UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended:December 31, 2012
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number:000-54394
Online Disruptive Technologies, Inc.
(Exact name of registrant as specified in its charter)
| Nevada | 27-1404923 |
| State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization | Identification No.) |
3120 S. Durango Dr. Suite 305, Las Vegas, Nevada 89117
(Address of principal executive offices and Zip Code)
Registrant’s telephone number, including area code:702-579-7900
N/A
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act
| Title of each class | Name of Exchange on which registered |
Securities registered pursuant to Section 12(g) of the Act
Common Stock, no par value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ] Yes [X] No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
[ ] Yes [X] No
Note -Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15 (d) of the Exchange Act from their obligations under those sections.
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.
[X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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).
[X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ] | |
| Non-accelerated filer [ ] | (Do not check if a smaller reporting company) | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
[ ] Yes [X] No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.
As of June 30, 2012, the last business day of the registrant’s most recently completed second fiscal quarter the aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant was approximately $30,500, based on 30,550,100 common shares held by non-affiliates and last sale prior to June 30, 2012 being $0.001 per share.
Note.—If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under the circumstances, provided that the assumptions are set forth in this Form.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
82,636,433 shares of common stock as at March 25, 2013.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).
Not Applicable
TABLE OF CONTENTS
PART I
This annual report on Form 10-K contains forward-looking statements. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. Forward-looking statements made in this Form 10-K include statements about:
- our marketing plan;
- our anticipation that future broad clinical trial studies encompassing larger populations of cancer patients with varying cancers should reveal the full potential of the existing developed strategy;
- our plans to hire industry experts and expand our management team;
- our beliefs regarding the future of our competitors;
- our belief that there is a large unmet need in cancer diagnostics exists in early diagnosis; accurate diagnosis,
- our belief that there is a need in this segment for an easier blood-based test that will increase compliance and minimize discomfort;
- our anticipated development schedule;
- our expectation that the demand for our products will eventually increase; and
- our expectation that we will be able to raise capital when we need it.
These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” and the risks set out below, any of which may cause our or our industry’s 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 these forward-looking statements. These risks include, by way of example and not in limitation:
- general economic and business conditions;
- our ability to identify attractive products and negotiate their acquisition or licensing;
- our ability to effectively develop and market products that we acquire or license;
- volatility in prices for our products;
- risks inherent in the pharmaceutical industry;
- competition for, among other things, capital, pharmaceutical products and skilled personnel; and
- other factors discussed under the section entitled “Risk Factors”,
any of which may cause our or our industry’s 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 these forward-looking statements.
While these forward-looking statements and any assumptions upon which they are based are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
As used in this annual report on Form 10-K and unless otherwise indicated, the terms “we”, “us” and “our” refer to Online Disruptive Technologies Inc. and our subsidiary, Savicell Diagnostic Ltd., an Israeli corporation (the “Subsidiary” or “Savicell”). Unless otherwise specified, all dollar amounts are expressed in United States dollars.
ITEM 1. BUSINESS
Corporate Overview
We were incorporated in the State of Nevada on November 16, 2009 under the name “Online Disruptive Technologies, Inc.” with authorized capital of 500,000,000 shares of common stock with a par value of $0.001 per share and 20,000,000 shares of preferred stock with a par value of $0.001 per share. On March 24, 2010, we entered into a share purchase agreement with Benjamin Cherniak, whereby we acquired all of the issued and outstanding shares of RelationshipScoreboard.com Entertainment, Inc. in consideration for the issuance of 16,000,000 of our common shares. RSE was incorporated in the State of Nevada on November 16, 2009. There were no related party interests in the acquisition of RelationshipScoreboard.com Entertainment, Inc.
1
Effective November 21, 2011, we entered into a mineral property acquisition agreement (the “Agreement”) with Minera Del Pacifico, S.A. (“Minera”), whereby Minera agreed to sell us a 100% interest to exploit and commercialize the Muluncay concession (the “Property”) for a period of twenty years in exchange for 10,000,000 shares of our common stock. The Property covers an area of 374 hectares and is in the centre of the Portovelo-Zaruma mining camp, which is found in the cantons of Ayapamba and Paccha, Province of El Oro, southern Ecuador. Closing of the Agreement will occur three business days after we deliver notice to Minera of our intention to close. We have terminated the Agreement and will not be proceeding with the acquisition of the Property.
Pursuant to a license agreement and research funding agreement (the “License Agreement”) dated July 24, 2012 but entered into on July 25, 2012 executed by our Subsidiary and Ramot at Tel Aviv University Ltd. (“Ramot”), a private company incorporated in the State of Israel and having a place of business at 5 Shenker Street, Herzlia, Israel, our Subsidiary was granted a license to certain patented technology relating to the early detection of diseases by measuring metabolic activity in the immune system (the “Technology”). For a description of the patents relating to the Technology, please see “Business Intellectual Property”.
The products (the “Products”) means any instrument, device, process, method, product, component, or system that contain or is based on, in whole or in part, the Technology.
As consideration for the worldwide exclusive license of the Products, our Subsidiary will pay, issue and fund the following to Ramot:
| (a) | a royalty (the “Royalty”) on worldwide net sales of the Products by our company and its affiliates or sublicensee; | |
| (b) | a minimum annual royalty, credited against the Royalty; | |
| (c) | percentages of all payments received in connection with a sublicense (“Sublicense Receipt”); | |
| (d) | issue warrants (the “Warrants”) to purchase, for nominal consideration, the number of common shares of the Subsidiary such that Ramot holds a minority interest in the Subsidiary; and | |
| (e) | fund research expenditures for the research of the Technology. |
After the entry into of the License Agreement, we are focused on the development of Savicell.
Our Current Business
On July 25, 2012, the Subsidiary entered a License Agreement with Ramot, whereby the Subsidiary was granted a license relating to the commercialization of the Products.
Savicell
Savicell uses a revolutionary diagnostic platform that is positioned initially in the cancer diagnostic market. The technology uses blood samples to rapidly measure the body's response to disease intrusion and cell malformation. The immune system is the first to “read” cancer and Savicell interprets the language of the immune system’s response.
Savicell technology is a ground-breaking, high-throughput, in-vitro test for rapid quantitative measurement of the metabolic activity of the cell populations that the body deploys to diagnose disease. Initial application will focus on cancer diagnostics using blood samples. The Savicell patent pending approach maps the different metabolic response profiles as a method for early diagnosis and staging.
2
The immune system is designed to detect disease intrusion and cell malformation in our bodies, which includes cancer, and to eliminate them. In reaction to the presence of cancer the immune system is energized to respond. The initial reaction is intricate, deploying different metabolic pathways and different subtypes of cells. It is these differential responses that Savicell technology powerfully detects. The immune system is the first to “read” cancer and Savicell interprets the language of the immune system’s response.
The clinical results obtained show the capability to simply and rapidly diagnose cancer in a preliminary large population of cancer patients in comparison to a control healthy group. We anticipate that future broad clinical trial studies involving larger populations of cancer patients with varying cancers should reveal the full potential of the existing developed strategy.
Obviously, many more tests are required in order to construct a meaningful and significant diagnostic classification. However, what is revealed to date is a major clear-cut shift of immune system metabolic activity pathways from oxidative phosphorylation to aerobic glycolysis between healthy patients and those with various cancer types.
Cancer Diagnostic Market
Cancer cases are increasing, with more than 20 million new cases predicted in 2025, compared to 12 million in 2008. (WHO) The worldwide in-vitro diagnostic market is estimated at $44 billion, growing 8% annually Market reseach.com press release Feb 7, 2012 – Yahoo Finance). The cancer diagnostic market is estimated at $8 billion annually and is the fastest growing segment (Kalorama Information Inc. news release March 12, 2008).
Cancer drug and diagnostic markets have grown impressively, driven by expanding patient populations and technological advances, especially in biomolecular medicine. Current treatments are better tolerated and more effective. The introduction of innovative products on the market is expected to continue and to drive double-digit annual growth. Helping to expand the treated patient population, 25 to 30 new anti-cancer agents are expected to be approved for a variety of new indications. (IMS Health Forecasts, Biopharma Forecasts & Trends). Expanding treatment options will further enhance growth of diagnostic products for monitoring treatment response, recurrence, and improved typing/staging. These enhanced treatment options will also accelerate market growth of companion diagnostics by linking sales of diagnostics to therapeutics (Dx-Rx model.). In 2010 alone 25 companion diagnostics partnerships with pharma were established (pwc Diagnostics 2011(PricewaterhouseCoopers LLP)).
Product innovations in cancer molecular diagnostics with biomarker discoveries have enhanced patient outcomes and helped drive market growth. However, the difficulty of discovering new bio-markers remains a significant limiting factor to growth. Importantly, the diagnostic efficacy of bio-markers in detecting cancer cells may be greater at relatively advanced stages of the disease, where the cancer growth is more pronounced.
We believe a significant and very large unmet need in cancer diagnostics exists in early diagnosis; accurate diagnosis, especially where technique-based biopsy limits accuracy; staging; diagnosis confirmation; recurrence and treatment monitoring; and tissue of origin diagnosis.
Early detection is very important because it can improve outcomes dramatically. Typically, more treatment options are available when diagnosed early and the resulting survival rates improve. Survival rate improves by at least four times when cancer is diagnosed early and before it has spread. (American Cancer Society) Key issues with current early diagnosis tests include low sensitivity, low specificity, discomfort (e.g., colonoscopy), exposure to radioactivity, and cost.
The early diagnosis market can be divided into 2 broad segments. One is cancers with commercialized diagnostic tests. These generate multibillion dollars that are significantly supported by the existence of guidelines. Breast and colon cancers are examples, with guidelines for mammograms yearly and colonoscopies every 5 to 10 years. There are 14.5 million annual screening tests for colon cancer in the USA (Anesth Analg 2008;106:434 –9). There are estimated at 40 million mammograms annually (FDA news release Feb. 11, 2011). We believe that there is a need in this segment for an easier blood-based test that will increase compliance and minimize discomfort.
3
The second segment is comprised of cancers that lack early diagnostic solutions. For example, lung and ovarian cancers do not have good screening tests and we believe represent a new market. Organizations that determine guidelines already support a screening regimen for ovarian cancer. So, once a reliable test is developed, market adaptation should be faster because the need has already been recognized. According to the American Cancer Society, it and "other health organizations, and ovarian cancer advocacy groups encourage additional research to develop an accurate and valid test for early detection of ovarian cancer."
Development
The following is our anticipated development schedule:
Stage 1 - 0-6 months: Lab set up to expand the laboratory capability to enhance the sample processing capacity. This includes the purchasing of additional lab equipment and the recruitment of lab workers and company personnel required to analyze more samples. This stage has been substantially accomplished with Savicell having met the research and development expenditure requirements set forth in the License Agreement.
Stage 2 - 6-12 months: Solidify preliminary results. This includes optimization of the reagent matrix for the metabolic profile (MA) identification of breast and lung cancer and optimization of data mining algorithm. Based on results, a decision will be made if we continue to stage 3 or adjust the plan based on the research findings.
Stage 3 –12-27 months: Verifying data on more patients: we anticipate concentrating on increasing the patient population and the number of test essays to a total of 1,100 patients.
Marketing Strategy
The Savicell innovation is revolutionary and highly differentiated in the diagnostic market. While immunotherapy of cancer is under intensive clinical research, virtually no attention is paid to the immense potential buried within immune-based diagnostics. Importantly, unlike biomarkers, Savicell technology is well suited for early detection.
Our overall strategy is to initially focus on developing and launching diagnostic tests in cancers where large screening markets exist, like breast cancer, and in markets with a large potential and identified need like lung cancer.
Competition
The diagnostic, pharmaceutical and biopharmaceutical industry is characterized by intense competition and rapid and significant technological changes and advancements. Many companies, research institutions and universities are doing research and development work in a number of areas similar to those that we focus on that could lead to the development of new products which could compete with and be superior to our product candidates. Most of the companies against which we will compete have substantially greater financial, technical, manufacturing, marketing, distribution and other resources than those of ours. A number of these companies may have or may develop technologies for developing products for treating various diseases that could prove to be superior to ours. We expect technological developments in the diagnostic, pharmaceutical and biopharmaceutical and related fields to occur at a rapid rate, and we believe competition will intensify as advances in these fields are made. Accordingly, we will be required to continue to devote substantial resources and efforts to research and development activities in order to potentially achieve and maintain a competitive position in this field. Products that we develop may become obsolete before we are able to commercialize them or to recover all or any portion of our research and development expenses. We will be competing with respect to our products with companies that have significantly more experience in undertaking preclinical testing and human clinical trials with new or improved diagnostic and therapeutic products and obtaining regulatory approvals of such products. A number of these companies already market and may be in advanced phases of clinical testing of various drugs that may compete with our lead product candidate or any future product candidates. Our competitors may develop or commercialize products more rapidly than we do or with significant advantages over any products we develop. Our competitors may therefore be more successful in commercializing their products than we are, which could adversely affect our competitive position and business.
Exact Sciences Corporation is a molecular diagnostics company focused on the early detection and prevention of colorectal cancer. It has an exclusive intellectual property protecting its non-invasive, molecular screening technology for the detection of colorectal pre-cancer and cancer.
4
Research and Development Expenditures
Since the consummation of the License Agreement in July of 2012, Savicell has expended $831,453 in furtherance of its research and development activities. In addition, for accounting purposes, the issuance of the Warrants to Ramot, which have been valued at $2,998,682, has been classified as an additional research and development expense for purposes of the year ended December 31, 2012. Accordingly, the financial statements for the year ended December 31, 2012 reflect an aggregate research and development expense of $3,830,135. We did not have any research and development expenses for the year ended December 31, 2011.
Employees
We currently have three employees located in Boston, Massachusetts and Israel. In addition, we have two consultants engaged on continuous mandates. Over the next six months we plan to increase the number of employees we have to 9 with an almost equal split between the Boston and Israel locales. Most of our research will be carried out under contract with outside parties for the first year.
Subsidiaries
On April 23, 2012, we incorporated Savicell Diagnostic Ltd., a company governed by the laws of Israel.
Intellectual Property
In order to protect our proprietary technologies, we rely on combinations of patent, trademark, copyright, and trade secret protection, as well as confidentiality agreements with employees, consultants, and third parties.
We have patents pending filed by the University in the biotechnology space. Specifically, the patents relate to technology based on the early detection of diseases, including cancer, by measuring the metabolic activity in the immune system. The immune system is the first to read the disease and the Savicell methodology is designed to monitor the reaction of the immune system to interpret the threats that it perceives.
