storage, record keeping, approval, advertising and promotion of our products on a product-by-product basis.

Before the clinical studies, the FDA requires from the applicants to complete extensive preclinical laboratory tests, drug chemistry, animal (in vivo), formulation, stability and other studies.

Certain preclinical tests must be conducted in compliance with good laboratory practice (GLP) regulations. Non-compliance with GLP standard can, in some cases, lead to invalidation of the studies, requiring them to be replicated. After laboratory analysis and preclinical testing, a sponsor files an Investigational New Drug (“IND”) application, with the FDA to begin human testing.

The results of the preclinical studies, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND application. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the conduct of the clinical trial, including concerns that human research subjects will be exposed to unreasonable health risks. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Submission of an IND may result in the FDA not allowing the clinical trials to commence or not allowing the clinical trials to commence on the terms originally specified in the IND. A separate submission to an existing IND must also be made for each successive clinical trial conducted during drug development, and the FDA must grant permission, either explicitly or implicitly by not objecting, before each clinical trial can begin.

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.

Clinical trials involve the administration of the investigational drug to human subjects under the supervision of qualified investigators. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be used. Each protocol must be submitted to the FDA as part of the IND. An independent institutional review board (“IRB”), for each medical center proposing to conduct a clinical trial must also review and approve a plan for any clinical trial before it can begin at that center and the IRB must monitor the clinical trial until it is completed. The FDA, the IRB, or the sponsor may suspend or discontinue a clinical trial at any time on various grounds. Clinical testing also must satisfy extensive Good Clinical Practice (“GCP”), requirements, including the requirements for informed consent.

All clinical research performed in the United States in support of a new drug application (“NDA”) must be authorized in advance by the FDA under the IND regulations and procedures described above. However, a sponsor who wishes to conduct a clinical trial outside the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor may submit data from the clinical trial to FDA in support of an NDA so long as the clinical trial is conducted in compliance with an international guideline for the ethical conduct of clinical research known as the Declaration of Helsinki and/or the laws and regulations of the country or countries in which the clinical trial is performed, whichever provides the greater protection to the participants in the clinical trial.

In Phase I, small clinical trials are conducted to determine the safety and proper dose ranges of any of our product candidates. In Phase II, clinical trials are conducted to assess safety and gain preliminary evidence of the efficacy of any of our product candidates. In Phase III, clinical trials are conducted to provide sufficient data for the statistically valid evidence of safety and efficacy and these studies include a large number of participants. The time and expense 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 of any of our product candidates within any specific time period, if at all. Furthermore, the FDA, the IRB 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) is 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 an NDA seeking approval to market a new drug for one or more specified intended uses. 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 an 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 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 of time 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 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.

We may also seek approval under programs designed to accelerate the FDA’s review and approval of NDAs. For instance, a sponsor may seek FDA designation of a drug candidate as a “fast track product.” Fast track products are those products intended for the treatment of a serious or life-threatening disease or condition and which demonstrate the potential to address unmet medical needs for such disease or condition. If fast track designation is obtained, the FDA may initiate review of sections of an NDA before the application is complete. This “rolling review” is available if the applicant provides and the FDA approves a schedule for submission to the FDA of the remaining information. In some cases, a fast track product may be approved on the basis of either a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. Approvals of this kind, referred to as accelerated approvals, typically include requirements for appropriate post-approval Phase IV clinical trials to validate the surrogate endpoint or otherwise confirm the effect of the clinical endpoint.

In addition, the Food and Drug Administration Safety and Innovation Act, which was enacted and signed into law in 2012, established a new category of drugs referred to as “breakthrough therapies” that may be subject to accelerated approval. A sponsor may seek FDA designation of a drug candidate as a “breakthrough therapy” if the drug is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Drug candidates may also be eligible for “priority review” or review within a six-month timeframe from the date a complete NDA is accepted for filing, if a sponsor shows that its drug candidate provides a significant improvement compared to marketed drugs. Fast track designation, accelerated approval, breakthrough therapy designation and priority review do not change the standards for approval, but may expedite the development or approval process. When appropriate, we intend to seek fast track designation, accelerated approval, breakthrough therapy designation and priority review, as applicable for our drug candidates. We cannot predict whether any of our drug candidates will obtain such designations or approvals, or the ultimate impact, if any, of such designations or approvals on the timing or likelihood of FDA approval of any of its proposed drugs.

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. Before approving an application, the FDA will inspect the facility or the facilities at which the finished drug product, and sometimes the active drug ingredient, is manufactured, and will not approve the drug unless cGMP compliance is satisfactory. The FDA may also inspect the sites at which the clinical trials were conducted to assess their compliance, and will not approve the drug unless compliance with GCP requirements is satisfactory.

If, as a result of these inspections, the FDA determines that our facilities do not comply with applicable FDA regulations and conditions of product approval, the FDA may seek civil, criminal or administrative sanctions and/or remedies against us including the suspension of our manufacturing operations.

Drugs may be marketed only for the FDA approved indications and in accordance with the provisions of the approved labeling. Further, if there are any modifications to the drug, including changes in indications, labeling, or manufacturing processes or facilities, the applicant may be required to submit and obtain FDA approval of a new NDA or NDA supplement, which may require us to develop additional data or conduct additional preclinical studies and clinical trials.

We have currently received no approvals to market our products from the FDA or other foreign regulators, besides Israel and the countries where LO2A is already marketed by Resdevco.

Post-Marketing Requirements

Following approval of a new product, a pharmaceutical company generally must engage in numerous specific monitoring and recordkeeping activities and continue to submit periodic and other reports to the applicable regulatory agencies, including any cases of adverse events and appropriate quality control records. Modifications or enhancements to the products or labeling or changes of site of manufacture are often subject to the approval of the FDA and other regulators, which may or may not be received or may result in a lengthy review process.

Prescription drug advertising is subject to federal, state and foreign regulations. In the United States, the FDA regulates prescription drug promotion, including direct-to-consumer advertising. Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use. Any distribution of prescription drug products and pharmaceutical samples must comply with the U.S. Prescription Drug Marketing Act, a part of the U.S. Federal Food, Drug, and Cosmetic Act.

In the United States, once a product is approved, its manufacture is subject to comprehensive and continuing regulation by the FDA. The FDA regulations require that products be manufactured in specific approved facilities and in accordance with cGMPs, and NDA holders must list their products and register their manufacturing establishments with the FDA. These regulations also impose certain organizational, procedural and documentation requirements with respect to manufacturing and quality assurance activities. NDA holders using contract manufacturers, laboratories or packagers are responsible for the selection and monitoring of qualified firms, and, in certain circumstances, qualified suppliers to these firms. These firms and, where applicable, their suppliers are subject to inspections by the FDA at any time, and the discovery of violative conditions, including failure to conform to cGMPs, could result in enforcement actions that interrupt the operation of any such facilities or the ability to distribute products manufactured, processed or tested by them.

Healthcare Laws and Regulations

We are also 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 payors (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 other relevant party were to allege that we violated these laws there could be a material adverse effect on 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

We do not currently have license or right to distribute in countries in the European Union (“EU”). Although we are not currently seeking regulatory approval in the EU, we 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 (the “EEA”), composed of the 28 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 (“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 (“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.

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 Summary of Product Characteristics (“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.

The majority of medicines available in the EU were authorized at national level, either because they were authorized before EMA’s creation or they were not in the scope of the centralized procedure. Each EU Member State has its own national authorization procedures. If a company wishes to request marketing authorization in several EU Member States for a medicine that is outside the scope of the centralized procedure, it may use one of the following routes:

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 Annual Report together with the approved 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 (“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 GCP 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.

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:

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 six 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.

Consent to refer to an existing dossier info

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.

Other Countries

In addition to regulations in the United States and the EU, we may be subject to a variety of other regulations governing clinical trials and commercial sales and distribution of drugs in other countries. Whether or not our products receive approval from the FDA or EMA approval of such products must be obtained by the comparable regulatory authorities of countries other than the United States or EU before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA or EMA approval. The requirements governing the conduct of clinical trials and product licensing vary greatly from country to country.

The requirements that we and our collaborators must satisfy to obtain regulatory approval by government agencies in other countries prior to commercialization of our products in such countries can be rigorous, costly and uncertain. In the European countries, Canada and Australia, regulatory requirements and approval processes are similar in principle to those in the United States. Additionally, depending on the type of drug for which approval is sought, there are currently two potential tracks for marketing approval in the European countries: mutual recognition and the centralized procedure. These review mechanisms may ultimately lead to approval in all EU countries, but each method grants all participating countries some decision-making authority in product approval. Foreign governments also have stringent post-approval requirements including those relating to manufacture, labeling, reporting, record keeping and marketing. Failure to substantially comply with these on-going requirements could lead to government action against the product, us and/or our representatives.

Related Matters

From time to time, legislation is drafted, introduced and passed in governmental bodies that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products regulated by the FDA or EMA and other applicable regulatory bodies to which we are subject. In addition, regulations and guidance are often revised or reinterpreted by the national agency in ways that may significantly affect our business and our therapeutic candidates. It is impossible to predict whether such legislative changes will be enacted, whether FDA or EMA regulations, guidance or interpretations will change, or what the impact of such changes, if any, may be. We may need to adapt our business and therapeutic candidates and products to changes that occur in the future.

Seasonality

Our business and operations are generally not affected by seasonal fluctuations or factors.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we had total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of our initial public offering; (iii) the date on which we had issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

To the extent that we continue to qualify as a “smaller reporting company” as such term is defined in Rule 12b-2 under the Exchange Act, after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an emerging growth company may continue to be available to us as a smaller reporting company, including: (1) not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes Oxley Act; (2) scaled executive compensation disclosures; and (3) the requirement to provide only two years of audited financial statements, instead of three years.

Employees

We currently have two full time employees, and one part time employee. In addition, we engage certain outside consultants that are, in general, compensated on an hourly basis, with compensation taking the form of both cash and share-based payment.

ITEM 1A. RISK FACTORS.

RISK FACTORS

An investment in our securities involves a high degree of risk. You should consider carefully the following information about these risks, together with the other information contained in this Annual Report, including the matters addressed in the section entitled “CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS” beginning on page iiiii of this Annual Report, before making an investment decision. Our business, prospects, financial condition, and results of operations may be materially and adversely affected as a result of any of the following risks. The value of our securities could decline as a result of any of these risks. You could lose all or part of your investment in our securities. Some of the statements in “RISK FACTORS” are forward-looking statements. The following risk factors are not the only risk factors facing our company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business, prospects, financial condition, and results of operations and it is not possible to predict all risk factors, nor can we assess the impact of all factors on us or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in or implied by any forward-looking statements.

Risks RelatedRelating to ourOur Business and Management

We have incurred operating losses since our inception and anticipate that we will continue to incur substantial operating losses forinception.

During the foreseeable future.

We are a clinical-stage biopharmaceutical company currently focused on the treatment of ophthalmic disorders, including DES. We have in-licensed certain rights to LO2A, a drug developed for the treatment of DES, and other ophthalmological illnesses, including CCH and Sjögren’s. Since April 2015,time we have been financing our operations through numerous financing activities, including the issuance of ordinary shares and from loans from Ridge Valley Corporation (“Ridge”) and Rimon Gold Assets Ltd. (“Rimon Gold”) and from third parties. Weoperated we have historically incurred net losses, including net losses of approximately $3.45 million and $3.28 million for the years ended December 31, 2019 and 2018, respectively. At December 31, 2019, we had an accumulated deficit of approximately $33.9 million. We do not know whether or when we will become profitable. To date, we have not commercialized any products or generated any material revenues from product sales and accordingly we do not have a revenue stream to support our cost structure. Our losses have resulted principally from costs incurred in development and discovery activities as well as from certain financial expenses related mainly to convertible loans.losses. We expect to continue to incur losses for the foreseeablenear future, and these losses will likely increase as we:

Nowe pursue our growth strategy. Even with the change of our primary business away from our historical clinical-stage biopharmaceutical business to the digital asset infrastructure business, no certainty exists that we will be able to complete the development of LO2A for CCH, Sjögren’s or any other ophthalmic disorder, due to financial, technological or other difficulties. If LO2A fails in clinical trials or does not gain regulatory clearance or approval, or if LO2A does not achieve market acceptance, we may never become profitable. Evenprofitable and, even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. The future expansion of our business likely requires substantial capital costs and expenses and there can be no assurance that subsequent operational objectives will be achieved. If we do not achieve our operational objectives, and if we do not generate cash flow and income, our financial performance and long-term viability may be materially and adversely affected. Our inability to achieve and then maintain profitability would negatively affect our business, financial condition, results of operations and cash flows. Moreover, our prospects must be considered in light of the risks and uncertainties encountered by an early-stage company and in highly regulated and competitive markets, such as the biopharmaceutical market, where regulatory approval and market acceptance of our products are uncertain. There can be no assurance that our efforts will ultimately be successful or result in revenues or profits.    

We may be unable to raise additional capital needed to grow our business.

We will likely continue to operate at a loss, at least until our business strategy is implemented, or if cryptocurrency prices decline, and there may be a need to raise additional capital to meetexpand our business requirements in the future,operations and suchpursue our growth strategies, including potential acquisitions of complementary businesses, and to respond to competitive pressures or unanticipated working capital raisingrequirements. We may be costly or difficult to obtain and will dilute current stockholders’ ownership interests.

The sources of financing at our disposal are estimated by our management to be currently insufficient (i) to conduct our ongoing business for the next 12 months, (ii) to conduct any future clinical trials, and (iii) for LO2A’s commercial production and marketing. No certainty exists that we willnot be able to secure theobtain additional sources of financedebt or equity financing on favorable terms, if at all, which could impair our growth and adversely affect our existing operations. If we need to perform the advanced and necessary stages of receiving regulatory approvals for marketing and distributing our products, including the costs derived from performing clinical trials and the requirements of the regulatory authorities. The lack of satisfactory means of financing may bring our business activity to a halt. As of December 31, 2019, we had cash and cash equivalents of approximately $0.72 million. We have expended and believe that we will continue to expend substantial resources for the foreseeable future developing LO2A. These expenditures will include costs associated with research and development, manufacturing, conducting clinical trials, as well as commercializing any products approved for sale. Because the outcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of LO2A. In addition, other unanticipated costs may arise. As a result of these and other factors currently unknown to us, we will requireraise additional funds through publicone or privatemore equity or debt financings, or other sources, such as strategic partnershipsour stockholders may experience significant dilution of their ownership interests, and alliances and licensing arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations eventhe per share value of our common stock could decline. Furthermore, if we believe weengage in additional debt financing, the holders of debt likely would have sufficient funds for our current or future operating plans.

Our future capital requirements will dependpriority over the holders of common stock on many factors, including the progress and resultsorder of our clinical trials, the duration and cost of discovery and preclinical development, and laboratory testing and clinical trials of LO2A, the timing and outcome of regulatory review of LO2A, the number and development requirements of other product candidates that we pursue, if any, and the costs of activities, such as product marketing, sales, and distribution. Because of the numerous risks and uncertainties associated with the development and commercialization of LO2A, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our anticipated clinical trials.

Our future capital requirements depend on many factors, including: 

Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, wepayment preference. We may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for LO2A or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activitiesaccept terms that may be necessary to commercialize LO2A.

We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our financial condition.

According to management estimates, liquidity resources as of December 31, 2019 will not be sufficient to maintain our operations for the next twelve months which raises substantial doubt regardingrestrict our ability to continue as a going concern. If we do not continue as a going concern, investorsincur additional indebtedness or take other actions including terms that require us to maintain specified liquidity or other ratios that could lose their entire investment.

According to management estimates, liquidity resources as of December 31, 2019, willotherwise not be sufficient to maintain our operations forin the next 12 months. Our inability to raise funds to conduct our research and development activities may have a severe negative impact on our ability to remain a viable company. These conditions raise substantial doubt about our ability to continue as a going concern. As such, the reportinterests of our independent registered public accounting firm on our audited financial statements as of and for the year ended December 31, 2019 contains an emphasis of matter paragraph regarding substantial doubt about our ability to continue as a going concern. This emphasis of matter paragraph could materially limit our ability to raise additional funds through the issuance of debt or equity securities or otherwise. Future reports on our annual financial statements may include an emphasis of matter paragraph with respect to our ability to continue as a going concern.stockholders.

