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, 2017
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
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 with a par value of $0.001 per share
(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
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, 2017, 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 $13,480,878, based on 67,404,388 shares of common stock held by non-affiliates and last sale on June 30, 2017 being $0.20 per share. |
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.119,644,587 shares of common stock as at April 24, 2018.
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) under 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
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PART I
Forward Looking Statements
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 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 beliefs regarding the future of our competitors; | |
| • | our belief that a large unmet need in cancer diagnostics exists in early diagnosis and 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 expectation that the demand for our products will eventually increase; | |
| • | our expectation that we will be able to raise capital when we need it; and | |
| • | our expectation that there is a new market for screening tests. |
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 company’s 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; | |
| • | 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”. |
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., 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. (“RSE”) 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 RSE.
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Pursuant to a license agreement and research funding agreement (the “License Agreement”) dated July 24, 2012 and 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 MATAM Advanced Technology Park, Building #23, Haifa, 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”). 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, Savicell 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 the License Agreement, we are focused entirely on the development of Savicell.
Savicell
The Savicell™ platform is a blood test designed for the early detection of disease. It is a broad platform with applications for cancer, autoimmune diseases, and infectious diseases. While our focus initially is on early diagnosis of disease, we believe our technology may have additional applications in drug response monitoring for therapies that impact immune response. Immunotherapy, both for treating cancer and autoimmune diseases, is an example where metabolic shift profiles could indicate response to drug treatment.
Initially, Savicell is focused on the multibillion-dollar cancer diagnosis market. Savicell deploys Well-Shield™ technology, a Liquid ImmunoBiopsy™ diagnostic platform. In contrast to existing technologies that evaluate secretions of cancer cells, Well-Shield’s ImmunoBiopsy platform receives data directly from the immune system. Importantly, Well-Shield is different in that it is a functional test measuring the metabolic activation profile of the immune system as an indicator of disease status. As an immune system test, it is inherently suited for early detection.
The technology has now received intellectual property protection with a patent approved in the United States, China, Japan and Europe. Furthermore, the patent process is ongoing in several other countries.
Disease intrusion and cell malformation, including cancer, are first detected by the immune system, which energizes to rid the body of the malignancy. The initial immune response to disease is intricate, deploying different metabolic pathways and subtypes of cells. The Well-ShieldTM technology is designed to detect and interpret these differential metabolic responses.
The Savicell vision is to develop and commercialize a line of patient-friendly blood tests that enable early diagnosis, staging, and monitoring, thereby saving lives and ensuring appropriate treatment. Cancer is our initial focus.
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The need for early diagnosis
Cancer cases are increasing, with more than 20 million new cases predicted in 2025, compared to 12 million in 2008. Early detection is very important because it can improve outcomes. Typically, more treatment options are available when cancer is diagnosed early, and survival improves. In the United States, the five-year survival rate improves by at least four times with early diagnosis and before cancer has spread. Unfortunately, to date, the majority of cancer patients are diagnosed at later stages.
While surgical biopsies are the norm, they are invasive and expensive. The need for simpler and more efficient processes for cancer detection has incentivized some 38 companies in the United States to work on creating liquid biopsies. In a 2015 report, investment bank Piper Jaffray valued the potential market for liquid biopsies at $29 billion in the United States alone.
Using technologies based on circulating tumor cells, exosomes, and circulating tumor nucleic acids, liquid biopsy companies are making progress in developing products that have advantages versus current technologies. However, it appears more likely that these types of liquid biopsy technologies best support late stage cancers, with technical challenges remaining for early-stage cancers and early cancer screening.
In contrast, the Well-Shield patented ImmunoBiopsy platform is unique in the Liquid Biopsy market. And we believe that as an immune system functional test it is inherently better suited for early detection.
Product focus
Savicell conducted clinical work for tests specific to breast and lung cancers in multiple medical centers. We had encouraging early reviews of our breast cancer and lung cancer analyses albeit on relatively small sample sizes. Specifically, we distinguished between breast cancer patients and healthy donors, and lung cancer patients and healthy donors, with high sensitivity and specificity of greater than 95% in both cancers. In addition, we were able to show that there is a metabolic profile difference between other breast disease donors and breast cancer donors and between COPD (chronic obstructive pulmonary disease) donors and lung cancer donors.
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Based on this early potential, Savicell has decided to focus our resources on lung cancer as our lead product. We are working to increase the population size of the lung cancer clinical test and continue to fine-tune a predictive algorithm to identify lung cancer. Early results of this effort generated promising cross-validation of 72 donors from our clinical study. This cohort includes 36 diseased donors, together with a control group of 36 age- and sex-matched healthy donors. In practice this means that every lung cancer (patient) donor in the cohort was matched with a healthy donor of the same gender and similar age. This practice helps us control for sampling biases.
Table 1 - Cross-validation (CV)
| CV: | LOO (95% CI) | 20F (95% CI) |
| Sensitivity | 92.9% (89.1% - 96.6%) | 85.7% (80.6% - 90.8% |
| Specificity | 76.7% (70.6% - 82.8%) | 72.6% (66.1% - 79.1%) |
| Positive predictive value | 75.4% (69.1% - 81.6%) | 70.6% (64.0% - 77.2%) |
| Negative predictive value | 93.3% (89.7% - 96.9%) | 86.9% (82.0% - 91.8%) |
| Accuracy | 83.7% (78.4% - 89.1%) | 78.3% (72.3% - 84.3%) |
| Count | Age | M/F | |
| Healthy | 73 | 59.6 +/- 8.9 | 46/27 |
| Lung-Cancer | 56 | 66.5 +/- 10.3 | 33/23 |
| Total | 129 | 62.6 +/- 10.1 | 79/50 |
Cross-validation (CV) – we let the algorithm train on a large subset of labeled donors and then let it make a prediction on a small subset of unlabeled donors that were not in the training set. This process is repeated several times until every donor in the cohort is given a prediction.
We use several types of cross- validation: LOO – Leave one out – one donor is left out of the training set each iteration (total of n iterations), 20F – Stratified 20-fold CV – the cohort is split into 20 semi-equal-sized subsets; each subset containing both sick and healthy donors, is left out once (total of 20 iterations). In addition, we run the algorithm once without cross-validation, meaning that the entire cohort is used for training and prediction.
Lung cancer
American Cancer Society estimates there will be 222,500 new cases of lung cancer in the USA in 2017, representing 13.6% of all cancer diagnoses. Worldwide, there were an estimated 1.8 million new cases of lung cancer in 2012, accounting for 12.9% of all cancers. Lung cancer is the leading cancer killer in both men and women in the USA and worldwide. (7) (8)
Less than 20% of lung cancers are diagnosed at an early stage, with a five-year survival rate (completely resected NSCLC stage 1A) that ranges from 67 to 89% (4). Unfortunately, the majority of lung cancer cases (57%) are diagnosed at an advanced stage when five-year survival is as low as 4%. This is because lung cancer symptoms present themselves at later stages of the disease.
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Cigarette smoke remains the main risk factor for lung cancer, with 85% to 90% of lung cancer cases in the USA occurring in current or former smokers. There are about 94 million current and former smokers in the USA. While clinicians can identify those at risk, they lack effective tools to diagnose lung cancer early.
With improved low-dose computed tomography (LDCT) technology, it is possible to detect potential malignant nodules in high-risk populations. Pulmonary nodules are small, focal, radiographic opacities that may be solitary or multiple. The management goal of patients with pulmonary nodules is to distinguish between benign and malignant nodules, speeding diagnosis for malignant nodules while minimizing unnecessary and invasive testing of those that are benign. Many pulmonary nodules are detected incidentally in computed tomography (CT) and chest x-rays examination (not related to the indication for obtaining the CT or x-rays examination) and in scheduled LDCT screening.
The largest USA National Screening Trial (NLST) demonstrated that screening high-risk subjects decreases mortality. The current standard of care for diagnosing lung cancer in high-risk patients is LDCT scanning. This large trial of 53,454 current or former heavy smokers, ages 55 to 74, demonstrated that screening high-risk subjects using LDCT decreases mortality from lung cancer by 20%. Based on this study, the United States Preventive Services Task force (“USPSTF”) guidelines recommend annual LDCTs for patients at high risk for lung cancer. However, there are major limitations to CT screening that create the following two important market needs:
Broader Screening
Because of cost-benefit ratios (including possible radiation risks), LDCT was approved only for a heavy- use segment of past and current smokers. Specifically, Americans aged 55 to 80 years old who have a 30 pack-year smoking history and currently smoke or have quit within the past 15 years. This represents about 10 million people or about 11% of the 94 million past and current smokers in the US. There is still a major unmet need for a safer, cost- effective liquid biopsy test that can help screen for lung cancer in the broader past and current smoker population.
Indeterminate Nodules
A total of 96.4% of the positive screening results (NLST) in the low- dose CT group and 94.5% in the radiography group were false positive results. The estimated number of pulmonary nodules in the USA ranges from 2 million to 4.9 million annually (1)(2)(3). Using an estimate of 3 million annual pulmonary nodules, and a false positive rate of 96.4% for LDCT and 94% for x-ray, would generate up to 2.8 million false positive cases a year. In addition, 25% of all LDCTs are indeterminate, and require additional follow-up procedures. A full implementation of LDCT screening in the USA will identify 2.5 million indeterminate nodules and is expected to further increase the number of false positive cases.
After nodule findings, the follow-up procedures to diagnose lung cancer are expensive, invasive procedures like biopsy. Bronchoscopy can have significant complication risks, and follow-up imaging adds to radiation risks. Millions of false positive cases annually could lead to unnecessary invasive procedures on many smokers or past smokers who do not actually have lung cancer, driving higher costs, mortality and morbidity.
There is an important need for a safer liquid biopsy test that can assist in the diagnosis of indeterminate nodules and significantly reduce the number of false positive results.
Lung cancer strategy
In the longer term, we plan to develop a screening test for lung cancer. However, our initial goal is to provide an additional tool for clinicians, designed to assist in the diagnosis of indeterminate nodules identified by imaging. The Well-Shield test is intended to help a clinician decide on invasive and/or non-invasive follow- up. It could help reduce the majority of the false positive results and reduce the number of unnecessary invasive procedures by more than 200,000 annually in the US (5)(6). As a result, Well-Shield’s test could drive $3.6 billion in annual cost savings in the USA alone.
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Sources Quoted
(1) Luba Frank and Leslie E. Quint Chest CT incidentalomas: thyroid lesions, enlarged mediastinal lymph nodes, and lung nodules Cancer Imaging. 2012; 12(1): 41–48
(2) MacMahon H, Austin JH, Gamsu G, et al. Guidelines for management of small pulmonary nodules detected on CT scans: a statement from the Fleischner Society. Radiology. 2005;237:395–400. doi:10.1148/radiol. 2372041887. [PubMed]
(3) Michael K. Gould et al. Recent Trends in the Identification of Incidental Pulmonary Nodules. Am J Respir Crit Care Med Vol 192, Iss 10, pp 1208–1214, Nov 15, 2015
(4) Apichat Tantraworasin et al. ISRN Surgery Volume 2013, Article ID 175304, 7 pages
(5) Moving Beyond the National Lung Screening Trial: Discussing Strategies for Implementation of Lung Cancer Screening Programs Bernando H.L. Goulard, The Oncologist. 2013 Aug; 18(8): 941–946
(6) Assume 10 million patients screened and sensitivity and specificity of 92% and 75% respectively. Well-Shield may have higher or lower sensitivity and specificity.
