OWC Pharmaceutical Research Corp. - Annual Report: 2012 (Form 10-K)

Registrant's Telephone Number, Including Area Code: (972) 3-7523922

On December 31, 2012, the aggregate market value of the 142,182 common stock held by non-affiliates of the Registrant was approximately $11,375 based on the last trade of the Registrants common stock at $0.18 on March 28, 2013. On March 31, 2013, the Registrant had 15,829,450 shares of common stock outstanding.

This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Registrant has based these forward-looking statements on its current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about the Registrant that may cause its actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "would," "expect," "plan," "anticipate," "believe," "estimate," "continue," or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in this Annual Report on Form 10-K and in the Registrant's other Securities and Exchange Commission filings.

We were incorporated in Delaware on March 7, 2008 and are a development stage company engaged in the business of developing equipment covered by a patent (Patent No. 5,497,555). We acquired the patent from Appelfeld Zer Fisher ("AZF"), an Israeli law firm that specializes in intellectual property law including among other things the filing, prosecuting and the commercialization of patents, in a patent transfer and sale agreement dated March 27, 2008 (the "Patent Agreement") for consideration of $17,000. The patent and related technology covers the design and development of an electromagnetic percussion device with a striking piston made of a single monolithic block (the "Patented Device"). Prior to the Patent Agreement with AZF, the Company had not been involved in any similar patent transactions and our management, while having significant business experience, did not have any meaningful experience in technological areas generally or in the field of electromagnets specifically. However, the Company's CFO, a CPA and attorney by training, had served as a consultant to other reporting companies by principally providing SEC reporting and disclosure services. These included companies that had also acquired other patents pursuant to similar patent transfer and sale agreements with AZF, as follows: Crown Dynamics Corp., Dynamic Ventures Corp., Consumer Products Services Group (formerly Global Dynamics Corp.) and Advanced Ventures Corp., all companies with securities registered under Section 12 of the Exchange Act. In addition, we understand that another issuer, Santa Fe Petroleum, Inc. (formerly Baby All Corp.), filed an S-1in 2011 with disclosure that it had acquired a patent from a party other than AZF. The foregoing information was provided to the Company by its CFO/Director, Mr. Asher Zwebner. We are not aware of other public companies that may have been involved in patent acquisition agreements with AZF.

On May 5, 2008, we filed a registration statement on Form S-1 pursuant to which we offered and sold to the public 2,000,000 shares of our common stock at $0.04 per share, resulting in gross proceeds of $80,000 and net proceeds of approximately $60,000. Notwithstanding our successful IPO and a subsequent raise of approximately $200,000 in December 2008, the Company cash resources were applied to a significant extent to executive compensation and consulting fees, without devoting resources to the development of the Patented Device. During the period from December 31, 2008 through September 30, 2009, the Company's cash position was reduced from approximately $130,000 to less that $100 and the Company announced that it had ceased efforts to pursue development of the patent.

The Company became delinquent in its reporting obligations under the Securities Exchange Act of 1934 (the "Exchange Act") by it failure to file its annual report on Form 10-K for its year-ended December 31, 2009, any quarterly reports in 2010 and its Form 10-K for the year-ended December 31, 2010. On July 26, 2011, the Company filed Form 15 to terminate its registration under the Exchange Act.

During 2011, we had discussions with a limited number of unaffiliated persons and shareholders for the purpose of investing in our securities as part of a plan on our part to pursue the development of our Patented Device. As part of the renewed interest in development of our Patented Device with view to its commercial exploitation, we became current with the OTC Markets by filing all requisite reports required by SEC Rule 15c2-11. We have continued to be current under the rules of the OTC Markets and we filed a Form 10/12G to again become a reporting company under the Exchange Act. We are in the comment stage with respect to our Form 10/12G/A.

During 2011 and 2012, we had preliminary discussions together with our investors related to renewing our efforts to develop our Patented Device, which was the reason our investors had a renewed interest in our Company. As a result, we engaged the services of a chief scientific advisor with extensive experience in engineering and electromagentics and in April 2013 we entered into a Development/Manufacturing and Marketing Agreement. See the disclosure under "Third Party Manufacturers," "Employees," "Recent Developments" and "Subsequent Events" below.

From our inception through December 31, 2012, we were unable and, in fact, did not devote any significant efforts to develop, either alone or with third parties, a Prototype of our Patented Device. Notwithstanding the foregoing, our management, which has remained virtually unchanged since inception, continued to believe in the potential of our Patented Device.