Government Regulations
Certain of our activities may be subject to regulatory oversight by the FDA under provisions of the Federal Food, Drug, and Cosmetic Act and regulations thereunder, including regulations governing the development, marketing, labeling, promotion, manufacturing and export of diagnostic products. Failure to comply with applicable requirements can lead to sanctions, including withdrawal of products from the market, recalls, refusal to authorize government contracts, product seizures, civil money penalties, injunctions and criminal prosecution. Certain of our activities may be subject to establishment of Clia ’88 certification. We also may be subject an EC certification process, frequently shorthanded as “CE Mark” under the IVDD 98/79/EC
U.S. Food and Drug Administration
The Food, Drug and Cosmetic Act requires that medical devices introduced to the U.S. market, unless otherwise exempted, be subject to either a premarket notification clearance, known as a 510(k), or a premarket approval (PMA). The PMA process involves providing extensive data to the FDA to allow the FDA to find that the device is safe and effective for its intended use, which may also include providing additional data and updates to the FDA, the convening of expert panels, inspection of manufacturing facilities, and new or supplemented PMAs if the product is modified during the process. Even if granted, a 510(k) or PMA approval may place substantial restrictions on how a device is marketed or sold, and the FDA will continue to place considerable restrictions on products, including but not limited to registering manufacturing facilities, listing the products with the FDA, complying with labeling requirements, and meeting reporting requirements. We believe obtaining FDA clearance or approval for our test is critical to building broad demand and successful commercialization for our products. We believe that the studies required in connection with any approval or clearance of our technology, regardless of whether the regulatory pathway is the 510(k) process or a PMA, will be material in cost and time-intensive. There can be no assurance that the FDA will ultimately approve any 510(k) request or approve any PMA submitted by us in a timely manner or at all.
5
ITEM 1A. RISK FACTORS.
An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this prospectus in evaluating our company and our business before purchasing shares of our common stock. Our business, operating results and financial condition could be seriously harmed as a result of the occurrence of any of the following risks. You could lose all or part of your investment due to any of these risks. You should invest in our common stock only if you can afford to lose your entire investment.
Risks Related to Our Company
The worldwide economic downturn may reduce our ability to obtain the financing necessary to continue our business and may reduce the number of viable products and businesses that we may wish to acquire. If we cannot raise the funds that we need or find a suitable product or business to acquire, we may go out of business and investors will lose their entire investment in our company.
Since 2008, there has been a downturn in general worldwide economic conditions due to many factors, including the effects of the subprime lending and general credit market crises, slower economic activity, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions, increased unemployment and liquidity concerns. In addition, these economic effects, including the resulting recession in various countries and slowing of the global economy, will likely result in fewer business opportunities as companies face increased financial hardship. Tightening credit and liquidity issues will also result in increased difficulties for our company to raise capital for our continued operations. We may not be able to raise money through the sale of our equity securities or through borrowing funds on terms we find acceptable. If we cannot raise the funds that we need or find a suitable product or business to acquire, we will go out of business. If we go out of business, investors will lose their entire investment in our company.
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern.
We have not generated any revenue from operations since our incorporation. We expect that our operating expenses will increase over the next 12 months as we ramp-up our business. We estimate our average monthly expenses over the next 12 months to be approximately $87,500, including general and administrative expenses but excluding acquisition costs and the cost of any research expenditures. In addition, we anticipate expending $2,500,000 in aggregate product development costs. On March 22, 2013, we had cash and cash equivalents and commitments of approximately $655,784. As of March 22, 2013, excluding liabilities for subscription proceeds received by Savicell that will imminently be formalized as contributed equity, we had total debt of approximately $151,299. If we are unable to meet our debt service obligations and other financial obligations, we could be forced to restructure or refinance, seek additional equity capital or sell our assets. We might then be unable to obtain such financing or capital or sell our assets on satisfactory terms
We may need to raise additional funds in the future which may not be available on acceptable terms or at all.
We may consider issuing additional debt or equity securities in the future to fund potential acquisitions or investments, to refinance existing debt, or for general corporate purposes. If we issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. If we incur additional debt, it may increase our leverage relative to our earnings or to our equity capitalization, requiring us to pay additional interest expenses. We may not be able to market such issuances on favorable terms, or at all, in which case, we may not be able to develop or enhance our products, execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated customer requirements.
We are an early-stage company with a limited operating history, which may hinder our ability to successfully meet our objectives.
We are an early-stage company with only a limited operating history upon which to base an evaluation of our current business and future prospects. As a result, the revenue and income potential of our business is unproven. In addition, because of our limited operating history, we have limited insight into trends that may emerge and affect our business. Errors may be made in predicting and reacting to relevant business trends and we will be subject to the risks, uncertainties and difficulties frequently encountered by early-stage companies in evolving markets. We may not be able to successfully address any or all of these risks and uncertainties. Failure to adequately do so could cause our business, results of operations and financial condition to suffer.
6
Because our directors and officers are not all residents of the United States, investors may find it difficult to enforce, within the United States, any judgments obtained against our directors and officers.
Our directors and officer are not all residents of the United States, and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against our directors and officers, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.
If we are unable to successfully recruit and retain qualified personnel, we may not be able to continue our operations.
In order to successfully implement and manage our business plan, we will depend upon, among other things, successfully recruiting and retaining qualified personnel having experience in the pharmaceutical industry. Competition for qualified individuals is intense. We may not be able to find, attract and retain qualified personnel on acceptable terms. If we are unable to find, attract and retain qualified personnel with technical expertise, our business operations could suffer.
Future growth could strain our resources, and if we are unable to manage our growth, we may not be able to successfully implement our business plan.
We hope to experience rapid growth in our operations, which will place a significant strain on our management, administrative, operational and financial infrastructure. Our future success will depend in part upon the ability of our executive officers to manage growth effectively. This will require that we hire and train additional personnel to manage our expanding operations. In addition, we must continue to improve our operational, financial and management controls and our reporting systems and procedures. If we fail to successfully manage our growth, we may be unable to execute upon our business plan.
Risks Relating to our Operations in Israel
Conditions in Israel and the surrounding Middle East may materially adversely affect our Subsidiary’s operations and personnel.
Our Subsidiary has significant operations in Israel, including research and development. Since the establishment of the State of Israel in 1948, a number of armed conflicts and terrorist acts have taken place, which in the past, and may in the future, lead to security and economic problems for Israel. In addition, certain countries in the Middle East adjacent to Israel, including Egypt and Syria, recently experienced and some continue to experience political unrest and instability marked by civil demonstrations and violence, which in some cases resulted in the replacement of governments and regimes. Current and future conflicts and political, economic and/or military conditions in Israel and the Middle East region may affect our operations in Israel. The exacerbation of violence within Israel or the outbreak of violent conflicts involving Israel may impede our Subsidiary’s ability to engage in research and development, or otherwise adversely affect its business or operations. In addition, our Subsidiary’s employees in Israel may be required to perform annual mandatory military service and are subject to being called to active duty at any time under emergency circumstances. The absence of these employees may have an adverse effect on our Subsidiary’s operations. Hostilities involving Israel may also result in the interruption or curtailment of trade between Israel and its trading partners, which could materially adversely affect our results of operations.
The ability of our Subsidiary to pay dividends is subject to limitations under Israeli law and dividends paid and loans extended by our Subsidiary may be subject to taxes.
The ability of our Subsidiary to pay dividends is governed by Israeli law, which provides that dividends may be paid by an Israeli corporation only out of its earnings as defined in accordance with the Israeli Companies Law of 1999, provided that there is no reasonable concern that such payment will cause such subsidiary to fail to meet its current and expected liabilities as they come due. Cash dividends paid by an Israeli corporation to United States resident corporate parents are subject to provisions of the Convention for the Avoidance of Double Taxation between Israel and the United States, which may result in our Subsidiary having to pay taxes on any dividends it declares.
7
Risks Relating to the Pharmaceutical Business
If we are unable to successfully acquire, develop or commercialize new products, our operating results will suffer.
Our future results of operations will depend to a significant extent upon our ability to successfully develop and commercialize new products and businesses in a timely manner. There are numerous difficulties in, developing and commercializing new products, including:
- there are still major developmental steps required to bring the product to a clinical testing stage;
- clinical testing may not be positive;
- developing, testing and manufacturing products in compliance with regulatory standards in a timely manner;
- failure to receive requisite regulatory approvals for such products in a timely manner or at all;
- developing and commercializing a new product is time consuming, costly and subject to numerous factors, including legal actions brought by our competitors, that may delay or prevent the development and commercialization of new products;
- incomplete, unconvincing or equivocal clinical trials data;
- experiencing delays or unanticipated costs;
- significant and unpredictable changes in the payer landscape, coverage and reimbursement for our products;
- experiencing delays as a result of limited resources at regulatory agencies; and
- changing review and approval policies and standards at regulatory agencies.
As a result of these and other difficulties, products in development by us may or may not receive timely regulatory approvals, or approvals at all, necessary for marketing by us or other third-party partners. If any of our products are not approved in a timely fashion or, when acquired or developed and approved, cannot be successfully manufactured, commercialized or reimbursed, our operating results could be adversely affected. We cannot guarantee that any investment we make in developing products will be recouped, even if we are successful in commercializing those products.
Our expenditures may not result in commercially successful products.
We cannot be sure our business expenditures will result in the successful acquisition, development or launch of products that will prove to be commercially successful or will improve the long-term profitability of our business. If such business expenditures do not result in successful acquisition, development or launch of commercially successful brand products our results of operations and financial condition could be materially adversely affected.
Third parties may claim that we infringe their proprietary rights and may prevent us from manufacturing and selling some of our products.
The manufacture, use and sale of new products that are the subject of conflicting patent rights have been the subject of substantial litigation in the pharmaceutical industry. These lawsuits relate to the validity and infringement of patents or proprietary rights of third parties. Litigation may be costly and time-consuming, and could divert the attention of our management and technical personnel. In addition, if we infringe on the rights of others, we could lose our right to develop, manufacture or market products or could be required to pay monetary damages or royalties to license proprietary rights from third parties. Although the parties to patent and intellectual property disputes in the pharmaceutical industry have often settled their disputes through licensing or similar arrangements, the costs associated with these arrangements may be substantial and could include ongoing royalties. Furthermore, we cannot be certain that the necessary licenses would be available to us on commercially reasonable terms, or at all. As a result, an adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling our products, and could have a material adverse effect on our business, results of operations, financial condition and cash flows.
8
Extensive industry regulation has had, and will continue to have, a significant impact on our business, especially our product development, manufacturing and distribution capabilities.
All pharmaceutical companies are subject to extensive, complex, costly and evolving government regulation. For the U.S., this is principally administered by the FDA and to a lesser extent by the DEA and state government agencies, as well as by varying regulatory agencies in foreign countries where products or product candidates are being manufactured and/or marketed. The Federal Food, Drug and Cosmetic Act, the Controlled Substances Act and other federal statutes and regulations, and similar foreign statutes and regulations, govern or influence the testing, manufacturing, packing, labeling, storing, record keeping, safety, approval, advertising, promotion, sale and distribution of our products.
Under these regulations, we may become subject to periodic inspection of our facilities, procedures and operations and/or the testing of our products by the FDA, the DEA and other authorities, which conduct periodic inspections to confirm that we are in compliance with all applicable regulations. In addition, the FDA and foreign regulatory agencies conduct pre-approval and post-approval reviews and plant inspections to determine whether our systems and processes are in compliance with GMP and other regulations. Following such inspections, the FDA or other agency may issue observations, notices, citations and/or warning letters that could cause us to modify certain activities identified during the inspection. FDA guidelines specify that a warning letter is issued only for violations of “regulatory significance” for which the failure to adequately and promptly achieve correction may be expected to result in an enforcement action. We may also be required to report adverse events associated with our products to the FDA and other regulatory authorities. Unexpected or serious health or safety concerns would result in labeling changes, recalls, market withdrawals or other regulatory actions.
The range of possible sanctions includes, among others, FDA issuance of adverse publicity, product recalls or seizures, fines, total or partial suspension of production and/or distribution, suspension of the FDA’s review of product applications, enforcement actions, injunctions, and civil or criminal prosecution. Any such sanctions, if imposed, could have a material adverse effect on our business, operating results, financial condition and cash flows. Under certain circumstances, the FDA also has the authority to revoke previously granted drug approvals. Similar sanctions as detailed above may be available to the FDA under a consent decree, depending upon the actual terms of such decree. If internal compliance programs do not meet regulatory agency standards or if compliance is deemed deficient in any significant way, it could materially harm our business.
The product would be licensed for sale in the EU through an EC certification process, frequently shorthanded as “CE Mark” under the IVDD 98/79/EC. It is possible that general controls are sufficient and a conformity assessment of a QMS would sufficient to support clinical testing in the EU. If a Notified Body must be used, the CE Marking process has two stages: a certification of the manufacturer’s QMS (ability to safely develop devices) and the certification of the device performance and safety itself. Regulatory approval may be delayed, limited or denied for a number of reasons, including insufficient clinical data, the product not meeting safety or efficacy requirements or any relevant manufacturing processes or facilities not meeting applicable requirements.
Further trials and other costly and time-consuming assessments of the product may be required to obtain or maintain regulatory approval. We may be required to conduct additional trials beyond those currently planned, which could require significant time and expense.
The diagnostic industry is highly competitive.
The diagnostic industry has an intensely competitive environment that will require an ongoing, extensive search for technological innovations and the ability to market products effectively, including the ability to communicate the effectiveness, safety and value of products to healthcare professionals in private practice, group practices and payers in managed care organizations, group purchasing organizations and Medicare & Medicaid services. We are smaller than almost all of our competitors. Most of our competitors have been in business for a longer period of time than us, have a greater number of products on the market and have greater financial and other resources than we do. Furthermore, recent trends in this industry are toward further market consolidation of large drug companies into a smaller number of very large entities, further concentrating financial, technical and market strength and increasing competitive pressure in the industry. If we directly compete with them for the same markets and/or products, their financial strength could prevent us from capturing a profitable share of those markets. It is possible that developments by our competitors will make any products or technologies that we acquire non-competitive or obsolete.
9
Even if our product candidates receive regulatory approval, they may still face future development and regulatory difficulties.
Even if U.S. regulatory approval or clearance is obtained, the FDA can impose significant restrictions on a product’s indicated uses or marketing or may impose ongoing requirements for potentially costly post-approval studies. Any of these restrictions or requirements could adversely affect our potential product revenues. Our product candidates will also be subject to ongoing FDA requirements for the labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-market information on the drug. In addition, approved products, manufacturers and manufacturers’ facilities are subject to continual review and periodic inspections. If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If our product candidates fail to comply with applicable regulatory requirements, such as current Good Manufacturing Practices, or “CGMPs”, a regulatory agency may:
- issue warning letters or untitled letters;
- require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;
- impose other civil or criminal penalties;
- suspend regulatory approval;
- suspend any ongoing clinical trials;
- refuse to approve pending applications or supplements to approved applications filed by us;
- impose restrictions on operations, including costly new manufacturing requirements; or
- seize or detain products or require a product recall.