(7) Cancer Facts & Figures 2015.
(8) World Cancer Report 2014.
Marketing Strategy
The Savicell innovation is highly differentiated in the diagnostic market. While immunotherapy of cancer is under intensive clinical research, virtually no attention is paid to the 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.
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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.
Guardant Health Corporation and Grail Corporation are two examples of liquid biopsy technology companies. Their technology uses DNA sequencing to detect and evaluate cancer. There are many other competitors in the liquid biopsy market.
Research and Development Expenditures
During the year ended December 31, 2017, we expended $1,272,666 in research and development. During the year ended December 31, 2016, we expended $1,327,758 in research and development.
Employees
We currently have Ten employees located in the U.S. and in our laboratory located in Haifa, Israel. In addition, we have several consultants engaged on continuous mandates. Over the next twelve months we plan to increase the number of employees with a greater increase in the Israel locale. We will continue to use a mix of employees and consultants depending on the time commitment required for the particular roles being fulfilled by these personnel.
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.
Savicell has been granted approval of its patent, “METHODS OF MONITORING AND ANALYZING METABOLIC ACTIVITY PROFILES > DIAGNOSTIC AND THERAPEUTIC USES OF SAME” from the United States patent office effective as of May 20, 2014 and issued as US Patent No. 8,728,758 and from the European patent office effective as of September 8, 2016. The technology has now received intellectual property protection with a patent approved in the United States, China, Japan and Europe. Furthermore, the patent process is ongoing in several other countries.
Savicell has submitted a provisional patent in August 2017 specific to lung cancer “METHODS OF DIAGNOSING AND TREATING LUNG CANCER”
Savicell has been granted approval of its continuation patent, “METHODS OF MONITORING AND ANALYZING METABOLIC ACTIVITY PROFILES > DIAGNOSTIC AND THERAPEUTIC USES OF SAME” from the United States patent office effective as of Feb 8, 2018 and issued as US Patent No. 0038849.
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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.
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 annual report on Form 10-K 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 slowing of the worldwide economic growth 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.
There has been a downturn in general worldwide economic conditions due to many factors, including the effects of 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.
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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 continue to ramp-up the scope of our business operations. With our stated goal of completing our clinical testing, furthering our research and development and achieving commercialization of the Technology, the pace of our progress will depend on the quantum of financing raised. As additional financing is raised, we will continue to accelerate the pace of our overall business initiates. Until the amount of financing is known, we cannot precisely forecast the expenditure budget. On December 31, 2017, we had cash and cash equivalents of $232,247. As of December 31, 2017, we had total liabilities of $1,931,661, the majority of which is represented by debt owing to management that is expected to be converted to common shares and for which management has limited ability to demand payment in cash. 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.
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 officers 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.
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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.
Risks Relating to Our 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:
| • | our clinical testing is still in progress and development; | |
| • | 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; |
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| • | 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.
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 biotech 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.
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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 be 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.
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:
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| • | 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; | |
| • | 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; and | |
| • | 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. |
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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.
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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 OTC Pink operated by the OTC Markets Group, there is no market for our common stock. Even when a market is established and trading begins, trading through OTC Pink 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
Executive Offices
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 U.S. 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. Our Subsidiary operates from a new laboratory facility in Haifa, Israel, including sourcing office space in Israel to house the operations of our Subsidiary. On July 20, 2015, Savicell signed an operating lease agreement to lease offices for a period ending July 31, 2018 with an option to renew the lease for an additional period of 2 years. The monthly lease expense is approximately $3,152. Our company pledged a bank deposit which is used as a bank guarantee at an amount of approximately $13,254 to secure its payments under the lease agreement.
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Intellectual Property
The description of our intellectual property rights is under the section entitled “Intellectual Property” under Item 1. Business.
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 OTC Pink operated by the OTC Markets Group under the symbol “ONDR”. As of March 31, 2018, our common stock has had no trading activity on OTC Pink.
As of April 24, 2018, we had 119,644,587 shares of our common stock issued and outstanding as well as options to acquire up to 18,405,896 shares of our common stock outstanding at per share prices ranging from $0.01 -$0.20. In addition, in respect of certain obligations owing to management or consultants, we have provided such creditors with the right to convert their respective claims into a maximum aggregate amount of 17,303,404 of our common shares at per share prices ranging from $0.055 -$0.20. Finally, in respect of convertible debentures issued in March of 2018, we have granted the holders thereof the right to convert their debt into a minimum of 1,750,000 of our common shares.
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 located at 50 West Liberty Street, Suite 880, Reno, Nevada 89501, Telephone (775) 322-0626, Transfer Agent e-mail: info@natco.org.
Holders of Our Common Stock
As of April 24, 2018, we had approximately 160 holders of our common stock.Registration Rights We have not granted registration rights to any person.
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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.
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, 2017, 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, 2017:
| 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 | 18,405,896(1) | $0.06 | Nil |
| Total | 18,405,896 | $0.06 | Nil |
| (1) | A total of 7,214,717 options have been granted pursuant to our 2013 Stock Incentive Plan and 11,191,179 options have been granted outside of the 2013 Stock Incentive Plan. |
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Stock Option Plan
Effective June 5, 2013 our board of directors adopted and approved the 2013 Stock Incentive Plan and Israeli Appendix. The purpose of the option plan is to enhance the long-term stockholder value of our company by offering opportunities to our directors, officers, key employees, independent contractors and consultants to acquire and maintain stock ownership in our company in order to give these persons the opportunity to participate in our company’s growth and success, and to encourage them to remain in the service of our company. A total of 12,000,000 shares of our common stock are available for issuance under the stock option plan and a total of 7,214,717 stock options granted pursuant to the plan remain outstanding.
Issuer Purchases of Equity Securities
During the fiscal year ended December 31, 2017, 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, 2017 and related notes thereto.
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 broader clinical testing may be undertaken. The pace at which we will advance the development of the Technology will depend, in part, on the quantum of additional financing that we are able to raise within the first six months of 2018. Once such amount becomes known, we will be in a position to estimate the overall expenditure profile for the ensuing 12 months.
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 or slow the pace of development.
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.
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Expenses
For the years ended December 31, 2017 and December 31, 2016, we incurred the following expenses:
| Year Ended | Year Ended | |||||
| December 31, 2017 | December 31, 2016 | |||||
| General and Administrative Expenses | $ | $ | ||||
| Accounting Fees | 30,000 | 30,000 | ||||
| Audit & Tax Fees | 71,532 | 68,851 | ||||
| Bank Fees | 575 | 538 | ||||
| Consulting Fees | 288,387 | 388,018 | ||||
| Filing and Transfer Agent Fees | 11,045 | 14,208 | ||||
| Insurance Expense | 45,085 | 46,986 | ||||
| Legal Fees | 28,983 | 38,699 | ||||
| Marketing Expense | 2,780 | - | ||||
| Office and Miscellaneous Expense | 101,127 | 74,198 | ||||
| Payroll Expense | 49,306 | 45,156 | ||||
| Rent Expense | 4,146 | 3,231 | ||||
| Research and Development Expense | 1,272,666 | 1,327,758 | ||||
| Travel Expenses | 17,305 | 14,655 | ||||
| 1,922,937 | 2,052,298 |
Our expenses decreased by approximately 6.3% during the year ended December 31, 2017 compared to the same period in 2016 primarily due to a decrease in the use of consultants, resulting in lower consulting fees, lower payroll expense and a reduction of and a decrease in overall research and development expense which amount includes the stock compensation expenses related to option grants to employees and consultants whose compensation has been included in the overall research and development category. We did see increases in office and miscellaneous expenses and a slight increase in travel expenses.
Significant changes in the expense items from 2016 to 2017 are summarized as follows.
| • | Research and Development (“R&D”) Expense decreased by 4.15% primarily due to three factors: (a) given that we had completed our obligations in connection with the License Agreement in 2015, there are no milestone payments included in the R&D expense in 2017; and (b) given that fewer options were granted to R&D personnel in 2017 relative to 2016, the resulting stock compensation expense recognized in 2017 decreased | |
| • | Marketing Expense increased from $nil to $2,780 as a result of increased financing activities; | |
| • | Rent Expense increased by 28.32% in connection with the operation of Savicell’s new laboratory facility in Haifa, Israel; office and miscellaneous expense increased by 36.29% for the same reason; | |
| • | Travel Expense increased by 18.08% as a result of more frequent travel by our Chief Executive Officer to Israel to oversee operations and meet investors and potential investors. |
Liquidity and Capital Resources
Working Capital
| As at December 31, 2017 | As at December 31, 2016 | |||||
| Current Assets | $ | 255,654 | $ | 482,970 | ||
| Current Liabilities | $ | 860,489 | $ | 177,006 | ||
| $ | (604,835) | $ | 305,964 |
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Our operations consumed less cash in the year ended December 31, 2017 versus the corresponding period in 2016 primarily due to the accrual of accounts payable and accrued liabilities. Much of the increase in payables resulted from not making timely payments of compensation owing to senior management and consultants. However, on a collective basis between our company and Savicell, we raised slightly more dollars of new equity capital. Given that the equity raised in 2017 was less than the cash used in operations as well as investing activities, we experienced a decline in our working capital.
Conversions into Common Stock
On October 30, 2012, we announced the entry into a conversion and participation rights agreement with investors who have purchased ordinary shares of our Subsidiary, Savicell (as detailed in our current report on Form 8-K filed with the SEC on November 1, 2012). Pursuant to the agreement, we have permitted investors to convert their shares held in Savicell into shares of our company at 80% of the per share pricing of the first completed financing of over US$500,000 conducted after July 1, 2012. In each case of conversion of shares from Savicell to shares of our company, our proportional interest in Savicell increases as the shareholder tenders to our company their shares of Savicell in return for treasury issued shares of our company. In respect of the above conversion terms:
| • | On April 3, 2017 we issued an aggregate of 288,830 shares of common stock converted from shares of our subsidiary Savicell at a conversion price at $0.16 per share of our common stock. |
In the above case, these funds had been provided to our subsidiary Savicell in prior fiscal periods, so no net cash was provided by these Financing Activities.
On January 16, 2017, we entered into debt conversion option agreements (each, an “Agreement”) with four subscribers (each, a “Subscriber”) pursuant to which we have agreed to permit the Subscribers to convert an aggregate amount of $172,894.55 (the “Subscription Debt Amount”) owed to them by our company into an aggregate of up to 864,473 shares of common stock of our company (the “Conversion Right”) at a price of $0.20 per share, effective December 31, 2016. Three of the Subscribers are directors and/or officers of our company and have subscribed as follows:
| Name of Insider | Subscription Debt Amount | Number of Shares of Common Stock to be Issued Upon Conversion |
| Giora Davidovits | $75,000.00 | 375,000 |
| Eyal Davidovits | $33,682.91 | 168,415 |
| Irit Arbel | $31,811.64 | 162,000 |
At any time while our company’s shares are listed on a United States stock exchange or quotation system (the “Exchange”), if the average volume over a period of 30 trading days on the Exchange totals 50,000 shares traded per day and the market capitalization of our company’s shares based on the trading price on each such trading day totals a minimum of $100,000,000, we may provide notice to the Subscriber that the Subscriber’s Conversion Right will be terminated in ten (10) business days (the “Early Termination Date”). In the event that we deliver such notice to the Subscriber and the Subscriber does not exercise the Conversion Right in the 10 business days following delivery of such notice, the Conversion Right will have terminated on the Early Termination Date.