If we fail to obtain necessary funds for our operations, we will be unable to maintain and improve our licensed technology, and we will be unable to develop and commercialize LO2A.

Our present and future capital requirements depend on many factors, including:

We or our suppliers may not be able to procure or repair hardware that is required in our operations.

COVID-19 and other geo-political events, including the closing of the Suez Canal, in recent times have caused multiple supply chain disruptions for companies globally. Our business relies on certain hardware such as the Miners, containers in which to store the Miners, transformers for electricity supply, and cooling technologies. If we are unable to obtain the funds necessary forprocure such hardware, or replacement parts (at commercial prices or at all), or they are delayed, our operations we willmay be unable to maintain and improve our licensed technology, and we will be unable to develop and commercialize our products and technologies,adversely affected which would materially and adversely affect our business, liquidity and results of operations. 

Risks Related to our Business and Regulatory Matters

We have not yet commercialized LO2A, and may never become profitable.

Although LO2A is approved for sale for certain indications in a limited number of jurisdictions, we have not yet commenced commercialization of LO2A, and may never be able to do so other than with respect to the entry into of distribution agreements in Israel, which are not expected to result in material revenues. Our activity is influenced by the policies of regulatory authorities. Changes and developments in regulatory requirements or our failure to meet such requirements may lead to restrictions or delays in developing LO2A and cause material expenses for us. We do not know when or if we will complete any of our product development efforts of LO2A, obtain regulatory approval for any future product candidates incorporating our technologies or successfully commercialize any approved products. Even if we are successful in developing LO2A that is approved for marketing, we will not be successful unless these products gain market acceptance for appropriate indications at favorable reimbursement rates. The degree of market acceptance of these products will depend on a number of factors, including:

Physicians, patients, thirty-party payors or the medical community in general may be unwilling to accept, utilize or recommend, and in the case of third-party payors, cover any of our products or products incorporating our technologies. As a result, we are unable to predict the extent of future losses or the time required to achieve profitability, if at all. Even if we successfully develop one or more products that incorporate our technologies, we may not become profitable.

Our current pipeline is based on a single compound, LO2A. Failure to develop LO2A will have a material adverse effect on us.

In August 2016, we commenced the Multi-Center Trial. As of March 26, 2018, the Multi-Center Trial had already enrolled all the planned 62 patients, with the treatment time for each patient being three months. On October 26, 2017, Wize Israel announced the termination of the Single Center Trial. In March 2018, we enrolled our first patient in the Phase IV Study. We currently do not have sufficient funds to complete the Phase IV Study.

LO2A is at various stages of clinical development and may never be commercialized for the indications in the territories that we presently have rights under the LO2A License Agreement. The progress and results of any future clinical trials are uncertain, and the failure of LO2A to receive regulatory approvals willlikely have a material adverse effect on our business, operating results and financial condition, toresults of operations and prospects. If the extent wemanufacturers of such hardware are unable to commercialize LO2A. In addition, we face the risks of failure inherent in developing therapeutic products.

Furthermore, LO2A must satisfy rigorous standards of safety and efficacy before it can be approved by the FDA, and any applicable foreign regulatory authorities for commercial use. The FDA and foreign regulatory authorities have full discretion over this approval process. We will need to conduct significant additional research, involving testing in animals and in humans, before we can file applications for product approval. Typically, in the pharmaceutical industry, there is a high rate of attrition for product candidates in pre-clinical testing and clinical trials. Also, satisfying regulatory requirements typically takes many years, is dependent upon the type, complexity and novelty of the product and requires the expenditure of substantial resources. In addition,obtain materials or components themselves, they may experience manufacturing delays or rejectionshave to cease manufacturing altogether. Supply chain disruptions may be encountered based upon additional government regulation, including any changes in FDA policy, during the process of product development, clinical trials and regulatory reviews.

In orderalso occur from time to receive FDA approval or approval from foreign regulatory authorities to market a product candidate, we must demonstrate through pre-clinical testing and through human clinical trials that the product candidate is safe and effective for its intended uses (e.g., treatment of a specific condition in a specific way subject to contradictions and other limitations). Even if we comply with all FDA requests, the FDA may ultimately reject one or more of our new drug applications (the “NDA”) or grant approval for a narrowly intended use that is not commercially feasible. We might not obtain regulatory approval for LO2A in a timely manner, if at all. Failure to obtain FDA approval for LO2A in a timely manner or at all will severely undermine our business by reducing the number of salable products and, therefore, corresponding product revenues.

Results of earlier clinical trials may not be predictive of the results of later-stage clinical trials.

The results of preclinical studies and early clinical trials of product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy results despite having progressed through preclinical studies and initial clinical trials. Many companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trialstime due to adverse safety profiles or lacka range of efficacy, notwithstanding promising results in earlier studies. Any delay in, or termination or suspension of,factors beyond our clinical trials will delay the requisite filings with the FDA or any applicable foreign regulatory authority and, ultimately, our ability to commercialize LO2A and generate product revenues. If the clinical trials do not support our product claims, the completion of development of such product candidates may be significantly delayed or abandoned, which will significantly impair our ability to generate product revenues and will materially adversely affect our results of operations.

This drug candidate development risk is heightened by any changes in the planned clinical trials compared to the completed clinical trials. As product candidates are developed from preclinical through early to late stage clinical trials towards approval and commercialization, it is customary that various aspects of the development program, such as manufacturing and methods of administration, are altered along the way in an effort to optimize processes and results. While these types of changes are common and are intended to optimize the product candidates for late stage clinical trials, approval and commercialization, such changes do carry the risk that they will not achieve these intended objectives.

Changes in our clinical trials or future clinical trials could cause LO2A or any future product candidate to perform differently, including causing toxicities, which could delay completion of our clinical trials, delay approval of our product candidates, and/or jeopardize our ability to commence product sales and generate revenues.

We might be unable to develop LO2A that will achieve commercial success in a timely and cost-effective manner, or ever.

Even if regulatory authorities approve LO2A for the indications in the territories that we presently have rights under the LO2A License Agreement, they may not be commercially successful. LO2A may not be commercially successful because government agencies and other third-party payors may not cover the product or the coverage may be too limited to be commercially successful; physicians and others may not use or recommend our products, even following regulatory approval. A product approval, assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Third parties may develop superior products or have proprietary rights that preclude us from marketing our products. Patient acceptance of and demand for LO2A for which we obtain regulatory approval or license will depend largely on many factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other third-party payors, pricing, the effectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effects associated with our products. If physicians, government agencies and other third-party payors do not accept our products, we will not be able to generate significant revenue.

Clinical trials are very expensive, time-consuming and difficult to design and implement, and, as a result, we may suffer delays or suspensions in future trials which would have a material adverse effect on our ability to generate revenues.

Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Regulatory authorities, such as the FDA, may preclude clinical trials from proceeding. Additionally, the clinical trial process is time-consuming, failure can occur at any stage of the trials, and we may encounter problems that cause us to abandon or repeat clinical trials.

For example, in October 2017, we terminated our Single Center Trial. The Single Center Trial was a Phase II, randomized, double-blind, placebo-controlled, pilot study carried out in parallel groups that was intended to evaluate the safety and efficacy of LO2A for patients suffering from moderate to severe CCH, with Wize Israel having sole access to the trial data. On October 24, 2017, Wize Israel received notice from the CRO that manages and supervises Wize Israel’s clinical trials, that an inadequate amount of quality information may be derived from the results collected thus far, given that there is no correlation in the reaction of both eyes to LO2A, in contrast to professional literature and other trials. In addition, the recruitment rate of patients was less than required and there was a higher than expected dropout rate. In light of the above, the CRO concluded that the results of the trial would be of no use even if the trial continued until the end of its term. Based on the CRO’s conclusion, Wize Israel determined to terminate the trial and to save the future costs that would be incurred in connection with such trial. For the avoidance of doubt, this does not impact the Multi-Center Trial.

The commencement and completion of clinical trials may be delayed by several factors, including:

We have experienced the risks involved with conducting clinical trials,control, including, but not limited to, increased expensecosts of labor, freight costs and delayraw material prices along with a shortage of qualified workers.

There are a small number of major suppliers of Miners globally, and failureMiner manufacturing is located primarily in China. If we were unable to meet end pointssource Miners from those suppliers (for example due to overwhelming global demand for Miners) at a commercial price, or at all, this would have a materially adverse impact on our business, financial condition, results of operations and prospects. Even if the suppliers have agreed to supply us with miners, they may fail to supply the Miners due to their inability to manufacture sufficient Miners due to a shortage of components or resources such as semiconductors, a default, insolvency, a change in control, or change of laws (including export/import restrictions, quotas or tariffs). In addition, the terms of sale with the Miner suppliers are often in favor of the trial.suppliers and may leave us with few or no commercial remedies.

In addition, weThe trade policies of the U.S. and China in particular are dynamic at the moment, and trade policies such as export/import restrictions, quotas or regulatory authoritiestariffs, by either of these countries, or others, may suspendreduce the ability of our clinical trials atsuppliers to supply use with Miners, or create a shortage or lack of components necessary for their manufacture. The government of the People’s Republic of China in particular exerts a high level of influence and control over its economy and businesses (private and state owned). There have been numerous examples of government decisions, laws and intervention into particular industries in recent times, including a ban on Bitcoin mining in China itself, which has been enforced. Uncertainties due to evolving laws and regulations could also impede the ability of a China-based company, to obtain or maintain permits or licenses required to conduct business in China. Changes in any time if it appears that we are exposing participants to unacceptable health risks or if the regulatory authorities find deficiencies in our regulatory submissionsof these policies, laws and regulations, or the conduct of these trials. Any suspension of clinical trials will delay possible regulatory approval, if any, and adversely impact our abilityinterpretations thereof, as they relate to develop products and generate revenue.

If we acquire or license additional technology or product candidates, we may incur a number of costs, may have integration difficulties and may experience other risks that could harm our business and results of operations.

We may acquire and license additional product candidates and technologies. Any product candidate or technology we license from others or acquire will likely require additional development efforts prior to commercial sale, including extensive pre-clinical or clinical testing, or both, and approval by the FDA and applicable foreign regulatory authorities, if any. All product candidates are prone to risks of failure inherent in pharmaceutical product development, including the possibility that the product candidate or product developed based on licensed technology will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot assure you that any product candidate that we develop based on acquired or licensed technology that is granted regulatory approval will be manufactured or produced economically, successfully commercialized or widely accepted in the marketplace. Moreover, integrating any newly acquired product candidates could be expensive and time-consuming. If we cannot effectively manage these aspects of our business strategy, our business may not succeed.

If any third party upon whom we rely to manufacture LO2A is unable to timely manufacture LO2A in compliance with cGMP and other regulations our business will be harmed.

We do not currently have the ability to manufacture the compounds that we need to conduct our clinical trials and, therefore, rely upon, and intend to continue to rely upon, a certain contract manufacturer to produce and supply LO2A (including the active pharmaceutical ingredients) for use in clinical trials and for future sales. If such manufacturer is unable to manufacture the compounds in a timely fashion or in compliance with current cGMP and other applicable regulations or if there is a strain on the relationship with such manufacturer, our clinical development programs may be delayed whichmining hardware suppliers, could have a detrimental effectnegative impact on our business.

The manufacture of LO2A is a chemical synthesis process andAdditionally, if our manufacturer encounters problems manufacturing LO2A, our business could suffer.

Regulators throughoutelectricity suppliers are negatively affected by the world, including the FDA, require manufacturers to register manufacturing facilities. Such regulators also inspect these facilities to confirm compliance with requirements that such regulators establish. We have engaged a contract manufacturer to produce andinternational supply LO2A and such third party manufacturer may face manufacturing or quality control problems causing product production and shipment delays or a situation where such manufacturerchain issues they may not be able to maintain complianceor grow their facilities, and may breach their commitments to supply us with the applicable regulators’ requirements necessary to continue manufacturing LO2A. In addition, drug manufacturerscontracted power, or we may be subject to ongoing periodic unannounced inspections by regulators to ensure strict compliance with requirements and other regulations and applicable standards. Any failure to comply with such requirements could adversely affect our clinical research activities and our ability to market and develop LO2A.

We do not currently have sales, marketing or distribution capabilities or experience, and are unable to effectively sell, market or distribute LO2A now and do not expect to be able to do sosource extra power in the future. The failurefuture to enter into agreements with third parties that are capable of performing these functionsenable our growth. This would likely have a material adverse effect on our business, andfinancial condition, results of operations.operations and prospects.

We intendSuch supply chain disruptions have the potential to enter into agreements with pharmaceutical companiescause material impacts to our operating performance and distributors with relevant marketing capabilities infinancial position if the fielddelivery of pharmaceuticals in orderequipment for our facilities is delayed.

Mining equipment is prone to use thembreakdown or fail.

Miners and related mining equipment used to sell LO2A in countries around the world where we hold rightsmine digital assets are prone to sell LO2A. To date, we have entered into two distribution agreements and one additional framework agreement to market LO2A for DES only. We do not currently have and do not expect to develop our own sales, marketing and distribution capabilities. If we are unable to enter into agreements with third parties to perform these functions, we will not be able to successfully market LO2A. In order to successfully market LO2A, we must make arrangements with third parties to perform these services.

As we do not intend to develop a marketing and sales force with technical expertise and supporting distribution capabilities, we will be unable to market LO2A directly. To promote any of our potential products through third parties, we will have to locate acceptable third parties for these functions and enter into agreements with them on acceptable terms,breakdown and may not function at any given time. Any downtime of a significant number of our Miners and mining equipment will have a direct impact on us as they would not be able to do so. Any third-party arrangements we are able to enter into may result in lower revenues than weperforming their role, that is, solving hashes and earning a block reward. This could achieve by directly marketing and selling our potential products.occur during an accident on site, or during transportation of a large number of Miners. In addition, a failure of any critical single piece of equipment may represent a single point of failure which could have widespread impacts. An example of this would be a fire within a substation resulting in a total power outage for a mining facility for a period until the substation was rebuilt. Such widespread mechanical issues or critical failure for any material duration would therefore decrease our revenue.

Any long-term outage or limitation of the internet connection at our sites could materially impact our operations and financial performance.

A secure, reliable and fast internet connection is required for our Miners to validate and verify Bitcoin transactions, secure transaction blocks and add those transaction blocks to the extent that we dependBitcoin blockchain. Any extended downtime, bandwidth limitations or other constraints may reduce our ability to use our Miners support transactions on third parties for marketingthe Bitcoin network, and distribution,therefore reduce our ability to earn block rewards. The effects of any revenues we receive will depend upon the efforts of such third parties, as well as the terms of our agreements with such third parties, which cannot be predicted in most cases at this time. As a result, we might not be able to market and sell LO2A in the United States or overseas, which wouldevents could have a material adverse effect on our business.operating results and financial condition.

Access to reliable electricity sources at reasonable prices is critical to our growth and profitability.

Digital mining consumes electricity to power Miners, therefore electricity costs are a major factor which will determine whether our digital mining activities are profitable and viable. If we are unable to source and enter into agreements for the supply and purchase of electricity, or if we are unable to continue to receive the electricity supplies we have already secured (for example we are unable to re-contract an expiring arrangement), this will reduce our capacity to conduct and grow the number of Miners we can operate, and therefore the amount of revenue we can generate.

Certain economic, environmental, and regulatory events or changes beyond our control, including acts of God such as natural disasters, climate change, wars, sabotage, epidemics, riots, loss or malfunctions of utilities, labor disputes, which may be transitory or chronic, could occur to restrict our access to electricity, or drive up the costs of electricity to a point that some or all of our planned, future or existing operations are uncommercial, which may lead to us being unable to grow our operations, or reducing, suspending or ceasing our Mining operations. The price of electricity available in the market more generally is dependent on numerous factors such as the types of generation, regulatory environment, electricity market structure, supply/demand balances. A recent example is the risk that war in Ukraine and sanctions against Russia may increase the global energy prices due to a reduction in the supply of oil and gas from Russia.