Our commercialization efforts will be greatly dependent upon our ability to demonstrate product efficacy in clinical trials. Laboratories will be reluctant to order our products, and medical practitioners will be reluctant to prescribe our products, without compelling supporting data. The failure to demonstrate efficacy in our clinical trials, or a delay or failure to complete our clinical trials, would have a material adverse effect on our business, prospects, financial condition and operating results.
Our failure to convince medical practitioners to use our technologies will limit our revenue and profitability.
If we, or our commercialization partners, fail to convince medical practitioners to prescribe products using our technologies, we will not be able to sell our products or license our technologies in sufficient volume for our business to become profitable. We will need to make leading physicians aware of the benefits of products using our technologies through published papers, presentations at scientific conferences and favorable results from our clinical studies. Our failure to be successful in these efforts would make it difficult for us to convince medical practitioners to prescribe products using our technologies for their patients. Failure to convince medical practitioners to prescribe our products will damage our commercialization efforts and would have a material adverse effect on our business, prospects, financial condition and operating results.
We may not be able to market or generate sales of our products to the extent anticipated.
Assuming that we are successful in receiving regulatory clearances to market any of our products, our ability to successfully penetrate the market and generate sales of those products may be limited by a number of factors, including the following:
- Certain of our competitors in the field have already received regulatory approvals for and have begun marketing similar products, which may result in greater physician awareness of their products as compared to ours.
10
- Information from our competitors or the academic community indicating that current products or new products are more effective than our products could, if and when it is generated, impede our market penetration or decrease our existing market share.
- The price for our products, as well as pricing decisions by our competitors, may have an effect on our revenues.
- Our revenues may diminish if third-party payers, including private health coverage insurers and health maintenance organizations, do not provide adequate coverage or reimbursement for our products.
If any of our future marketed products were to experience problems related to their efficacy, safety, or otherwise, or if new, more effective treatments were to be introduced, our revenues from such marketed products could decrease.
If any of our current or future marketed products become the subject of problems, including those related to, among others:
- efficacy or safety concerns with the products, even if not justified;
- regulatory proceedings subjecting the products to potential recall;
- publicity affecting doctor prescription or patient use of the product;
- pressure from competitive products; or
- introduction of more effective tests.
Our revenues from such marketed products could decrease. For example, efficacy or safety concerns may arise, whether or not justified, that could lead to the recall or withdrawal of such marketed products. In the event of a recall or withdrawal of a product, our revenues would significantly decline.
Risks Relating to Our Common Stock
If we issue additional shares in the future, it will result in the dilution of our existing shareholders.
Our articles of incorporation authorize the issuance of up to 500,000,000 shares of common stock with a par value of $0.001 per share and 20,000,000 shares of preferred stock with a par value of $0.001 per share. Our board of directors may choose to issue some or all of such shares to acquire one or more companies or products and to fund our overhead and general operating requirements. The issuance of any such shares will reduce the book value per share and may contribute to a reduction in the market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will reduce the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our corporation.
Trading of our stock is restricted by the Securities Exchange Commission’s penny stock regulations, which may limit a stockholder’s ability to buy and sell our common stock.
The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
11
FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (known as“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
Our common stock is illiquid and the price of our common stock may be negatively impacted by factors which are unrelated to our operations.
Although our common stock is currently listed for quotation on the OTC Bulletin Board, there is no market for our common stock. Even when a market is established and trading begins, trading through the OTC Bulletin Board is frequently thin and highly volatile. There is no assurance that a sufficient market will develop in our stock, in which case it could be difficult for shareholders to sell their stock. The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of our competitors, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.
We do not intend to pay dividends on any investment in the shares of stock of our company.
We have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future. Because we do not intend to declare dividends, any gain on an investment in our company will need to come through an increase in the stock’s price. This may never happen and investors may lose all of their investment in our company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable
ITEM 2. PROPERTIES.
Our executive and head offices are located at 3120 S. Durango Drive, Suite 305, Las Vegas, Nevada 89117. We are presently benefitting from free rental space until such time as our operations ramp up. Once we attain the necessary funding and increase our employee base, we will look for more spacious facilities to meet our growing needs including sourcing office space in Israel to house the operations of our Subsidiary.
Intellectual Property
The description of our intellectual property rights is under the section entitled “Business – Intellectual Property”.
12
ITEM 3. LEGAL PROCEEDINGS.
We know of no material pending legal proceedings to which our company or our subsidiary is a party or of which any of our properties, or the properties of our subsidiary, is the subject. In addition, we do not know of any such proceedings contemplated by any governmental authorities.
We know of no material proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder is a party adverse to our company or our subsidiary or has a material interest adverse to our company or our subsidiary.
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 for Securities
Our common stock is quoted on the OTC Bulletin Board of the Financial Industry Regulatory Authority under the symbol “ONDR”. As of March 25, 2013, our common stock has no trading activity on the OTC Bulletin Board.
As of March 25, 2013, we have 82,636,433 shares of our common stock issued and outstanding and options to acquire up to 9,750,000 shares of our common stock outstanding.
Transfer Agent
Our shares of common stock are issued in registered form. The transfer agent and registrar for our common stock is Nevada Agency and Transfer Company with an office at 50 West Liberty Street, Suite 880, Reno NV 89501.
Holders of Our Common Stock
As of March 25, 2013, we had 61 holders of our common stock.
Registration Rights
We have not granted registration rights any person.
Dividends
We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to increase our working capital and do not anticipate paying any cash dividends in the foreseeable future.
We must not declare, pay or set apart for payment any dividend or other distribution (unless payable solely in shares of our common stock or other class of stock junior to our preferred stock as to dividends or upon liquidation) in respect of our common stock, or other class of stock junior to our preferred stock, nor must we redeem, purchase or otherwise acquire for consideration shares of any of the foregoing, unless dividends, if any, payable to holders of our preferred stock for the current period (and in the case of cumulative dividends, if any, payable to holders of our preferred stock for the current period and in the case of cumulative dividends, if any, for all past periods) have been paid, are being paid or have been set aside for payment, in accordance with the terms of our preferred stock, as fixed by our board of directors.
13
Other than as stated above, there are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:
we would not be able to pay our debts as they become due in the usual course of business; or
our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution.
Recent Sales of Unregistered Securities
Since the beginning of our fiscal year ended December 31, 2012, we have not sold any equity securities that were not registered under the Securities Act of 1933 that were not previously reported in an annual report on Form 10-K, in a quarterly report on Form 10-Q or in a current report on Form 8-K.
Securities authorized for issuance under equity compensation plans.
The following table summarizes certain information regarding our equity compensation plans as at December 31, 2012:
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plan |
| Equity compensation plans approved by security holders | Nil | Nil | Nil |
| Equity compensation plans not approved by security holders | 9,750,000 | $0.01 | N/A |
| Total | 9,750,000 | $0.01 | Nil |
Effective September 1, 2012, we granted a total of 9,750,000 stock options to our directors, officers and employees. The stock options are exercisable at the exercise price of $0.01 per share until September 1, 2022 and vest immediately.
On September 19, 2012, in return for acting as our executive officer, we granted 3,750,000 options to Giora Davidovits to purchase our company’s common stock at an exercise price of $0.01 per share for a period of 10 years.
On October 30, 2012, in return for acting as our executive officer, we granted 2,750,000 options to Eyal Davidovits to purchase our company’s common stock at an exercise price of US$0.01 per share until July 30, 2022.
Issuer Purchases of Equity Securities
During the fiscal year ended December 31, 2012, we did not purchase any of our equity securities.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our management’s discussion and analysis of financial condition and results of operations provides a narrative about our financial performance and condition that should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2012 and related notes thereto.
14
Plan of Operations
We are an early-stage company. There exists substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our expenses. This is because we have not generated any revenues and no material revenues are anticipated until we further develop our business. There is no assurance we will reach this point.
Our primary objectives for the next twelve month period are to further develop the Technology and to advance the Technology so that it may be appropriate for clinical safety testing.
We estimate our operating expenses and working capital requirements for the next 12 months to be as follows:
| Expense | Amount | ||
| Product development | $ | 2,500,000 | |
| Employee and consultant compensation | 650,000 | ||
| General and administration | 100,000 | ||
| Professional services fees | 150,000 | ||
| Regulation and compliance | 50,000 | ||
| Sales, Marketing and Business development | 100,000 | ||
| Total: | $ | 3,550,000 |
If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we may be forced to cease the operation of our business.
Milestones for Development
The following is our anticipated development schedule:
Stage 1 – 0-6 months: Lab set up to expand the laboratory capability to enhance the sample processing capacity. This includes the purchasing of additional lab equipment and the recruitment of lab workers and company personnel required to analyze more samples.
Stage 2 – 6-12 months: Solidify preliminary results. This includes optimization of the reagent matrix for the metabolic profile (MA) identification of breast and lung cancer and optimization of data mining algorithm. Based on results, a decision will be made if we continue to stage 3 or adjust the plan based on the research findings.
Stage 3 – 12-27 months: Verifying data on more patients: we anticipate concentrating on increasing the patient population and the number of test essays to a total of 1,100 patients.
Results of Operations
Revenue
We have not earned any revenue from operations since our inception and further losses are anticipated in the development of our business. We are currently in the development stage of our business and we can provide no assurances that we will generate revenue in the foreseeable future.
Expenses
For the years ended December 31, 2012 and December 31, 2011, we incurred the following expenses:
15
| Year Ended | Year Ended | |||||
| December 31, 2012 | December 31, 2011 | |||||
| General and Administrative Expenses | $ | $ | ||||
| Accounting Fees | 13,613 | 6,667 | ||||
| Audit & Tax Fees | 21,848 | 15,181 | ||||
| Bank Fees | 1,273 | 202 | ||||
| Amortization Expenses – Web Development | 1,496 | 1,994 | ||||
| Consulting Fees | 254,949 | 13,333 | ||||
| Filing and Transfer Agent Fees | 20,005 | 14,389 | ||||
| Legal Fees | 91,219 | 29,767 | ||||
| Travel Expenses | 9,732 | 11,043 | ||||
| Office and Miscellaneous Expense | 2,592 | 504 | ||||
| Research and Development Expense | 3,830,135 | - | ||||
| Marketing Expense | 91,339 | - | ||||
| Stock-Based Compensation | 97,500 | - | ||||
| Meals & Entertainment Expenses | 688 | - | ||||
| 4,436,389 | 93,080 |
Following the incorporation of Savicell and the entering into of the License Agreement, the scope of consolidated activities increased markedly. As a result, there was a substantial increase in all aspects of professional fees and other compliance related expenses. We are now represented by counsel in both the United States as well as Israel. Given that Savicell has been undertaking continuous equity financing initiatives, heavier reliance has been placed on professionals and consultants in furtherance of such endeavors.
During the 2012 fiscal year, we entered into employment agreements with three senior executives as well as increasing the scope and cost of three ongoing consultancy arrangements. Such agreements had the effect of materially increasing our consulting fee expense for the year ended December 31, 2012 relative to the year ended December 31, 2011. Moreover, the issuance of stock options to senior management and consultants led to the recognition of an expense of $97,500 in 2012 whereas no similar issuance nor expense occurred in 2011.
Finally, following consummation of the License Agreement, Savicell undertook research and development activities as required by the License Agreement. The aggregate expense related to such activities (paid in the form of cash or the issuance of the Warrants to Ramot) in fiscal 2012 amounted to $3,830,135. There was no corresponding amount in fiscal 2011. Marketing costs related to the Savicell activities amounted to $91,339 in fiscal 2012 whereas there was no corresponding amount in fiscal 2011.
Liquidity and Capital Resources
Working Capital as at December 31, 2011
Working Capital
| As at | As at | |||||
| December 31, | December 31, | |||||
| 2012 | 2011 | |||||
| Current Assets | $ | 576,305 | $ | 7,492 | ||
| Current Liabilities | $ | 498,623 | $ | 42,464 | ||
| Working Capital (Deficiency) | $ | 77,682 | $ | (34,972 | ) |
Our working capital increased primarily due to an equity financing of $1,162,192 commenced by Savicell during the year ended December 31, 2012. The current liabilities increased substantially in the year ended December 31, 2012 largely in connection with the research and development activities required pursuant to the License Agreement including costs required to set up the laboratory. In addition, accrued but yet unpaid professional fees for both our company and Savicell increased the current payable amounts in fiscal 2012.
16
| Cash Flows | ||||||
Year ended | Year ended | |||||
December 31, 2012 | December 31, 2011 | |||||
| Cash provided by (used in) Operating Activities | $ | (788,186 | ) | $ | (108,116 | ) |
| Cash provided by (used in) Investing Activities | $ | nil | $ | (650 | ) | |
| Cash provided by (used in) Financing Activities | $ | 1,195,172 | $ | 102,600 | ||
| Net Increase (Decrease) in Cash | $ | 406,986 | $ | (6,166 | ) |
Cash Used In Operating Activities
We used cash in operating activities in the amount of $788,186 during the year ended December 31, 2012 and $108,116 during the year ended December 31, 2011. The largest components related to the increased use of cash in operating activities relate to the increased expenditures on research and development, consulting fees and professional fees all as a result of the expanded activities of Savicell in connection with its focus within the medical diagnostics space.
Cash From Investing Activities
No cash was used in investing activities during the year ended December 31, 2012 compared to $650 used in investing activities during the year ended December 31, 2011 to complete the development of our website.
Cash from Financing Activities
We generated cash of $1,195,172 from financing activities during the year ended December 31, 2012 from the issuance of shares compared to generating cash of $102,600 during the year ended December 31, 2011. The increase in cash from financing activities was primarily a result of the equity issuance undertaken by Savicell during the year ended December 31, 2011.
Participation Rights Agreement
During the year ended December 31, 2012, we entered into a conversion and participation rights agreement (the “Agreement”) with 17 investors who have purchased ordinary shares (the “Savicell Shares”) of our Savicell for gross proceeds of $1,162,192 (the “Subscription Amount”). Savicell sold approximately 5% of its ordinary shares in total and our company retains about 80% of Savicell’s equity shares on a fully diluted basis after considering warrants issued to Ramot that can be exercised for the acquisition of ordinary shares of Savicell. Pursuant to the Agreement, we have permitted the investors to convert (the “Conversion Right”) the Savicell Shares into shares of our company (the “Online Shares”) as follows in respect of any particular investor:
Adivided byBequals the number of Online Shares issuable on conversion of the Savicell Shares
where
Aequals the portion of the Subscription Amount invested by the particular investor; and
Bequals 80% of the per share pricing of the first completed financing of over US$500,000 conducted after July 1, 2012 (the “Financing”).
The deemed maximum per share price of the Financing shall be the per share price of Online assuming (a) an aggregate Online equity valuation of $30,000,000; and (b) the number of common shares of Online outstanding at the time of the Financing.