The Agreements terminate on the earliest of (i) seven years from the date of the Agreements, (ii) the date the Subscriber demands in writing the Subscription Debt Amount in cash from our company, respecting only that portion of the Subscription Debt Amount demanded by the Subscriber; and (iii) the Early Termination Date (defined below). Each Agreement is the third such agreement with each of the Subscribers regarding debt owed to them; the first such agreement for each was dated April 15, 2015.
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On April 3, 2017, we sold 1,693,750 shares of our common stock at a price of US$0.20 per share for gross proceeds of US$338,750.
On May 4, 2017, we sold 1,250,000 shares of our common stock at a price of US$0.20 per share for gross proceeds of US$250,000.
On August 10, 2017, we sold 600,000 shares of our common stock at a price of US$0.20 per share for gross proceeds of US$120,000.
On September 25, 2017 we issued an aggregate of 150,000 shares of common stock converted from a stock option exercise notice at the conversion price at $0.01 per share of our common stock.
On December 27, 2017, we sold 1,000,000 shares of our common stock at a price of US$0.20 per share for gross proceeds of US$200,000.
Cash Flows
| Year Ended | Year Ended | |||||
| December 31, 2017 | December 31, 2016 | |||||
| $ | $ | |||||
| Net (loss) for the period | (2,264,316) | (2,232,021) | ||||
| Net Cash (Used in) Operating Activities | (1,046,137) | (1,445,523) | ||||
| Net Cash Provided by Financing Activities | 825,000 | 784,250 | ||||
| Net Cash Provided by (Used in) Investing Activities | (-) | (16,733) | ||||
| Cash and Cash equivalents, End of Period | 232,247 | 452,376 |
Cash Used In Operating Activities
The decrease in cash used in operating activities compared to the same period last year is due to an overall decrease in the cash portion of expenses incurred, primarily related to the fact that more payments were accrued but unpaid and as at fiscal year end increased our accounts payable and accrued liabilities considerably.
Cash from Financing Activities
The small increase in cash provided by financing activities compared to the same period last year results from slightly more equity financings completed during the year ended December 31, 2017 compared to the corresponding period of 2016. In 2017, we realized equity financings of $825,000. By contrast, in 2016 we realized equity financing of $784,250.
Cash Provided by (Used in) Investing Activities
The decrease in cash used in investing activities compared to the same period last year results from the decreased purchase of assets used in the furtherance of Savicell’s research and development.
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, 2017, our company has an accumulated deficit of $12,046,656 since inception. We do not have sufficient working capital to enable us to carry out our stated plan of operation for the next 12 months.
22
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, 2017, 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
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
23
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders of Online Disruptive Technologies, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Online Disruptive Technologies, Inc. and its subsidiaries (the Company) as of December 31, 2017 and 2016, and the related consolidated statements of operations and comprehensive loss, statements of (deficiency) equity, and cash flows for each of the years in the twoyear period ended December 31, 2017, and the related notes, comprising a summary of significant accounting policies and other explanatory information (collectively referred to as the financial statements).
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Material Uncertainty Related to Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company generated negative cash flows from operating activities during the past year. The Company has an accumulated deficit of $12,046,656 as at December 31, 2017. These factors raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2011.
Vancouver, Canada
May 31, 2018
ONLINE DISRUPTIVE TECHNOLOGIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017
Online Disruptive Technologies, Inc.
Consolidated Balance Sheets
(U.S. Dollars)
| December 31, 2017 | December 31, 2016 | |||||
| $ | $ | |||||
| ASSETS | ||||||
| Current Assets | ||||||
| Cash and Cash Equivalents | 232,247 | 452,376 | ||||
| Prepaid expenses | 7,247 | 1,687 | ||||
| VAT Receivable | 16,160 | 28,907 | ||||
| Total Current Assets | 255,654 | 482,970 | ||||
| Restricted cash (Note 10 (3)) | 23,091 | 20,857 | ||||
| Fixed Assets (Note 3) | 47,135 | 55,444 | ||||
| Total Assets | 325,880 | 559,271 | ||||
| LIABILITIES | ||||||
| Current Liabilities | ||||||
| Accounts Payable | 705,694 | 61,356 | ||||
| Accrued Liabilities | 154,796 | 115,650 | ||||
| Total Current Liabilities | 860,489 | 177,006 | ||||
| Convertible debentures (Note 6) | 1,071,172 | 729,475 | ||||
| Total Liabilities | 1,931,662 | 906,481 | ||||
| DEFICIT | ||||||
| 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 119,163,408 Common Shares (December 31, 2016: 114,180,828 Common Shares) | 119,163 | 114,181 | ||||
| Additional Paid-in Capital | 10,451,520 | 9,553,025 | ||||
| Accumulated Other Comprehensive Loss | (74,233 | ) | (88,180 | ) | ||
| Deficit | (12,046,656 | ) | (9,982,269 | ) | ||
| Deficit Attributable to Shareholders of the Company | (1,550,206 | ) | (403,243 | ) | ||
| Non-Controlling Interests | (55,576 | ) | 56,033 | |||
| Total Deficit | (1,605,782 | ) | (347,210 | ) | ||
| Total Liabilities and Deficit | 325,880 | 559,271 |
The accompanying notes are an integral part of these consolidated financial statements.
Online Disruptive Technologies, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(U.S. Dollars)
| Year Ended | Year Ended | |||||
| December 31, 2017 | December 31, 2016 | |||||
| General and Administrative Expenses | $ | $ | ||||
| Accounting Fees | 30,000 | 30,000 | ||||
| Audit & Tax Fees | 71,532 | 68,851 | ||||
| Bank Fees | 575 | 538 | ||||
| Consulting Fees | 288,387 | 388,018 | ||||
| Filing and Transfer Agent Fees | 11,045 | 14,208 | ||||
| Insurance Expense | 45,085 | 46,986 | ||||
| Legal Fees | 28,983 | 38,699 | ||||
| Marketing Expense | 2,780 | - | ||||
| Office and Miscellaneous Expense | 101,127 | 74,198 | ||||
| Payroll Expense | 49,306 | 45,156 | ||||
| Rent Expense | 4,146 | 3,231 | ||||
| Research and Development Expense (Note 4) | 1,272,666 | 1,327,758 | ||||
| Travel Expenses | 17,305 | 14,655 | ||||
| 1,922,937 | 2,052,298 | |||||
| Other Expense | ||||||
| Interest Accretion | 337,161 | 176,382 | ||||
| Interest Expense | 884 | 468 | ||||
| Foreign Currency Loss | 3,334 | 2,873 | ||||
| Net Loss for the year | (2,264,316 | ) | (2,232,021 | ) | ||
| Other Comprehensive Income | ||||||
| Currency translation adjustments | 13,947 | 540 | ||||
| Comprehensive Loss for the year | (2,250,369 | ) | (2,231,481 | ) | ||
| Net Loss Attributable to: | ||||||
| Common Stockholders | (2,064,387 | ) | (1,955,691 | ) | ||
| Non-Controlling Interests | (199,929 | ) | (276,330 | ) | ||
| (2,264,316 | ) | (2,232,021 | ) | |||
| Net Comprehensive Loss Attributable to: | ||||||
| Common Stockholders | (2,051,671 | ) | (1,955,218 | ) | ||
| Non-Controlling Interests | (198,698 | ) | (276,263 | ) | ||
| (2,250,369 | ) | (2,231,481 | ) | |||
| Basic and Diluted Net Loss per Common Share | (0.02 | ) | (0.02 | ) | ||
| Weighted Average Number of Common SharesOutstanding – Basic and Diluted | 110,324,539 | 107,753,316 |
The accompanying notes are an integral part of these consolidated financial statements.
Online Disruptive Technologies, Inc.
Consolidated Statements of (Deficiency)Equity
For the years ended December 31, 2017 and 2016
(U.S. Dollars)
| Accumulated | |||||||||||||||||||||||||||
| Additional | Share | Other | Total Common | Total | |||||||||||||||||||||||
| Non- | |||||||||||||||||||||||||||
| Common Stock | Paid In | Subscription | Comprehensive | Shareholders | Controlling | Equity | |||||||||||||||||||||
| (Deficiency)/ | |||||||||||||||||||||||||||
| Shares | Amount | Capital | Received | Income | (Deficit) | Equity | Interests | (Deficiency) | |||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Balance December 31, 2015 | 98,979,174 | 98,979 | 8,700,219 | - | (88,720 | ) | (8,026,578 | ) | 683,900 | 111,913 | 795,813 | ||||||||||||||||
| Shares issued for cash at $0.20 per share | 3,125,000 | 3,125 | 621,875 | 625,000 | 625,000 | ||||||||||||||||||||||
| Shares issued for investment in Savicell at $0.16 | 12,026,654 | 12,027 | 1,912,239 | 1,924,266 | 1,924,266 | ||||||||||||||||||||||
| Stock options exercised for Shares | 50,000 | 50 | 450 | 500 | 500 | ||||||||||||||||||||||
| Share subscription received | 158,750 | 158,750 | 158,750 | ||||||||||||||||||||||||
| Stock option expense | 312,187 | 312,187 | 312,187 | ||||||||||||||||||||||||
| Change in ownership of Savicell | (2,152,695 | ) | (2,152,695 | ) | 220,450 | (1,932,245 | ) | ||||||||||||||||||||
| Foreign currency translation adjustment | 540 | 540 | 540 | ||||||||||||||||||||||||
| Net loss for the year | (1,955,691 | ) | (1,955,691 | ) | (276,330 | ) | (2,232,021 | ) | |||||||||||||||||||
| Balance December 31, 2016 | 114,180,828 | 114,181 | 9,397,275 | 158,750 | (88,180 | ) | (9,982,269 | ) | (403,243 | ) | 56,033 | (347,210 | ) | ||||||||||||||
| Shares issued for cash at $0.20 per share | 4,543,750 | 4,544 | 904,206 | (158,750 | ) | 750,000 | 750,000 | ||||||||||||||||||||
| Shares issued for investment in Savicell at $0.16 | 288,830 | 289 | 45,924 | 46,213 | 46,213 | ||||||||||||||||||||||
| Stock options exercised for Shares | 150,000 | 150 | 1,350 | 1,500 | 1,500 | ||||||||||||||||||||||
| Share subscription received (Note 7) | 95,000 | 95,000 | 95,000 | ||||||||||||||||||||||||
| Stock option expense | 190,720 | 190,720 | 190,720 | ||||||||||||||||||||||||
| Change in ownership of Savicell (Note 7) | (158,455 | ) | (158,455 | ) | 88,320 | (70,135 | ) | ||||||||||||||||||||
| Share issuance cost | (21,500 | ) | (21,500 | ) | (21,500 | ) | |||||||||||||||||||||
| Foreign currency translation adjustment | 13,947 | 13,947 | 13,947 | ||||||||||||||||||||||||
| Net loss for the year | (2,064,387 | ) | (2,064,387 | ) | (199,929 | ) | (2,264,316 | ) | |||||||||||||||||||
| Balance December 31, 2017 | 119,163,408 | 119,163 | 10,356,520 | 95,000 | (74,233 | ) | (12,046,656 | ) | (1,550,205 | ) | (55,576 | ) | (1,605,782 | ) | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Online Disruptive Technologies, Inc.