Our Modular Data Centers require developed land, preferably close to sustainable and reasonably priced electricity sources. If we are unable to acquire rights to use such land, or lose the rights to land we currently occupy, this would likely mean that we would lose access to the relevant supply of electricity. A lack of access to the electricity would significantly impact the profitability and viability of our business.

We face significant competitionCyber-security threats pose a challenge to the safekeeping of our digital assets, and continuousa risk of reputational damage.

The history of digital asset exchanges has shown that exchanges and large holders of digital assets must adapt to technological change in order to secure and developments by competitors may render our products or technologies obsolete or non-competitive. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and may not ever be profitable.

We are active in a competitive market. The fierce competition insafeguard their digital assets. To the field and the introduction of new competitors to the field may negatively impact our monetary results. We will compete against fully integrated pharmaceutical and biotechnology companies and smaller companiesextent that are collaborating with larger pharmaceutical companies, academic institutions, government agencies and other public and private research organizations. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than ours, and have substantially greater financial resources, as well as significantly greater experience in:

If our competitors develop and commercialize products faster, or develop and commercialize products that are superior to LO2A, our commercial opportunities will be reduced or eliminated. The extent to which LO2A achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competition in the biotechnology and biopharmaceutical industry is intense and has been accentuated by the rapid pace of technology development. Our competitors include large integrated pharmaceutical companies, biotechnology companies that currently have drug and target discovery efforts, universities, and public and private research institutions. Almost all of these entities have substantially greater research and development capabilities and financial, scientific, manufacturing, marketing and sales resources than us. These organizations also compete with us to:

Our competitors may succeed in developing and commercializing products earlier and obtaining regulatory approvals from the FDA and other foreign regulatory authorities more rapidly. Our competitors may also develop products or technologies that are superior to those we are developing,unable to identify and render LO2Amitigate or any future product candidatestop new security threats, our digital assets may be subject to theft, loss, destruction or technology obsolete or non-competitive. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and may never be profitable.

We may suffer losses from product liability claims if LO2A causes harm to patients.

LO2Aother attack, which could cause adverse events. There is also a risk that certain adverse events may not be observed in clinical trials, but may nonetheless occur in the future. If any of these adverse events occur, they may render LO2A ineffective or harmful in some patients, and our sales would suffer, materially adversely affectingaffect our business, financial condition, and results of operations.operations and prospects. We believe that, as our business and assets grow, we may become a more appealing target for security threats such as hackers and malware.

We promptly and frequently liquidate cryptocurrencies that we mine and keep a minimum number of cryptocurrencies in our possession so as to minimize our risks against theft, loss, destruction or other issues relating to hackers and technological attack. Nevertheless, this security system may still be penetrated and may not be free from defect or immune to acts of God, and any loss due to a security breach, software defect or act of God will be borne by us.

Security breaches, computer malware and computer hacking attacks have been a prevalent concern in the digital asset exchange markets. Any security breach caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses, could harm, limit or halt our business operations or result in loss of our digital assets, or damage to our hardware and physical assets.

Any breach of our infrastructure, or potentially the infrastructure of trusted third parties, could result in damage to our reputation which could adversely affect our business, financial condition, results of operations and prospects.

The clinical trialssecurity system and operational infrastructure may be breached due to the actions of outside parties, error or malfeasance of an employee, or otherwise, and, as a result, an unauthorized party may obtain access to our private keys, data or Bitcoins. Additionally, outside parties may attempt to fraudulently induce employees of ours to disclose sensitive information in order to gain access to our infrastructure. As the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, or may be designed to remain dormant until a predetermined event and often are not recognized until launched against a target, we carry out are withmay be unable to anticipate these techniques or implement adequate preventative measures. If an insurance policy that allowsactual or perceived breach of our security system occurs, the trialsmarket perception of the effectiveness of its security system could be harmed, which could adversely affect our business, financial condition, results of operations and prospects. In the event of a security breach, we may also be forced to be conducted. Accordingly,cease operations, or suffer a reduction in assets, the occurrence of each of which could adversely affect us.

A loss of confidence in our security system, or a breach of our security system, may adversely affect our business.

We will take measures to protect our self and our digital and physical assets from unauthorized access, damage or theft; however, it is uncertain whetherpossible that the security system may not prevent the improper access to, or damage or theft of our assets. A security breach could harm our reputation or result in the loss of some or all of our assets. A resulting perception that our measures do not adequately protect our assets could adversely affect our business, financial condition, results of operations and prospects.

Digital asset transactions are irrevocable and stolen or incorrectly transferred digital assets may be irretrievable. As a result, any incorrectly executed digital asset transactions could adversely affect our business.

Digital asset transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the transaction or, in theory, control or consent of a majority of the processing power on the respective digital asset network. Once a transaction has been verified and recorded in a block that is added to the blockchain, an incorrect transfer of digital assets or a theft of digital assets generally will not be reversible, and we may not be capable of seeking compensation for any such transfer or theft. Although our transfers of digital assets will regularly be made to or from vendors, consultants, services providers, etc. it is possible that, through computer or human error, or through theft or criminal action, our digital assets could be transferred from us in incorrect amounts or to unauthorized third parties. To the extent that we are unable to seek a corrective transaction with such third party or are incapable of identifying the third party which has received its digital assets through error or theft, we will be unable to revert or otherwise recover incorrectly transferred digital assets. To the extent that we are unable to seek redress for such error or theft, such loss could adversely affect our business, financial condition, results of operations and prospects.

We may not have, or be able to complete our receipt ofobtain or maintain, relevant business insurance.

Due to the regulatory approvals for marketing the drug. Furthermore, it is uncertain whether indemnification will be provided by the insurance companies. In addition, potential adverse events caused by LO2A could lead to product liability lawsuits. If product liability lawsuits are successfully brought against us,industry in which we may incur substantial liabilities and may be required to limit the marketing and commercialization of LO2A. Our business is exposed to potential product liability risks, which are inherent in the testing, manufacturing, marketing and sale of pharmaceutical products. Weoperate, we may not be able to avoid product liability claims. Productobtain or maintain some types of insurance that operators of similar businesses would usually obtain, on commercially viable premiums, or at all.

Any digital assets we hold are not insured. Therefore, a loss may be suffered with respect to our digital assets which is not covered by insurance and for which no person is liable in damages which could adversely affect our business, financial condition, results of operations and prospects.

We do not hold our digital assets with a banking institution or a member of the Federal Deposit Insurance Corporation (“FDIC”) or the Securities Investor Protection Corporation (“SIPC”) and, therefore, our digital assets are not subject to the protections enjoyed by depositors with FDIC or SIPC member institutions.

If our digital assets are lost, stolen or destroyed under circumstances rendering a party liable to us, the responsible party may not have the financial resources sufficient to satisfy our claim. For example, as to a particular event of loss, the only source of recovery we have might be limited to the extent identifiable, other responsible third parties (e.g., a thief or terrorist), any of which may not have the financial resources (including liability insurance coverage) to satisfy a valid claim by us.

The sale of our digital assets to pay expenses at a time of low digital asset prices could adversely affect our business.

We promptly and frequently liquidate cryptocurrencies. This may mean that we sell digital assets at a time when the prices on the respective digital asset exchange market are low, which could adversely affect our business, financial condition, results of operations and prospects.

We rely on a small number of key people, the loss of which could have a significant impact on us.

The responsibility of the direction and operation of our business relies heavily on a small number of key people, including CEO James Manning and COO Liam Wilson. If any of our key employees or service providers cease their involvement in our business or, in the unfortunate situations one or more of them are seriously injured or dies, this loss would have a significant and likely adverse impact on us.

Our results of operations may be negatively impacted by the pandemic outbreak.

In December 2019, the novel coronavirus, or COVID-19, surfaced globally. The World Health Organization declared a global emergency on January 30, 2020, with respect to the outbreak. The impacts of the outbreak are unknown and rapidly evolving. Multiple variants (including Delta and Omicron) have become prominent since the initial outbreak, and despite global vaccination programs, COVID-19 was unpredictable in 2021 and the outlook remains uncertain in 2022 and beyond. Many countries around the world have imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus. In the United States and Australia, federal, state and local governments have enacted restrictions on travel, gatherings, and workplaces, with exceptions made for essential workers and businesses. Although these types of restrictions have been lifted in the pharmaceuticalUnited States and biotechnology industriesAustralia, there can be no assurance that governments will not re-introduce such restrictions if the pandemic worsens. If such restrictions are re-introduced, we may be required to substantially reduce or cease operations in response as a result of COVID-19 or any other future pandemic which may emerge.

Failure to effectively manage our growth could place strains on its managerial, operational and financial resources and could adversely affect its business and operating results.

As our digital asset infrastructure operations grow, the administrative demands upon us will grow, and our success will depend upon our ability to meet those demands. We are organized as a holding company, with numerous subsidiaries. Both the parent company and each of our subsidiaries require certain financial, managerial and other resources, which could create challenges to our ability to successfully manage our subsidiaries and operations and impact our ability to assure compliance with our policies, practices and procedures. These demands include, but are not limited to, increased executive, accounting, management, legal services, staff support and general office services. We may need to hire additional qualified personnel to meet these demands, the cost and quality of which is generally expensive, if available at all. dependent in part upon market factors outside of our control. Further, we will need to effectively manage the training and growth of our staff to maintain an efficient and effective workforce, and our failure to do so could adversely affect our business and operating results.

We have potential risks in connection with growth and acquisitions.

Our future growth may depend in part on our ability to acquire patented technologies or potential target companies that have synergies with our business activities. Such acquisitions are subject to numerous risks, including, but not limited to the following:

If at any time, we are unable to manage these risks effectively as part of any acquisition, our business could be adversely affected.

Cryptocurrency mining is a highly competitive industry.

The cryptocurrency mining industry is highly competitive, especially for Bitcoin, and there are several competitors who are considerably larger than Mawson, and who have operated for longer in the industry. With this size and operating history likely comes greater resources (financial, human, and technical), greater brand recognition and reputation, stronger business relationships, and economies of scale. We expect existing competitors will expand their operations, new competitors will enter the industry, and some competitors will merge to create even stronger competitors. The digital asset mining industry is global. Barriers to entry are relatively low in the sense that there is no requirement to obtain sufficient insurance coverage on reasonable termsa license or permit to otherwise protect against potential product liability claims,mine for Bitcoin (potential barriers to entry include the need to acquire, install and operate the capital intensive equipment, access to reasonably priced electricity, and other relevant technical knowledge). If the amount of competing computational power in the Bitcoin network increases, then the difficulty of the mining process increases, which may lead to lower Bitcoin rewards for Mawson.

If we may beare unable to clinically test, marketcompete successfully, or commercialize LO2A. A successful product liability claim brought againstif competing successfully requires us to take costly actions in excessresponse to the actions of our insurance coverage,competitors, our business, operating results and financial condition could be adversely affected.

Global climate change and related environmental regulations may have an adverse effect on our business operations and financial position.

Changes in climate and its effect on the environment such as changes in rainfall, weather patterns, water supplies and shortages, sea level and changing temperatures could have an adverse effect on our operations and financial performance. We operate in a variety of environments, and the potential physical effects of climate change on our operations, if any, are highly uncertain.

Extreme weather events may:

There has been recent commentary about cryptocurrency mining and its impact on the environment. Governments and related government bodies around the world are introducing or contemplating legislative and regulatory changes related to cryptocurrency mining in response to a variety of pressures.

Any legislative changes regarding climate change could add significant burden and costs to our business, including costs related to making our energy consumption more efficient and lower impact on the environment, environmental monitoring and reporting, and other costs to comply with such changes. Further, there could be reputational damage to our business caused by increased negative publicity surrounding cryptocurrency and the apparent effects on the environment.

Cancellation or withdrawal of required operating and other permits and license.

We must obtain various permits, approvals and/or licenses in order to construct and operate our facilities. If such permits, approvals and/or licenses are not granted, or if they are lost, suspended, terminated or revoked, it may result in delays in construction of our facilities, require us to halt all or part of our operations, or cause us to incur substantial liabilities, and, as a result, our business, liquidity and results of operations would be materially adversely affected.

LO2A will remain subjectexposed to ongoing regulatory requirements even if it receives marketing approval, and if we fail to comply with these requirements, we could lose these approvals, and the sales of any approved commercial products could be suspended.

Even if we receive regulatory approval to market LO2A, the product will remain subject to extensive regulatory requirements, including requirements relating to manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion, distribution and recordkeeping. Even if regulatory approval of a product is granted, the approval may be subject to limitations on the uses for which the product may be marketed or the conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product, which could negatively impact us or our collaboration partners by reducing revenues or increasing expenses, and cause the approved product candidate not to be commercially viable. In addition, as clinical experience with a drug expands after approval, typically because it is used by a greater number and more diverse group of patients after approval than during clinical trials, side effects and other problems may be observed after approval that were not seen or anticipated during pre-approval clinical trialsfinancial or other studies. Any adverse effects observed afterpenalties at the approval and marketing of a product candidateaffected locations. Such circumstances could result in limitations on the use of or withdrawal of any approved products from the marketplace. Absence of long-term safety data may also limit the approved uses of our products, if any. If we fail to comply with the regulatory requirements of the FDA and other applicable U.S. and foreign regulatory authorities, or previously unknown problems with any approved commercial products, manufacturers or manufacturing processes are discovered, we could be subject to administrative or judicially imposed sanctions or other setbacks, including the following:

If we or our collaborators are slow or unable to adapt to changes in existing regulatory requirements or adoption of new regulatory requirements or policies, marketing approval for LO2A may be lost or cease to be achievable, resulting in decreased revenue from milestones, product sales or royalties, which would have a material adverse effect on our results of operations.

Our business, financial condition and resultsoperating results.

We are subject to the construction risks.

Each Modular Data Center facility we construct is subject to the usual risks associated with building infrastructure assets. Particular risks include slow or delayed planning approval processes and permitting and licensing requirements, issues with site condition or hazards, availability and cost of operationsmaterials and labor, contractor and sub-contractor default, inability to enter into agreements with the market pricedesign and build of our Common Stockthe facilities, and inclement weather.

Banks and financial institutions may cease to provide financial services to persons involved in cryptocurrency transactions.

Banks and other financial institutions can and have made legal and risk-based decisions to not accept customers such as digital assets investors or businesses that engage in Bitcoin-related activities or that accept Bitcoin as payment. This may be adversely affected bybecause it would be illegal for them to do so, or in situations where the coronavirus pandemic.

In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. This virus continueslegal position is unsure, but subject to spread globally including in the United States and Israel. On March 11, 2020, the World Health Organization officially declared the COVID-19 outbreak a pandemic. While the spread of COVID-19 has not yet directly impactedmaterial risk. If we, or our operations, we continuemajor business partners (e.g. exchanges, mining pools, or ASIC suppliers) are unable to monitor our operations and government recommendations and may elect to temporarily close our office to protect our employees. In addition, hospitals may reduce staffing and reduce or postpone certain treatments in response to the spread of an infectious disease. Such events may result in a period ofobtain banking services, this will cause material business disruption and loss and damage to our business. If it occurs to a significant number of Bitcoin users, investors and traders, this may lead to a loss of confidence in reduced operations,Bitcoin and its value, leading to a fall in the Bitcoin price.

Achieving a sale of the clinical-stage biopharmaceutical business may take longer than expected.

Our main business, when Mawson was known as Wize Pharma Inc, was as a clinical-stage biopharmaceutical business. It is intended that this business will be sold, because Mawson is focusing on its digital infrastructure and cryptocurrency related business. If achieving a sale of the clinical-stage biopharmaceutical business takes longer or is more complicated than expected, there is a risk that management time and Company resources are diverted away from developing and managing Mawson’s core business.

Risks Relating to Cryptocurrency Mining, Bitcoin Price and Technology

Our future success will depend significantly on the price of Bitcoin, which is subject to risk and has historically been subject to wide swings and significant volatility.