The investors may exercise the Conversion Right at any time during the period beginning on the date of the Agreement and ending on the earlier of (i) three years from the date of the Agreement; and (ii) on a date within ten business days if the average volume over a period of 30 trading days of our company’s shares on a United Sates stock exchange or quotation system totals 50,000 shares traded per day and the market capitalization of our company’s closing trading price on each such trading day multiplied by the number of common shares of our company totals a minimum of $40,000,000.
17
At any time commencing from the date of exercise of the Conversion Right by the investors until a date which is two years from the date of the Agreement, if our company wishes to raise financing by selling securities to the public in a non-brokered private placement (the “Private Placement”), we will offer to the investors the opportunity to participate in such Private Placement to the extent that the investor may retain its then currently held percentage of the outstanding Online Shares.
Going Concern
The financial statements accompanying this report have been prepared on a going concern basis, which implies that our company will continue to realize its assets and discharge its liabilities and commitments in the normal course of business. Our company has not generated revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of our company as a going concern is dependent upon the continued financial support from our shareholders, the ability of our company to obtain necessary equity financing to achieve our operating objectives, and the attainment of profitable operations. As at December 31, 2012, our company has accumulated deficit of $3,969,179 since inception. We do not have sufficient working capital to enable us to carry out our stated plan of operation for the next twelve months.
Due to the uncertainty of our ability to meet our current operating expenses and the capital expenses noted above in their report on the financial statements for the year ended December 31, 2012, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
The continuation of our business is dependent upon us raising additional financial support. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
Future Financings
We will require additional financing to fund our planned operations, including further development, clinical testing, regulatory requirements, and commercializing our existing assets. We currently do not have committed sources of additional financing and may not be able to obtain additional financing, particularly, if the volatile conditions in the stock and financial markets, and more particularly the market for early development stage pharmaceutical company stocks persist.
There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to delay or scale down some or all of our development activities or perhaps even cease the operation of our business.
Since inception we have funded our operations primarily through equity and debt financings and we expect that we will continue to fund our operations through the equity and debt financing. If we raise additional financing by issuing equity securities, our existing stockholders’ ownership will be diluted. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his, her, or its investment in our common stock. Further, we may continue to be unprofitable.
Off-Balance Sheet Arrangements
18
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Application of Critical Accounting Policies
The critical accounting policies on which our financial statements for the year ended December 31, 2012 are based include the following:
Basis of Presentation
The financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“US GAAP”). All adjustments considered necessary for a fair presentation of financial position, results of operations and cash flows as at December 31, 2012 have been included.
Principles of Consolidation
The consolidated financial statements include our accounts, our wholly-owned subsidiary RelationshipScorebaord.com Entertainment, Inc. and our 80.33% interest in Savicell. All significant intercompany accounts and transactions have been eliminated upon consolidation.
Foreign Currency Translation
Our company and Savicell’s functional currency are U.S. dollars. Transactions in other currencies are recorded in U.S. dollars at the rates of exchange prevailing when the transactions occur. Monetary assets and liabilities denominated in other currencies are translated into U.S. dollars at rates of exchange in effect at the balance sheet dates. Exchange gains and losses are recorded in the statements of operations.
Stock-based Compensation
We account our stock options and similar equity instruments issued in accordance with ASC 718, “Share-Based Payment”. Accordingly, compensation costs attributable to stock options or similar equity instruments granted are measured at the fair value at the grant date, and expensed over the expected vesting period. ASC 718 requires excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid. As at and for the year ended December 31, 2012, we have issued 9,750,000 stock options and incurred stock compensation expense of $97,500. As at December 31, 2011, we had no stock options issued and outstanding.
Income Taxes
Income taxes are accounted for under the liability method of accounting for income taxes. Under the liability method, deferred tax liabilities and assets are recognized for the estimated future tax consequences attributable to differences between the amounts reported in the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted or substantially enacted income tax rates expected to apply when the asset is realized or the liability is settled. The effect of a change in income tax rates on deferred income tax liabilities and assets is recognized in income in the period in which the change occurs. Deferred income tax assets are recognized to the extent that they are considered more likely than not to be realized.
Research and Development Costs
All research and development costs are charged to expense as incurred and consist principally of costs related to the License and Research Funding Agreement entered by Savicell with Ramot. We expense all research and development costs in the periods in which they are incurred.
19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
20
ONLINE DISRUPTIVE TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2012
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Online Disruptive Technologies, Inc.
(A development stage company)
We have audited the consolidated balance sheets of Online Disruptive Technologies, Inc. (the “Company”) (a development stage company) as at December 31, 2012 and 2011 and the related consolidated statements of operations and comprehensive loss, equity and cash flows for the years then ended and for the period from November 16, 2009 (inception) to December 31, 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstance, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as at December 31, 2012 and 2011 and the result of its operations and its cash flow for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company incurred losses from operations since inception, has not attained profitable operations and is dependent upon obtaining adequate financing to fulfill its business operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| Vancouver, Canada | |
| March 26, 2013 | Chartered Accountants |
| Online Disruptive Technologies, Inc. |
| (A Development Stage Company) |
| Consolidated Balance Sheets |
| December 31, 2012 | December 31, 2011 | |||||
| $ | $ | |||||
| ASSETS | ||||||
| Current Assets | ||||||
| Cash and Cash Equivalents | 414,478 | 7,492 | ||||
| VAT Receivable | 161,827 | - | ||||
| Total Current Assets | 576,305 | 7,492 | ||||
| Website Development Costs (Note 4) | - | 6,981 | ||||
| Total Assets | 576,305 | 14,473 | ||||
| LIABILITIES | ||||||
| Current Liabilities | ||||||
| Accounts Payable and Accrued Liabilities | 466,578 | 2,918 | ||||
| Term Loan – Related Party (Note 6) | 31,645 | 14,146 | ||||
| Loans Payable - Related Parties (Note 7) | 400 | 25,400 | ||||
| Total Current Liabilities | 498,623 | 42,464 | ||||
| Term Loan – Related Party (Note 6) | 33,553 | 45,198 | ||||
| Total Liabilities | 532,176 | 87,662 | ||||
| EQUITY | ||||||
| Authorized: 20,000,000 Preferred Shares, par value $0.001 500,000,000 Common Shares, par value $0.001 | ||||||
| Issued and outstanding: Nil Preferred Shares 82,636,433 Common Shares (December 31, 2011: 24,000,100 Common Shares) | 67,036 | 8,400 | ||||
| Additional Paid-in Capital | 417,617 | 86,040 | ||||
| (Deficit) Accumulated During the Development Stage | (3,969,179 | ) | (167,629 | ) | ||
| Total Common Stockholders’ (Deficiency) | (3,484,526 | ) | (73,189 | ) | ||
| Non-Controlling Interests | 3,528,655 | - | ||||
| Total Equity | 44,129 | (73,189 | ) | |||
| Total Liabilities and Equity | 576,305 | 14,473 |
The accompanying notes are an integral part of these consolidated financial statements.
F-2
| Online Disruptive Technologies, Inc. |
| (A Development Stage Company) |
| Consolidated Statements of Operations and Comprehensive Loss |
| For the period from | |||||||||
| Year Ended | Year Ended | November 16, 2009 | |||||||
| December | December | (inception) to | |||||||
| 31, 2012 | 31, 2011 | December 31, 2012 | |||||||
| General and Administrative Expenses | $ | $ | $ | ||||||
| Accounting Fees | 13,613 | 6,667 | 20,779 | ||||||
| Audit & Tax Fees | 21,848 | 15,181 | 66,351 | ||||||
| Bank Fees | 1,273 | 202 | 2,069 | ||||||
| Amortization Expenses – Web Development | 1,496 | 1,994 | 3,490 | ||||||
| Consulting Fees | 254,949 | 13,333 | 269,782 | ||||||
| Filing and Transfer Agent Fees | 20,005 | 14,389 | 40,486 | ||||||
| Legal Fees | 91,219 | 29,767 | 146,128 | ||||||
| Travel Expenses | 9,732 | 11,043 | 20,775 | ||||||
| Office and Miscellaneous Expense | 2,592 | 504 | 4,173 | ||||||
| Research and Development Expense | 3,830,135 | - | 3,830,135 | ||||||
| Marketing Expense | 91,339 | - | 91,339 | ||||||
| Stock-Based Compensation | 97,500 | - | 97,500 | ||||||
| Meals & Entertainment Expenses | 688 | - | 688 | ||||||
| 4,436,389 | 93,080 | 4,593,695 | |||||||
| (Loss) Before Other Expense | (4,436,389 | ) | (93,080 | ) | (4,593,695 | ) | |||
| Other Expense | |||||||||
| Interest Expense | (6,881 | ) | (7,314 | ) | (17,204 | ) | |||
| Write-off of Website Development Costs | (5,485 | ) | - | (5,485 | ) | ||||
| Foreign Currency Gain (Loss) | 14,986 | - | 14,986 | ||||||
| (4,433,769 | ) | (100,394 | ) | (4,601,398 | ) | ||||
| Net (Loss) and Comprehensive (Loss) forthe Period | (4,433,769 | ) | (100,394 | ) | (4,601,398 | ) | |||
| Net (Loss) and Comprehensive (Loss)attributable to: | |||||||||
| Common Stockholders | (3,801,550 | ) | (100,394 | ) | (3,969,179 | ) | |||
| Non-Controlling Interests | (632,219 | ) | - | (632,219 | ) | ||||
| (4,433,769 | ) | (100,394 | ) | (4,601,398 | ) | ||||
| Basic and Diluted Net Loss per CommonShare | (0.07 | ) | (0.00 | ) | |||||
| Weighted Average Number of CommonShares Outstanding – Basic and Diluted | 51,826,382 | 23,109,990 |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
| Online Disruptive Technologies, Inc. |
| (A Development Stage Company) |
| Consolidated Statements of Equity (Deficiency) |
| For the period from November 16, 2009 to December 31, 2012 |
| (Deficit) | |||||||||||||||||||||
| Accumulated | Total | ||||||||||||||||||||
| Additional | During the | Common | Non- | Total | |||||||||||||||||
| Common Stock | Paid In | Development | Shareholders’ | Controlling | Equity | ||||||||||||||||
| Shares | Amount | Capital | Stage | Deficiency | Interests | (Deficiency) | |||||||||||||||
| $ | $ | $ | $ | $ | $ | ||||||||||||||||
| Shares issued for cash at $0.0001 per share on November 16, 2009 | 1,000 | - | - | - | - | - | - | ||||||||||||||
| Shares issued for cash at $0.000025 per share on December 5, 2009 | 15,999,000 | 400 | - | - | 400 | - | 400 | ||||||||||||||
| Net loss for the period | - | - | - | (1,179 | ) | (1,179 | ) | - | (1,179 | ) | |||||||||||
| Balance December 31,2009 | 16,000,000 | 400 | - | (1,179 | ) | (779 | ) | - | (779 | ) | |||||||||||
| Recapitalization – ODT | 2,000,100 | 2,000 | 6,999 | - | 8,999 | - | 8,999 | ||||||||||||||
| Imputed interest from shareholders | - | - | 3,009 | - | 3,009 | - | 3,009 | ||||||||||||||
| Net loss for the year | - | - | - | (66,056 | ) | (66,056 | ) | - | (66,056 | ) | |||||||||||
| Balance December 31,2010 | 18,000,100 | 2,400 | 10,008 | (67,235 | ) | (54,827 | ) | - | (54,827 | ) | |||||||||||
| Shares issued for cash at $0.01 per share on February 24th, 2011 | 6,000,000 | 6,000 | 54,000 | - | 60,000 | - | 60,000 | ||||||||||||||
| Imputed interest from shareholders | - | - | 6,199 | - | 6,199 | - | 6,199 | ||||||||||||||
| Restructured term loan – a related party | - | - | 15,833 | - | 15,833 | - | 15,833 | ||||||||||||||
| Net loss for the year | - | - | - | (100,394 | ) | (100,394 | ) | (100,394 | ) | ||||||||||||
F-4
| Balance December 31,2011 | 24,000,100 | 8,400 | 86,040 | (167,629 | ) | (73,189 | ) | - | (73,189 | ) | |||||||||||
| Shares issued for cash at $0.001 per share on April 9, 2012 | 17,750,000 | 17,750 | - | - | 17,750 | - | 17,750 | ||||||||||||||
| Shares issued for cash at $0.001 per share on May 23, 2012 | 12,000,000 | 12,000 | - | - | 12,000 | - | 12,000 | ||||||||||||||
| Shares issued on debt settlement at $0.0075 per share on July 10, 2012 | 8,000,000 | 8,000 | 52,000 | - | 60,000 | - | 60,000 | ||||||||||||||
| Shares issued for cash at $0.01 per share on July 23, 2012 | 3,413,000 | 3,413 | 30,717 | - | 34,130 | - | 34,130 | ||||||||||||||
| Shares issued on debt settlement at $0.01 per share on July 23, 2012 | 500,000 | 500 | 4,500 | - | 5,000 | - | 5,000 | ||||||||||||||
| Shares issued on debt settlement at $0.01 per share on November 16, 2012 | 14,873,333 | 14,873 | 133,860 | - | 148,733 | - | 148,733 | ||||||||||||||
| Shares issued on debt settlement at $0.01 per share on November 23, 2012 | 2,100,000 | 2,100 | 18,900 | - | 21,000 | - | 21,000 | ||||||||||||||
| Warrant certificate issued in subsidiary | - | - | - | - | - | 2,998,682 | 2,998,682 | ||||||||||||||
| Shares allotted and issued in subsidiary | - | - | - | - | - | 1,162,192 | 1,162,192 | ||||||||||||||
| Stock Option Expense | 97,500 | 97,500 | 97,500 | ||||||||||||||||||
| Share issuance costs | - | (5,900 | ) | - | (5,900 | ) | (5,900 | ) | |||||||||||||
| Net loss for the year | - | - | - | (3,801,550 | ) | (3,801,550 | ) | (632,219 | ) | (4,433,769 | ) | ||||||||||
| Balance December 31,2012 | 82,636,433 | 67,036 | 417,617 | (3,969,179 | ) | (3,484,526 | ) | 3,528,655 | 44,129 |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
| Online Disruptive Technologies, Inc. |
| (A Development Stage Company) |
| Consolidated Statements of Cash Flows |
| From | |||||||||
| November 16, | |||||||||
| 2009 | |||||||||
| Year Ended | Year Ended | (inception) to | |||||||
| December 31, | December 31, | December 31, | |||||||
| 2012 | 2011 | 2012 | |||||||
| Cash flow from Operating Activities | $ | $ | $ | ||||||
| Net loss for the period | (4,433,769 | ) | (100,394 | ) | (4,601,398 | ) | |||
| Adjustment for items not involving cash: | |||||||||
| Stock-Based Compensation | 97,500 | - | 97,500 | ||||||
| Shares Issued for Consulting Services | 234,733 | - | 234,733 | ||||||
| Imputed Interest | 5,854 | 7,314 | 16,177 | ||||||
| Research and Development Expense | 2,998,682 | - | 2,998,682 | ||||||
| Amortization – Website Development Costs | 1,496 | 1,994 | 3,490 | ||||||
| Write-off of Website Developments Costs | 5,485 | - | 5,485 | ||||||
| Changes in non-cash working capital items: | |||||||||
| (Increase) in VAT receivable | (161,827 | ) | - | (161,827 | ) | ||||
| Increase (decrease) in Accounts Payable and Accrued Liabilities | 463,660 | (17,030 | ) | 456,117 | |||||
| Net Cash (Used in) Operating Activities | (788,186 | ) | (108,116 | ) | (951,041 | ) | |||
| Cash flow from Financing Activities | |||||||||
| Common Shares Issued, Net of Issuance Costs | 57,980 | 60,000 | 118,380 | ||||||
| Non-Controlling Interests | 1,162,192 | - | 1,162,192 | ||||||
| Increase (Decrease) in Loan Payable – Related Parties | (25,000 | ) | 42,600 | 74,462 | |||||
| Net Cash Provided by Financing Activities | 1,195,172 | 102,600 | 1,355,034 | ||||||
| Cash flow from Investing Activities | |||||||||
| Cash Acquired on Acquisition of A Subsidiary | - | - | 14,910 | ||||||
| Website Development Costs | - | (650 | ) | (4,425 | ) | ||||
| Net Cash Provided by (Used in) InvestingActivities | - | (650 | ) | 10,485 | |||||
| Net Increase (Decrease) in Cash and Cashequivalents | 406,986 | (6,166 | ) | 414,478 | |||||
| Cash and Cash equivalents, Beginning ofPeriod | 7,492 | 13,658 | - | ||||||
| Cash and Cash equivalents, End of Period | 414,478 | 7,492 | 414,478 | ||||||
| Supplementary Information | |||||||||
| Interest Paid | - | - | - | ||||||
| Income Taxes Paid | - | - | - |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
| Online Disruptive Technologies, Inc. |
| (A Development Stage Company) |
| Notes to the Consolidated Financial Statements |
| December 31, 2012 |
Note 1 - Nature of Operations
Online Disruptive Technologies, Inc. (“ODT” or the “Company”) was incorporated on November 16, 2009 in the State of Nevada, U.S.A. The Company was in the business of operating websites with advertising revenue platforms. However, as described below, the Company has recently changed its primary business focus to the development and commercialization of a biotechnology platform. The Company has limited operations and in accordance with ASC 915, is considered a development stage company that has had no revenues from inception to date. The Company has a December 31 year-end.