Consolidated Statements of Cash Flows
(U.S. Dollars)
| Year Ended | Year Ended | |||||
| December 31, | December 31, | |||||
| 2017 | 2016 | |||||
| Cash flow from Operating Activities | $ | $ | ||||
| Net loss for the year | (2,264,316 | ) | (2,232,021 | ) | ||
| Adjustment for items not involving cash: | ||||||
| Stock-Based Compensation | 190,720 | 312,187 | ||||
| Foreign exchange gain/loss | 3,334 | 2,873 | ||||
| Depreciation – fixed assets | 13,745 | 12,697 | ||||
| Debt settlement for Consulting Services | - | 65,632 | ||||
| Interest accretion | 337,161 | 176,382 | ||||
| Changes in non-cash working capital items: | ||||||
| Decrease (increase) in VAT receivable | 15,285 | (6,363 | ) | |||
| (Increase) decrease in prepaid expense | (5,338 | ) | 1,845 | |||
| Increase in accounts payable and accrued liabilities | 663,272 | 221,245 | ||||
| Net cash used in operating activities | (1,046,137 | ) | (1,445,523 | ) | ||
| Cash flow from financing activities | ||||||
| Common shares issued, net of issuance costs | 825,000 | 784,250 | ||||
| Net cash provided by financing activities | 825,000 | 784,250 | ||||
| Cash flow from investing activities | ||||||
| Cash utilized in purchase of assets | - | (8,920 | ) | |||
| Cash restricted for office lease and bank | - | (7,853 | ) | |||
| Net cash used in investing activities | - | (16,773 | ) | |||
| Effects of exchange rate changes on cash and cash equivalents | 1,008 | (75,506 | ) | |||
| Net decrease in cash and cash equivalents | (220,129 | ) | (753,552 | ) | ||
| Cash and cash equivalents, beginning of year | 452,376 | 1,206,928 | ||||
| Cash and cash equivalents, end of year | 232,247 | 452,376 | ||||
| Supplementary Information | ||||||
| Interest Paid | - | - | ||||
| Income Taxes Paid | - | - |
Supplemental disclosure with respect to cash flows (Note 12)
The accompanying notes are an integral part of these consolidated financial statements.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 1 - Nature of Operations and going concern
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 changed its primary business focus to the development and commercialization of a biotechnology platform. The Company has limited operations 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 January 28, 2013, RelationshipScoreboard.com was closed and dissolved. The Company sold the website assets for $10 to an arm’s length individual and wrote off all supplier payables in the amount of $430.
On April 23, 2012, the Company established an Israeli subsidiary named Savicell Diagnostic Ltd. (“Savicell”) with the intention of exploring business ventures in the biotechnology sector. On July 25, 2012, Savicell entered into a definitive licensing agreement with a division of the 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 entirely focused on its biotechnology efforts.
These consolidated 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 has a working capital deficit balance of $604,835 as at December 31, 2017 (working capital balance 2016 – $305,964) and an accumulated deficit of $12,046,656. Furthermore, additional future losses are anticipated which raise substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial statements do not 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. Failure to obtain the ongoing support of its equity financings and creditors may make the going concern basis of accounting inappropriate, in which case the Company’s assets and liabilities would need to be recognized at their liquidation values. These consolidation financial statements do not include any adjustments relating to the recoverability and classification of recorded assets amounts and classification of liabilities that might arise from this uncertainty.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 2 - Significant Accounting Policies
a) Basis of Presentation
These consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“US GAAP”), and are expressed in United States dollars, unless otherwise noted. All adjustments considered necessary for a fair presentation of financial position, results of operations and cash flows as at December 31, 2017 have been included.
b) Principles of Consolidation
These consolidated financial statements include the accounts of the Company and its 86.65% (December 31, 2016 - 86.13%) interest in Savicell. All significant intercompany accounts and transactions have been eliminated upon consolidation.
c) Use of Estimates
The preparation of consolidated 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.
Significant areas requiring the use of management estimates include assumptions and estimates relating to share-based payments, valuation allowances for deferred tax assets, effective interest rate for convertible debentures, and determination of useful lives of fixed assets.
d) Foreign Currency Translation
The Company’s functional currency is the U.S. dollar. 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.
The Company’s subsidiary’s functional currency is the New Israeli Shekel (“NIS”). All transactions are recorded in NIS. Not only monetary assets and liabilities denominated in NIS are translated into U.S. dollars at rates of exchange in effect at the balance sheet dates and expenses are translated at the average exchange rates. Gains and losses from such translations are included in stockholders’ equity, as a component of other comprehensive loss.
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, 2017 and 2016.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 2 - Significant Accounting Policies(Continued)
f) Stock-based Compensation
The Company accounts for its stock-based compensation awards in accordance with ASC Topic 718, Compensation–Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized as expense in the statements of operations based on their grant date fair values. For stock options granted to employees and to members of the Board of Directors for their services on the Board of Directors, the Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model. The use of the Black-Scholes option-pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock.
Share-based payments issued to non-employees are recorded at their fair values at each reporting date, as the equity instruments vest and are recognized as expense over the related service period in accordance with the provisions of ASC 718 and ASC Topic 505, Equity. For equity instruments granted to non-employees, the Company recognizes stock-based compensation expense on a straight-line basis.
g) 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 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 tax liabilities and assets is recognized in income in the period in which the change occurs. Deferred tax assets are recognized to the extent that they are considered more likely than not to be realized.
Per FASB ASC 740 “Income taxes” under the liability method, it is the Company’s policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. At December 31, 2017, the Company believes it has appropriately accounted for any unrecognized tax benefits. To the extent the Company prevails in matters for which a liability for an unrecognized benefit is established or is required to pay amounts in excess of the liability, the Company’s effective tax rate in a given financial statement period may be affected. Interest and penalties associated with the Company’s tax positions are recorded as Interest Expense.
h) 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.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 2 - Significant Accounting Policies(Continued)
i) 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, 2017 and 2016 because the inclusion of such underlying shares would have had an anti-dilutive effect.
j) 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, 2017, the fair value of cash and cash equivalents was measured using Level 1 inputs, and the fair value of convertible debentures was measured using Level 2 inputs.
The Company’s financial instruments are cash and cash equivalents, restricted cash, accounts payable, accrued liabilities and convertible debentures. The recorded values of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities approximate their fair values based on their short-term nature. The Company believes the recorded values of convertible debentures, net of the discount, approximate the fair value as the interest rate (stated or effective) approximates market rates for similar types of instruments.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 2 - Significant Accounting Policies(Continued)
k) Research and Development Expenses
In the year ended December 31, 2017, all research and development costs are charged to expense as incurred. The majority of these costs are in-house expenses related to consulting fees, materials, salaries of employees working on the R&D projects, rent and legal expenses related to patents. A breakdown of the R&D costs is as follows:
| Year Ended | Year Ended | ||||||
| December 31, 2017 | December 31, 2016 | ||||||
| Research and Development Expenses | $ | $ | |||||
| Consulting fees | 98,948 | 84,013 | |||||
| Legal fees | 40,319 | 15,221 | |||||
| Office and Miscellaneous Expense | 5,625 | 15,548 | |||||
| Payroll expense | 789,949 | 739,500 | |||||
| R&D materials and supplies | 105,607 | 132,207 | |||||
| Rent | 41,498 | 29,082 | |||||
| Share-based compensation | 190,720 | 312,187 | |||||
| Total | 1,272,666 | 1,327,758 |
Savicell’s financing commitment related to the License and Research Funding Agreement (as defined in Note 4 below) entered into with Ramot at Tel Aviv University was completely fulfilled by December 31, 2015.
l) Fixed Assets
The depreciation rates applicable to each category of fixed assets are as follows:
| Class of Properties | Depreciation Rate | ||
| Furniture and Fixtures | 15-year; straight-line basis | ||
| Computer Equipment | 3 to 4-year; straight-line basis | ||
| Lab Equipment | 3 to 15-year; straight-line basis |
m) Convertible debentures
Convertible debentures, for which the embedded conversion feature does not qualify for derivative treatment, is evaluated to determine if the effective or actual rate of conversion per the terms of the convertible note agreement is below market value. In these instances, the Company accounts for the value of the beneficial conversion feature as a debt discount, which is then accreted to interest expense over the life of the related debt using the effective interest method.
n) Modifications to debt
The Company evaluates any modifications to its debt in accordance with the applicable guidance in ASC 470-50, Debt-Modifications and Extinguishments. If the debt instruments are substantially modified, the modification is accounted for in the same manner as a debt extinguishment (i.e., a major modification) and the fees paid are recognized as expense at the time of the modification. Otherwise, such fees are deferred and amortized as an adjustment of interest expense over the remaining term of the modified debt instrument using the interest method.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 2 - Significant Accounting Policies(Continued)
o) Recently Adopted Accounting Pronouncements
On March 30, 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Compensation – Stock Compensation. The ASU simplifies several aspects of the accounting for employee share-based payment transactions. ASU 2016-09 is effective for public business entities for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period. Early adoption will be permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company has adopted the methodologies prescribed by this ASU by the date required and there is no material impact on the Company’s consolidated financial statements.
p) Recently Issued Accounting Pronouncements
In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. This update will provide clarity and reduce both diversity in practice and cost and complexity when applying the guidance in Topic 718, Compensation – Stock Compensation, to a change to the terms or conditions of a share-based payment award. This standard is effective for annual periods beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the potential impact this guidance will have on our consolidated financial statements, if any.