Given that most of our revenue is generated from the mining of Bitcoin (as a result of rewards and transaction fees received for validating transactions on the Bitcoin blockchain), our operating cash flow is substantially dependent on the price of Bitcoin. The prices that we receive for our Bitcoin depend on numerous market factors beyond our control. Due to the highly volatile nature of the price of Bitcoin, our historical operating results have fluctuated, and may continue to fluctuate, significantly from period to period. Mawson does not have any formal hedging strategy in place. The price of Bitcoin can fluctuate due to investment and trading sentiment amongst users, speculators, and investors for a range of reasons, including changes in interest rate settings, or negative or positive publicity (for example due to legal proceedings or losses to Bitcoin investors due to fraud or cyber attacks a cryptocurrency exchange or online wallet). Large holders of Bitcoin may be able to effect large price swings, especially if they were to liquidate their holdings, which would likely cause the price of Bitcoin to fall. Further, the Bitcoin market is highly unregulated and could be subject to market manipulation, especially by large holders. In addition, we operate in the U.S. and Australia and are exposed to fluctuations in in fiat currency exchange rates. A fall in the price of Bitcoin will have a negative impact on our revenues.

Significant contributors to all or any digital asset network could propose amendments to the respective network’s protocols and software that, if accepted and authorized by such network, could adversely affect us.

Significant contributors to all or any digital asset network could propose amendments to the respective network’s protocols and software that, if accepted and authorized by such network, could adversely affect us. For example, with respect to Bitcoins networks, a small group of individuals contribute to the Bitcoin Core project on GitHub.com. These individuals can propose refinements or improvements to the Bitcoin network’s source code through one or more software upgrades that alter the protocols and software that govern the Bitcoin network and the properties of Bitcoin, including the irreversibility of transactions and limitations on the mining of new Bitcoin. Proposals for upgrades and discussions relating thereto take place on online forums. For example, there is an ongoing debate regarding altering the blockchain by increasing the size of blocks to accommodate a larger volume of transactions. Although some proponents support an increase, other market participants oppose an increase to the block size as it may deter miners from confirming transactions and concentrate power into a smaller group of miners.

To the extent that a significant majority of the users and miners on the Bitcoin network install such software upgrade(s), the Bitcoin network would be subject to new protocols and software that could materially adversely affect our business, financial condition, and results of operations and prospects. In the event a developer or group of developers proposes a modification to the Bitcoin network that is not accepted by a majority of miners and users, but that is nonetheless accepted by a substantial plurality of miners and users, two or more competing and incompatible blockchain implementations could result. This is known as a “hard fork.” In such a case, the “hard fork” in the blockchain could materially and adversely affect the perceived value of digital assets as reflected on one or both incompatible blockchains, which may materially adversely affect our business, financial condition, results of operations and prospects.

If a malicious actor or botnet obtains control in excess of 50% of the processing power active on any digital asset network, including the Bitcoin network, it is possible that such actor or botnet could manipulate the blockchain in a manner that adversely affects us.

If a malicious actor or botnet (a volunteer or hacked collection of computers controlled by networked software coordinating the actions of the computers) obtains a majority of the processing power dedicated to mining on any digital asset network, including the Bitcoin network, it may be able to alter the blockchain by constructing alternate blocks if it is able to solve for such blocks faster than the remainder of the miners on the blockchain can add valid blocks. In such alternate blocks, the malicious actor or botnet could control, exclude or modify the ordering of transactions, though it could not generate new digital assets or transactions using such control. Using alternate blocks, the malicious actor could “double-spend” its own digital assets (i.e., spend the same digital assets in more than one transaction) and prevent the confirmation of other users’ transactions for so long as it maintains control. To the extent that such malicious actor or botnet does not yield its majority control of the processing power or the digital asset community does not reject the fraudulent blocks as malicious, reversing any changes made to the blockchain may not be possible. Such changes could materially adversely affect our business, financial condition, results of operations and prospects.

A failure to properly monitor and upgrade the Bitcoin network protocol could damage the Bitcoin network and adversely affect us.

The open-source structure of the cryptocurrencies network protocols means that the contributors to the protocol are generally not directly compensated for their contributions in maintaining and developing the protocol. The Bitcoin network, for example, operates based on an open-source protocol maintained by contributors, largely on the Bitcoin Core project on GitHub. As an open-source project, Bitcoin is not represented by an official organization or authority. As the Bitcoin network protocol is not sold and its use does not generate revenues for contributors, contributors are generally not compensated for maintaining and updating the Bitcoin network protocol. The lack of guaranteed financial incentive for contributors to maintain or develop the Bitcoin network and the lack of guaranteed resources to adequately address emerging or latent issues with the Bitcoin network may reduce incentives to address the issues adequately or in a timely manner. Modification or changes to the Bitcoin protocol by a sufficient number of users (known as a “fork”) may lead to unforeseen bugs or other negative outcomes for Mawson and miners in general. Changes to or latent issues in a digital asset network which we are mining could materially adversely affect our business, financial condition, results of operations and prospects.

The incentive for Bitcoin mining may decrease over time as the reward decreases.

A Bitcoin halving occurs when block rewards, or the number of Bitcoins entering circulation whenever a block is produced (approximately every 10 minutes), is reduced by half. This means a new Bitcoin will be subsequently issued half as fast as before. This occurs on a schedule built into Bitcoin’s programming and happens every 210,000 blocks with the purpose being to issue the total supply into the market less frequently over time. This supply effect increases Bitcoin’s scarcity, which has, historically, increased its price. When Bitcoin first started, 50 Bitcoins were rewarded to miners per block produced. The reward was decreased over the years and, to date, following the last halving event in May 2020, the block reward is 6.25 Bitcoins per block. Halving events will continue until the block reward reaches zero. The process will end with a predetermined total of 21 million Bitcoins, estimated to be around the year 2140. Although, at each prior halving event, the short-term subsequent effect on the Bitcoin price has been an increase in price, this trend may not continue in the future and may have a reverse effect on the Bitcoin price, in which case, our business, financial condition, results of operations and prospects may be materially adversely affected.  

If the award of digital assets for solving blocks and transaction fees for recording transactions are not sufficiently high to incentivize miners, miners may cease operations, leading to slower confirmations of transactions on the blockchain leading to lower confidence in Bitcoin, and therefore a potentially lower Bitcoin price.

Bitcoin miners record transactions when they solve for and add blocks of information to the blockchain. When a miner solves for a block, it creates that block, which includes data relating to (i) the solution to the block, (ii) a reference to the prior block in the blockchain to which the new block is being added and (iii) all transactions that have occurred but have not yet been added to the blockchain. The miner becomes aware of outstanding, unrecorded transactions through the data packet transmission and propagation discussed above. Typically, Bitcoin transactions will be recorded in the next chronological block if the spending party has an internet connection and at least one minute has passed between the transaction’s data packet transmission and the solution of the next block. If a transaction is not recorded in the next chronological block, it is usually recorded in the next block thereafter.

As the award of new digital assets for solving blocks declines, and if transaction fees are not sufficiently high, miners may not have an adequate incentive to continue mining and may cease their mining operations. For example, the current fixed reward on the Bitcoin network for solving a new block is six and a quarter (6.25) Bitcoins per block (the reward decreased from twelve and a half (12.5) Bitcoin in May 2020). It is estimated that it will halve again in about 2024. This reduction may result in a reduction in the aggregate hashrate of the Bitcoin network as the incentive for miners will decrease. Moreover, miners ceasing operations would reduce the aggregate hashrate on the Bitcoin network, which would adversely affect the confirmation process for transactions (i.e., temporarily decreasing the speed at which blocks are added to the blockchain until the next scheduled adjustment in difficulty for block solutions) and make the Bitcoin network more vulnerable to a malicious actor obtaining control in excess of fifty percent (50%) of the aggregate hashrate on the Bitcoin network. Periodically, the Bitcoin network has adjusted the difficulty for block solutions so that solution speeds remain in the vicinity of the expected ten (10) minute confirmation time targeted by the Bitcoin network protocol.

More significant reductions in aggregate hashrate on digital asset networks could result in material, though temporary, delays in block solution confirmation time. Any reduction in confidence in the confirmation process or aggregate hashrate of any digital asset network may negatively impact the value of digital assets, which will adversely impact our business, financial condition, results of operations and prospects.

An increase in transaction fees could reduce the price of digital assets.

If fees increase for recording transactions on the Bitcoin network, demand for cryptocurrencies may decrease and prevent the expansion of the network to retail merchants and commercial businesses, resulting in a reduction in the price of digital assets that could adversely affect our business, financial condition, results of operations and prospects.

To the extent that the profit margins of digital asset mining operations are not high, operators of digital asset mining operations are more likely to immediately sell their digital assets earned by mining in the digital asset exchange market, resulting in a reduction in the price of digital assets that could adversely impact our business.

Over the past two years, digital asset mining operations have evolved from individual users mining with computer processors, graphics processing units and first-generation servers. Currently, new processing power brought onto the digital asset networks is predominantly added by incorporated and unincorporated “professionalized” mining operations. Professionalized mining operations may use proprietary hardware or sophisticated machines. They require the investment of significant capital for the acquisition of this hardware, the leasing of operating space (often in data centers or warehousing facilities), incurring of electricity costs and the employment of technicians to operate the mining farms. As a result, professionalized mining operations are of a greater scale than prior miners and have more defined, regular expenses and liabilities. These regular expenses and liabilities require professionalized mining operations to more immediately sell digital assets earned from mining operations on the digital asset exchange market, whereas it is believed that individual miners in past years were more likely to hold newly mined digital assets for more extended periods. The immediate selling of newly mined digital assets greatly increases the supply of digital assets on the digital asset exchange market, creating downward pressure on the price of each digital asset.

The extent to which the coronavirus impacts our business will depend on future developments, which are highly uncertainvalue of digital assets mined by a professionalized mining operation exceeds the allocable capital and cannotoperating costs determines the profit margin of such operation. A professionalized mining operation may be predicted, including new information whichmore likely to sell a higher percentage of its newly mined digital assets rapidly if it is operating at a low profit margin—and it may emerge concerningpartially or completely cease operations if its profit margin is negative. In a low profit margin environment, a higher percentage could be sold into the severitydigital asset exchange market more rapidly, thereby potentially reducing digital asset prices. Lower digital asset prices could result in further tightening of profit margins, particularly for professionalized mining operations with higher costs and more limited capital reserves, creating a network effect that may further reduce the coronavirusprice of digital assets until mining operations with higher operating costs become unprofitable and remove mining power from the actions to contain the coronavirus or treat its impact, among others.

In the meantime, we have taken steps to take carerespective digital asset network. The network effect of our employees, including providing the ability for employees to work remotely and implementing strategies to support appropriate social distancing techniques for those employees who are not able to work remotely.  We are also assessing our business continuity plansreduced profit margins resulting in the contextgreater sales of the pandemic. 

We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively.

Despite the implementation of security measures, our internal computer systems and those of third parties with which we contract are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. System failures, accidents or security breaches could cause interruptions in our operations, andnewly mined digital assets could result in a material disruptionreduction in the price of digital assets that could adversely impact our clinical activitiesbusiness, financial condition, results of operations and business operations, in addition to possibly requiring substantial expendituresprospects.

Political or economic crises may motivate large-scale sales of resources to remedy. The loss of clinical trial datadigital assets, which could result in delaysa reduction in some or all digital assets’ values and adversely affect us.

As an alternative to fiat currencies that are backed by central governments, digital assets such as Bitcoins, which are relatively new, are subject to supply and demand forces based upon the desirability of an alternative, decentralized asset that can act as a store of value, means of speculation or a payments system for buying and selling goods and services, and it is unclear how such supply and demand will be impacted by geopolitical events. Nevertheless, political or economic crises may motivate large-scale acquisitions or sales of digital assets either globally or locally. Large-scale sales of digital assets would result in a reduction in their value and could adversely affect our regulatory approval effortsbusiness, financial condition, results of operations and significantly increase our costs to recover or reproduce the data. prospects.

To the extent that any disruptionthe digital asset exchanges representing a substantial portion of the volume in digital asset trading are involved in fraud or experience security breach were tofailures or other operational issues, such digital asset exchanges’ failures may result in a lossreduction in the price of some or damageall digital assets and can adversely affect us.

The digital asset exchanges on which the digital assets trade are new and, in most cases, largely unregulated. Furthermore, many digital asset exchanges (including several of the most prominent USD denominated digital asset exchanges) do not provide the public with significant information regarding their ownership structure, management teams, corporate practices or regulatory compliance. As a result, the marketplace may lose confidence in, or may experience problems relating to, digital asset exchanges, including prominent exchanges handling a significant portion of the volume of digital asset trading.

A lack of stability in the digital asset exchange market and the closure or temporary shutdown of digital asset exchanges due to fraud, business failure, hackers or malware, or government-mandated regulation may reduce confidence in the digital asset networks and result in greater volatility in digital asset values. These potential consequences of a digital asset exchange’s failure could materially adversely affect our databusiness, financial condition, results of operations and prospects.

The further development and acceptance of digital asset networks and other digital assets, which represent a new and rapidly changing industry, are subject to a variety of factors that are difficult to evaluate. The slowing or applications,stopping of the development or inappropriate disclosureacceptance of confidential or proprietary information,digital asset systems may adversely affect us.

Currently, there is relatively small use of Bitcoins and other cryptocurrencies in the retail and commercial marketplace in comparison to relatively large use by speculators, thus contributing to price volatility that could adversely affect an investment in us. Cryptocurrencies are a relatively new concept and asset class, so there is still some degree of uncertainty and skepticism about their use. Whether their popularity will gain further traction is difficult to predict. If the popularity and use of cryptocurrencies diminish and leads to their value decreasing, our business, financial condition, results of operations and prospects may be materially adversely affected.

Future digital asset and digital currency development may lessen the usage of Bitcoin.

Digital asset technology is a rapidly advancing and changing and new digital assets are created regularly. New digital assets competing with the digital assets we could incur liabilityspecialize in (such as Bitcoin) may increase in popularity and in turn cause a decline in the value of Bitcoin, which may in turn lead to a decline in the Bitcoin network and our ability to generate revenue from our current mining activities. This may include the development of so-called central bank digital currencies (CBCDs). Many governments around the world, and central banks are reportedly considering or studying the potential for CBCDs, including the Australian federal government and the Reserve Bank of Australia and the United States Federal Reserve.

The Bitcoin protocol currently relies on a proof-of-work verification for validating digital asset transactions. This type of validation consumes large amounts of computing power and electricity. Proof-of-stake validation is a more recent development, which involves the validator losing part of its cryptocurrency holdings if it fails to correctly validate a block. While there are some drawbacks to proof-of-stake, it requires far less energy than proof-of-work. Cryptocurrencies whose transactions are validated on a proof-of-stake basis do not require Miners. Future cryptocurrencies may utilize proof-of-stake rather than proof-of work, meaning that there will be less opportunity for miners to earn rewards.

The development of quantum computing threatens the cryptographic protections of blockchain protocols.

Governments and corporations around the world are conducting research and development programsto produce quantum computers which will be much more powerful than modern computers. The potential capability of quantum computers poses a potential threat to the underlying cryptographic protections that the Bitcoin blockchain protocol relies on, and therefore to the developmentreliability of LO2A could be delayed.

Wethe blockchain, and may encounter difficultiestherefore undermine users’ trust in managing our growth. FailureBitcoin and digital currencies in general. For example, a quantum computer may provide the possibility of decrypting user private keys and forge transaction signatures, undermining the integrity of the blockchain. A loss of trust in the digital currencies due to manage our growth effectivelythe ability of quantum computing to undermine security protocols will likely have a material adverse effect on our business, results of operations and financial condition.

We may not be ableRisks Relating to successfully growLaws, Regulatory Frameworks, and expand. Successful implementation of our business plan will require management of growth, including potentially rapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capital resources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, train and manage our employee base. Our ability to manage our operations and growth effectively requires us to continue to expend funds to enhance our operational, financial and management controls, reporting systems and procedures and to attract and retain sufficient numbers of talented personnel. If weLegal Action

Digital assets such as Bitcoin are unable to scale up and implement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not be able to make available the products required to successfully commercialize our technology. Failure to attract and retain sufficient numbers of talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, the management, systems and controls currently in place orlikely to be implemented may not be adequate for such growth,more highly regulated.

Digital assets and cryptocurrencies have been the steps taken to hire personnel and to improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will havesource of much regulatory consternation, resulting in differing definitional outcomes without a material adverse effect on our business, results of operations and financial condition.

If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss or damage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtaining adequate directors’ and officers’ liability insurance.