Effective March 24, 2010, the Company acquired 100% of the issued and outstanding shares of RelationshipScoreboard.com Entertainment Inc. (“RS” or “RelationshipScoreboard.com”), a company incorporated on November 16, 2009 in the state of Nevada, U.S.A. in exchange for 16,000,000 shares of the Company’s common stock. Upon the completion of the acquisition, the former sole shareholder of RS held 89% of the Company’s issued and outstanding common stock. As a result, the transaction was accounted for as a reverse takeover transaction (“RTO”) for accounting purpose, as RS was deemed to be the acquirer, and these consolidated financial statements are a continuation of the financial statements of RS.
On April 23, 2012, the Company established an Israeli subsidiary named Savicell Diagnostic Ltd. (“Savicell”) with the intent of exploring business ventures in the biotechnology sector. On July 25, 2012, Savicell entered into a definitive licensing agreement with a division of Tel Aviv University for the purpose of developing and commercializing a new technology relative to the early detection of various forms of disease. With the consummation of this transaction, the Company is now primarily focused on its biotechnology efforts.
These financial statements have been prepared with the ongoing assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The Company suffered a recurring loss and had positive working capital of $77,682 as at December 31, 2012 (December 31, 2011 – a working capital deficit of $34,972). Furthermore, additional future losses are anticipated which raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do no include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
The operations of the Company have primarily been funded by the sale of common shares and loans received. Continued operations of the Company are dependent on the Company’s ability to complete equity financings or to generate profitable operations in the future. Management’s plan in this regard is to secure additional funds through future equity financings. Such financings may not be available or may not be available on reasonable terms to the Company.
Note 2 – Acquisition - ODT
In connection with the RTO described above and prior to the acquisition, ODT had no business and did not meet the definition of a business under ASC 805, “Accounting for Business Combinations”. Accordingly, the reverse takeover of ODT by RS has been accounted for as a capital transaction, in respect of which the net assets of ODT on March 24, 2010 were accounted for as a recapitalization of RS. A breakdown of ODT’s net assets as at March 24, 2010 is as follows:
F-7
| Online Disruptive Technologies, Inc. |
| (A Development Stage Company) |
| Notes to the Consolidated Financial Statements |
| December 31, 2012 |
Note 2 – Acquisition – ODT (cont’d)
| March 24, 2010 | |||
| Total assets – cash only | $ | 14,910 | |
| Total liabilities | (5,911 | ) | |
| Net assets acquired | $ | 8,999 |
Note 3 - Significant Accounting Policies
a) Basis of Presentation
These financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“US GAAP”). All adjustments considered necessary for a fair presentation of financial position, results of operations and cash flows as at December 31, 2012 have been included.
b) Principles of Consolidation
These consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary RS and its 80.33% interest in Savicell. All significant intercompany accounts and transactions have been eliminated upon consolidation.
c) Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
d) Foreign Currency Translation
The Company and its subsidiaries’ functional currency are U.S. dollars. Transactions in other currencies are recorded in U.S. dollars at the rates of exchange prevailing when the transactions occur. Monetary assets and liabilities denominated in other currencies are translated into U.S. dollars at rates of exchange in effect at the balance sheet dates. Exchange gains and losses are recorded in the statements of operations.
e) Cash and Cash Equivalents
Cash and cash equivalents consist entirely of readily available cash balances. There were no cash equivalents as of December 31, 2012 and December 31, 2011.
f) Stock-based Compensation
The Company accounts its stock options and similar equity instruments issued in accordance with ASC 718, “Share-Based Payment”. Accordingly, compensation costs attributable to stock options or similar equity instruments granted are measured at the fair value at the grant date, and expensed over the expected vesting period. ASC 718 requires excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid.
F-8
| Online Disruptive Technologies, Inc. |
| (A Development Stage Company) |
| Notes to the Consolidated Financial Statements - Audited |
| December 31, 2012 |
Note 3 - Significant Accounting Policies(Continued)
As at and for the year ended December 31, 2012, the Company has issued 9,750,000 stock options and incurred stock compensation expense of $97,500. As at December 31, 2011, the Company had no stock options issued and outstanding.
g) Revenue Recognition
Operating revenue consist of advertising revenue. The point in time at which revenues are recognized is determined in accordance with ASC 605-10 (formerly Staff Accounting Bulletin No. 104, “Revenue Recognition”). Revenues are recorded when the Company delivers services to its customers and collection is reasonably estimated.
h) Income Taxes
Income taxes are accounted for under the liability method of accounting for income taxes. Under the liability method, deferred tax liabilities and assets are recognized for the estimated future tax consequences attributable to differences between the amounts reported in the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted or substantially enacted income tax rates expected to apply when the asset is realized or the liability is settled. The effect of a change in income tax rates on deferred income tax liabilities and assets is recognized in income in the period in which the change occurs. Deferred income tax assets are recognized to the extent that they are considered more likely than not to be realized.
The Financial Accounting Standards Board (FASB) has issued FASB ASC 740-10, “Accounting for Uncertainty in Income Taxes”. ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with prior literature FASB Statement No. 109, Accounting for Income Taxes. This standard requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. The implementation of this standard had no impact on the Company’s financial statements.
i) Comprehensive Income (Loss)
The Company accounts for comprehensive income under the provisions of ASC Topic 220-10,Comprehensive Income - Overall, which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its Statements of Operations and Comprehensive Loss.
j) Earnings (Loss) Per Share
Basic loss per share is computed on the basis of the weighted average number of common shares outstanding during each period.
Diluted loss per share is computed on the basis of the weighted average number of common shares and dilutive securities outstanding. Stock options are considered to be common stock equivalents and were not included in the net loss per share calculation for the year ended December 31, 2012 because the inclusion of such underlying shares would have had an anti-dilutive effect. For the year ended December 31, 2011, the basic loss per share is equal to the diluted loss per share as there are no potential dilutive securities.
F-9
| Online Disruptive Technologies, Inc. |
| (A Development Stage Company) |
| Notes to the Consolidated Financial Statements |
| December 31, 2012 |
Note 3 - Significant Accounting Policies(Continued)
k) Financial Instruments and Fair Value of Financial Instruments
Fair Value of Financial Instruments – the Company adopted SFAS ASC 820-10-50, “Fair Value Measurements”. This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:
- Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
- Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
- Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.
As at December 31, 2012, the fair value of cash and cash equivalents was measured using Level 1 inputs.
The carrying amounts reported in the consolidated balance sheets for the cash and cash equivalents, accounts payable and accrued liabilities, loans payable and term loan each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization.
l) Website Development Costs
Website development costs relate to the development of the Company's proprietary website. These costs had been capitalized as incurred and installed and were, prior to being written off in full (see Note 4 below), amortized over the estimated useful life of three years on a straight line basis. The Company accounts for these costs in accordance with ASC 350,Intangibles,which specifies the appropriate accounting for costs incurred in connection with the development and maintenance of websites.
m) Research and Development Costs
All research and development costs are charged to expense as incurred and consist principally of costs related to the License and Research Funding Agreement entered by the Company’s subsidiary with Ramot at Tel Aviv University (See Note 5)
The Company expenses all research and development costs in the periods in which they are incurred.
F-10
| Online Disruptive Technologies, Inc. |
| (A Development Stage Company) |
| Notes to the Consolidated Financial Statements |
| December 31, 2012 |
Note 3 - Significant Accounting Policies(Continued)
n) Recently Adopted Accounting Pronouncements
In April 2011, the FASB issued authoritative guidance to clarify when a restructuring constitutes a troubled debt restructuring. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that two conditions exist: (1) the restructuring constitutes a concession and (2) the debtor is experiencing financial difficulties. The guidance will be effective for interim and annual reporting periods beginning after June 15, 2011 and will be applied retrospectively to the beginning of the annual period of adoption. The Company adopted this authoritative guidance on January 1, 2012 and the adoption did not have an impact on the Company’s financial statements.
In May 2011, the FASB issued an accounting pronouncement related to fair value measurement (FASB ASC Topic 820), which amends current guidance to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards. The amendments generally represent clarification of FASB ASC Topic 820, but also include instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This pronouncement is effective for interim and annual periods beginning after December 15, 2011, and is applied prospectively. The Company adopted this standard on January 1, 2012 and the adoption of ASC Topic 820 did not have an impact on the Company’s financial statements.
In June 2011, the FASB issued an accounting pronouncement that provides new guidance on the presentation of comprehensive income (FASB ASC Topic 220) in financial statements. Entities are required to present total comprehensive income either in a single, continuous statement of comprehensive income or in two separate, but consecutive, statements. Under the single-statement approach, entities must include the components of net income, a total for net income, the components of other comprehensive income and a total for comprehensive income. Under the two-statement approach, entities must report an income statement and, immediately following, a statement of other comprehensive income. Under either method, entities must display adjustments for items reclassified from other comprehensive income to net income in both net income and other comprehensive income. The provisions related to this pronouncement are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company adopted this standard on January 1, 2012 and the adoption of ASC Topic 220 did not have an impact on the Company’s financial statements.
o) Recently Issued Accounting Pronouncements
Other accounting pronouncements that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s financial statements upon adoption.
F-11
| Online Disruptive Technologies, Inc. |
| (A Development Stage Company) |
| Notes to the Consolidated Financial Statements |
| December 31, 2012 |
Note 4 – Website Development Costs
The Company incurred and capitalized costs of $8,975 (December 31, 2011 - $8,975) related to its ongoing website development. As at May 1, 2011, the development of the initial phase of the website was substantially completed. As such, the Company began amortizing the website cost over the estimated useful life of 3 years. As at June 30, 2012, the Company wrote off the remaining website development costs of $5,485 as a result of the Company changing its business focus. Such assets were ultimately sold for nominal consideration following the year ended December 31, 2012 (See Note 12).
| As of December 31, 2012 | ||||||||||||
| Cost | Accumulated | |||||||||||
| Amortization | Write-off | Net Book Value | ||||||||||
| Website development costs | $ | 8,975 | $ | 3,490 | $ | 5,485 | $ | - | ||||
| As of December 31, 2011 | ||||||||||||
| Cost | Addition | Accumulated | Net Book Value | |||||||||
| Amortization | ||||||||||||
| Website development costs | $ | 8,325 | $ | 650 | $ | 1,994 | $ | 6,981 | ||||
Note 5 – License and Research Funding Agreement
On July 25, 2012, the Company’s subsidiary Savicell entered into a License and Research Funding Agreement (“R&D Agreement”) with Ramot at Tel Aviv University (“Ramot”) pursuant to which:
- In the course of research performed at Tel-Aviv University ("TAU"), Prof. Fernando Patolsky has developed technology relating to early detection of diseases by measuring metabolic activity in the immune system;
- Savicell wishes to fund further research at TAU relating to such technology; and
- Savicell wishes to obtain a license from Ramot with respect to such technology and the results of such further funded research in order to develop and commercialize products in the diagnostics space, and Ramot wishes to grant the Company such license, all in accordance with the terms and conditions of this R&D Agreement.
Pursuant to the above noted R&D Agreement, Savicell will fund research expenditures amounting to a total of $1,600,000 according to the following schedule:
- $81,000 within 5 business days of the R&D Agreement (paid)
- Before October 2012; $359,500 plus VAT as applicable (paid)
- Before January 3, 2013; $359,500 plus VAT as applicable (paid)
- Before April 3, 2013; $400,000 plus VAT as applicable
- Before July 3, 2013; $400,000 plus VAT as applicable
F-12
| Online Disruptive Technologies, Inc. |
| (A Development Stage Company) |
| Notes to the Consolidated Financial Statements |
| December 31, 2012 |
Note 5 – License and Research Funding Agreement(Continued)
In addition, Savicell shall issue to Ramot warrants (the “Warrants”) to purchase a number of ordinary shares of Savicell which shall together comprise 15% of issued shares of Savicell on an as-converted, fully diluted basis (equivalent to 1,765 Warrant Shares of Savicell). The Warrants shall be exercisable at an exercise price equal to the par value of the Warrant Shares, at any time and from time to time or until Savicell completes a defined liquidity event. The fair value of the Warrant Shares has been estimated at $1,698.97 per Warrant Share which is equivalent to the price at which Savicell has issued shares to third party, for a total of $2,998,682.
Upon successful development and commercialization and in recognition of the rights and licenses granted to Savicell pursuant to this R&D Agreement, Savicell will be subject to certain royalty payments as specified in the Agreement.