Our management's position is that its belief in the Patented Device, notwithstanding the rather lengthy delay in development and its mistaken determination in July 2011 to cease development efforts, was justified based upon its ability to successfully conclude the agreement with GUMI, as described more fully below as well as in its Form 8-K filed with the SEC on March 5, 2013.

Because of our limited financial and personnel resources, our plan since the acquisition of the Patent, has been to rely on third parties to develop a Prototype of the Patented Device and thereafter to contract for the manufacture and marketing of commercial models of our Patented Device. To that end, subsequent to our year ended December 31, 2012, we entered into a distribution agreement with GUMI Tel Aviv Ltd, a major, privately-held Israeli technology company engaged in the manufacture and sale of industrial equipment ("GUMI"). See the discussion under "Subsequent Events" below.

On March 27, 2008, we executed the Patent Agreement with AZF , the owner of the technology, pursuant to which we acquired all right, title and interest in, the Patented Device and the underlying patent, the application for which was filed with the United States Patent and Trademark Office ("USPTO") on December 19, 1994. On April 13, 2008, the patent assignment to the Company was recorded in the USPTO. We understand that no actions were taken with respect to exploitation of the patent from December 1994 through April 2008.

Because our US patent 5,497,555 is based on US application filed Dec. 19, 1994 (i.e. before 08/06/1995), our patent will expire 20 years to application file date of Dec. 19, 1994, or an expiration date of Dec.18, 2014.

There are many companies in the electromagnetic percussion field, including major international manufacturers, having far greater financial and other resources, together with significantly greater operating histories, than the Company. We are not, however, aware of any other company that has developed, manufactured, and/or marketed a device of a similar nature that incorporates a design in which the positions of the electromagnetic coil and electromagnetically active body are reversed.

We believe our patented technology and design incorporated in our Patented Device, should permit us to successfully addresses certain shortcomings of the presently known configurations by providing an electromagnetic percussion machine whose striking piston is made of a single monolithic block of material. The Company believes that its technology is more durable and rugged than previous technologies and/or methods. Notwithstanding the foregoing, in view of the fact that we have not yet produced a working Prototype nor any commercial models of our Patented Device, there can be no assurance that our beliefs about the durability will prove to be correct.

We may be subject to the provisions of the Federal Consumer Product Safety Act and the Federal Hazardous Substances Act, among other laws. These acts empower the CPSC to protect the public against unreasonable risks of injury associated with consumer products. The CPSC has the authority to exclude from the market articles that are found to be hazardous and can require a manufacturer to repair or repurchase such devices under certain circumstances. Any such determination by the CPSC is subject to court review. Violations of these acts may also result in civil and criminal penalties. Similar laws exist in some states and cities in the U.S. and in many jurisdictions throughout the world.

Other than our current officers and directors, and our recently retained chief scientific advisor, Gennady Nickelshpur, we have no other full-time or part-time employees. During the next twelve months, we believe that we may be required to hire a limited number of either full or part-time employees to further our business plan related to our Patented Device as well as retain one or more additional advisors to supplement the efforts of Mr. Nickelshpur. Our hiring plan is dependent upon available financial resources. We expect that when we complete development of our Patented Device, principally with the efforts of Mr. Nickelshpur, the timing of which we cannot assure, and assuming that our resources are sufficient, that we will need to hire up both part-time and full-time employees and scientific advisors for our operations as they grow.

On October 26, 2012, the Company's reverse stock split on a 1:100 basis ("Reverse Split") was implemented and approved by FINRA. In connection with the Reverse Split, the Company also amended its Certificate of Incorporation to reduce its authorized shares of common stock from 20 billion shares, consisting of 19.8 billion shares of common stock and 20 million shares of preferred stock to 520 million shares consisting of 500 million shares of common stock and 20 million shares of preferred stock. While there can be no assurance, the Company believes that its capital structure, as amended, should make investment in our shares of common stock potentially more desirable to investors and the financial community in general.