We may not be able to obtain insurance policies on terms affordable that would adequately insure our business and property against damage, loss or claims by third parties. To the extent our business or property suffers any damages, losses or claims by third parties, which are not covered or adequately covered by insurance, our financial condition may be materially adversely affected.

We may be unable to maintain sufficient insurance as a public company to cover liability claims made against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers and directors to manage our business.

Risks Related to our Intellectual Property

Our ability to pursue the purchase, marketing, sale and distribution of LO2A depends upon the continuation of the LO2A License Agreement.

single unifying statement. We do not own LO2A. We have entered into the LO2A License Agreement with Resdevcobelieve our mining activities require registration to license certain rights to LO2A (see “Item 1. BUSINESS — LO2A License Agreement” beginning on page 4 of this Annual Report). The LO2A License Agreement requires us to, among other things, make certain minimum royalty payments to Resdevcoconduct such activities and meet certain regulatory milestones. If we do not meet our obligations under the LO2A License Agreement in a timely manner, or if we otherwise breach the terms of the LO2A License Agreement, Resdevco could terminate the LO2A License Agreement and we would lose the rights to LO2A. From time to time,accumulate digital assets. Nevertheless it is likely that regulation in the ordinary coursedigital asset industry will increase. On March 9, 2022 President Biden issued an executive order that identified the following objectives for future regulation of business, wedigital assets in the United States: (1) protect consumers, investors, and businesses, (2) protect financial stability, (3) mitigate the illicit finance and national security risks posed by misuse of digital assets, (4) reinforce United States leadership in the global financial system and in technological and economic competitiveness, (5) promote access to safe and affordable financial services, and (6) support technological advances that promote responsible development and use of digital assets. The executive order was generally received as a positive for the digital asset industry, especially in the United States, as it appears to seek to foster an environment of innovation for digital assets within some reasonable bounds. This can be seen as similar to moves in the Australian government context, where the government has declared that it is seeking to better understand digital assets in order to craft and promulgate better designed regulation, and can be seen as contrasting to the reactions in some jurisdictions, where outright bans and other barriers have been erected against digital assets and cryptocurrencies.

In the past it has also been noted that the SEC, the Commodity Futures Trading Commission (“CFTC”), Nasdaq or other governmental or quasi-governmental agency or organization (including similar authorities in other jurisdictions such as Australia) may have disagreements with Resdevco regardingconclude that our digital asset mining activities involve the termsoffer or sale of the LO2A License Agreement“securities”, or ownership of proprietary rights, which could lead“investment securities”, and we may face regulation under the Securities Act of 1933, as amended (the “Securities Act”) or the Investment Company Act. Such regulation or the inability to delays inmeet the research, development, collaboration and commercialization of LO2A, or could require or result in litigation or arbitration, which could be time-consuming and expensive. If the LO2A License Agreement is terminated, itrequirements to continue operations, would have a material adverse effect on our business, prospects andfinancial condition, results of operations.

Our inabilityoperations and prospects of our business. Currently in Australia, Bitcoin itself is not considered a financial product nor are digital assets regarded as money or currency for the purpose of Australian law. The effect of any future regulatory change on digital assets or an entity dealing in or holding digital assets is impossible to expand our rights under the LO2A License Agreement may have a detrimental effect on our business.

Pursuantpredict, but such change could be substantial and adverse to the LO2A License Agreement, we have (i)returns sought by us.

Bitcoin is presently legal in Australia and the right to add additional territoriesU.S., however it may become illegal in the future, subject to a commitment by us to pay minimum royalties, (ii)acquire, own, hold, sell, exchange, advise on or use Bitcoins in Australia and the right to purchase Resdevco’s agreements with its existing distributors of LO2AU.S. or one or more other countries, and may currently be illegal in other jurisdictions, subject to the payment by us of the amount set forth in the LO2A License Agreement, and (iii) a right of first negotiation with potential distributors to whom Resdevco may in the future grant distribution rights to LO2A in certain territories, subject to the payment by us of certain minimum royalties. The LO2A License Agreement historically included an option for us to purchase from Resdevco all remaining territories for a fixed amount and such option was cancelled on March 30, 2017.some countries.

Our ability to exercise our rights mentioned above and to expand our business is subject toRegulatory changes or interpretations could cause us having sufficient cash resources to make the applicable payments to Resdevco. If we do not have sufficient cash resources to make such payments, we will not be able to exercise our expansion rights under the LO2A License Agreement and our business may suffer.

The failure to obtain or maintain patents and other intellectual property could impact our ability to compete effectively.

Our success, competitive position, and future revenues, if any, depend in part on our ability to obtain and successfully leverage intellectual property covering LO2A, know-how, methods, processes, and other technologies, to protect our trade secrets, to prevent others from using our intellectual property and to operate without infringing the intellectual property rights of third parties.

The risks and uncertainties that we face with respect to our intellectual property rights include, but are not limited to, the following:

If patent rights covering LO2A are not sufficiently broad or expire, they may not provide us with any protection against competitors with similar products and technologies. For example, a patent covering the composition and use of LO2A for treating or alleviating DES has expired. Furthermore, if the United States Patent and Trademark Office (the “USPTO”), or foreign patent offices issue patents to us or our licensors, others may challenge the patents or design around the patents, or the patent office or the courts may invalidate the patents. Thus, any patents we own or license from or to third parties may not provide any protection against our competitors.

We cannot be certain that patents will be issued as a result of any pending applications, and cannot be certain that(or any of our issued patents, including those licensed from Resdevcorelated entities) to register and comply with new regulations, resulting in potentially extraordinary, recurring or non-recurring expenses to continuing our digital assets business, or entering into new business ventures.

Regulatory changes or interpretations of our activities require us or any other third-party inof our affiliates to register as a money services business (“MSB”) under the future, will give us adequate protection from competing products. For example, issued patents, including the patents licensedregulations promulgated by us, may be circumvented or challenged, declared invalid or unenforceable, or narrowed in scope.FinCEN

In addition, since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we or Resdevco were or will be the first to make our inventions or to file patent applications covering those inventions.

It is also possible that othersThe U.S. Bank Secrecy Act may obtain issued patents that could prevent us from commercializing LO2A or require us to obtain licenses requiringregister and comply with it and its regulations. If regulatory changes or interpretations of our activities require the payment of significant fees or royalties in order to enable us to conduct our business. As to those patents that we have licensed, our rights depend on maintaining our obligations to the licensor under the applicable license agreement, and we may be unable to do so.

In addition to patents and patent applications, we depend upon trade secrets and proprietary know-how to protect our proprietary technology. We require our employees, consultants, advisors and collaborators to enter into confidentiality agreements that prohibit the disclosure of confidential information to any other parties. We require our employees and consultants to disclose and assign their ideas, developments, discoveries and inventions to us. These agreements may not, however, provide adequate protection for our trade secrets, know-howlicensing or other proprietary information in the event of any unauthorized use or disclosure.

Costly litigation may be necessary to protect our or Resdevco’s intellectual property rights and we or Resdevco may be subject to claims alleging the violation of the intellectual property rights of others.

Our activity in the field of life sciences exposes us to the possibility of legal proceedings connected with our business activities. We may face significant expense and liabilityregistration 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 or Resdevcomoney transmitter (or equivalent designation) under state law in pending applications,any state in which we operate, we may be required to participateseek license or otherwise register and comply with such state law. In the event of any such requirement, to the extent we decide to continue, the required registrations, licenses and regulatory compliance steps may result in an interference proceeding declaredextraordinary, non-recurring expenses to us and even in a decision to cease our digital asset infrastructure operations.

To the extent that our activities cause us to be deemed a MSB under the regulations promulgated by the USPTO to determine priorityFinancial Crimes Enforcement Network (“FinCEN”), a unit of invention, which could result in substantial uncertainties and costs for us, even if the eventual outcome was favorable to us. We, or our licensors, couldU.S. Treasury Department focused on money laundering under the authority of the U.S. Bank Secrecy Act, we may be required to participate in interference proceedings involving issued patentscomply with FinCEN regulations, including those that would mandate we implement anti-money laundering programs, make certain reports to FinCEN 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. The ability of us and Resdevco to enforce our patent protection could be limited by our financial resources, and may be subject to lengthy delays. If we are unable to effectively enforce our or Resdevco’s proprietary rights, or if we are found to infringe the rights of others, we may be in breach of the LO2A License Agreement.

A third party may claim that we or Resdevco are using inventions claimed by their patents and may go to court to stop us or Resdevco 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 or Resdevco are infringing the third party’s patents and will order us or Resdevco 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).maintain certain records. 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 or Resdevco a license so that we or Resdevco could continue to engage in activities claimed by the patent, or that such a license, if made available, could be acquired on commercially acceptable terms. In addition, third parties may, in the future, assert other intellectual property infringement claims against us or Resdevco with respect to its product candidates, technologies or other matters.

We rely on our and Resdevco’s 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 of the rights to the ideas, developments, discoveries and inventions of our employees and consultants while they are employed by us and we believe that Resdevco also takes such measures, the agreements can be difficult and costly to enforce. Although we believe that our licensors seek to obtain these types of agreements from our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilizeour activities cause us to be deemed a “money transmitter” (“MT”) or independently develop intellectual propertyequivalent designation, under state law 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 and Resdevco’s rights can be costly and unpredictable. We and Resdevco also rely on trade secrets and proprietary know-how thatstate in which we believe that Resdevco seeks to protect in part by confidentiality agreements with employees, contractors, consultants, advisors or others. Despite the protective measures we and Resdevco employ, we still face the risk that:

Patent protection outside the United States is particularly uncertain, and if we are involved in opposition proceedings outside the United States,operate, we may be required to seek a license or otherwise register with a state regulator and comply with state regulations that may include the implementation of anti-money laundering programs, maintenance of certain records and other operational requirements. Currently, the New York State Department of Financial Services has finalized its “BitLicense” framework for businesses that conduct “virtual currency business activity,” the Conference of State Bank Supervisors has proposed a model form of state level “virtual currency” regulation and additional state regulators including those from California, Idaho, Virginia, Kansas, Texas, South Dakota and Washington have made public statements indicating that virtual currency businesses may be required to expend substantial sumsseek licenses as money transmitters. In July 2016, North Carolina updated the law to define “virtual currency” and management resources.

Patentthe activities that trigger licensure in a business-friendly approach that encourages companies to use virtual currency and blockchain technology. Specifically, the North Carolina law outside the United States is different than in the United States. Further, the laws of some foreign countries maydoes not protect ourrequire miners or Resdevco’s intellectual property rights to the same extent as the laws of the United States, if at all. A failuresoftware providers to obtain sufficient intellectuala license for multi-signature software, smart contract platforms, smart property, protectioncolored coins and non-hosted, non-custodial wallets. Starting January 1, 2016, New Hampshire requires anyone who exchanges a digital currency for another currency to become a licensed and bonded money transmitter. In numerous other states, including Connecticut and New Jersey, legislation is being proposed or has been introduced regarding the treatment of Bitcoin and other digital assets. We will continue to monitor for developments in any country could materially andsuch legislation, guidance or regulations.

Such additional federal or state regulatory obligations may cause us to incur extraordinary expenses, possibly adversely affectaffecting our business, financial condition, results of operations and future prospects. Moreover,Furthermore, we may participate in opposition proceedings to determine the validity ofand our foreign patents or our competitors’ foreign patents, which could result in substantial costs and divert management’s resources and attention.

Weservice providers may not be ablecapable of complying with certain federal or state regulatory obligations applicable to enforce employees’MSBs and consultants covenantsMTs. If we are deemed to be subject to and determine not to competecomply with such additional regulatory and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees or consultants.

We have entered into non-competition agreements with our key employees and key consultants, within the framework of their employment agreements or consultant agreements, respectively. These agreements prohibit such persons, if they cease working for us, from competing directly with us or working for our competitors for a limited period. Under applicable law,registration requirements, we may be unableact to enforce these agreements. If we cannot enforcedissolve and liquidate our non-competition agreements withbusiness. Any such persons, then weaction may be unable to prevent our competitors from benefiting from the expertise of our former employees and consultants, which could materially adversely affectimpact our business, financial condition, results of operations and ability to capitalize on our proprietary information.prospects.

Intellectual property rights do not necessarily address all potential threats to our competitive advantage.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:

Interpretations may require the regulation of Bitcoins under the Commodity Exchange Act (“CEA”) by the CFTC.

We may be subject to claims challenging the inventorship of our patents and other intellectual property.

We may be subjectrequired to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against theseregister and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Risks Related to our Industry

We are subject to government regulations and we may experience delays in obtaining required regulatory approvals to market LO2A.

Various aspects of our operations are subject to federal, state or local laws, rules and regulations, any of which may change from time to time. Costs arising out of any regulatory developments could be time-consuming and expensive and could divert management resources and attention and, consequently, could adversely affect our business operations and financial performance.

Delays in regulatory approval, limitations in regulatory approval and withdrawals of regulatory approval may have a material adverse effect on us. If we experience significant delays in testing or receiving approvals or sign-offs to conduct clinical trials, our product development costs, or our ability to license LO2A, will increase. If certain country’s regulatory authority grants regulatory approval to market a product, this approval will be limited to those disease states and conditions for which the product has demonstrated, through clinical trials, to be safe and effective. Any product approvals that we receive in the future could also include significant restrictions on the use or marketing of our products. Product approvals, if granted, can be withdrawn for failure to comply with regulatory requirements or upon the occurrence of adverse events following commercial introduction of the products. Failure to comply with applicable regulatory requirements may result in criminal prosecution, civil penalties, recall or seizure of products, total or partial suspension of production or injunction, as well as other regulatory action against us or LO2A. If approval is withdrawn for a product, or if a product were seized or recalled, we would be unable to sell or license that product and our revenues would suffer.

We expect the healthcare industry to face increased limitations on reimbursement as a result of healthcare reform, which could adversely affect third-party coverage of our products and how much or under what circumstances healthcare providers will prescribe or administer our products.

In both the United States and other countries, sales of our products will depend in part upon the availability of reimbursement from third-party payors, which include governmental authorities, managed care organizations and other private health insurers. Third-party payors are increasingly challenging the price and examining the cost effectiveness of medical products and services.

Increasing expenditures for healthcare have been the subject of considerable public attention in the United States. Both private and government entities are seeking ways to reduce or contain healthcare costs. Numerous proposals that would effect changes in the U.S. healthcare system have been introduced or proposed in Congress and in some state legislatures, including reducing reimbursement for prescription products and reducing the levels at which consumers and healthcare providers are reimbursed for purchases of pharmaceutical products.

In 2010, the United States Congress enacted the Patient Protection and Affordable Care Act of 2010 or, Affordable Care Act. The Affordable Care Act seeks to reduce the federal deficit and the rate of growth in health care spending through, among other things, stronger prevention and wellness measures, increased access to primary care, changes in health care delivery systems and the creation of health insurance exchanges. Enrollment in the health insurance exchanges began in October 2013. The Affordable Care Act requires the pharmaceutical industry to share in the costs of reform, by, among other things, increasing Medicaid rebates and expanding Medicaid rebates to cover Medicaid managed care programs. Other components of healthcare reform include funding of pharmaceutical costs for Medicare patients in excess of the prescription drug coverage limit and below the catastrophic coverage threshold. Under the Affordable Care Act, pharmaceutical companies are now obligated to fund 50% of the patient obligation for branded prescription pharmaceuticals in this gap, or “donut hole.” Additionally, commencing in 2011, an excise tax was levied against certain branded pharmaceutical products. The tax is specified by statute to be approximately $3 billion in 2012 through 2016, $3.5 billion in 2017, $4.2 billion in 2018, and $2.8 billion each year thereafter. The tax is to be apportioned to qualifying pharmaceutical companies based on an allocation of their governmental programs as a portion of total pharmaceutical government programs.

Although we cannot predict the full effect on our business of the implementation of existing legislation, including the Affordable Care Act or the enactment of additional legislation, we believe that legislation or regulations that reduce reimbursement for or restrict coverage of our products could adversely affect how much or under what circumstances healthcare providers will prescribe or administer our products. This could materially and adversely affect our business by reducing our ability to generate revenue, raise capital, obtain additional collaborators and market our products. In addition, we believe the increasing emphasis on managed care in the United States has and will continue to put pressure on the price and usage of pharmaceutical products, which may adversely impact product sales.