During the year ended December 31, 2012, Savicell incurred research and development of $3,830,135 which included the funding of $831,453 in connection with R&D Agreement and the fair value ($2,998,682) of Warrant Shares issued to Ramot.
Note 6 – Term Loan – Related Party
On November 4, 2011, the Company entered into a loan terms Agreement (“Loan Agreement”) with a shareholder of the Company to settle a loan payable in the amount of $74,062. Pursuant to the Loan Agreement, the terms of repayment were amended to specify that ten per cent (10%) of the gross proceeds of any prospective debt or equity financing undertaken by ODT would be applied to the repayment of the principal of this loan until fully repaid. The term loan is unsecured, non-interest bearing and requires that any balance remaining outstanding on November 4, 2016 would then be fully due and payable.
The Company’s management has estimated that ODT will raise equity financing of $500,000 in each of 2013 and 2014 such that the loan payable will be fully repaid upon the equity raise in 2014. Management had determined the net present value of the term loan as at the date of restructuring to be $58,229 by discounting the future anticipated repayments at a relative market rate of 11.68%. As a result of the restructuring, the Company recorded $15,833 of additional paid-in capital. During the year ended December 31, 2012, the Company recorded interest accretion of $5,854 (December 30, 2011 - $1,115).
A summary of the Term Loan is as follows:
| December 31, 2012 | December 31, 2011 | |||||
| Term loan – face value | $ | 74,062 | $ | 74,062 | ||
| Effective interest rate – 11.68% | (15,833 | ) | (15,833 | ) | ||
| Net present value | 58,229 | 58,229 | ||||
| Interest accretion | 6,969 | 1,115 | ||||
| Total | 65,198 | 59,344 | ||||
| Current portion | 31,645 | 14,146 | ||||
| Term loan – long term | $ | 33,553 | $ | 45,198 |
F-13
| Online Disruptive Technologies, Inc. |
| (A Development Stage Company) |
| Notes to the Consolidated Financial Statements |
| December 31, 2012 |
Note 7 – Loans Payable – Related Parties
As at December 31, 2012, the loans payable included followings:
- In each of November 2011 and February 2012, the Company received loans of $25,000 (collectively the “Convertible Loans”). The terms of such loans provided for the subsequent conversion of the underlying indebtedness into common shares of the Company. Such conversions were effected on July 10, 2012 via the issuance of 6,666,666 common shares of the Company at a per share price of $0.0075 for aggregate consideration of $50,000.
- $400 payable to a director and shareholder of the Company. The amount is unsecured, non- interest bearing and due on demand.
Note 8 – Related Party Transactions
The Company completed the following related party transactions:
During the year ended December 31, 2012, the Company incurred consulting fees of $257,833 payable to its directors and officers,and companies controlled by such directors and officers (for the year ended December 31, 2011 - $8,333).
During the year ended December 31, 2012, two directors and one senior officer of the Company participated in two private placements of the Company for a total of 25,000,000 common shares at $0.001 for total proceeds of $25,000 prior to their appointments as directors and senior officer. Their acquisition of shares effected a change of control of the Company.
During the year ended December 31, 2012, a director of the Company participated in a private placement of the Company for total of 750,000 common shares at $0.001 per share for total proceeds of $750.
During the year ended December 31, 2012, the Company settled its debts with its directors and a senior officer of $161,233 and $10,000 for total of 16,123,333 and 1,333,334 common shares at $0.01 and $0.0075 per share, respectively.
During the year ended December 31, 2012, the Company granted 9,500,000 stock options to its directors with a fair value of $95,000.
As at December 31, 2012, included in accounts payable accrued liabilities, $12,833 was payable to a company controlled by a former director / officer of the Company.
See Note 6, 7 and 11.
F-14
| Online Disruptive Technologies, Inc. |
| (A Development Stage Company) |
| Notes to the Consolidated Financial Statements |
| December 31, 2012 |
Note 9 –Equity
Common shares
On March 24, 2010, the Company issued 16,000,000 common shares (restricted shares) to the sole shareholder of RS to effect the acquisition and RTO. Prior to the acquisition and RTO (Note 1 and 2), RS engaged in the following equity transactions which have been restated using the exchange ratio established in the acquisition agreement to reflect 16,000,000 common shares issued in the reverse acquisition:
- On November 16, 2009, RS issued 1,000 common shares at $0.0001 per share for total proceeds of $0.10.
- On December 5, 2009, RS issued 15,999,000 common shares at $0.000025 per share for total proceeds of $400.
Prior to the acquisition and RTO (Note 1 and 2), the Company engaged in the followings equity transactions:
- On November 16, 2009, the Company issued 100 common shares at $0.001 per share for total proceeds of $0.10.
- On December 2, 2009, the Company issued 200,000 common shares at $0.01 per share for total proceeds of $2,000.
- On January 7, 2010, the Company issued 1,800,000 common shares at $0.01 per share for total proceeds of $18,000.
Upon the acquisition and RTO, 2,000,100 common shares issued by the Company prior to the acquisition were considered as a recapitalization to RS.
On February 24, 2011, the Company issued 6,000,000 common shares at $0.01 per share for total proceeds of $60,000.
On April 9, 2012, the Company issued 17,750,000 common shares at $0.001 per share for total proceeds of $17,750.
On May 23, 2012, the Company issued 12,000,000 common shares at $0.001 per share for total proceeds of $12,000.
The share issuance cost in connection with the issuance of 29,750,000 common shares was $5,900.
On July 10, 2012, the Company entered into debt settlement agreements with nine individuals whereby the Company collectively settled debts in the aggregate amount of $60,000 by the issuance of 8,000,000 common shares at a price per share of $0.0075. Included in the $60,000 total were the two loans of $25,000 each described more fully in Note 6 (Loans Payable – Related Parties).
On July 23, 2012, the Company issued 3,413,000 common shares at $0.01 per share for total proceeds of $34,130 and an additional 500,000 shares were issued as part of a debt settlement agreement in which $5,000 of an accounts payable debt was settled.
F-15
| Online Disruptive Technologies, Inc. |
| (A Development Stage Company) |
| Notes to the Consolidated Financial Statements |
| December 31, 2012 |
Note 9 –Equity(Continued)
Common shares(continued)
On November 16, 2012, the Company entered into debt settlement agreements with six employees or consultants of the Company whereby the Company collectively settled debts in the aggregate amount of $148,733 by the issuance of 14,873,333 common shares at a price per share of $0.01.
On November 23, 2012, the Company entered into debt settlement agreements with one director and one consultant of the Company pursuant to which the Company collectively settled debts in the aggregate amount of $26,000 by the issuance of 2,100,000 common shares at a price per share of $0.01 and a cash payment of $5,000.
As at December 31, 2012 the Company has 82,636,433 common shares issued and outstanding.
Stock Options
On September 1, 2012, the Company granted a total of 9,750,000 stock options to our directors, officers, consultants and employees. The stock options are exercisable at the exercise price of $0.01 per share until September 1, 2022 and vest immediately.
| Exercise price | Outstanding and Exercisable as at December 31, 2012 | ||||||||
| Weighted | |||||||||
| Weighted | Average | ||||||||
| Average | Remaining | ||||||||
| Number of | Exercise | Contractual | |||||||
| Options | Price | Life (years) | |||||||
| $ 0.01 | 9,750,000 | $ | 0.01 | 9.67 | |||||
| 9,750,000 | $ | 0.01 | 9.67 | ||||||
The weighted average fair value of stock options granted during the year was $0.01 and the Company recorded stock based compensation expense of $97,500 (2011-$Nil) for options granted in the current period. The fair value of each option granted is estimated on the date of the grant using the Black-Scholes option pricing model with weighted average assumptions for grants as follows:
| December 31, | |||
| 2012 | |||
| Risk-free interest rate | 1.73% | ||
| Expected life of options | 10 years | ||
| Annualized volatility | 115% | ||
| Dividend rate | 0% |
F-16
| Online Disruptive Technologies, Inc. |
| (A Development Stage Company) |
| Notes to the Consolidated Financial Statements |
| December 31, 2012 |
Note 9 –Equity(Continued)
Non- Controlling Interests
The Company’s subsidiary, Savicell, granted a third party a warrant certificate to purchase 1,765 common shares of Savicell that initially represented 15% of the underlying common equity of Savicell. Up to October 30, 2012, Savicell issued a total of 592 ordinary shares (the “Initial Closing”) at $1,698.97 per share representing approximately 4.79% of the fully diluted common equity of Savicell for aggregate proceeds of $1,005,795. The Savicell investors are entitled to convert their Savicell shares into common shares of ODT at a price equal to 80% of the per share pricing of the first completed ODT financing of over $500,000 conducted after July 1, 2012 (the “Financing Price”) provided that for purposes of such conversion, the deemed maximum Financing Price shall be the per share price of the common shares of ODT based on (a) an aggregate ODT equity valuation of $30,000,000; and (b) the number of common shares of ODT outstanding at the time of the financing. Savicell continued its equity issuances following the Initial Closing.
Until December 31, 2012, Savicell had received additional financing proceeds of $156,397 in respect of which 92 ordinary shares have been allotted as to be issued and reflected on the consolidated balance sheets of the Company as at December 31, 2012 as Non-Controlling Interests. In addition, following the 2012 fiscal year end an additional $540,594 of financing proceeds were received and await formal closing (Also see Note 12).
Following the Initial Closing, the aggregate Warrants represented a 14.18% interest in the fully diluted equity of Savicell. As the exercise price inherent in warrant certificate to purchase 1,765 common shares of the Savicell is at nominal value, the warrant certificate is valued at the price of the subsequent equity issuance by Savicell ($1,698.97 per share) and the related common shares are deemed to be issued and outstanding.
F-17
| Online Disruptive Technologies, Inc. |
| (A Development Stage Company) |
| Notes to the Consolidated Financial Statements |
| December 31, 2012 |
Note 10 – Income Taxes
The Company, RS and Savicell are subject to income tax laws in their respective tax jurisdictions, which are the same as their respective place of incorporation.
The following table reconciles the income tax benefit at the U.S. Federal statutory rate to income tax benefit at the Company's effective tax rates.
| For the year ended | For the year ended | |||||
| December 31, 2012 | December 31, 2011 | |||||
| $ | $ | |||||
| Net loss before taxes | (4,433,769 | ) | (100,394 | ) | ||
| Statutory tax rate | 34% | 15% | ||||
| Income tax recovery | (1,507,481 | ) | (15,059 | ) | ||
| Non-deductible item | 117 | 1,097 | ||||
| Change in estimates | 1,184 | - | ||||
| Change enacted tax rate | (31,051 | ) | - | |||
| Foreign tax rate difference | 355,188 | - | ||||
| Change in valuation allowance | 1,182,043 | 13,962 | ||||
| Income tax expense (recovery) | - | - |
Deferred taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes. Deferred tax assets (liabilities) at December 31, 2012 and 2011 are comprised of the following:
| December 31, 2012 | December 31, 2011 | |||||
| $ | $ | |||||
| Non-capital loss carry forwards | 1,177,605 | 25,698 | ||||
| Stock based compensation | 33,150 | - | ||||
| Financial instrument | (3,014 | ) | - | |||
| Valuation allowance | (1,207,741 | ) | (25,698 | ) | ||
| Deferred tax assets | - | - |
As at December 31, 2012, the Company's deferred tax asset attributable to its US net operating loss carry forwards is $561,683 (2011 - $171,317). These losses expire as follow:
| Year | Total | ||
| 2029 | 3,585 | ||
| 2030 | 74,651 | ||
| 2031 | 99,907 | ||
| 2032 | 383,540 | ||
| 561,683 |
F-18
| Online Disruptive Technologies, Inc. |
| (A Development Stage Company) |
| Notes to the Consolidated Financial Statements |
| December 31, 2012 |
Note 10 – Income Taxes(Continued)
As at December 31, 2012, the Company's deferred tax asset attributable to Israeli net operating loss carry forwards is $3,946,530 (2011 - nil). These losses carry forward indefinitely.
The deferred tax assets have not been recognized because at this stage of the Company’s development, it is not determinable that future taxable profit will be available against which the Company can utilize such deferred tax assets.
Note 11 – Commitments and Guarantees
The Company did not become a guarantor to any parties as at December 31, 2012.
| 1. | Effective November 1, 2011, the Company entered into a consulting agreement with 1367826 Ontario Limited (“OntarioCo”) pursuant to which OntarioCo is to provide certain consulting services to the Company including the provision of accounting, financial and regulatory advice. As consideration for the performance of the consulting services under the agreement, ODT agreed to pay OntarioCo the sum of $4,166.67 per month for the duration of the agreement, exclusive of any applicable sales tax. The agreement is for an indefinite period unless terminated by either party with sixty days advance written notice to the other party. Effective October 1, 2012 the quantum of the monthly fees was increased to $9,000 in recognition of the expanded scope of the Company’s activities. | |
| 2. | Effective November 1, 2011, the Company entered into a consulting agreement with Kerry Chow, pursuant to which she will provide the following consulting services to ODT: maintaining the accounting books and records on behalf of our company and our subsidiaries; preparing consolidated quarterly and annual financial statements for our company and our subsidiaries as well as assisting in the preparation of the related disclosure documents; coordinating the quarterly reviews and annual audits on behalf of our company and our subsidiaries; coordinating the preparation and filing of the annual income tax returns of our company and our subsidiaries; and any other accounting-related functions. As consideration for the performance of the consulting services under the agreement, ODT agreed to pay Kerry Chow the sum of $833.33 per month for the duration of the agreement, exclusive of any applicable sales tax. The agreement is for an indefinite period unless terminated by either party with sixty days advance written notice to the other party. Effective October 1, 2012, the quantum of the monthly fee was increased to $2,000 in recognition of the expanded scope of the Company’s activities. | |
| 3. | On September 11, 2012, ODT signed an employment agreement with Giora Davidovits, its new chief executive officer and President, which agreement entailed an effective date of September 1, 2012. In return for acting as its chief executive officer, the Company will provide Mr. Davidovits an annual salary of $250,000 together with other benefits and the potential for additional bonuses as declared from time to time by the Company’s board of directors. The agreement will end on August 31, 2017 unless terminated early in accordance with the termination provisions contained within the employment agreement. |
F-19
| Online Disruptive Technologies, Inc. |
| (A Development Stage Company) |
| Notes to the Consolidated Financial Statements |
| December 31, 2012 |
Note 11 – Commitments and Guarantees(Continued)
| 4. | On October 30, 2012, ODT and Savicell signed an employment agreement with Eyal Davidovits, its new chief operating officer, which agreement entailed an effective date of September 1, 2012. In return for acting as its chief operating officer, the Company will provide Mr. Davidovits an annual salary, denominated in new Israeli shekels, approximately equal to $108,000 together with other benefits and the potential for additional bonuses as declared from time to time by the Company’s board of directors. The agreement will end on August 31, 2017 unless terminated early in accordance with the termination provisions contained within the employment agreement. | |
| 5. | On November 8, 2012, ODT and Savicell signed an employment agreement with Dr. Irit Arbel, its new vice president, research and development, which agreement entailed an effective date of September 1, 2012. In return for acting as its new vice president, research and development officer, the Company will provide Dr. Arbel an annual salary, denominated in new Israeli shekels, approximately equal to $96,000 together with other benefits and the potential for additional bonuses as declared from time to time by the Company’s board of directors. The agreement will end on August 31, 2017 unless terminated early in accordance with the termination provisions contained within the employment agreement. |
Note 12 – Subsequent Events
| 1. | In January-March of 2013, Savicell collected additional equity financing proceeds of $540,594 representing 318 ordinary shares at $1,698.97 per share. Once these additional shares are formally issued, the third party Savicell investors will hold a total interest of approximately 7.85% of the fully diluted common equity of Savicell. Given the existence of the outstanding Warrants, ODT will be left with 78.33% of the fully diluted shares of Savicell. | |
| 2. | In January of 2013, the Company commenced a process to effect a change of name. In order to do so, the Company incorporated a new Nevada subsidiary named Savicell, Inc. with the intention of then amalgamating with the subsidiary. ODT will be the surviving entity and will subsequently carry on business under the name Savicell, Inc. | |
| 3. | On January 22, 2013 the Company sold the website assets described in Note 4 above for $10 to an arm’s length individual. The Company had previously written off the costs related to the website development after having changed its focus to the biotechnology space. |
F-20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROL AND PROCEDURES
Disclosure Controls and Procedures
As required by paragraph (b) of Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934, our management, with the participation of our principal executive officer and principal financial officer evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, management concluded that as of the end of the period covered by this Annual Report on Form 10-K, these disclosure controls and procedures were ineffective.