On November 17, 2016, the FASB issued ASU 2016-18, Restricted Cash. Entities will be required to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements, if any. ASU 2016-18 will be effective for use for fiscal years beginning after December 15, 2017, with early adoption permitted. Entities are required to use a modified retrospective transition method for restricted cash. The Company is currently evaluating the potential impact this guidance will have on our consolidated financial statements, if any.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for public business entities for fiscal years beginning after 15 December 2017, and interim periods within those years. For all other entities, it is effective for fiscal years beginning after 15 December 2018, and interim periods within fiscal years beginning after 15 December 2019. Early adoption is permitted. Entities will have to apply the guidance retrospectively, but if it is impracticable to do so for an issue, the amendments related to that issue would be applied prospectively. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements, if any.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 2 - Significant Accounting Policies(Continued)
p) Recently Issued Accounting Pronouncements(continued)
In March 2016, the FASB issued ASU 2016-02, Leases, which supersedes ASC Topic 840, Leases, and sets forth the principles for the recognition, measurement, presentation, and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record on the balance sheet a right-of-use asset and a lease liability, equal to the present value of the remaining lease payments, for all leases with a term greater than 12 months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or a straight-line basis over the term of the lease. ASU 2016-02 will be effective for use beginning January 1, 2019, with early adoption permitted. Entities are required to use a modified retrospective transition method for existing leases. The Company is currently evaluating the potential impact this guidance will have on our consolidated financial statements, if any.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments to the guidance enhance the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation, and disclosure. The updated guidance is effective for use beginning January 1, 2018. The Company does not expect this guidance to have a material impact on our consolidated financial statements, if any.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, as a new Topic, ASC 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The effective date for ASC 606 is annual reporting periods beginning after December 15, 2017. Early application is permitted only as of annual reporting periods beginning after December 15, 2016. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Companies may apply the new guidance using either the full retrospective transition method, which requires restating each prior period presented, or the modified retrospective transition method, under which the new guidance is applied to the current period presented in the financial statements and a cumulative-effect adjustment is recorded as of the date of adoption. The Company is evaluating the potential impact this guidance will have on our consolidated financial statements, if any.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 3 – Fixed Assets
As of December 31, 2017, the fixed assets balance on the consolidated financial statement consist of the following:
| Furniture and | ||||||||||||
| Cost: | Fixtures | Computer Equipment | Lab Equipment | Total | ||||||||
| December 31, 2016 | $ | 3,496 | $ | 26,489 | $ | 44,432 | $ | 74,417 | ||||
| Exchange difference | 375 | 2,836 | 4,759 | 7,970 | ||||||||
| December 31, 2017 | $ | 3,871 | $ | 29,325 | $ | 49,191 | $ | 82,387 |
| Furniture and | ||||||||||||
| Depreciation: | Fixtures | Computer Equipment | Lab Equipment | Total | ||||||||
| December 31, 2016 | $ | 405 | $ | 10,645 | $ | 7,923 | $ | 18,973 | ||||
| Additions | 424 | 7,446 | 5,887 | 13,757 | ||||||||
| Exchange difference | 58 | 1,405 | 1,058 | 2,521 | ||||||||
| December 31, 2017 | $ | 887 | $ | 19,497 | $ | 14,868 | $ | 35,251 |
| Furniture and | ||||||||||||
| Net Book Value: | Fixtures | Computer Equipment | Lab Equipment | Total | ||||||||
| December 31, 2016 | $ | 3,091 | $ | 15,844 | $ | 36,509 | $ | 55,444 | ||||
| December 31, 2017 | $ | 2,984 | $ | 9,829 | $ | 34,323 | $ | 47,135 |
Note 4 – 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 funded research expenditures amounting to a total of $1,600,000 (paid in prior years).
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 4 – License and Research Funding Agreement(Continued)
In addition, Savicell agreed to 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 fair value of the Warrant Shares has been estimated for a total of $2,998,682 which has been included in research and development costs in 2012. As the exercise price inherent in the warrant certificate to purchase 1,765 common shares of 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 considered to be issued and outstanding.
Upon successful development and commercialization of the technology, and in recognition of the rights and licenses granted to Savicell pursuant to this R&D Agreement, Savicell will be subject to (a) royalties based on the worldwide sales related to the technology; and (b) minimum annual royalties with respect to any calendar year following the first commercial sales as follows. The minimum annual royalties are subject to increases for each successive year.
During the year ended December 31, 2017, Savicell incurred research and development expenses of $1,272,666 (2016 -$1,327,758) which were included in the consolidated statements of operations and comprehensive loss.
Note 5 – Related Party Transactions
The Company completed the following related party transactions:
During the year ended December 31, 2017, the Company incurred consulting fees and salaries of $553,887 (for the year ended December 31, 2016 - $581,943) payable to its directors and officers. The Company incurred consulting fees payable to a company controlled by a former director/officer of $108,000 (for the year ended December 31, 2016 - $108,000).
As at December 31, 2017, included in accounts payable and accrued liabilities are amounts of $102,214 (December 31, 2016 – $6,300) that was payable to a company controlled by a former director/officer of the Company and $426,648 (December 31, 2016 – $34,609) that was payable to current officers or directors of the Company.
As at December 31, 2017, included in convertible debentures are amounts of $1,071,172 (December 31, 2016 - $729,475) that was entered into with two directors, one consultant, and one key management personnel of the Company (Note 6).
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 6 – Convertible debentures
On April 15, 2015, the Company entered into debt conversion option agreements with two directors, one consultant and one employee of the Company pursuant to which the Company collectively settled debts in the aggregate amount of $852,418. Pursuant to the agreements, these individuals may convert a portion or all of the debt amounts into common shares of the Company at a price per share of $0.055 over a seven year term.
On December 31, 2015, the Company entered into debt conversion option agreements with two directors, one consultant and one employee of the Company pursuant to which the Company collectively settled debts in the aggregate amount of $188,085 with an unsecured and non-interest bearing convertible debenture. Pursuant to the agreements, these individuals may convert a portion or all of the debt amounts into common shares of the Company at a price per share of $0.20 over a seven year term.
On December 31, 2016, the Company entered into debt conversion option agreements with two directors, one consultant and one employee of the Company pursuant to which the Company collectively settled debts in the aggregate amount of $172,895 with an unsecured and non-interest bearing convertible debenture. Pursuant to the agreements, these individuals may convert a portion or all of the debt amounts into common shares of the Company at a price per share of $0.20 over a seven-year term.
The Company evaluated these convertible debentures for derivatives and determined that they do not qualify for derivative treatment. The Company then evaluated the debenture for beneficial conversion features and determined that the convertible loan issued on April 15, 2015 does contain beneficial conversion features. The aggregate intrinsic value of the beneficial conversion features was determined to be $852,418. This amount was recorded as a debt discount on April 15, 2015 that is being amortized over the life of the debenture at effective interest rate of 77%. Total debt discount accumulated amortization to December 31, 2017 was $705,657 (December 31, 2016 – $368,496).
| December 31, 2016 | Additions | December 31, 2017 | |||||||
| Giora Davidovits | $ | 510,416 | - | $ | 510,416 | ||||
| Eyal Davidovits | 243,825 | - | 243,825 | ||||||
| Irit Arbel | 225,822 | - | 225,822 | ||||||
| Robbie Manis | 233,334 | - | 233,334 | ||||||
| Total | $ | 1,213,397 | - | $ | 1,213,397 |
| December 31, 2016 | Additions | December 31, 2017 | |||||||
| Convertible debentures | $ | 1,213,397 | - | $ | 1,213,397 | ||||
| Convertible discount | (852,418 | ) | - | (852,418 | ) | ||||
| Net convertible debentures | 360,979 | - | 360,979 | ||||||
| Interest accretion | 368,496 | $ | 337,161 | 705,657 | |||||
| Exchange difference | - | 4,536 | 4,536 | ||||||
| Balance | $ | 729,475 | $ | 341,697 | $ | 1,071,172 |
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 7 – Equity
Common shares
The Company has authorized 500,000,000 common shares at par value of $0.001 per share.
As at January 31, 2016, three shareholders of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 1,756,619 common shares at $0.16 per share which equals to 80% of the share pricing of the financing completed on April 19, 2015. Total book value of the issued common shares is $281,059.
On March 31, 2016, one shareholder of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 2,198,819 common shares at $0.16 per share which equals to 80% of the share pricing of the financing completed on April 19, 2015. Total book value of the issued common shares is $351,811.
On March 31, 2016, one shareholder of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 318,742 common shares at $0.16 per share which equals to 80% of the share pricing of the financing completed on April 19, 2015. Total book value of the issued common shares is $50,999.
On April 18, 2016, the Company issued 625,000 common shares at $0.20 per share for total proceeds of $125,000. On April 21, 2016, two shareholders of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 824,992 common shares at $0.16 per share which equals to 80% of the share pricing of the financing completed on April 19, 2015. Total book value of the issued common shares is $131,999.
On April 22, 2016, one shareholder of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 318,749 common shares at $0.16 per share which equals to 80% of the share pricing of the financing completed on April 19, 2015. Total book value of the issued common shares is $50,999.
On June 6, 2016, eight shareholders of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 1,115,625 common shares at $0.16 per share which equals to 80% of the share pricing of the financing completed on April 19, 2015. Total book value of the issued common shares is $178,500.
On June 14, 2016, the Company issued 2,500,000 common shares at $0.20 per share for total proceeds of $500,000.
On July 5, 2016, stock options previously granted by the Company were exercised resulting in the issuance of 50,000 common shares at $0.01 per share for total proceeds of $500.
On July 7, 2016, one shareholder of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 839,375 common shares at $0.16 per share which equals to 80% of the share pricing of the financing completed on April 19, 2015. Total book value of the issued common shares is $134,300.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 7 – Equity(Continued)
On September 1, 2016, eight shareholders of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 4,653,732 common shares at $0.16 per share which equals to 80% of the share pricing of the financing completed on April 19, 2015. Total book value of the issued common shares is $744,597.
On April 3, 2017, one shareholder of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 288,830 common shares at $0.16 per share. Total book value of the issued common shares is $46,213.
On April 3, 2017, the Company issued 1,693,750 units at $0.20 per unit for total proceeds of $338,750. Each unit comprises one share and one warrant to purchase a further share at a price of $0.20. Each warrant entitles the holder to acquire one additional share of common stock at a price of $0.20 per share until April 3, 2019. $158,750 was received in December 2016.
On May 4, 2017, the Company issued an aggregate of 1,250,000 common shares at a price of $0.20 per share for gross proceeds of $250,000.
On August 3, 2017, the Company issued an aggregate of 600,000 common shares at a price of $0.20 per share for gross proceeds of $120,000.
On September 21, 2017, an employee exercised 150,000 options and accordingly received 150,000 common shares at an exercise price of $0.01 per share for aggregate consideration of $1,500.
On December 27, 2017, the Company issued an aggregate of 1,000,000 common shares at a price of $0.20 per share for gross proceeds of $200,000.
For the year ended December 31, 2017, the Company recorded share issue cost of $21,500 (December 31, 2016 - nil) for the shares issued.
In December 2017, the Company received $95,000 toward the subscription for 475,000 common shares. The shares have not yet been issued subsequent to the year-end.
As at December 31, 2017, the Company has 119,163,408 common shares (December 31, 2016 – 114,180,828) issued and outstanding.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 7 – Equity(Continued)
Warrants
A summary of warrants as at December 31, 2017 and December 31, 2016 is as follows:
| Warrant Outstanding | |||||||
| Weighted Average | |||||||
| Number of warrant | Exercise Price | ||||||
| Balance, December 31, 2016 | - | $ | - | ||||
| Issued | 1,693,750 | 0.20 | |||||
| Balance, December 31, 2017 | 1,693,750 | $ | 0.20 |
| Number | Exercise | Expiry | Remaining |
| Outstanding | Price | Date | Life |
| 1,693,750 | $0.20 | April 3, 2019 | 1.25 |
Preferred Shares
The Company has authorized 20,000,000 preferred shares at a par value of $0.001 per share. No preferred shares have been issued by the Company and accordingly none are outstanding.
Stock Options
On May 28, 2013, the Company granted a total of 962,358 stock options to a consultant. The stock options are exercisable at an exercise price of $0.01 per share and may be exercised for five years. A quarter of the options will vest on each of the first four anniversaries of the date of initial grant. The options were valued based on the Black Scholes model. On June 22, 2015, 481,179 of these options were exercised at $0.01 per share for total proceeds of $4,812. For the year ended December 31, 2017, the Company recorded stock based compensation of $4,634 (2016: $17,628) for such options.
On August 22, 2013, the Company granted a total of 800,000 stock options to a consultant. The stock options are exercisable at the exercise price of $0.01 per share and may be exercised for five years. 480,000 of the options so granted will vest as to one quarter of such options at the end of each completed year that the consultant provides the services. The remaining 320,000 options will be fully vested when the consultant has completed the provision of a minimum of 600 blood samples of lung cancer and control patients during the 4 years from August 22, 2013. One twelfth of these options will vest upon each 50 blood samples having been delivered by the consultant to the Company. The options were valued based on the Black Scholes model. For the year ended December 31, 2017, the Company recorded stock based compensation of $3,641 (2016: $28,419) for such options.
On November 11, 2013, the Company granted a total of 1,924,717 stock options to a consultant. The stock options are exercisable at an exercise price of $0.01 per share and may be exercised for seven years. A quarter of the options will vest immediately and a quarter on each of the first three anniversaries of the date of initial grant. The options were valued based on the Black Scholes model. As of December 31, 2016, the Company has fully recorded the stock based compensation for such options.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 7 – Equity(Continued)
Stock Options (continued)
On January 1, 2014, the Company granted a total of 500,000 stock options to a consultant. The stock options are exercisable at an exercise price of $0.01 per share and may be exercised for five years. A quarter of the options will vest immediately and a quarter will vest at end of each completed year that the consultant provides the services. The options were valued based on the Black Scholes model. As of December 31, 2016, the Company has fully recorded the stock based compensation for such options.
On May 4, 2014 the Company granted a total of 150,000 stock options to a consultant. The stock options are exercisable at an exercise price of $0.01 per share and may be exercised for seven years. One third of the options will vest at end of each completed year that the consultant provides the services. The options were valued based on the Black Scholes model. As of June 30, 2017, the Company has fully recorded the stock based compensation for such options. In addition, on September 25, 2017, 150,000 of these options were exercised at $0.01 per share for total proceeds of $1,500. For the year ended December 31, 2017, the Company recorded stock based compensation of $47 (2016: $208) for such options.
On May 15, 2014 the Company granted a total of 150,000 stock options to a consultant. The stock options are exercisable at an exercise price of $0.01 per share and may be exercised for five years. 25,000 of the options will vest immediately. Furthermore, 75,000 and 50,000 of the options respectively will vest on the first and second anniversaries that the consultant provides the services. The options were valued based on the Black Scholes model. For the year ended December 31, 2016, the Company recorded stock based compensation of ($11.93) (2015: $24,016) for such options. In addition, on June 23, 2015, 100,000 of these options were exercised at $0.01 per share for total proceeds of $1,000.
On August 4, 2015 the Company granted a total of 150,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for six years. One third of the options will vest at end of each of June 21, 2016, June 21, 2017 and June 21, 2018 that the employee remains an employee of the Company or its subsidiaries. On April 20, 2017, the Company amended this option agreement resulting in the immediate vesting of any remainder unvested options upon termination of employment. In addition, the expiration date of these options was revised to be three years from the date of termination. These options became fully vested as at April 23, 2017. The options were valued based on the Black Scholes model. For the year ended December 31, 2017, the Company recorded stock based compensation of $5,231 (2016: $9,347) for such options.
In August 2015 the Company granted a total of 1,730,000 stock options to four advisors of the Company. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for six-seven years. One third of the options will vest at end of each completed year for which the consultant provides the services. The options were valued based on the Black Scholes model. For year ended December 31, 2017, the Company recorded stock based compensation of $36,184 (2016: $107,843) for such options.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 7 – Equity(Continued)
Stock Options (continued)
On September 1, 2015 the Company granted a total of 150,000 stock options to two employees. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for seven years. One third of the options will vest at the grant date of each of September 1, 2015, September 1, 2016 and September 1, 2017 that the employee remains an employee of the Company or its subsidiaries. As of June 30, 2017, one of these employees is no longer with the Company and as such 75,000 options has expired. The options were valued based on the Black Scholes model. For the year ended December 31, 2017, the Company recorded stock based compensation of $5,238 (2016: $12,098) for such options.
On November 22, 2015 the Company granted a total of 50,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for seven years. One third of the options will vest at the grant date of each of November 22, 2016, November 22, 2017 and November 22, 2018 that the employee remains an employee of the Company or its subsidiaries. The options were valued based on the Black Scholes model. For year ended December 31, 2017, the Company recorded stock based compensation of $2,038 (2016: $4,482) for such options.
On December 1, 2015 the Company granted a total of 125,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for seven years. One third of the options will vest at the grant date of each of December 1, 2016, December 1, 2017 and December 1, 2018 that the employee remains an employee of the Company or its subsidiaries. The options were valued based on the Black Scholes model. For year ended December 31, 2017, the Company recorded stock based compensation of $5,144 (2016: $11,393) for such options.
On December 6, 2015 the Company granted a total of 100,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for seven years. One third of the options will vest at the grant date of each of December 6, 2016, December 6, 2017 and December 6, 2018 that the employee remains an employee of the Company or its subsidiaries. The options were valued based on the Black Scholes model. For year ended December 31, 2017, the Company recorded stock based compensation of $4,267 (2016: 9,436) for such options.
On February 15, 2016 the Company granted a total of 50,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for seven years. One third of the options will vest on each of the first, second and third anniversaries of the date of grant provided the employee remains an employee of the Company or its subsidiaries. The options were valued based on the Black Scholes model. For the year ended December 31, 2017, the Company recorded stock based compensation of $1,729 (2016: $2,894) for such options.
On March 7, 2016 the Company granted a total of 75,000 stock options to two employees. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for seven years. One third of the options will vest on each of the first, second and third anniversaries of the date of grant provided the employee remains an employee of the Company or its subsidiaries. The options were valued based on the Black Scholes model. For year ended December 31, 2017, the Company recorded stock based compensation of $2,744 (2016: $4,425) for such options.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 7 – Equity(Continued)
Stock Options (continued)
On May 5, 2016 the Company granted a total of 150,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for ten years. One third of the options will vest on each of the first, second and third anniversaries of the date of grant provided the employee remains an employee of the Company or its subsidiaries. The options were valued based on the Black Scholes model. For the year ended December 31, 2017, the Company recorded stock based compensation of $7,216 (2016: $13,385) for such options.
On June 6, 2016 the Company granted a total of 800,000 stock options to a consultant. The stock options are exercisable at the exercise price of $0.20 per share and may be exercised for five years. 480,000 of the options so granted will vest as to one quarter of such options at the end of each completed year that the consultant provides the services. The remaining 320,000 options will be fully vested when the consultant has completed the provision of a minimum of 600 blood samples of lung cancer and control patients during the 4 years following June 6, 2016. One twelfth of these options will vest upon each 50 blood samples having been delivered by the consultantto the Company. The options were valued based on the Black Scholes model. For the year ended December 31, 2017, the Company recorded stock based compensation of $22,870 (2016: $23,746) for such options.
On November 1, 2016, the Company granted a total of 360,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for seven years. One half of the options will vest immediately and one-half shall vest on the on the first anniversary date of grant provided the grantee remains a board member of the Company or its subsidiaries. The options were valued based on the Black Scholes model. For the year ended December 31, 2017, the Company recorded stock based compensation of $21,491 (2016: $29,946) for such options.
On May 31, 2017, the Company granted a total of 875,000 stock options to six employees. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for seven years. One third of the options will vest on each of the first, second and third anniversaries of the date of grant, namely May 31, 2018, May 31, 2019 and May 31, 2020 provided the employee remains an employee of the Company or its subsidiaries. The options were valued based on the Black Scholes model. For the year ended December 31, 2017, the Company recorded stock based compensation of $43,283 for such options.
On July 2, 2017, the Company granted a total of 150,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for seven years. One third of the options will vest on the date of grant, namely July 2, 2018, July 2, 2019 and July 2, 2020 provided the employee remains an employee of the Company or its subsidiaries. The options were valued based on the Black Scholes model. For the year ended December 31, 2017, the Company recorded stock based compensation of $6,269 for such options.
On July 12, 2017, the Company granted a total of 260,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for seven years. 50,000 options vested on grant date. Off the remaining 210,000, one third of the options will vest on the date of grant, namely July 12, 2018, July 12, 2019 and July 12, 2020 provided the employee remains a consultant of the Company or its subsidiaries. The options were valued based on the Black Scholes model. For the year ended December 31, 2017, the Company recorded stock based compensation of $18,818 for such options.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 7 – Equity(Continued)
Stock Options (Continued)
The fair value of each option grant is calculated using the following assumptions:
| 2017 | 2016 | ||||||
| Expected life – year | 7-10 | 3-10 | |||||
| Interest rate | 1.60-2.40% | 0.73-2.45% | |||||
| Volatility | 73.01-90.69% | 65.99-99.04% | |||||
| Dividend yield | --% | --% | |||||
| Forfeiture rate | --% | --% |
| Number of Options | Weighted | Expire date | |||||||
| Average Exercise | |||||||||
| Price | |||||||||
| Balance, December 31, 2015 | 15,960,896 | $ | 0.04 | ||||||
| Granted, on February 15, 2016 | 50,000 | 0.20 | February 15, 2023 | ||||||
| Granted, on March 7, 2016 | 75,000 | 0.20 | March 7, 2023 | ||||||
| Granted, on May 5, 2016 | 150,000 | 0.20 | May 5, 2026 | ||||||
| Granted, on June 6, 2016 | 800,000 | 0.20 | June 6, 2021 | ||||||
| Exercised, on July 7, 2016 | (50,000 | ) | 0.01 | ||||||
| Granted, on November 1, 2016 | 360,000 | 0.20 | October 31, 2023 | ||||||
| Balance, December 31, 2016 | 17,345,896 | $ | 0.05 | ||||||
| Granted, on May 31, 2017 | 875,000 | 0.20 | May 31, 2024 | ||||||
| Expired, July 1, 2017 | (75,000 | ) | 0.20 | July 1, 2017 | |||||
| Granted, on July 2, 2017 | 150,000 | 0.20 | July 2, 2024 | ||||||
| Granted, on July 12th, 2017 | 260,000 | 0.20 | July 12, 2027 | ||||||
| Exercised, on September 25, 2017 | (150,000 | ) | 0.01 | September 25, 2017 | |||||
| Balance, December 31, 2017 | |||||||||
| 18,405,896 | $ | 0.04 |
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 7 – Equity(Continued)
Stock Options (continued)
| Outstanding December 31, 2017 | Exercisable as at December 31, 2017 | |||||||||||||||||
| Weighted | Weighted | |||||||||||||||||
| Weighted | Average | Weighted | Average | |||||||||||||||
| Average | Remaining | Average | Remaining | |||||||||||||||
| Exercise | Number of | Exercise | Contractual | Number of | Exercise | Contractual | ||||||||||||
| Price | Options | Price | Life (years) | Options | Price | Life (years) | ||||||||||||
| $ 0.01 | 9,750,000 | $ | 0.01 | 4.67 | 9,750,000 | $ | 0.01 | 4.67 | ||||||||||
| 0.01 | 481,179 | 0.01 | 0.41 | 481,180 | 0.01 | 0.41 | ||||||||||||
| 0.01 | 800,000 | 0.01 | 0.64 | 800,000 | 0.01 | 0.64 | ||||||||||||
| 0.01 | 1,924,717 | 0.01 | 2.87 | 1,924,717 | 0.01 | 2.87 | ||||||||||||
| 0.01 | 500,000 | 0.01 | 1.00 | 500,000 | 0.01 | 1.00 | ||||||||||||
| 0.20 | 150,000 | 0.20 | 3.34 | 150,000 | 0.20 | 3.34 | ||||||||||||
| 0.20 | 120,000 | 0.20 | 3.65 | 80,000 | 0.20 | 3.65 | ||||||||||||
| 0.20 | 1,610,000 | 0.20 | 4.60 | 1,073,334 | 0.20 | 4.60 | ||||||||||||
| 0.20 | 75,000 | 0.20 | 4.67 | 75,000 | 0.20 | 4.67 | ||||||||||||
| 0.20 | 50,000 | 0.20 | 4.90 | 33,334 | 0.20 | 4.90 | ||||||||||||
| 0.20 | 125,000 | 0.20 | 4.92 | 83,334 | 0.20 | 4.92 | ||||||||||||
| 0.20 | 100,000 | 0.20 | 4.93 | 66,666 | 0.20 | 4.93 | ||||||||||||
| 0.20 | 50,000 | 0.20 | 5.13 | 16,667 | 0.20 | 5.13 | ||||||||||||
| 0.20 | 75,000 | 0.20 | 5.18 | 25,000 | 0.20 | 5.18 | ||||||||||||
| 0.20 | 150,000 | 0.20 | 8.35 | 70,000 | 0.20 | 8.35 | ||||||||||||
| 0.20 | 800,000 | 0.20 | 3.43 | 226,667 | 0.20 | 3.43 | ||||||||||||
| 0.20 | 360,000 | 0.20 | 5.84 | 360,000 | 0.20 | 5.84 | ||||||||||||
| 0.20 | 875,000 | 0.20 | 6.42 | - | - | 6.42 | ||||||||||||
| 0.20 | 150,000 | 0.20 | 6.51 | - | - | 6.51 | ||||||||||||
| 0.20 | 260,000 | 0.20 | 9.53 | 50,000 | 0.20 | 9.53 | ||||||||||||
| 18,405,896 | $ | 0.06 | 4.24 | 15,765,898 | $ | 0.04 | 4.01 | |||||||||||
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 7 – 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. In the course of its initial equity issuances up to October 30, 2012 (the “Initial Closing”), Savicell issued a total of 592 ordinary shares at $1,698.97 per share to the non-related third party 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 (1:10,625) 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.
As at December 31, 2012, Savicell had issued a total of 684 shares at $1,698.97 per share representing approximately 5.11% of the fully diluted common equity of Savicell for aggregate proceeds of $1,162,192.
During the year ended December 31, 2013, Savicell issued a total of 760 shares at $1,700 per share representing approximately 5.68% of the fully diluted common equity of Savicell for aggregate proceeds of $1,292,000.
During the year ended December 31, 2014, Savicell issued a total of 183 shares at $1,699 per share representing approximately 1.37% of the fully diluted common equity of Savicell for aggregate proceeds of $310,977.
During the year ended December 31, 2015, Savicell issued a total of 417 shares at $1,700 per share to third parties for aggregate proceeds of $709,087. As at December 31, 2015, Savicell also issued 516 shares at $1,700 to ODT, which of $532,084 has not been received as at December 31, 2015. In addition, Savicell investors exchanged 588 Savicell shares for 6,248,672 of ODT common shares with ODT receiving the Savicell shares so exchanged. Following these share issuances, the Company, the Warrant holder and the Savicell investors held underlying interests in the equity of Savicell of 77.00%, 12.6% and 10.4% respectively (December 31, 2014-74.67%, 13.18% and 12.15%) .
During the year ended December 31, 2016, Savicell investors exchanged 1,132 Savicell shares for 12,026,654 of ODT common shares with ODT receiving the Savicell shares so exchanged. As at December 31, 2016, Savicell received $1,786,656 from ODT and issued 1,051 shares to ODT in return. Following these share issuances, the Company, the Warrant holder and the Savicell investors held underlying interests in the equity of Savicell of 86.65%, 11.72% and 2.15%, respectively (December 31, 2015-77%, 12.6% and 10.4%) . As a result, ODT’s shareholding increased, which increased the additional paid-in capital during the year.
During the year ended December 31, 2017, Savicell investors exchanged 27 Savicell shares for 288,830 of ODT common shares with ODT receiving the Savicell shares so exchanged. As at December 31, 2017, Savicell received $658,711 from ODT and issued 387 shares to ODT in return. As at December 31, 2017, the Company, the Warrant holder and the Savicell investors held underlying interests in the equity of Savicell of 86.65%, 11.42% and 1.93%, respectively (December 31, 2016 -86.13%, 11.72% and 2.15%) .
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 7 – Equity(Continued)
Non-Controlling Interests(continued)
Savicell’s Common Shares
| Number | Amount | |||||
| of Shares | ||||||
| Balance, December 31, 2015 | 14,012 | $ | 3,819,454 | |||
| Shares issued to settle inter-company debts | 1,051 | 1,786,656 | ||||
| Balance, December 31, 2016 | 15,063 | 5,606,110 | ||||
| Shares issued to settle inter-company debts | 387 | 658,711 | ||||
| Balance, December 31, 2017 | 15,450 | 6,264,821 |
As the exercise price inherent in the warrant certificate to purchase 1,765 common shares of 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 considered to be issued and outstanding.
Note 8 – Income Taxes
The Company 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, 2017 | December 31, 2016 | |||||
| $ | $ | |||||
| Net loss before taxes | (2,264,316 | ) | (2,232,021 | ) | ||
| Statutory tax rate | 34% | 34% | ||||
| Expected income tax expense (recovery) | (769,867 | ) | (758,887 | ) | ||
| Non-deductible items | 29,374 | 77,624 | ||||
| Change in estimates | 1,687,286 | - | ||||
| Change enacted tax rate | 536,617 | - | ||||
| Foreign tax rate difference | 30,475 | 122,231 | ||||
| Change in valuation allowance | (1,513,885 | ) | 559,032 | |||
| 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 and the amounts used for tax purposes. Deferred tax assets (liabilities) at December 31, 2017 and 2016 are comprised of the following:
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 8 – Income Taxes(continued)
| December 31, 2017 | December 31, 2016 | |||||
| $ | $ | |||||
| Loss carry forwards | 2,153,011 | 3,811,063 | ||||
| Convertible debenture | (14,017 | ) | (148,971 | ) | ||
| Vacation accrual | 9,213 | - | ||||
| Valuation allowance | (2,148,207 | ) | (3,662,092 | ) | ||
| Net deferred tax assets (liabilities) | - | - |
As at December 31, 2017, the Company's US net operating loss carry forwards total $3,391,467 (2016 - $2,938,121). These losses expire as follow:
| Year | Total |
| 2029 | 3,163 |
| 2030 | 69,495 |
| 2031 | 98,143 |
| 2032 | 390,141 |
| 2033 | 651,369 |
| 2034 | 615,901 |
| 2035 | 553,917 |
| 2036 | 555,992 |
| 2037 | 453,346 |
| 3,391,467 |
As at December 31, 2017, the Company's Israeli net operating loss carry forwards total $6,264,362 (2016 – $4,483,377). 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 9 – Loss per Share
We present both basic and diluted income per share on the face of our consolidated statements of operations. Basic and diluted income per share are calculated as follows:
| December 31, | December 31, | ||||||
| 2017 | 2016 | ||||||
| Net loss | $ | (2,264,316 | ) | $ | (2,232,021 | ) | |
| Weighted average common shares outstanding: | |||||||
| Basic and diluted | 110,324,539 | 107,753,316 | |||||
| Net loss per common share: | |||||||
| Basic and diluted | $ | (0.02 | ) | $ | (0.02 | ) |
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 9 – Loss per Share (Continued)
Certain stock options whose terms and conditions are described in Note 7, “Stock Options” could potentially dilute basic and dilute loss per share in the future, but were not included in the computation of diluted loss per share because to do so would have been anti-dilutive. Those anti-dilutive options are as follows.
| 2017 | 2016 | ||||||
| Anti-dilutive options | 18,405,896 | 17,345,896 |
Note 10 – Commitments and Guarantees
The Company was not a guarantor to any parties as at December 31, 2017.
| 1. | On September 11, 2012, ODT signed an employment agreement with Giora Davidovits, its 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 is effective until August 31, 2022 unless terminated early in accordance with the termination provisions contained within the employment agreement and subject to agreed severance amounts. In connection with the execution of the employment agreement, the Company issued to Giora Davidovits options to purchase 3,750,000 common shares at a price per share of $0.01. The options are exercisable for 10 years. Mr. Davidovits is eligible for subsequent option grants at the discretion of the board of directors. | |
| 2. | On October 30, 2012, ODT and Savicell signed an employment agreement with Eyal Davidovits, its 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 of $120,180 (NIS 432,000), together with other fringe benefits including those related to the use of an automobile, health insurance, contributions to government run retirement programs and the potential for additional bonuses as declared from time to time by the Company’s board of directors. The agreement is effective until August 31, 2022 unless terminated early in accordance with the termination provisions contained within the employment agreement and subject to agreed severance amounts. In connection with the execution of the employment agreement, the Company issued to Eyal Davidovits options to purchase 2,750,000 common shares at a price per share of $0.01. The options are exercisable for 10 years. Mr. Davidovits is eligible for subsequent option grants at the discretion of the board of directors. | |
| 3. | On July 20, 2015, the Company signed an operating lease agreement to lease offices for a period ending July 31, 2018 with an option to renew the lease for an additional period of 2 years. The monthly lease expense is $3,372 (NIS 12,121). Future minimum lease commitment under the operating lease agreement is approximately $23,604 (NIS 84,847). The Company pledged a bank deposit which is used as a bank guarantee at an amount of $14,404 (NIS 50,000) to secure its payments under the lease agreement. The Company pledged a bank deposit which is used as a bank guarantee at an amount of $9,837 (NIS 30,146) to secure its compliance with obligations. |
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 10 – Commitments and Guarantees(Continued)
The minimum future payments for the above commitments are as follows:
| Consulting fee and | ||||||||||
| Year | Salaries | Office rent | Total | |||||||
| 2018 | $ | 370,180 | $ | 23,604 | $ | 393,784 | ||||
| 2019 | 370,180 | - | 370,180 | |||||||
| 2020 | 370,180 | - | 370,180 | |||||||
| 2021 | 370,180 | - | 370,180 | |||||||
| 2022 | 246,787 | - | 246,787 | |||||||
| Total | $ | 1,727,507 | $ | 23,604 | $ | 1,751,111 |
Note 11 – Geographic Information
The Company’s head office is located in the United States (“US”). The operations of the Company are primarily in two geographic areas: the US and Israel. A summary of geographical information for the Company’s long lived assets is as follows:
| Period ended December 31, 2017 | US | Israel | Total | ||||||
| Long-lived assets | $ | - | $ | 47,135 | $ | 47,135 |
| Year ended December 31, 2016 | US | Israel | Total | ||||||
| Long-lived assets | $ | - | $ | 55,444 | $ | 55,444 |
Note 12 – Supplemental Disclosure with Respect to Cash Flows
| December31, 2017 | December 31, 2016 | |||||
| $ | $ | |||||
| Convertible debentures issued for debt | - | 172,894 |
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2017
Note 13 – Subsequent Events
| 1. | On February 13, 2018, the Company granted a total of 231,250 stock options with fair value of $27,310 to a consultant. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for five years. The options vested immediately as of the date of grant and may be exercised immediately after vesting. | |
| 2. | On March 8, 2018, the Company entered into convertible loan and warrant subscription agreements with two investors in the aggregate amount of $350,000. The loan is due on demand, unsecured and bears interest at 10% per annum, compounding semi-annually. Within fifteen days after the earlier to occur of the maturity date and the funding event, if the loan is unpaid, the investors may convert part or all of the debt amounts into common shares of the Company at a price per share of $0.20 or such lesser price that the Company may issue additional shares to third parties in private placements within the two years. On conversion or repayment of the convertible loan, the Company will issue warrants in a number that is equal to the amount of the loan divided by the conversion price, exercisable at the funding price per warrant. | |
| 3. | On April 17, 2018, 481,179 stock options that were previously issued to a consultant were exercised at $0.01 per share for total proceeds of $4,812. | |
| 4. | On May 18, 2018, the Company signed a consulting agreement with an advisor for a minimum of 12 monthly hours on issues related to statistical analysis and algorithm development by the Company. The Company agreed to grant 117,660 shares at $0.20 per share to the advisor, immediately for services from August 2017 through December 2018. |
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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, 2017 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, 2017 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 control 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, 2018: (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.
25
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.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting during the fiscal year ended December 31, 2017 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 | 63 | July 30, 2012 October 2, 2012 |
| David Eyal Davidovits | Vice President Business Development Chief Operations Officer Director | 50 | April 5, 2012 July 30, 2012 November 7, 2012 |
| Irit Arbel | Executive Vice President, Research and Development | 57 | July 30, 2012 |
| Benjamin Cherniak | Director | 49 | 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 past Chief Executive Officer of ABC Diabetes, Inc.
Mr. Davidovits 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.
26
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.
Mr. Davidovits has a 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.
Ms. Arbel 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 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 international business development and the overseeing of all business operations of the various companies. From 2003 to 2006, Mr. Cherniak was a principal with Bosworth Field Associates and in 2007 Mr. Cherniak was a principal of Stanton Chase International. 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.
27
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.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934 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, 2017, all filing requirements applicable to its officers, directors and greater than 10% percent beneficial owners were complied with.
Code of Ethics
We have not yet adopted a Code of Ethics. We believe that due to the size of our management, we do not require a code of ethics.
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 or her 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 |
28
| 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, 2017; | |
| (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, 2017 who had total compensation exceeding US $100,000; | |
| (c) | and up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at December 31, 2017, |
who we will collectively refer to as the named executive officers, for the years ended December 31, 2017 and 2016, are set out in the following summary compensation table (in USD):
| SUMMARY COMPENSATION TABLE | |||||||||
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) |
| Giora Davidovits CEO, CFO, President, Secretary, Treasurer and Director | 2017 2016 2015 | $250,000 $250,000 $250,000 | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | $26,106 $27,388 Nil | Nil Nil Nil | Nil Nil Nil | $276,106 $277,388 $250,000 |
| David Eyal Davidovits VP Business Development, COO, and Director | 2017 2016 2015 | $120,180 $112,276 $111,392 | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | $28,032 $52,783 $36,759 | Nil Nil Nil | Nil Nil Nil | $148,212 $165,059 $148,151 |
| Irit Arbel Executive Vice President | 2017 2016 2015 | $113,503 $106,039 $105,203 | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | $16,065 $33,457 $34,718 | Nil Nil Nil | Nil Nil Nil | $129,568 $139,496 $139,921 |
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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.
Giora Davidovits
Employment Agreement
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 agreed to provide the following consideration:
| (a) | pay a salary of US$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; and | |
| (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. |
The employment agreement of Giora Davidovits was extended by mutual agreement effective September 1, 2017 for a five year term to August 31, 2022. All terms of the employment agreement remained the same.
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. |
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 agreed to provide the following consideration:
| (a) | pay a salary of NIS 432,000 including VAT paid NIS 36,000 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) | 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; | |
| (d) | the option of one of the following compensation for any costs associated with his car travel: (i) we agreed to lease a car and pay for all related expenses up to NIS 4,000 net per month; or (ii) Mr. Davidovits agreed to use his car for work related matters as required for the performance of his job, and we agreed to grant a car allowance of NIS 4,000 net per month; | |
| (e) | group extended health and dental, life and long-term disability insurance, pension and other benefits; and |
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| (f) | we agreed to open and maintain a Keren Hishtalmut Fund, as defined under Israeli employment law which we agreed to contribute an amount equal to 7 1/2% of each monthly salary. |
The employment agreement of Eyal Davidovits was extended by mutual agreement effective September 1, 2017 for a five year term to August 31, 2022. All terms of the employment agreement remained the same.
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 NIS 432,000 per annum (paid NIS 36,000 per month in arrears) 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. |
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, 2017:
| 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 |
| Irit Arbel Executive Vice President | 2,000,000 | Nil | $0.01 | September 1, 2022 |
Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide retirement or similar benefits for our directors or executive officers.
Director Compensation
The following is a summary of the compensation payable to our directors, who are not named executive officers for the fiscal year ended December 31, 2017:
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| DIRECTOR COMPENSATION | |||||||
| Name | Fees earned or paid in cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity IncentivePlan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) |
| Benjamin Cherniak | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Security Ownership
The following table sets forth, as of April 24, 2018, 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 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.
Management
| 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 Direct(3) | 17.36% |
| David Eyal Davidovits 69 Hashomer Street Zichron, Yaakov, Israel 30900 | Common stock | 17,470,000 Direct(4) | 14.27% |
| Irit Arbel 6 Hadishon Street Jerusalem, Israel 96956 | Common stock | 8,140,000 Direct(5) | 6.69% |
| Benjamin Cherniak 3120 S. Durango Drive, Suite305 Las Vegas, NV 89117 USA | Common stock | 2,700,000 Direct | 2.26% |
| Directors and Executive Officers as a Group (4 persons) | Common stock | 49,733,333 | 40.58% |
Beneficial Holders
| Name and Address of Beneficial Owner | Title of Class | Amount and Nature of Beneficial Ownership(1) | Percentof Class(2) |
| Ori Ackerman No. 7 Moshav Rakefet Doar Na Misgav, 20175 Israel | Common Stock | 5,856,242 Direct | 4.89% |
| Dr. Borenstien Ltd. No. 18 Rienes St. Tel Aviv, Israel | Common Stock | 12,881,500 Direct | 10.77% |
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| (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 119,644,587 shares of common stock issued and outstanding as of April 24, 2018. 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 17,673,333 shares of common stock and 3,750,000 options to purchase shares of common stock exercisable within 60 days. | |
| (4) | Includes 14,720,000 shares of common stock and 2,750,000 options to purchase shares of common stock exercisable within 60 days. | |
| (5) | Includes 6,140,000 shares of common stock and 2,000,000 options to purchase shares of common stock exercisable within 60 days. |
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 have been no transactions since January 1, 2015, or any 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 the average of our total assets at year end for the last two completed fiscal years, and in which any of the following related persons had or will have a direct or indirect material interest:
| (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. |
During the year ended December 31, 2017, we incurred consulting fees and salaries of 553,887 payable to our directors and officers (for the year ended December 31, 2016 - $581,943), and $108,000 payable to a company controlled by a former director/officer of our company (December 31, 2016 - $108,000), only a portion of which was paid in cash with the balance accrued and remaining payable.
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| Name and Position | 2017 | 2016 |
| Giora Davidovits, CEO, CFO | $276,106 | $277,388 |
| Eyal Davidovits, COO | $148,212 | $165,059 |
| 1367826 Ontario Limited, a consulting company controlled by Robbie Manis, a former director | $108,000 | $108,000 |
| Irit Arbel, VP Research and Business Development | $129,568 | $139,921 |
| Total | $661,886 | $689,943 |
As at December 31, 2017, included in accounts payable and accrued liabilities are amounts of $102,214 (December 31, 2016 - $6,300) that was payable to a company controlled by a former director/officer of the Company and $426,648 (December 31, 2016 - $34,609) that was payable to current officers or directors of the Company.
Director Independence
Our common stock is quoted on OTC Pink operated by the OTC Markets Group, 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 three years. Using this definition of independent director, we have determined that we do not have any independent directors because of our directors’ current or former positions as executive officer of our company.
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, 2017 and 2016:
| Fees | 2017 | 2016 | ||||
| Audit Fees | 30,000 | 38,217 | ||||
| Audit Related Fees | 15,000 | 10,050 | ||||
| Tax Fees | 2,375 | 2,525 | ||||
| Other Fees | nil | nil | ||||
| Total Fees | $ | 47,375 | 50,792 |
Policy on Pre-Approval by Audit Committee of Services Performed by Independent Auditors
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.
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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
Exhibits required by Item 601 of Regulation S-K:
Exhibit |
|
(2) | Plan of acquisition, reorganization, arrangement, liquidation or succession |
(3) | Articles of Incorporation and Bylaws |
(10) | Material Contracts |
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| Exhibit Number | Description |
| (21) | Subsidiaries |
| 21.1 | Savicell Diagnostic Ltd. our approximately 86.65% subsidiary incorporated in Israel |
| (31) | Rule 13a-14 Certifications |
| 31.1* | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Giora Davidovits |
| (32) | Section 1350 Certifications |
| 32.1* | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Giora Davidovits |
| (101) | XBRL |
| 101.INS* | XBRL INSTANCE DOCUMENT |
| 101.SCH* | XBRL TAXONOMY EXTENSION SCHEMA |
| 101.CAL* | XBRL TAXONOMY EXTENSION CALCULATION LINKBASE |
| 101.DEF* | XBRL TAXONOMY EXTENSION DEFINITION LINKBASE |
| 101.LAB* | XBRL TAXONOMY EXTENSION LABEL LINKBASE |
| 101.PRE* | XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE |
*Filed herewith.
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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 |
| President, Chief Executive Officer, Chief Financial Officer, |
| Treasurer, Secretary and Director |
| (Principal Executive Officer, Principal Financial Officer |
| and Principal Accounting Officer) |
| June 4, 2018 |
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 |
| President, Chief Executive Officer, Chief Financial Officer, |
| Treasurer, Secretary and Director |
| (Principal Executive Officer, Principal Financial Officer |
| and Principal Accounting Officer) |
| June 4, 2018 |
| /s/ Benjamin Cherniak |
| Benjamin Cherniak |
| Director |
| June 4, 2018 |
| /s/ Eyal Davidovits |
| Eyal Davidovits |
| Director |
| June 4, 2018 |