We may be subject to U.S. and foreign anti-kickback laws andsuch regulations. Our failure to comply with these laws and regulations could have adverse consequences.

There are extensive U.S. federal and state laws and regulations prohibiting fraud and abuse in the healthcare industry that can result in significant criminal and civil penalties. These federal laws include: the anti-kickback statute, which prohibits certain business practices and relationships, including the payment or receipt of remuneration for the referral of patients whose care will be paid by Medicare or other federal healthcare programs; the physician self-referral prohibition, commonly referred to as the Stark Law; the anti-inducement law, which prohibits providers from offering anything to a Medicare or Medicaid beneficiary to induce that beneficiary to use items or services covered by either program; the False Claims Act, which prohibits any person from knowingly presenting or causing to be presented false or fraudulent claims for payment by the federal government, including the Medicare and Medicaid programs; and the Civil Monetary Penalties Law, which authorizes the U.S. Department of Health and Human Services to impose civil penalties administratively for fraudulent or abusive acts.

Sanctions for violating these federal laws include criminal and civil penalties that range from punitive sanctions, damage assessments, money penalties, imprisonment, denial of Medicare and Medicaid payments, or exclusion from the Medicare and Medicaid programs, or both, and debarment. As federal and state budget pressures continue, federal and state administrative agencies may also continue to escalate investigation and enforcement efforts to root out waste and to control fraud and abuse in governmental healthcare programs. Private enforcement of healthcare fraud has also increased, due in large part to amendments to the civil False Claims Act in 1986 that were designed to encourage private persons to sue on behalf of the government. A violation of any of these federal and state fraud and abuse laws and regulations or any similar law in a different jurisdiction which is applicable to us could have a material adverse effect on our liquidity and financial condition. An investigation into the use by physicians of any of our products once commercialized may dissuade physicians from either purchasing or using them, and could have a material adverse effect on our ability to commercialize those products.

Risks Related to Our Common Stock

The failure of our business to succeed may result in the depression in the value of our Common Stock.

While LO2A is approved for sale in certain jurisdictions for the treatment of DES, LO2A is only approved for sale for the treatment of CCH in Hungary and for the treatment of Sjögren’s in the Netherlands. LO2A may never be successfully developed and approved for sale or successfully commercialized for the treatment of CCH or for Sjögren’s in any other jurisdiction. The failure to successfully commercialize LO2A for the treatment of CCH and Sjögren’s may have a material adverse effect on our business and could depress the value of our Common Stock.

Our restricted shares are subject to resale restrictions imposed by Rule 144, including those set forth in Rule 144(i) which applies to a “shell company.”

On May 21, 2017, we entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”), with Bufiduck Ltd., a company formed under the laws of the State of Israel and our wholly owned subsidiary (the “Merger Sub”) and Wize Israel, which contemplated the merger of Merger Sub with and into Wize Israel, with Wize Israel continuing as the surviving entity and becoming our wholly owned subsidiary (the “Merger”). Prior to the Merger, we were a “shell company” under applicable SEC rules and regulations. Pursuant to Rule 144, promulgated under the Securities Act, sales of the securities of a shell company, such as ours under that rule are not permitted until at least 12 months have elapsed from the date on which we file with the SEC Form 10 information in a Current Report on Form 8-K, reflecting our status as a non-shell company (which occurred on November 21, 2017). As a result, some of our stockholders would be forced to hold their shares of Common Stock for at least that 12-month period before they are eligible to sell those shares, and even after that 12-month period, sales may not be made under Rule 144 unless we and our relevant stockholders are in compliance with other requirements of Rule 144. Further, it will be more difficult for us to raise funding to support our operations through the sale of debt or equity securities, unless we agree to register such securities under the Securities Act, which could cause us to expend additional time and cash resources. The lack of liquidity of our securities as a result of the inability to sell under Rule 144 for a longer period of time could cause the market price of our securities to decline.

A large number of shares are issuable upon exercise of outstanding investment rights granted under the Loan Agreements (the “Investment Rights”), warrants issued to investors in a private placement of Wize Israel that was contemplated in July and August 2017 (the “2017 Warrants”), Series A Preferred Stock, Series A Warrants, Placement Agent Warrants and Advisor Warrants. The exercise of these securities could result in the substantial dilution of your investment in terms of your percentage ownership in our company. The sale of a large amount of Common Stock received upon exercise of these securities on the public market, or the perception that such sales could occur, could substantially depress the prevailing market prices for our shares.

As of March 26, 2020, there were outstanding presently convertible or exercisable (i) Investment Rights entitling the holders to purchase 890,138 shares of Common Stock at a weighted average exercise price of $0.16 per share, (ii) 2017 Warrants entitling the holders to purchase 759,871 shares of Common Stock at a weighted average exercise price of $1.9728 per share, (iii) 178 shares of Series A Preferred Stock issuable into 178,000 shares of Common Stock, (iv) Series A Warrants entitling the holders to purchase 4,450,000 shares of Common Stock at an exercise price of $0.16 per share, (v) Placement Agent Warrants entitling the holders to purchase 267,000 shares of Common Stock at an exercise price of $0.16 per share and (vi) Advisor Warrants entitling the holder to purchase 89,000 shares of Common Stock at an exercise price of $0.16 per share. Certain securities are subject to down round protection mechanism. The exercise or conversion price for all of the aforesaid securities may be less than your cost to acquire our shares. In the event of the exercise or conversion of these securities, you could suffer substantial dilution of your investment in terms of your percentage ownership in our company. In addition, the holders of such securities may sell shares in tandem with their exercise of those securities to finance that exercise, which could further depress the market price of the Common Stock.

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to LO2A.

We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital throughdecide to continue operations, the salerequired registrations and regulatory compliance steps may result in extraordinary, non-recurring expenses to us. We may also decide to cease certain operations. Any disruption of equity or convertible debt securities,our operations in response to the ownership interests of existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect stockholder rights. Furthermore, the number of shares available for future grant under our equity compensation planschanged regulatory circumstances may be increasedat a time that is disadvantageous to investors.

Current and future legislation, CFTC and other regulatory developments, including interpretations released by a regulatory authority, may impact the manner in the future. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through strategic partnershipswhich Bitcoins are treated for classification and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our LO2A, or grant licenses on terms thatclearing purposes. In particular, Bitcoin derivatives are not favorable. If we are unableexcluded from the definition of “commodity future” by the CFTC. We cannot be certain as to raise additional funds through equity or debt financing when needed,how future regulatory developments will impact the treatment of Bitcoins under the law.

Bitcoins have been deemed to fall within the definition of a commodity and we may be required to delay, limit, reduceregister and comply with additional regulation under the CEA, including additional periodic report and disclosure standards and requirements. Moreover, we may be required to register as a commodity pool operator and to register as a commodity pool with the CFTC through the National Futures Association. Such additional registrations may result in extraordinary, non-recurring expenses, thereby materially and adversely impacting our business, financial condition, results of operations and prospects. If we determine not to comply with such additional regulatory and registration requirements, we may seek to cease certain of our operations. Any such action may adversely affect our business, financial condition, results of operations and prospects.

If regulatory changes or terminateinterpretations require the regulation of Bitcoins under the Securities Act and Investment Company Act by the SEC, we may be required to register and comply with such regulations.

Current and future legislation and the SEC rulemaking and other regulatory developments, including interpretations released by a regulatory authority, may impact the manner in which Bitcoins are treated for classification and clearing purposes. The SEC’s July 25, 2017 Report expressed its view that digital assets may be securities depending on the facts and circumstances. As of the date of this report/information statement, we are not aware of any rules that have been proposed to regulate Bitcoins as securities. We cannot be certain as to how future regulatory developments will impact the treatment of Bitcoins under the law. Such additional registrations may result in extraordinary, non-recurring expenses, thereby materially and adversely impacting our product developmentbusiness, financial condition, results of operations and prospects. If we determine not to comply with such additional regulatory and registration requirements, we may seek to cease certain of our operations. Any such action may adversely affect our business, financial condition, results of operations and prospects.

To the extent that digital assets, including Bitcoins and other digital assets we may own, are deemed by the SEC to fall within the definition of a security, we may be required to register and comply with additional regulation under the Investment Company Act, including additional periodic reporting and disclosure standards and requirements and the registration of the combined company as an investment company. Additionally, one or commercialization efforts or grant rights to developmore states may conclude Bitcoins and market LO2A thatother digital assets we may own as a security under state securities laws which would require registration under state laws including merit review laws which would adversely impact us since we would otherwise prefer to develop and market ourselves.

Because our Common Stock may be a “penny stock”, it may be more difficult for investors to sell shares of our Common Stock, and the market price of our Common Stock may be adversely affected.

Our Common Stock may be a “penny stock” if, among other things, the stock price is below $5.00 per share, it is not listed on a national securities exchange or it has not met certain net tangible asset or average revenue requirements. Broker-dealers who sell penny stocks must provide purchasers of these stocks with a standardized risk-disclosure document prepared by the SEC. This document provides information about penny stocks and the nature and level of risks involved in investing in the penny-stock market. A broker must also give a purchaser, orally or in writing, bid and offer quotations and information regarding broker and salesperson compensation, make a written determination that the penny stock is a suitable investment for the purchaser, and obtain the purchaser’s written agreement to the purchase. Broker-dealers must also provide customers that hold penny stock in their accounts with such broker-dealer a monthly statement containing price and market information relating to the penny stock. If a penny stock is sold to an investor in violation of the penny stock rules, the investor may be able to cancel its purchase and get its money back.

If applicable, the penny stock rules may make it difficult for investors to sell our shares of Common Stock. Because of the rules and restrictions applicable to a penny stock, there is less trading in penny stocks and the market price of our Common Stock may be adversely affected. Also, many brokers choose not to participate in penny stock transactions. Accordingly, investors may not always be able to resell their shares of our Common Stock publicly at times and prices that they feel are appropriate.

We maylikely not be able to attract the attentioncomply. Such additional registrations may result in extraordinary, non-recurring expenses, thereby materially and adversely impacting our business, financial condition, results of major brokerage firms, whichoperations and prospects. If we determine not to comply with such additional regulatory and registration requirements, we may limit the liquidityseek to cease all or certain parts of its operations. Any such action would likely adversely affect our Common Stockbusiness, financial condition, results of operations and may make it more difficult for us to raise additional capital in the future.

Securities analysts of major brokerage firms may not provide coverage of our Common Stock because there may be little incentive for brokerage firms to recommend the purchase of our Common Stock. As a result, our Common Stock may have limited liquidityprospects and investors may have difficulty selling it. Furthermore, we cannot assure you that brokerage firms will want to conduct any secondary offerings on our behalf if we seek to raise additional capital in the future. Our inability to raise additional capital may havesuffer a material adverse effect on our business.

Future salescomplete loss of our Common Stock could reduce our stock price.

Sales by stockholders of substantial amounts of our Common Stock, or the perception that these sales may occur in the future, including the sale of shares by certain stockholders upon the expiration of the tax withholding deferral period set forth in the 104(h) Tax Ruling, could materially and adversely affect the market price of our Common Stock. Furthermore, the market price of our Common Stock could drop significantly if our executive officers, directors, or certain large shareholders sell their shares, or are perceived by the market as intending to sell them.

investment.

The concentration of the capital stock ownership with our insiders will likely limit the ability of our stockholders to influence corporate matters.

As of March 26, 2020, our executive officers, directors, five percent or greater stockholders, and their respective affiliated entities in the aggregate beneficially own approximately 133.5% of our Common Stock. As a result of such ownership, despite the fact that each one of them, to our knowledge, will continue to operate independently from the other with respect to their respective shareholding of the Company’s shares, these stockholders, if acting together, will have control over matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate actions might be taken even if other stockholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a corporate transaction that other stockholders may view as beneficial, including preventing changes in control or in management. For more information about our current share ownership, please see “Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS” beginning on page 77 of this Annual Report.

We may not be able to timely and effectively implement controls and procedures required by Section 404 of the Sarbanes-Oxley Act of 2002.

PriorWe are required to the Merger, Wize Israel was traded on the Tel Aviv Stock Exchange (the “TASE”) and was not subject to Section 404comply with certain provisions of the Sarbanes-Oxley Act of 2002. The standards required for a public company under Section 404 of the Sarbanes-Oxley Act of 2002 are different from those required(“Sarbanes-Oxley Act”). Section 404 requires that our management maintain a system of internal control over financial reporting that provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. It also requires that our management annually evaluate whether our internal control over financial reporting is effective at providing reasonable assurance and to disclose its assessment to investors. Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of March 31, 2021, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). As a public company whose shares are tradedresult of this assessment, management identified a material weakness in internal control over financial reporting. As a result of the material weakness in internal control over financial reporting described above, the Company’s management has concluded that, as December 31, 2021, the Company’s internal control over financial reporting was not effective based on the TASE. Managementcriteria in Internal Control – Integrated Framework issued by COSO.

Mawson may not be able to effectively and timely implement adequate controls and procedures in time that adequately respond to the regulatory compliance and reporting requirements that are applicable to us after the Merger.us. If managementMawson is not able to implement the additional requirements of Section 404 of the Sarbanes-Oxley Act of 2002 in a timely manner or with adequate compliance, itwe may not be able to assess whether itsour internal control over financial reporting isare effective, which may subject us to adverse regulatory consequences and could harm investor confidence and the market price of our Common Stock.stock.  

As an “emerging growth company” under the JOBS Act,

In addition, as a smaller reporting company and non-accelerated filer, we are permittednot subject to and intend to, rely on exemptions from certain disclosure requirements.

As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. We are an emerging growth company until the earliest of: (i) the last dayauditor attestation requirements of Section 404 of the fiscal year during which hawse have total annual gross revenuesSarbanes-Oxley Act. However, as we grow, we may become subject to the auditor attestation requirements of $1.07 billion or more, (ii) the last daySection 404 of the fiscal year followingSarbanes-Oxley Act.

If we fail to comply with the fifth anniversaryrequirements of Section 404 of the dateSarbanes-Oxley Act, the accuracy and timeliness of the first salefiling of our Common Stock pursuantannual and quarterly reports may be materially adversely affected and could cause investors to an effective registration statement, (iii)lose confidence in our reported financial information, which could have a negative effect on the date on whichtrading price of our common stock. In addition, we have, duringidentified a material weakness in the previous three-year period, issued more than $1 billion in non-convertible debt or (iv) the date on which we are deemed a “large accelerated issuer” as defined in Regulation S-Keffectiveness of the Securities Act. For so long as we remain an emerging growth company, we will not be required to:

Although we intend to rely on the exemptions provided in the JOBS Act, the exact implications of the JOBS Act are still subject to interpretations and guidance by the SEC and other regulatory agencies. In addition, as our business grows, we may no longer satisfy the conditions of an emerging growth company.

We have not paid, and do not intend to pay, dividends on our Common Stock and therefore, unless our Common Stock appreciates in value, our investors may not benefit from holding our Common Stock.

We have not paid any cash dividends on our Common Stock since inception and do not anticipate paying any cash dividends on our Common Stock in the foreseeable future.

Anti-takeover provisions under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by the stockholders to replace or remove management.

We will be subject to the anti-takeover provisions of the Delaware General Corporation Law (the “DGCL”), including Section 203. Under these provisions, if anyone becomes an “interested stockholder” the combined company may not enter into a “business combination” with that person for three years without special approval, which could discourage a third party from making a takeover offer and could delay or prevent a change of control. For purposes of Section 203 of the DGCL, “interested stockholder” means, generally, someone owning 15% or more of the combined company’s outstanding voting stock or an affiliate of the combined company that owned 15% or more of the combined company’s outstanding voting stock during the past three years, subject to certain exceptions as described in Section 203 of the DGCL. In addition, our Certificate of Incorporation contains provisions, such as blank check preferred stock, advance notice, and stockholder action by written consent which could make it more difficult for a third party to acquire us. These provisions may have the effect of preventing or hindering any attempts by our stockholders to replace our Board of Directors (the “Board”) or management.

The public trading market for our Common Stock is volatile and may result in higher spreads in stock prices, which may limit the ability of our investors to sell their shares at a profit, if at all.