As of March 31, 2010, the Company was not in compliance with Section 13(a) of the Exchange Act because the Company had failed to file its annual report for the year ended December 31, 2009. Subsequently, the Company failed to file its quarterly reports for the period ended March 31, 2010, June 30, 2010, September 30, 2010, its annual report for the year ended December 31, 2010, its quarterly report for the period ended March 31, 2011 and June 30, 2011. The Company filed a Form 15 on July 27, 2011 to seek suspension of duty to file reports under Section 15(d) of the Exchange Act. At the time the suspension of duty to file reports under Section 15(d) of the Exchange Act became effective, we were not in compliance with the reporting requirements of the Exchange Act. Following the effective date of our registration statement on Form S-1, on May 15, 2008, we had been voluntarily filing Exchange Act reports.

There is currently only a very limited trading market in our shares. There can be no assurance, that an active trading market for our common stock will commence. Further, in the event that an active trading market commences, there can be no assurance as to the market price of our shares of common stock, whether any trading market will provide liquidity to investors, or whether any trading market will be sustained. Nevertheless, we believe that our recently implemented Reverse Split and the amendment to our capital structure, together with our ability to raise capital through loans from our directors, officers and affiliated persons, should make investment in our shares more desirable to investors and to the financial community.

On January 12, 2010, the Company entered into a termination agreement with Green Biofuels Holding Ltd., an Israeli corporation ("GBH"), and Messrs. Shlomo Palas, Samuel Keshet and Eliezer Weinberg (the "Termination Agreement"). Pursuant to the Termination Agreement, the original Cooperation and Partnership Agreement with GBH, dated August 9, 2009, for which the Company paid no consideration, and any rights, title and interest and all obligations and liabilities arising out of or relating to the Carbon Credit Project (as defined in such agreement) were contributed and transferred from the Company to GBH and assumed by GBH and the August 8, 2009 agreement was terminated. At the same date as the Termination Agreement, the Company and Messrs. Shlomo Palas, Samuel Keshet and Eliezer Weinberg (the "Subscribers") terminated the Private Placement Subscription Agreement between the Company and the Subscribers, and the shares, which had never been issued, were effectively cancelled.

On January 15, 2013, the Company entered into a consulting agreement with Gennady Nickelshur to serve as the Company's chief scientific advisor ("CSO"). The agreement with Mr. Nickelshpur provides for cash compensation based upon an hourly rate and the grant to the CSO of options pursuant to an ESOP to be adopted by the board of directors. The terms of the ESOP have yet to be determined. Reference is made to the disclosure under Item 10. "DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSON" below.

On March 5, 2013, the Company and GUMI Tel Aviv Ltd, a major, privately-held Israeli technology company ("GUMI"), entered into development/manufacturing/marketing agreement ("GUMI Agreement"). GUMI is engaged in the manufacture, import/export, marketing and install industrial equipment and designing technical solutions to major Israeli customers, including, among others, the Israeli Defense Forces (IDF), El-Al Airlines, major Israeli Aerospace companies, as well as foreign industrial customers. Further, GUMI recently entered into a Joint Venture with a large Indian industrial company to build a factory in India to manufacture specially designed pipes for the aviation industry. GUMI has eight operating subsidiaries, approximately 200 full-time employees, more than 100 sub-contractors, and is among Israel's largest manufacturers and distributors of industrial equipment.

Pursuant to the GUMI Agreement, GUMI agreed to: (i) complete the development of the Prototype of the Patented Device; (ii) manufacture the commercial model(s) of the Patented device; and (iii) market the commercial model(s) of the Patented Device.

In consideration for developing the Prototype and manufacturing and marketing/distributing commercial models of the Patented Device as well as incurring all related costs and expenses in connection therewith, the Company shall compensate GUMI as follows: (i) upon the execution of the GUMI Agreement, the Company granted GUMI warrants (the "Warrants") exercisable to purchase 200,000 shares of the Company's common stock ("Warrant Shares") at an exercise price of $0.05 per share (the "Exercise Price"); (ii) upon completion of the Prototype, granting GUMI additional Warrants to purchase 200,000 additional Warrant Shares at the Exercise Price; and (iii) upon completion of a Commercial Device ready for manufacture and sale, granting GUMI additional Warrants to purchase 200,000 additional Warrant Shares at the Exercise Price. The Warrants shall expire 3 years from the date of each grant and shall be subject to adjustment in the event of any recapitalization of the Company's capital stock.

In addition to the consideration represented by the grant of Warrants, the Agreement further provides that following commencement of sale of the Commercial Device and until such time that GUMI has recouped all costs and expenses that it has incurred and paid in connection with the completion of development of the Prototype and the manufacture of the Commercial Device ("Date of Recoupment"), one hundred (100%) percent of the net sales revenues shall be paid and distributed to GUMI. On and after the Date of Recoupment, net sales revenues shall be paid sixty-five (65%) percent to GUMI and thirty-five (35%) percent to the Company.

We were informed by GUMI on April 4, 2013 that it has made significant progress toward completion of the development of the Prototype. GUMI has further informed us that it identified and is negotiating with an engineer with extensive R&D experience to lead the development project in order to expedite their efforts to produce a working Prototype. Gumi also reported that as soon as the engineer is engaged, they expect that they will be able to present us with commercial models of our Patented Device within approximately 12 to 16 weeks. As a result, it is our hope and expectation that we will have commercial models available for sale during 2013.

Reference is made to the Company's Form 8-K filed with the SEC on March 7, 2013 to which the GUMI Agreement is attached as an exhibit 10.3.

We are subject to all of the risks inherent in the establishment and growth of a development stage business. We were established on March 6, 2008, for the purpose of engaging in the development, manufacture, and sale of our Patented Device. While we have not generated any revenues nor have we realized a profit from our operations to date, we believe that our recent ability to raise capital from affiliated persons should enhance our ability to raise equity capital from potential third-party investors so as to permit us to complete development of our business plan, which includes completing a Prototype of our Patented Device. There can be no assurance that we will be able to generate any significant revenues or profitability, if at all, from our Patented Device. Accordingly, our prospects must be considered in light of the risks, expenses and difficulties frequently encountered in growing a development stage business in our industry and, as a result, our Company is a highly speculative venture involving significant financial risk.

To date we have not generated revenues from our Patented Device business. Our Patented Device is not currently available for sale, and we are dependent upon GUMI for its continued development. We expect to incur operating losses over the next twelve months and until GUMI is successful in developing a working Prototype of our Patented Device. We recognize that if we are unable to generate revenues, we may not be able to continue operations. There can be no assurance that we will generate any operating revenues or ever achieve profitable operations.

We have limited cash resources to fund our administrative and operating expenses for the next twelve months. be dependent upon GUMI Because we do not expect to have any cash flow from operations within the next twelve months, we will need to raise additional capital, which may be in the form of loans from current stockholders and/or through the issuance of restricted shares to investors. Our ability to access capital will depend on our success in implementing our business plan. It will also depend upon the status of the capital markets at the time such capital is sought. Should sufficient capital not be available, the implementation of our business plan could be delayed and, accordingly, the implementation of our business strategy would be adversely affected. If we are unable to raise additional funds in the future, we may have to cease all substantive operations. In such event it would not be likely that investors would obtain a profitable return on their investment or a return of their investment at all.

Our audited financial statements for the period from March 7, 2008 (inception) through December 31, 2012, were prepared using the assumption that we will continue our operations as a going concern. We were incorporated on March 7, 2008, and do not have a history of earnings. As a result, our independent accountants in their audit report have expressed substantial doubt about our ability to continue as a going concern. Continued operations are dependent on our ability to complete equity or debt financing activities or to generate profitable operations. Such capital formation activities may not be available or may not be available on reasonable terms. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. There is not enough cash on hand to fund our administrative expenses and operating expenses or our proposed research and development program for the next twelve months. Therefore, we may be unable to continue operations in the future as a going concern. If we cannot continue as a viable entity, our stockholders may lose some or all of their investment in the Company's shares of common stock.

The revenue and income potential of our Patented Device is unproven to date. We have only a very limited operating history which makes it difficult to evaluate the future prospects of our business. While our management and principal shareholders purchased restricted shares of common stock during 2012, there can be no assuance that our business operations will prove to be successful is correct or that affiliates will continue to invest in the Company. We continue to be dependent upon funding from affiliated persons/principal shareholders and officers. Accordingly, there is only a limited basis upon which potential investors would be able to assess the likelihood that we will be successful in implementing our business plan, or if initially successful, in thereafter generating any operating revenues or in achieving profitable operations.

Subsequent to our year ended December 31, 2012, we entered into the GUMI Agreement for the development, manufacture and sale of our Patented Device, which resulted in the completion of the non-working Prototype., We are completely dependent upon GUMI's success in being able to develop a working Prototype and thereafter being able to manufacture and distribute models of a commercially viable Patented Device. If the implementation of our Agreement with GUMI does not develop in a timely economically satisfactory economic manner, or if GUMI is not successful in creating a meaningful market for our Patented Device, GUMI may determine not to devote substantial economic and personnel resources to the manufacture and marketing of our Patented Device. If GUMI, for any reason, fails to perform, we could experience significant time delays or we may be unable to commercialize or continue our business plan.

The electromagnetic percussion system industry is very competitive and although we believe our technology offers unique development opportunities, we cannot guarantee that these features we believe to be unique are enough to effectively capture a significant enough market share to successfully launch our product or sustain any market that GUMI may be able to generate. Most of our competitors, assuming GUMI is successful in developing, manufacturing and marketing models of our Patented Device, have longer operating histories, significantly greater resources and name recognition, and a larger base of distributors and customers than we have, notwithstanding the significant role that GUMI will have. As a result, these competitors have greater name credibility with our potential distributors and customers. Our competitors also may be able to adopt more aggressive pricing policies and devote greater resources to the development, promotion, and sale of their products and services than we can to ours. To be competitive, we must continue to invest significant resources in research and development, sales and marketing, and customer support. We may not have sufficient resources to make these investments or to develop the technological advances necessary to be competitive, which in turn will cause our business to suffer and restrict our profitability potential.

We have contracted with GUMI Tel Aviv Ltd to complete development of a working Prototype and to manufacture and sell models of our Patented Device. Our future revenue growth, if any, will depend in large part on the success of GUMI's efforts. In the event that GUMI is not successful in fulfilling any part of their obligations under our Agreement, or if our Patented Device products do not develop a market that GUMI deems satisfactory to recoup its costs and generate a profit, we may not be able to secure any other manufacturing and distribution relationship with third parties. Our failure to maintain our distribution channels, the loss of our distribution relationship with GUMI, or a decline in the efforts of a material reseller or distributor could prevent us from generating sufficient revenues to become profitable, which would have a material adverse effect on the Company.

We are a development stage company and, utilizing the services and expertise of GUMI, we intend to manufacture, market, and sell commercial models of our Patented Device, an electromagnetic percussion system. Our current directors and officers have effective control over all decisions regarding both policy and operations of our Company with no oversight from other persons. Because of the limited experience, our board of directors has negotiated an agreement with Mr. Gennady Nickelshpur to serve as our chief scientific advisor. Our success is contingent upon the ability of Mr. Nickelshpur and other specialists to work with our management team to make appropriate business decisions in these areas. However, our directors and officers alone have no experience in operating a company that develops or sells electromagnetic percussion systems and otherwise have limited experience in technology. It is possible that this lack of relevant operational experience could prevent us from becoming a profitable business and hinder an investor from obtaining a return on his investment in us.

Our directors and officers are only engaged in our business activities on a part-time basis. This could cause the officers a conflict of interest between the amount of time they devote to our business activities and the amount of time required to be devoted to their other activities. Our current directors and officers, intend to devote only approximately 5 hours per week to our business activities. Any increase in business activities may require that either our directors or officers engage in our business activities on a full-time basis or that we hire additional employees in addition to our chief scientific advisor; however, at this time, we have only limited resources to pursue these options.

Because our US patent is based on an application filed Dec. 19, 1994, our patent expires 20 after the filing date - or. Dec.18, 2014. As a result, our patent only remains in full force and effect until December 18, 2014, which gives us only a relatively limited amount of time to commercially exploit our Patented Device. While we will explore the possibility if there is any unless by working with GUMI on any enhanced development there is a basis to file for either extending the existing patent or obtaining a new "use" patent or other means of extension, of which there can be no assurance.

We regard our current and future intellectual property as important to our success, and we rely on patent law to protect our proprietary rights, despite the fact that our patent expires in approximately 19 months from the date of this annual report. As a result, our intellectual property protection may not be adequate. Further, unauthorized third parties may copy certain portions of our product or reverse engineer or obtain and use information that we regard as proprietary. There can be no assurance that our intellectual property rights can be successfully asserted in the future or that they will not be invalidated, circumvented or challenged. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the United States. Our means of protecting our proprietary rights in the United States or abroad may not be adequate and competitors may independently develop similar technology. Any failure to protect our proprietary information and any successful intellectual property challenges or infringement proceedings against us could have a material adverse affect on our business, financial condition, or results of operations.

Our success will also depend in part on our ability to develop a commercially viable product without infringing the proprietary rights of others. Although we have not been notified of any infringement claims, other patents could exist or could be filed which would prohibit or limit our ability to develop and market our electromagnetic percussion system in the future. In the event of an intellectual property dispute, we may be forced to litigate. Intellectual property litigation would divert management's attention from developing our product and would force us to incur substantial costs regardless of whether or not we are successful. An adverse outcome could subject us to significant liabilities to third parties, and force us to cease operations.

Our electromagnetic percussion device being developed by GUMI may expose us to potential liability from personal injury or property damage claims by end-users of the product. We currently have no product liability insurance to protect us against the risk that in the future a product liability claim or product recall could materially and adversely affect our business, to the extent that we are not covered by insurance that GUMI maintains at present or in the future. Inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of our product. We cannot assure you that when we commence distribution of our product that we will be able to obtain or maintain adequate coverage on acceptable terms, if necessary, or that such insurance will provide adequate coverage against all potential claims.

Our certificate of incorporation authorizes the issuance of 500,000,000 shares of common stock, par value $0.00001 per share and 20,000,000 preferred shares. The future issuance of all or part of our remaining authorized common stock may result in substantial dilution in the percentage of our common stock held by our then existing stockholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for our common stock.

We are currently a “smaller reporting company,” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year. In the event that we are still considered a “smaller reporting company,” at such time are we cease being an “emerging growth company,” the disclosure we will be required to provide in our SEC filings will increase, but will still be less than it would be if we were not a “smaller reporting company.” Specifically, “smaller reporting companies” are permitted to provide more simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes Oxley Act of 2002 ("SOX") requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; are not required to conduct say-on-pay and frequency votes until annual meetings occurring on or after January 21, 2013; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports, rather than three years.  Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze the Company’s results of operations and financial prospects.

The SEC has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a person's account for transactions in penny stocks; and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must: (i) obtain financial information and investment experience objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Security and Exchange Commission relating to the penny stock market, which, in highlight form: (i) sets forth the basis on which the broker or dealer made the suitability determination; and (ii) that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

If there is a shareholder meeting, as a consequence of the controlling shareholder’s significant equity interest, the controlling shareholder has certain discretion regarding proposals submitted to a vote by shareholders. As a result, the controlling shareholder has the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of our assets. In addition, the controlling shareholder has the ability to control the appointment of management and therefore the business affairs of the Company. Additionally, in the event that the controlling shareholder controls the Company at the time of his death, control may be transferred to a person or entity that he designates as his successor. As controlling stockholder, Mr. Shenker is entitled to vote his shares in his own interests, which may not always be in the interests of our stockholders generally.

From August 20, 2008 through April 26, 2010, our common stock was subject to quotation on the FINRA BB under the symbol “DYAP.” As a result of our failure to remain current in filing our quarterly report for the period ended March 31, 2010 and subsequent delinquency in fulfilling our reporting requirements, our common stock became subject to quotation on the OTC market. In April 2012, the Company began to become current with the OTC Markets and since that time there has been a limited trading market for the common stock. There can be no assurance that there will be an active trading market for the common stock if and when the Company becomes a reporting company under the Exchange Act. In the event that an active trading market commences, there can be no assurance as to the market price of the shares of common stock, whether any trading market will provide liquidity to investors, or whether any trading market will be sustained.

We do not expect to pay dividends for the foreseeable future because we have no revenues. The payment of dividends will be contingent upon our future revenues and earnings, if any, capital requirements and overall financial condition. The payment of any future dividends will be within the discretion of our board of directors. It is our expectation that management will determine to retain any earnings for use in business operations and accordingly, we do not anticipate declaring any dividends in the foreseeable future.

The Company received a comment letter dated February 28, 2013 related to its registration statement on Form 10-12g/A (file no. 000-54856) filed on February 13, 2013. The Company is in the process of preparing an amendment to it Form 10-12g/A in response to the comments from the SEC.

The Company’s corporate office is located at the offices of Terra Holdings, 14 Menachem Begin Street, Ramat Gan, Israel. Terra Holdings is a company owned and controlled by Mr. Gonen, the Company’s chairman, and provides this office space, consisting of approximately 100 square feet, to the Company on a rent-free basis. The Company believes that these facilities are sufficient for the near future.

None.

Not Applicable.

PART II