Because of the inherent limitations in all control systems, our management believes that no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over our financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, our management, with the participation of our principal executive officer and principal financial officer has conducted an assessment, including testing, using the criteria in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Our Management, including our principal executive officer and our principal financial officer, conducted an evaluation of the design and operation of our internal control over financial reporting as of December 31, 2012 based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, our management concluded our internal control over financial reporting was not effective as at December 31, 2012 due to the following material weaknesses which are indicative of many small companies with small staff: (i) inadequate segregation of duties and ineffective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.
Our company plans to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this annual report on Form 10-K, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending December 31, 2013: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out in (i) is largely dependent upon our company securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely effected in a material manner.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
22
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Our internal control over financial reporting was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report.
Changes in internal control over financial reporting
Other than the resignation of Robbie Manis as our Chief Financial Officer on October 2, 2012, there were no changes in our internal control over financial reporting during the quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
ITEM 9B OTHER INFORMATION
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Our directors hold office until the next annual meeting of stockholders and until his or her successor is elected and qualified. Any director may resign his or her office at any time and may be removed at any time by the holders of a majority of the shares then entitled to vote at an election of directors. Our board of directors appoints our executive officers, and our executive officers serve at the pleasure of our board of directors.
Our directors and executive officers, their ages, positions held, and duration of such are as follows:
Name | Position Held with Our Company | Age | Date First Elected or Appointed |
Giora Davidovits | Chief Executive Officer, President, Secretary, Treasurer and Director Chief Financial Officer | 58 | July 30, 2012 October 2, 2012 |
David Eyal Davidovits | Vice President Business Development Chief Operations Officer Director | 44 | April 5, 2012 July 30, 2012 November 7, 2012 |
Irit Arbel | Executive Vice President, Research and Development | 52 | July 30, 2012 |
| Benjamin Cherniak | Director | 44 | August 4, 2010 |
Business Experience
The following is a brief account of the education and business experience of our directors and executive officers during at least the past five years.
Giora Davidovits,Director, Chief Executive Officer, Chief Financial Officer, President, Secretary, and Treasurer
Mr. Davidovits is currently our Chief Executive Officer, Chief Financial Officer, President, Secretary Treasurer and a director of our company. Mr. Davidovits brings 25 years of management experience at Fortune 500 companies to our company, including Procter & Gamble, Johnson & Johnson, Abbott Laboratories, and Rorer Consumer Pharmaceuticals, and of research experience at Ortho Diagnostics. He is the President and a senior partner of CorInsight LLC, a marketing, business development and technology transfer consultancy, and the Chief Executive Officer of ABC Diabetes, Inc. He has a BA in biochemistry from Brandies University and an MBA from Cornell University. Mr. Davidovits introduced and successfully launched many products either in the role of marketing executive or consultant. His healthcare experience includes diabetes, cancer, pregnancy, cardiology, nephrology, podiatry, HIV, nutrition, and multiple OTC categories.
23
We believe Mr. Davidovits is qualified to serve on our board of directors because of his education and business experiences, including his experience as a director of similar companies, as described above.
David Eyal Davidovits,Director, Vice President Business Development and Chief Operating Officer
Mr. Davidovits brings 20 years of marketing, finance, and operations executive experience at Intel, Marvell, and CorInsight. Mr. Davidovits was the Vice President of Business Development of our company since April 5, 2012. His experience includes assessments of strategic partnerships and joint ventures with Intel Capital, Intel Haifa computer mobility group operations, finance management at Intel USA, and the development of and responsibility for major Fortune 500 company accounts at CorInsight. Mr. Davidovits is a senior partner of CorInsight LLC, a marketing, business development and technology transfer consultancy, and General Manager of CorInsight's Israel office. He has BS in Manufacturing Engineering and Business Studies from Coventry University, UK.
We believe Mr. Davidovits is qualified to serve on our board of directors because of his education and business experiences, including his experience as a director of similar companies, as described above.
Irit Arbel,Executive Vice President, Research and Development
Irit Arbel brings 15 years of management experience in the areas of cell therapy, medical devices, and pharmaceuticals. She is a co-founder and served as chairperson of several medical device companies including Real Aesthetics Inc and BRH Medical. She is a member of the RFB Investment House management team, and the co-founder and board member at Brainstorm Cell Therapeutics. She served as CEO of Pluristem Therapeutics and was Israel's national sales manager for Merck, Sharp and Dohme Ltd. Irit has extensive experience leading companies from startup to exits. She was a post doctorate at Hadassah Hospital Neurological Department. Irit received a Doctor of Science (D.Sc.) in Neurology from The Technion Medical School; MA in Medical Science; and BA in Chemical Engineering and Biology. Her healthcare experience includes Alzheimer’s, MS, ALS, cancer, stem cell therapy, cardiology, ophthalmology, and diabetic wound healing.
Benjamin Cherniak,Director
Mr. Cherniak is a director of our company. Since 2007, Mr. Cherniak has also served as Director of Business Development and President for various companies engaged in the dissemination of sports information relevant to the North American professional and collegiate leagues. In these capacities, Mr. Cherniak’s responsibilities have included expansion of the product lines to Asia and Europe, overseeing the redesign of various of the companies’ technological platforms and directing the day-to-day business activities. From 2003 to 2006, Mr. Cherniak was a principal with Bosworth Field Associates (“Bosworth”) and in 2007 Mr. Cherniak was a principal of Stanton Chase International (“Stanton”). Bosworth and Stanton are two executive recruiting firms, specializing in the finance and accounting sectors. Previously, Mr. Cherniak has significant experience in a wide array of businesses, specializing in the areas of marketing and product development.
We believe Mr. Cherniak is qualified to serve on our board of directors because of his education and varied business experiences, including his experience as our director, as described above.
Family Relationships
Giora Davidovits and Eyal Davidovits are brothers.
Significant Employees
We do not currently have any significant employees other than our officers.
24
Committees of Board of Directors
We do not presently have a separately constituted audit committee, compensation committee, nominating committee, executive committee or any other committees of our Board of Directors. As such, our Board of Directors act as our audit committee and handle matters related to compensation and nomination of directors.
Our board of directors has determined that it does not have a member that qualifies as an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K issued by the United States Securities and Exchange Commission. We believe that our entire board of directors is capable of analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues reasonably expected to be raised by our company. We believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated revenues to date.
Potential Conflicts of Interest
Since we do not have an audit or compensation committee comprised of independent directors, the functions that would have been performed by such committees has been performed by our Board of Directors. We will continue to not have an audit or compensation committees and thus there is a potential conflict of interest in that our Board of Directors has the authority to determine issues concerning management compensation and audit issues that may affect management decisions.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during fiscal year ended December 31, 2012, all filing requirements applicable to its officers, directors and greater than 10% percent beneficial owners were complied with, with the exception of the following:
Name | Number of Late Reports | Number of Transactions Not Reported on a Timely Basis | Failure to File Requested Forms |
| Giora Davidovits | 3 | 2 | 0 |
| David Eyal Davidovits | 3 | 2 | 0 |
| Irit Arbel | 3 | 2 | 0 |
| Benjamin Cherniak | 1 | 1 | 0 |
| Robbie Manis | 1 | 0 | 0 |
Code of Ethics
We have not yet adopted a Code of Ethics. We believe that due to our size of our management, we do not require a code of ethics.
Director Independence
We are not subject to listing requirements of any national securities exchange or national securities association and, as a result, we are not at this time required to have our board comprised of a majority of “independent directors.” Our determination of independence of directors is made using the definition of “independent director” contained in Rule 4200(a)(15) of the Marketplace Rules of the NASDAQ Stock Market (“NASDAQ”), even though such definitions do not currently apply to us because we are not listed on NASDAQ. We have determined that none of our directors meet the definition of “independent” as a result of their current or former positions as executive officer of our company.
25
Involvement in Certain Legal Proceedings
Our directors and executive officers have not been involved in any of the following events during the past ten years:
| 1. | any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; | |
| 2. | any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); | |
| 3. | being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; | |
| 4. | being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; | |
| 5. | being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or | |
| 6. | being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
ITEM 11. EXECUTIVE COMPENSATION.
The particulars of compensation paid to the following persons:
| (a) | all individuals serving as our principal executive officer during the year ended December 31, 2012; | |
| (b) | each of our two most highly compensated executive officers other than our principal executive officer who were serving as executive officers at December 31, 2012 who had total compensation exceeding USD 100,000; | |
| (c) | and up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at December 31, 2012, |
who we will collectively refer to as the named executive officers, for the years ended December 31, 2012 and 2011, are set out in the following summary compensation table (in USD):
26
| SUMMARY COMPENSATION TABLE - PERIOD ENDED DECEMBER 31, 2011 | |||||||||
Name and Principal Position | Year | Salary/Fees ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non- Equity Incentive Plan Compensa- tion ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) |
| Giora Davidovits Chief Executive Officer, Chief Financial Officer, President, Secretary, Treasurer and Director(1) | 2012 2011 | $83,333 N/A | $8,400 N/A | nil N/A | $37,500 N/A | nil N/A | nil N/A | nil N/A | $129,233 N/A |
| David Eyal Davidovits Vice President Business Development, Chief Operations Officer, and Director(2) | 2012 2011 | $36,000 N/A | $7,000 N/A | nil N/A | $27,500 N/A | nil N/A | nil N/A | nil N/A | $70,500 N/A |
| Benjamin Cherniak Director and former President, Secretary and Treasurer(3) | 2012 2011 | $20,000 Nil | Nil Nil | Nil Nil | Nil Nil | Nil Nil | Nil Nil | Nil Nil | $20,000 Nil |
| Robbie Manis Former Chief Financial Officer(4) | 2012 2011 | $64,500 Nil | N/A Nil | N/A Nil | $10,000 Nil | N/A Nil | N/A Nil | N/A Nil | $74,500 $8,333 |
| (1) | Giora Davidovits was appointed as Chief Executive Officer, President, Secretary, Treasurer and as a director on July 30, 2012 and Chief Financial Officer on October 2, 2012. |
| (2) | Eyal Davidovits was appointed as Vice President Business Development on April 5, 2012, Chief Operations Officer on July 30, 2012, and as a director on November 7, 2012. |
| (3) | Mr. Cherniak was appointed as a director and President, Secretary and Treasurer on August 4, 2010 and resigned as our President, Secretary and Treasurer on July 30, 2012. |
| (4) | Mr. Manis was appointed as Chief Financial Officer of our company on July 30, 2012 and resigned as Chief Financial Officer on October 2, 2012. Amounts include those paid to Mr. Manis’s holding company. |
Employment Agreements or Arrangements
Other than noted below, we have not entered into any employment (or consulting) agreements or arrangements, whether written or unwritten, with our directors or executive officers since our inception.
David Eyal Davidovits
On October 30, 2012, we signed an employment agreement with David Eyal Davidovits, our Chief Operating Officer to be effective on September 1, 2012. In return for acting as our executive officer, we will provide the following consideration:
| (a) | pay a salary of NIS 432,000 (US$111,541) including VAT paid NIS 36,000 (US$9,295) monthly in arrears; | |
| (b) | grant 2,750,000 options to purchase our company’s common stock at an exercise price of US$0.01 per share until July 30, 2022; | |
| (c) | reimbursement of expenses reasonably and properly incurred by in the performance of duties and responsibilities under the terms of the employment agreement; | |
| (d) | eligibility for participation in our company’s bonus plan or compensation plan, which is based on the achievement of performance goals established with the mutual consent of our company and Mr. Davidovits; |
27
| (e) | four weeks paid vacation each calendar year; | |
| (f) | the option of one of the following compensation for any costs associated with his car travel: (i) we will lease a car and pay for all related expenses up to NIS 4,000 ($1,032) per month; or (ii) Mr. Davidovits will use his car for work related matters as required for the performance of his job, and will be granted a car allowance of NIS 4,000 ($1,032) per month; | |
| (g) | group extended health and dental, life and long-term disability insurance, pension and other benefits; and | |
| (h) | we shall open and maintain a Keren Hishtalmut Fund, as defined under Israeli employment law which we will contribute an amount equal to 7 1/2% of each monthly salary. |
The employment agreement will end on August 31, 2017 unless terminated under the terms of the employment agreement.
We may terminate Eyal Davidovits’ employment at any time without just cause (as defined in the employment agreement) by providing Eyal Davidovits with ninety days prior written notice. In the event we terminate Eyal Davidovits’ employment without just cause or in the event of a change of control (as defined in the employment agreement), we must:
| (a) | continue to pay Eyal Davidovits his base salary of US$111,541 for a period of two years from the date Eyal Davidovits’ employment is terminated or the change of control occurs; and | |
| (b) | continue to provide, for this duration, such employee benefits (as defined in the employment agreement) as may be permitted by and in accordance with the formal plan which governs each of the employee benefits. |
Giora Davidovits
On September 19, 2012, we signed an employment agreement with Giora Davidovits, our Chief Executive Officer and President to be effective on September 1, 2012. In return for acting as our executive officer, we will provide the following consideration:
| (a) | pay a salary of $250,000 per year; | |
| (b) | grant 3,750,000 options to purchase our company’s common stock at an exercise price of $0.01 per share for a period of 10 years; | |
| (c) | grant future stock options at the discretion of our board of directors at the prevailing market price, in accordance with our company’s compensation policies; | |
| (d) | eligibility for participation in our company’s bonus plan, which is based on the achievement of performance goals established with the mutual consent of our company and Mr. Davidovits; | |
| (e) | matching up to a maximum of $17,500 per annum, any annual contributions that Mr. Davidovits may make to a 401K or similar plan; | |
| (f) | four weeks paid vacation each calendar year; | |
| (g) | group extended health and dental, life and long-term disability insurance, pension and other benefits; and | |
| (h) | reimbursement of expenses reasonably and properly incurred by in the performance of duties and responsibilities under the terms of the employment agreement. |
28
The employment agreement will end on August 31, 2017 unless terminated under the terms of the employment agreement.
We may terminate Giora Davidovits’ employment at any time without just cause (as defined in the employment agreement) by providing Giora Davidovits with ninety days prior written notice. In the event we terminate Giora Davidovits’ employment without just cause or in the event of a change of control (as defined in the employment agreement), we must:
(a) continue to pay Giora Davidovits his base salary of US$250,000 for a period of two years from the date Giora Davidovits’ employment is terminated or the change of control occurs; and
(b) continue to provide, for this duration, such employee benefits (as defined in the employment agreement) as may be permitted by and in accordance with the formal plan which governs each of the employee benefits.
Outstanding Equity Awards at Fiscal Year-End of Named Executive Officers
The following table sets forth for each named executive officer certain information concerning the outstanding equity awards as of December 31, 2012:
| Name and Principal Position | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Option Exercise Price | Option Expiration Date |
| Giora Davidovits Chief Executive Officer, Chief Financial Officer, President, Secretary, Treasurer and Director | 3,750,000 | nil | $0.01 | September 1, 2022 |
| David Eyal Davidovits Vice President Business Development, Chief Operations Officer, and Director | 2,750,000 | nil | $0.01 | September 1, 2022 |
| Benjamin Cherniak Director and former President, Secretary and Treasurer | nil | nil | N/A | N/A |
| Robbie Manis Former Chief Financial Officer | 1,000,000 | nil | $0.01 | September 1, 2022 |
Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide retirement or similar benefits for our directors or executive officers.
Director Compensation
Benjamin Cherniak
On November 23, 2012, we entered into a consulting agreement with Benjamin Cherniak, a director of our company, pursuant to which Mr. Cherniak has agreed to provide certain services to our company, including assisting the transition of our company from a social media platform provider to a biotechnology concern and assisting in transitioning the new management team into full operational control of our company. In consideration of his services, we have agreed to pay Mr. Cherniak a consulting fee of $20,000, of which $5,000 will be paid in cash and $15,000 will be paid by the issuance of 1,500,000 shares of our common stock.
29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Security Ownership
The following table sets forth, as of March 25, 2013, certain information known to us with respect to the beneficial ownership of our common stock by (i) each of our directors, (ii) each of our named executive officers (as defined in the “Executive Compensation” section) and current executive officers, (iii) all of our directors and current executive officers as a group, and (iv) each shareholder known by us to be the beneficial owner of more than five percent (5%) of our common stock. Except as set forth in the table below, there is no person known to us who beneficially owns more than 5% of our common stock.
Name and Address of Beneficial Owner | Title of Class | Amount and Nature of Beneficial Ownership(1) | Percent of Class(2) |
| Giora Davidovits 16 Carter Lane Andover, MA 01810 USA | common stock | 21,423,333(3) Direct | 25.9% |
| David Eyal Davidovits 69 Hashomer Street Zichron, Yaakov, Israel 30900 | common stock | 17,470,000(4) Direct | 21.1% |
| Irit Arbel 6 Hadishon Street Jerusalem, Israel 96956 | common stock | 8,140,000(5) Direct | 9.9% |
| Benjamin Cherniak 3120 S. Durango Drive, Suite305 Las Vegas, NV 89117 USA | common stock | 2,700,000 Direct | 3.3% |
| Directors and Executive Officers as a Group (4 persons) | common stock | 49,733,333 | 60.2% |
| (1) | Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options, warrants and convertible securities currently exercisable or convertible, or exercisable or convertible within 60 days, would be counted as outstanding for computing the percentage of the person holding such options, warrants or convertible securities but not counted as outstanding for computing the percentage of any other person. |
| (2) | Based on 82,636,433 shares of common stock issued and outstanding as of March 25, 2013. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. |
| (3) | Includes 3,750,000 options to purchase shares of common stock. |
| (4) | Includes 2,750,000 options to purchase shares of common stock. |
| (5) | Includes 2,000,000 options to purchase shares of common stock. |
Changes in Control
We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change of control of our company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Transactions with related persons
Other than as disclosed below, there has been no transaction, since our January 1, 2011, or currently proposed transaction, in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000 or one percent of our total assets at year end for the last completed fiscal year, and in which any of the following persons had or will have a direct or indirect material interest:
30
| (i) | Any director or executive officer of our company; | |
| (ii) | Any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock; | |
| (iii) | Any of our promoters and control persons; and | |
| (iv) | Any member of the immediate family (including spouse, parents, children, siblings and in- laws) of any of the foregoing persons. |
On November 4, 2011, we entered into a loan terms agreement (“Loan Agreement”) with one of our shareholders to settle a loan payable in the amount of $74,062. Pursuant to the Loan Agreement, the terms of repayment were amended to specify that 10% of the gross proceeds of any prospective debt or equity financing undertaken by us would be applied to the repayment of the principal of this loan until fully repaid. The term loan is unsecured, non-interest bearing and requires that any balance remaining outstanding on November 4, 2016 would then be fully due and payable. A summary of this loan is as follows:
| December 31, 2012 | December 31, 2011 | |||||
| Term loan – face value | $ | 74,062 | $ | 74,062 | ||
| Effective interest rate – 11.68% | (15,833 | ) | (15,833 | ) | ||
| Net present value | 58,229 | 58,229 | ||||
| Interest accretion | 6,969 | 1,115 | ||||
| Total | 65,198 | 59,344 | ||||
| Current portion | 31,645 | 14,146 | ||||
| Term loan – long term | $ | 33,553 | $ | 45,198 |
In each of November 2011 and February 2012, we received loans of $25,000 (collectively the “Convertible Loans”). The terms of the Convertible Loans provided for the subsequent conversion of the underlying indebtedness into shares of our common stock. Such conversions were effected on July 10, 2012 through the issuance of 6,666,666 common shares at a per share price of $0.0075 for aggregate consideration of $50,000.
As at December 31, 2012, we had $400 payable to a director and shareholder of our company. The amount is unsecured, non-interest bearing and due on demand.
During the year ended December 31, 2012, we incurred consulting fees of $257,833 payable to our directors and officers and companies controlled by such directors and officers (for the year ended December 31, 2011 - $8,333).
During the year ended December 31, 2012, two directors and one senior officer of our company participated in two private placements of our company for a total of 25,000,000 common shares at $0.001 for total proceeds of $25,000 prior to their appointments as directors and senior officer. Their acquisition of shares effected a change of control of our company.
During the year ended December 31, 2012, a director of our company participated in a private placement of our company for total of 750,000 common shares at $0.001 per share for total proceeds of $750.
During the year ended December 31, 2012, we settled its debts with our directors and a senior officer of $161,233 and $10,000 for total of 16,123,333 and 1,333,334 common shares at $0.01 and $0.0075 per share, respectively.
During the year ended December 31, 2012, we granted 9,500,000 stock options to our directors with a fair value of $95,000.
As at December 31, 2012, included in our accounts payable accrued liabilities, $12,833 was payable to a company controlled by a former director / officer of our company.
For information regarding compensation for our executive officers and directors, see “Executive Compensation”.
31
Director Independence
Our common stock is quoted on the OTC Bulletin Board operated by FINRA (the Financial Industry Regulatory Authority) and on the over-the-counter market operated by Pink OTC Markets Inc., which do not impose any director independence requirements. Under NASDAQ rule 5605(a)(2), a director is not independent if he or she is also an executive officer or employee of the corporation within the last two years. Using this definition of independent director, we do not have any independent directors.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Audit Fees
The following table sets forth the fees billed to our company for professional services rendered by MNP LLP, our independent registered public accounting firm for the years ended December 31, 2012 and 2011:.
| Fees | 2012 | 2011 | ||||
| Audit Fees | $ | 19,000 | (1) | 11,000 | ||
| Audit Related Fees | 9,923 | 7,330 | ||||
| Tax Fees | nil | nil | ||||
| Other Fees | nil | nil | ||||
| Total Fees | $ | 28,923 | 18,330 |
(1) We have not received an invoice for the audit fees for 2012 from MNP LLP but have included the amount we anticipated will be billed by MNP LLP.
Policy on Pre-Approval by Audit Committee of Services Performed by Independent Auditors
We do not use MNP LLP for financial information system design and implementation. These services, which include designing or implementing a system that aggregates source data underlying the financial statements or generates information that is significant to our financial statements, are provided internally or by other service providers. We do not engage MNP LLP to provide compliance outsourcing services.
Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before an external auditor is engaged by us to render any auditing or permitted non-audit related service, the engagement be:
approved by our audit committee (the functions of which are performed by our entire board of directors); or
entered into pursuant to pre-approval policies and procedures established by the board of directors, provided the policies and procedures are detailed as to the particular service, the board of directors is informed of each service, and such policies and procedures do not include delegation of the board of directors' responsibilities to management.
Our entire board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by our directors before the respective services were rendered.
Our board of directors have considered the nature and amount of fees billed by MNP LLP and believe that the provision of services for activities unrelated to the audit is compatible with maintaining MNP LLP’s independence.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
Exhibits required by Item 601 of Regulation S-K:
32
| Exhibit | |
| Number | Description |
| (3) | Articles of Incorporation and Bylaws |
| 3.1 | Articles of Incorporation (incorporated by reference to an exhibit to a registration statement on Form S-1 filed on August 10, 2010) |
| 3.2 | Bylaws (incorporated by reference to an exhibit to a registration statement on Form S-1 filed on August 10, 2010) |
| (10) | Material Contracts |
| 10.1 | Consulting Agreement dated November 1, 2011 with 1367826 Ontario Limited and Robbie Manis (incorporated by reference to an exhibit to a current report on Form 8-K filed on November 3, 2011) |
| 10.2 | Consulting Agreement dated November 1, 2011 with Kerry Chow (incorporated by reference to an exhibit to a current report on Form 8-K filed on November 3, 2011) |
| 10.3 | Loan Terms Agreement dated November 4, 2011 with Peter Hough (incorporated by reference to an exhibit to a current report on Form 8-K filed on November 8, 2011) |
| 10.4 | Mineral Property Acquisition Agreement dated November 21, 2011 with Minera Del Pacifico, S.A. (incorporated by reference to an exhibit to a current report on Form 8-K filed November 21, 2011) |
| 10.5 | Loan Terms Agreement dated November 24, 2011 with Amir Rachmani (incorporated by reference to an exhibit to a current report on Form 8-K filed November 24, 2011) |
| 10.6 | Loan Terms Agreement dated February 13, 2012 with Ori Ackerman (incorporated by reference to an exhibit to a current report on Form 8-K filed February 13, 2012) |
| 10.7 | Form of Subscription Agreement for Non-US Subscribers (incorporated by reference to an exhibit to a current report on Form 8-K filed May 24, 2012) |
| 10.8 | Form of Subscription Agreement for US Subscribers (incorporated by reference to an exhibit to a current report on Form 8-K filed May 24, 2012) |
| 10.9 | Form of Shares for Debt Agreement for Canadian Subscribers (incorporated by reference to an exhibit to a current report on Form 8-K filed July 18, 2012) |
| 10.10 | Form of Subscription Agreement for Non-US Subscribers (incorporated by reference to an exhibit to a current report on Form 8-K filed July 18, 2012) |
| 10.11 | License and Research Funding Agreement dated July 25, 2012 between Ramot at Tel Aviv University Ltd. and Savicell Diagnostic Ltd.(portions of the exhibit has been omitted pursuant to a request forconfidential treatment)(incorporated by reference to an exhibit to a current report on Form 8-K filed August 1, 2012) |
| 10.12 | Warrant Agreement dated July 25, 2012 between Savicell Diagnostic Ltd. and Ramot at Tel Aviv University Ltd.(portions of the exhibit has been omitted pursuant to a request for confidentialtreatment)(incorporated by reference to an exhibit to a current report on Form 8-K filed August 1, 2012) |
| 10.13 | Employment Agreement with Giora Davidovits dated September 1, 2012 (incorporated by reference to an exhibit to a current report on Form 8-K filed September 19, 2012) |
| 10.14 | Form of Conversion and Participation Rights Agreement (incorporated by reference to an exhibit to a current report on Form 8-K filed November 1, 2012) |
| 10.15 | Employment Agreement with Eyal Davidovits dated October 30, 2012 (incorporated by reference to an exhibit to a current report on Form 8-K filed November 5, 2012) |
| 10.16 | Form of Debt Conversion Agreement (incorporated by reference to an exhibit to a current report on Form 8-K filed November 16, 2012) |
33
| 10.17 | Form of Offshore Debt Conversion Agreement (incorporated by reference to an exhibit to a current report on Form 8-K filed November 16, 2012) |
| 10.18 | Form of Canadian Debt Conversion Agreement (incorporated by reference to an exhibit to a current report on Form 8-K filed November 16, 2012) |
| (21) | Subsidiaries |
| 21.1 | Subsidiary of Online Disruptive Technologies, Inc.: Savicell Diagnostic Ltd. our approximately 80% wholly-owned subsidiary incorporated in Israel on April 23, 2012 |
| (33) | Certification |
| 31.1* | Section 302 of the Sarbanes-Oxley Act of 2002 of Giora Davidovits |
| 32.1* | Section 906 Certifications under Sarbanes-Oxley Act of 2002 of Giora Davidovits |
*Filed herewith.
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
ONLINE DISRUPTIVE TECHNOLOGIES, INC.
| By | |
| /s/ Giora Davidovits | |
| Giora Davidovits | |
| Chief Executive Officer, Chief Financial | |
| Officer, President, Secretary, Treasurer | |
| and Director | |
| (Principal Executive Officer and Principal Financial Officer and Principal Accounting Officer) | |
| March 29, 2013 | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By | |
| /s/ Giora Davidovits | |
| Giora Davidovits | |
| Director | |
| March 29, 2013 | |
| /s/ Benjamin Cherniak | |
| Benjamin Cherniak | |
| Director | |
| March 29, 2013 | |
| /s/ Eyal Davidovits | |
| Eyal Davidovits | |
| Director | |
| March 29, 2013 |
35