Our Common Stock trades in the over-the-counter market and is quoted on the OTCQB. The over-the-counter market for securities has historically experienced extreme price and volume fluctuations during certain periods. These broad market fluctuations may adversely affect the market price of our Common Stock and result in substantial losses to its investors. In addition, the spreads on stock traded through the over-the-counter market are generally unregulated and higher than on stock exchanges, which mean that the difference between the price at which shares could be purchased by investors in the over-the-counter market compared to the price at which they could be subsequently sold would be greater than on these exchanges. Significant spreads between the bid and asked prices of the stock could continue during any period in which a sufficient volume of trading is unavailable or if the stock is quoted by an insignificant number of market makers. Historically our trading volume has been insufficient to significantly reduce this spread and has had a limited number of market makers sufficient to affect this spread. These higher spreads could adversely affect investors who purchase the shares at the higher price at which the shares are sold, but subsequently sell the shares at the lower bid prices quoted by the brokers. Unless the bid price for the stock exceeds the price paid for the shares by the investor, plus brokerage commissions or charges, the investor could lose money on the sale. For higher spreads such as those on over-the-counter stocks, this is likely a much greater percentage of the price of the stock than for exchange listed stocks. There is no assurance that at the time an investor in our Common Stock wishes to sell the shares, the bid price will have sufficiently increased to create a profit on the sale.

An active market for our Common Stock may not develop.

Although our Common Stock trades on the OTCQB, we do not have an active trading market and an active trading market may not develop. If an active trading market does not develop, or is not sustained, it may be difficult for investors to sell their shares without depressing the market price for the shares or at all. Further, an inactive market may also impair our ability to raise capital by selling shares of our Common Stock and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of Common Stock as consideration.

Our Common Stock is thinly traded, so you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.

Our Common Stock has historically been sporadically traded on the OTCQB, meaning that the number of persons interested in purchasing our shares 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 which 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 became 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 you any assurance that a broader or more active public trading market for our Common Stock will develop or be sustained, or that current trading levels will be sustained.

Our Board can, without stockholder approval, cause preferred stock to be issued on terms that adversely affect common stockholders or which could be used to resist a potential take-over of us.

Under our Certificate of Incorporation, our Board is authorized to issue up to 1,000,000 shares of preferred stock, 910 of which are issued and outstanding as of the date of this Annual Report. Also, our Board, without stockholder approval, may determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares. If the Board causes shares of preferred stock to be issued, the rights of the holders of our Common Stock could be adversely affected. The Board’s ability to determine the terms of preferred stock and to cause its issuance, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. Preferred shares issued by the Board could include voting rights, or even super voting rights, which could shift the ability to control us to the holders of the preferred stock. Preferred shares could also have conversion rights into shares of Common Stock at a discount to the market price of the Common Stock which could negatively affect the market for our Common Stock. In addition, preferred shares would have preference in the event of liquidation of the corporation, which means that the holders of preferred shares would be entitled to receive the net assets of the corporation distributed in liquidation before the Common Stock holders receive any distribution of the liquidated assets. We have no current plans to issue any shares of preferred stock.

The market price of our Common Stock may fluctuate significantly, which could result in substantial losses by our investors.

The market pricean increased chance of our Common Stock may fluctuate significantly in response to numerous factors, some of which are beyond its control, such as:

These factors and any corresponding price fluctuations may materially and adversely affect the market price of our Common Stock and result in substantial losses by our investors.

Further, the stock market in general,fraud and the market for biotechnology companies in particular, has experienced extreme priceloss of customers, reduce our ability to obtain financing and volume fluctuations in the past. Continued market fluctuations could result in extreme volatility in the pricerequire additional expenditures to comply with these requirements, each of our Common Stock, which could cause a decline in the value of our Common Stock. Price volatility of our Common Stock might be worse if the trading volume of our Common Stock is low. In the past, following periods of market volatility, stockholders have often instituted securities class action litigation. If we are involved in securities litigation, it could have a substantial cost and divert resources and attention of management from our business, even if successful. Future sales of our Common Stock could also reduce the market price of such stock.

Risks Related to our Operations in Israel

Potential political, economic and military instability in the State of Israel, where our senior management and our head executive office facilities are located, may adversely affect our results of operations.

Our executive office where we conduct initial research and development activities, as well as some of our clinical sites and suppliers are located in Israel. Our officers and our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors. Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel and its trading partners could adversely affect our operations and results of operations and could make it more difficult for us to raise capital. During the summer of 2014 and the winter of 2012 and 2008, Israel was engaged in an armed conflict with Hamas, a militia group and political party operating in the Gaza Strip, and during the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party. These conflicts involved missile strikes against civilian targets in various parts of Israel, and negatively affected business conditions in Israel. To date, Israel faces political tension with respect to its relationships with Turkey, Iran and other Arab neighbor countries. In addition, recent political uprisings and social unrest in various countries in the Middle East and North Africa are affecting the political stability of those countries. This instability may lead to deterioration of the political relationships that exist between Israel and these countries, and have raised concerns regarding security in the region and the potential for armed conflict. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions and could harm our results of operations. For example, any major escalation in hostilities in the region could result in a portion of our employees and service providers being called up to perform military duty for an extended period of time. Parties with whom we do business have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements. Any future deterioration in the political and security situation in Israel will negatively impact our business.

Our commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle East. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained. Any losses or damages incurred by us could have a material adverse effect on our business, results of operations and financial condition.

Future developments regarding the treatment of digital assets for U.S. federal income and foreign tax purposes could adversely impact our business. Any armed conflicts

Globally, many taxation laws, rules and guidelines have not been developed with digital assets or political instabilitycryptocurrencies in focus. For example, many significant aspects of the U.S. federal income and foreign tax treatment of transactions involving digital assets are uncertain, and it is unclear what guidance may be issued in the region would likely negatively affectfuture on the treatment of digital asset transactions for U.S. federal income and foreign tax purposes.

There can be no assurance that the IRS or other foreign tax authorities will not alter their position or introduce new laws, regulations or guidance with respect to digital assets. Any such alteration of existing IRS and other foreign tax authority positions or additional guidance regarding digital asset products and transactions could result in adverse tax consequences for our business conditions and could harm our results of operations.

Further, in the past, the State of Israel and Israeli companies have been subjected to an economic boycott. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impacteffect on the value of digital asset and the broader digital assets markets. In addition, the IRS and other foreign tax authorities may disagree with tax positions that we have taken, which could result in increased tax liabilities. Future technological and operational developments that may arise with respect to digital currencies may increase the uncertainty with respect to the treatment of digital currencies for U.S. federal income and foreign tax purposes.

Another example of an adverse ruling would be if we were classified as a passive foreign investment company (a “PFIC”) for any taxable year. Based on the current and anticipated composition of our operating results,income, assets and operations, and our business generally, we do not expect to be treated as a PFIC for the current taxable year or in the foreseeable future. The application of the PFIC rules to digital assets and transactions related thereto is subject to uncertainty. There can be no assurance that Mawson will not be classified as a PFIC for the current taxable year or for any future taxable year. If Mawson is considered a PFIC then there may be negative tax consequences for U.S. holders of our ordinary shares, as well as being subject to annual information reporting requirements. U.S. holders may wish to consult their tax advisors about the potential application of the PFIC rules to an investment in our ordinary shares.

Regulatory intervention by governments could affect the right to acquire, own, hold, sell, exchange or use Bitcoin or other cryptocurrencies.

Governments have and may take regulatory actions to restrict the right to acquire, own, hold, sell, exchange or use Bitcoin or other cryptocurrencies. For example, it may be, or may become, illegal to accept payment in Bitcoin for consumer transactions and banking institutions could be barred from accepting deposits of cryptocurrencies. Such restrictions would have a negative effect on the value and price of Bitcoin. On the other hand, some governments could decide to subsidize or support certain Bitcoin mining projects, thus adding hashrate to the overall network, and having a material adverse effect on the amount of Bitcoin we may be able to mine, the value of Bitcoin and, consequently, our business, prospects, financial condition or the expansion of our business.and operating results.

Our operationsWe may be disrupted as a resultsubject to material litigation, investigations or enforcement actions by regulators and governmental authorities.

We may become subject to certain claims, legal proceedings (including individual and class actions) and government investigations or enforcement actions, including in the ordinary course of the obligation of Israeli citizensbusiness. Agreements entered into by Mawson sometimes include indemnification provisions which can subject Mawson to perform military service.

Many Israeli citizens, including Or Eisenberg, our Chief Financial Officer, Treasurercosts and Secretary, are obligated to perform one month, and in some cases more, of annual military reserve duty until they reach the age of 45 (or older, for reservists with certain occupations) and,damages in the event of a military conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be military reserve duty call-ups in the future. Our operations could be disrupted by such call-ups, which may include the call-up of Or Eisenberg. Such disruption could materially adversely affect our business, financial condition and results of operations.

Because a certain portion of our expenses is incurred in currencies other than the U.S. Dollar, our results of operations may be harmed by currency fluctuations and inflation.

Our reporting and functional currency is the U.S. Dollar, but some portion of our clinical trials and operations expenses are in NIS and Euro. As a result, we are exposed to some currency fluctuation risks, largely derived from our current and future engagements for financing and distribution. Fluctuation in the exchange rates of foreign currency hasclaim against an influence on the cost of goods sold and our financing revenues and expenses. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rateindemnified third party. Regardless of the currencies mentioned above in relationmerit of particular claims, defending against litigation or responding to the U.S. Dollar. These measures, however, may not adequately protect us from adverse effects.

Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities lawsgovernment investigations can be expensive, time-consuming, disruptive to operations and distracting to management. If Mawson is unable to successfully defend itself against us and our officers and directors or asserting U.S. securities lawssuch claims in Israel.

Our directors and officers are not residents of the United States and our assets are located outside the United States. Service of process upon our directors and officers and enforcement of judgments obtained in the United States against us, and our directors and officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel thatthen it may be difficultbecome liable to assert claims under U.S. securities laws in original actions instituted in Israelmake substantial payments to satisfy judgments, fines or obtain a judgment based on the civil liability provisions of U.S. federal securities laws. Israeli courtspenalties, or alter, delay, limit or cease some or all its business practices. Mawson may refusesuffer damage to hear a claim based on a violation of U.S. securities laws against our officersbrand and directors because Israel may not be the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israeli courts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us and/or our officers and directors.reputation.

Moreover, among other reasons, including but not limited to, fraud, a lack of due process, a judgment which is at variance with another judgment that was given in the same matter and if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court will not enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases) or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

Our principal executive offices are located at 24 Hanagar Street, Hod Hasharon, Israel, 452770897 Pacific Highway North Sydney NSW Australia where we leaselicense approximately 710 square feet of office spacespace. We are currently considering our future options should the number of employees required in the head office grow.

We have long term leases for annual renteach of approximately $18,000. Other than such office lease, weour 3 mining facilities. Our mining facilities are located in Georgia USA, Pennsylvania USA and New South Wales, Australia.

We do not own or lease any material tangible fixed assets.other land or buildings. We believe that our existing facilities are suitable and adequate to meet our current business requirements. In the event thatHowever, Mawson is growing and, should we should require additional or alternative facilities, we believe that such facilities can be obtained on short noticein reasonable time frames at competitivecommercial rates.

ITEM 3. LEGAL PROCEEDINGS.

In October 2018, the ISA commenced administrative enforcement proceedings against Wize Israel, the Company’s former Chairman and the Company’s Chief Financial Officer (who, at the relevant time, served as Wize Israel’s chief financial officer) in connection with the foregoing reports. In August 2019, the ISA’s Administrative Enforcement Committee approved a settlement of the proceedings, whereby, (i) Wize Israel undertook to pay a civil penalty of NIS 200,000 (equivalent to approximately $57,000) to the ISA and (ii) the Company’s Chief Financial Officer undertook to pay a civil penalty of NIS 175,000 (equivalent to approximately $50,000) to the ISA and also agreed that, if he will violate, at any time until August 2020, certain provisions of Israeli securities laws relating to misleading public reports, he will be barred, for a nine-month period thereafter, from serving as an officer or director in certain entities supervised by the ISA, including companies that are publicly traded in Israel (but, for the sake of clarity, not companies traded in the U.S., such as the Company). 

Except as described above, we We are currently not, and have not been in the recent past, a party to any legal proceedings which may have or have had in the recent past significant effects on our financial position or profitability. However, we have been in the past, and may be from time to time in the future, named as a defendant in certain routine litigation incidental to our business.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable. 

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Price for our Common Stock

Our Common Stock tradedtrades on the OTCQBThe Nasdaq Stock Market LLC under the symbol “WIZP”“MIGI”.

Holders

As of March 30, 2020,15, 2022, there were approximately 89271 stockholders of record holding 9,336,535 sharesrecord. The actual number of beneficial owners of our Common Stock. This number does not include an indeterminatestock is greater than this number of stockholdersrecord holders because there are beneficial owners whose shares are held in street name by brokers in street name.and other nominees.

Dividend Policy

We have never paid any cash dividends on our Common Stock and do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. We intend to retain future earnings to fund ongoing operations and future capital requirements of our business. Any future determination to pay cash dividends will be at the discretion of our Board and will be dependent upon our financial condition, results of operations, capital requirements and such other factors as our Board deems relevant. Our ability to pay cash dividends is subject to limitations imposed by state law. In addition, we are restricted from paying any dividends without Rimon Gold’s consent so long as our loans from Rimon Gold have not been repaid in full.

Unregistered Sales of Equity Securities and Use of Proceeds

Other than as set forth belowelsewhere in this Annual Report or as previously disclosed in our filings with the Securities and Exchange Commission,SEC, we did not sell any equity securities during the year ended December 31, 20192021 in transactions that were not registered under the Securities Act. The issuance of such securities were made in transactions exempt from registration under Section 4(a)(2) of the Securities Act and/or Rule 506 and/or Regulation S promulgated thereunder.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

We did not repurchase any securities in the fourth quarter of the fiscal year covered by this report.

ITEM 6. SELECTED FINANCIAL DATA.RESERVED

As a “smaller reporting company” the information required by this item is not required to be provided.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion and analysis of our financial condition and results of operations together with our audited annual consolidated financial statements as of December 31, 20192021 and December 31, 20182020 and accompanying notes appearing elsewhere in this Annual Report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under “Risk Factors” and elsewhere in this Annual Report. All amounts are in U.S. dollarsdollars.

Overview

Mawson is a ‘Digital Asset Infrastructure’ business, which owns and rounded.operates (through its majority-owned subsidiary Mawson AU) modular data centers (“MDCs”) in the United States and Australia. We are focused on developing the technology to enable us to own and operate MDCs that are both air-cooled and liquid immersion cooled.

Our primary business is the ownership and operation of Application-Specific Integrated Circuit (“ASIC”) computers known as Miners. We currently operate three sites, with two locations in USA, and a location in Australia, from which we operate our combined business. The Miners are predominately focused on the process of digital mining, specifically for Bitcoin.

We offer ‘hosting’ or ‘co-location’ arrangements to other businesses in the digital asset infrastructure industry the opportunity to have their Miners located within our MDCs, who pay us a fee for the use of our facilities and related services (often based on consumption).

We also sell used crypto currency mining equipment on a periodic basis, subject to prevailing market conditions for used equipment.

As of December 31, 2021

Overview

We continue to conduct research and development in relation to our MDCs which we are actively testing in several configurations and locations to determine the best configuration for both ASIC and alternate computing uses.

In addition, our indirect subsidiary, Cosmos Asset Management Pty Ltd (“Cosmos Asset Management”), is the investment manager of the Bitcoin Wholesale Access Fund, a wholesale, unregistered managed investment scheme Bitcoin Wholesale Access Fund invests in and holds Bitcoin for third party investors and is the manager of the Cosmos Global Digital Miners Access ETF, listed on Cboe in Australia under the code DIGA.

Prior LO2A Business

On March 9, 2021, the Company acquired the shares of Cosmos Capital Limited (now known as Mawson Infrastructure Group Pty Ltd) in a scrip for scrip exchange (“Cosmos Transaction”).

Prior to the Cosmos Transaction our main business undertaking was as a clinical-stage biopharmaceutical company currently focused on the treatment of ophthalmic disorders, including DES. We have in-licenseddry eye syndrome. However, as part of the Cosmos Transaction, substantially all of the economic benefits of any successful monetization of our LO2A a drug developed forbusiness, if any, will benefit only the treatmentholders of DEScontingent value rights (“CVR”) and other ophthalmological illnesses, including CCHany contingent right holders. Accordingly we assessed that the fair value of this asset at the acquisition date was $nil. The asset was therefore assessed as impaired and Sjögren’s.

We have not generated any material revenues from operations since our inception and we do not currently expect to generate any significant revenues for the foreseeable future, primarily because LO2A is still in early clinical stage developmentprior carrying amount of $23.96 million has been fully expensed in the markets and for the indications we are currently targeting (DES with CCH and/or Sjögren’s). Our operating expenses have decreased from $3,630,000 in the year ended December 31, 2018 to $3,170,000 in the year ended December 31, 2019. We will require significant additional capital and, assuming we will have sufficient liquidity resources, we anticipate we will incur significantly higher costs in the foreseeable future, in order to finance our current strategic plans, including the conduct of ongoing and future clinical trials as well as further research and development.

Wize Israel was deemed to be the accounting acquirer in the Merger. The consolidated financial statements of Wize Israel included in this Annual Report are as of and for the periods that are prior to the Merger, and have therefore, not been adjusted to reflect the impact of the Merger. 

Results of Operations

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Revenues

We did not generate any revenues from operations during the years ended December 31, 2019 and 2018. We had no revenues primarily because (1) from the time of the creditors’ arrangement in February 2015 until May 2015, when we (through Wize Israel) entered into the LO2A License Agreement, Wize Israel did not conduct any business operations and (2) thereafter, currently, Wize Israel is engaged primarily in research and development.

Operating Expenses

Research and development expenses. Research and development expenses were $492,000 for the year ended December 31, 2019,2021.

Recent Developments.

Mawson owns 20.06% equity in Distributed Storage Solutions Pty Ltd, an Australian private company operating a blockchain based decentralized storage business, based on the IPFS protocol. The business utilizes Filcoin as part of its operations to generate revenue. Mawson subscribed for 500,000 shares at AUD$1.00 per share. On April 22, 2021, Distributed Storage Solutions Pty Ltd undertook a capital raise to third party investors in Australia at AUD$11.60 per share.

In May 2021, the Company, through its subsidiary Luna Squares LLC (“Luna”), had its first hosting contracts at its facilities in Georgia. The hosting contracts were for an initial single MDC.

On July 5, 2021, the Company consummated the acquisition (the “Acquisition”) of all the outstanding Luna shares, a Delaware limited liability company pursuant to the terms of a (i) Membership Interest Purchase Agreement with Kyle Hoffman (the “Hoffman MIPA”) and (ii) Membership Interest Purchase Agreement with TRS Ventures LLC (the “TRS MIPA”). Under the terms of the Hoffman MIPA, the Company purchased Mr. Hoffman’s membership interests in Luna, which represented 25% of total membership interest in Luna, for a total purchase price of $200,000 paid over two tranches made up of:

(A)  $100,000 which was paid in cash; and 

(B) $100,000 which was paid in shares of the Company’s common stock.

Under the terms of the TRS MIPA, the Company purchased TRS’s membership interests in Luna, which represented 25% of the outstanding membership interests in Luna, for a purchase price of $300,000 paid over three tranches made up of:

(A)  $100,000 which was paid in cash; and

(B) $200,000 which was paid in shares of the Company’s common stock.

Luna leases a 16.35-acre lot in Georgia from the Development Authority of Washington County. The lease term was originally for 1 acre from May 1, 2020, until April 30, 2023. There have been two amendments to the lease to lease an additional 15.35 acres, signed on February 23, 2021 and August 24, 2021. It also includes 5, 3-year extension options bringing the total lease period to run until 2038. 

On August 10, 2021, we issued 46,139,019 shares pre stock split of our common stock at a purchase price of $0.80 per shares for aggregate gross proceeds of $36,911,215 in a private placement to certain accredited investors pursuant to entered into Securities Purchase Agreements dated August 6, 2021.

Mawson listed its common stock on The Nasdaq Stock Market LLC (“Nasdaq”) on September 29, 2021.

On October 22, 2021, MIG No. 1 Pty Ltd (“MIG”), an Australian subsidiary of the Company, entered into an electricity supply and sale agreement (“Electricity Supply Agreement”) with Cape Byron Management Pty Ltd (“CBM”) to enable the Company to operate its first Australian Bitcoin mining site (“Australian Site”). CBM is a subsidiary of Quinbrook Infrastructure Partners Pty Ltd.

On November 1, 2021, the Company listed its first product by its Cosmos Asset Management business on the Cboe market in Australia, under the code ‘DIGA.CXA’.

On February 23, 2022, Luna Squares entered into the Co-Location Agreement with Celsius Mining LLC (“Celsius Mining”), pursuant to which Luna Squares will provide a hosting facility, electrical power and internet access to Celsius Mining for the purposes of installing, maintaining and operating Celsius Mining’s ASIC machines (cryptocurrency mining equipment) for a monthly services fee based on power consumption, plus an infrastructure fee, plus a market margin. In addition, Celsius Mining loaned Luna Squares a principal amount of US$20,000,000 (“Principal”), for the purpose of funding the infrastructure required to meet the obligations of the Co-Location Agreement, for which Luna Squares issued a Secured Promissory Note (the “Promissory Note”) in the principal amount equal to the Principal. The Promissory Note accrues interest daily at rate of 12% per annum. Luna Squares is required to amortize the loan at a rate of 15% per quarter, with principal repayments starting in the third quarter following the closing. The Promissory Note has a maturity date of August 23, 2023. In the event Luna Squares receives cash proceeds from certain sales of assets, Luna Squares would be required to direct such cash proceeds to Celsius Mining, which will applied to the outstanding principal and interest under the Promissory Note. The Promissory Note includes customary events of default and remedies. In connection with the transaction, Mawson issued to Celsius Mining, warrants to purchase up to 3,850,000 shares of common stock, par value $0.001 per share, of Mawson at an exercise price of US$6.50 per share. The warrant may be exercised at any time after issuance and until the later to occur of the eighteen (18) month anniversary of issuance and the date on which the Promissory Note has been completely repaid.

On March 16, 2022, Luna Squares LLC entered into a lease with respect to a property in the City of Sharon, Mercer County, Pennsylvania with Vertua Property, Inc, a subsidiary entity in which Vertua Ltd has a 100% ownership interest. James Manning, CEO a director and a significant shareholder of the Company is also a director of Vertua Ltd and has a material interest in the Sharon lease as a large shareholder of Vertua Ltd. The lease contains market standard legal terms, and will be for a term of 5 years, and Luna Squares LLC has 2 options to extend for 5 years each. The Audit Committee has compared the rent and terms to $694,000other arms’ length leases the Company has entered into and formed the view the rent is in line with the market for similar properties. Rent is subject to annual increases of CPI for the Northeast Region, or 4%, whichever is higher. The base rental amount in the first year is $0.24 million. Depending on power energization and usage, variable additional rent may be payable per annum, with charges ranging from $500 to $10,000 per month, depending on power energized and whether it is available. Upon the recommendation from the Audit Committee, the directors of the Company other than James Manning were made aware of the material facts as to Mr. Manning’s interest in the lease and authorized the Company in good faith to enter the lease after determining the lease to be fair to the Company.

COVID-19.

The COVID-19 global pandemic has been unpredictable and unprecedented and is likely to continue to result in significant national and global economic disruption, which may adversely affect our business. The Company relies on equipment supplied by third parties which, like many manufacturing businesses globally, are at risk of supply chain issues. We currently do not expect any material impact on our long-term development, operations, or liquidity due to the COVID-19 pandemic. However, we are actively monitoring this situation and the possible effects on our financial condition, liquidity, operations, suppliers, and industry.

Regulation of Digital Assets

Digital assets and cryptocurrencies have been the source of much regulatory consternation, resulting in differing definitional outcomes without a single unifying statement. We do not believe our mining activities require registration to conduct such activities and accumulate digital assets. Nevertheless it is likely that regulation in the digital asset industry will increase. Ownership of Bitcoin is presently legal in Australia and the U.S., however it may become illegal in the future, to acquire, own, hold, sell, exchange, advise on or use Bitcoins in Australia and the U.S. or one or more other countries, and may currently be illegal in some countries. Regulatory changes or interpretations could cause us (or any of our related entities) to register and comply with new regulations, resulting in potentially extraordinary, recurring or non-recurring expenses to continuing our digital assets business, or entering into new business ventures.  

Results of Operations

Revenue

Cryptocurrency mining revenues from production for the year ended December 31, 2018, a decrease2021 and 2020 were $38.45 million and $4.45 million respectively. This represented an increase of $202,000$34.00 million or 29.1%.764% over the year. The decreaseincrease in research and development expenses ismining revenue for the year was primarily relatedattributable to both CCH and Sjögren clinical trialshigher Bitcoin values in 2018, and only one clinical trialthe 2021 period combined with an increase in 2019. For more informationthe total Bitcoin produced. Bitcoin produced totaled 808.88 in 2021 compared with respect to417.32 in the 2020 period, or an increase of 94% of Bitcoin produced over the respective period. During the year our expensesmaximum hash rate reached 0.83 EH verses 0.16 EH in connection with entering into the LO2A License Agreement, please see Note 5 of the audited consolidated financial statements of Wize Israel appearing elsewhere in this Annual Report.2020.

General and administrative expenses. General and administrative expenses were $2,678,000Hosting co-location revenue for the year ended December 31, 2019, compared to $2,936,0002021 and 2020 were $0.85 million and $nil respectively. This increase is due there being no co-location revenue in the prior year.

Sales of crypto currency mining equipment for the year ended December 31, 2018, a decrease of $258,000 or 8.7%. The decrease2021, were $2.16 million and no sales were recorded in general and administrative expenses during these periods is primarily related to decrease in professional services of $218,000, decrease in legal expenses of $176,000 and decrease in share based payment expense of $94,000 which were partially offset by an increase in investor relationship expenses of $204,000.2020.

Financial income (expenses), Net. Financial expense, net was $280,000Other revenue for the year ended December 31, 2019 compared2021 and 2020 were $2.41 million and $nil respectively. This revenue is in relation to financial income, netresearch and development tax refund.

Operating costs and expenses

Our operating costs and expenses include cost of $351,000revenues; selling, general and administrative expenses; share based payments; and depreciation and amortization.

Cost of revenues

Our cost of revenue consists primarily of: direct power costs related to cryptocurrency mining, and cost of mining equipment sold.

Cost of revenues for the year ended December 31, 2018, a change2021 and 2020 were $9.90 million and $3.16 million, respectively. The increase in cost of $631,000 or 179.8%. The decreaserevenue was primarily attributable to: an increase in financial income during this period is primarilypower costs related to the decreaseincrease in amortizationthe deployment and operation of premium relatedcryptocurrency mining hardware. Included in our cost of revenues is any costs associated with offsetting carbon emissions.

Selling, general and administrative

Our selling, general and administrative expenses consist primarily of professional and management fees relating to: accounting, payroll, audit, and legal; research and development; and general office expenses.

Selling, general and administrative expenses for the year ended December 31, 2021 and 2020 were $16.06 million and $2.48 million respectively. The increase in selling, general and administrative expenses were attributable to convertible loansa number of $892,000, andfactors; payroll expenses increased by $2.74 million due to an increase in lossemployee numbers during the year; legal and consultant fees increased year on year by $2.30 million which is primarily due to one-off professional fees relating to the Cosmos Transaction, IPO and scale up of operations; freight expense increased by $1.35 million representing the increase in property and equipment purchases during the year. The remaining increase in expenses relates to the increase in the scale of business operations during the year.

Share based payments

Share based payments consist of: the value of shares required to be issued to Incentive Compensation Program participants under the Cosmos Transaction Bid Implementation Agreement; and the value of warrants issued to HC Wainwright and W Capital as a fee related to the acquisition by Mawson of Mawson AU. The initial expense was recognized in the financial statements for Mawson AU for the period ended December 31, 2021, however as a result of the conversion from marketable equity securities revaluationoptions to warrants as part of $494,000 which were partially offset by a decrease in loss from convertible loans extinguishmentthe Cosmos Transaction, the Company was required to recognize the incremental expense of $732,000.the W Capital warrants.

Share based payments expenses for the year ended December 31, 2021 and 2020 were $22.49 million and $nil respectively. In the year to December 31, 2021, share based payments were largely attributable to HC Wainwright Warrants $6.18 million, W Capital Warrants of $5.78 million, $10.00 million for amounts related to the obligation of Mawson to issue RSU’s pursuant to the terms of the Bid Implementation Agreement for the Cosmos Transaction and $0.33 million costs recognized in relation long-term incentives for the leadership team.

Depreciation and amortization

Depreciation consists primarily of depreciation of cryptocurrency mining hardware and modular data center (MDC) equipment.

Depreciation and amortization for the year ended December 31, 2021 and 2020 were $14.11 million and $4.62 million, respectively. The increase is primarily attributable to new machines and MDCs which are being procured and have come into the ownership of the Company and the application of the diminishing value method, resulting in a higher depreciation expense in the initial months of mining equipment operation.

Non-operating income/(expense)

Non-operating expenses consist primarily of interest expense, net realized and unrealized losses on foreign currency remeasurement, loss on write-off of property, plant and equipment and share of net loss of associates accounted for using the equity method.

During 2021, the realized and unrealized losses on foreign currency remeasurement were $0.93 million whereas in prior year there was a gain of $0.83 million causing a $1.76 million increased expense in the period. Interest expense increased by $1.64 million attributable to the interest costs charged on the loans taken out with Foundry Digital LLC and Marshall Investments MIG Pty Ltd during the year.

Non-operating income consists primarily of net realized gains on foreign currency transactions and fair value of investments.

Realized gain (losses) on foreign currency transactions increased by $0.84 million in the year and there was a fair value gain on the investment in Bonus Bio Group of $0.59 million. 

Net Lossloss available to Common Shareholders.

As a result of the foregoing, we incurredthe Company recognized a net loss of $3,450,000 for the year ended December 31, 2019 compared to2021 and 2020 of $44.96 million and $5.03 million, respectively.

Non-GAAP Financial Measures

The Company utilizes a net lossnumber of $3,279,000different financial measures, both GAAP and non-GAAP, in analyzing and assessing its overall business performance, for making operating decisions and for forecasting and planning future periods. The Company considers the use of non-GAAP financial measures helpful in assessing its current financial performance, ongoing operations and prospects for the year ended December 31, 2018, an increasefuture. While the Company uses non-GAAP financial measures as a tool to enhance its understanding of certain aspects of its financial performance, the Company does not consider these measures to be a substitute for, or superior to, the information provided by GAAP financial measures. Consistent with this approach, the Company believes that disclosing non-GAAP financial measures to the readers of its financial information provides such readers with useful supplemental data that, while not a substitute for GAAP financial measures, allows for greater transparency in the net lossreview of $171,000its financial and operational performance. Investors are cautioned that there are inherent limitations associated with the use non-GAAP financial measures as an analytical tool. In particular, non-GAAP financial measures are not based on a comprehensive set of accounting rules or 5.2%.principles and many of the adjustments to the GAAP financial measures reflect the exclusion of items that are recurring and will be reflected in the company’s financial results for the foreseeable future. In addition, other companies, including other companies in the Company’s industry, may calculate non-GAAP financial measures differently than the Company does, limiting their usefulness as a comparative tool.

The Company is providing supplemental financial measures for (i) non-GAAP adjusted earnings before interest, taxes, depreciation and amortization, or (“adjusted EBITDA”) that excludes the impact of interest, taxes, depreciation, amortization, share-based compensation expense, LO2A write-back, unrealized gains/losses on share of associates, and certain non-recurring expenses. We believe that adjusted EBITDA is useful to investors in comparing our performance across reporting periods on a consistent basis.

Liquidity and Capital Resources

General

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures. SinceFor the court-approved Creditors Arrangement completed in February 2015, as described below,year ended December 31, 2021, we financed our operations primarily through equity and convertible debt financings in private placements, as described below.through: