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.
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 5 Shenker Street, Herzliah, 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
Savicell uses a diagnostic platform that is positioned initially in the cancer diagnostic market. The technology uses blood samples to rapidly measure the body's response to disease intrusion and cell malformation. The immune system is the first to “read” cancer and Savicell interprets the language of the immune system’s response.
Savicell’s technology is a high-throughput, in-vitro test for rapid quantitative measurement of the metabolic activity of the cell populations that the body deploys to diagnose disease.
The immune system is designed to detect disease intrusion and cell malformation in our bodies, which includes cancer, and to eliminate them. In reaction to the presence of cancer the immune system is energized to respond. The initial reaction is intricate, deploying different metabolic pathways and different subtypes of cells. It is these differential responses that Savicell technology detects. The immune system is the first to “read” cancer and Savicell interprets the language of the immune system’s response. Savicell’s test is different because it is a functional test measuring the metabolic activation process of the immune system as an indicator of disease status. As an immune system test it is inherently suited for early detection.
The clinical results obtained show the capability to simply and rapidly diagnose cancer in a preliminary large population of cancer patients in comparison to a control healthy group. We anticipate that future broad clinical trial studies involving larger populations of cancer patients with varying cancers should reveal the full potential of the existing developed strategy.
Many more tests are required in order to construct a meaningful and significant diagnostic classification. However, what is revealed to date is a major clear-cut shift of immune system metabolic activity pathways from oxidative phosphorylation to aerobic glycolysis between healthy patients and those with various cancer types.
Savicell has commenced clinical testing and has realized encouraging early reviews of its breast cancer readout albeit on a relatively small sample size. Specifically, we distinguished between breast cancer patients and healthy donors, and lung cancer patients and healthy donors, with high sensitivity and specificity 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, albeit on a relatively small sample size. We also were able to show that there is a metabolic profile difference between COPD donors and breast cancer donors, albeit on a relatively small sample size.
Cancer Diagnostic Market
Cancer cases are increasing, with more than 20 million new cases predicted in 2025, compared to 12 million in 2008 (WHO). The worldwide in-vitro diagnostic market is estimated at $44 billion, growing 8% annually (Market reseach.com press release Feb 7, 2012 - Yahoo Finance). The cancer diagnostic market is estimated at $8 billion annually and is the fastest growing segment (Kalorama Information Inc. news release March 12, 2008).
Importantly, liquid biopsy innovations including blood specimen are projected to drive the market size in the USA to more than $20 billion (Gary Gately, special to CNBC.com Monday, January 11, 2016).
Cancer drug and diagnostic markets have grown impressively, driven by expanding patient populations and technological advances, especially in biomolecular medicine. Current treatments are better tolerated and more effective. The introduction of innovative products on the market is expected to continue and to drive double-digit annual growth. Helping to expand the treated patient population, 25 to 30 new anti-cancer agents are expected to be approved for a variety of new indications (IMS Health Forecasts, Biopharma Forecasts & Trends). Expanding treatment options will further enhance growth of diagnostic products for monitoring treatment response, recurrence, and improved typing/staging. These enhanced treatment options will also accelerate market growth of companion diagnostics by linking sales of diagnostics to therapeutics (Dx-Rx model.). In 2010 alone 25 companion diagnostics partnerships with pharma were established (pwc Diagnostics 2011(PricewaterhouseCoopers LLP)).
Product innovations in cancer molecular diagnostics with biomarker discoveries have enhanced patient outcomes and helped drive market growth. However, the difficulty of discovering new bio-markers remains a significant limiting factor to growth. Importantly, the diagnostic efficacy of bio-markers in detecting cancer cells may be greater at relatively advanced stages of the disease, where the cancer growth is more pronounced.
We believe a significant and very large unmet need in cancer diagnostics exists in early diagnosis; accurate diagnosis, especially where technique-based biopsy limits accuracy; staging; diagnosis confirmation; recurrence and treatment monitoring; and tissue of origin diagnosis.
Early detection is very important because it can improve outcomes dramatically. Typically, more treatment options are available when diagnosed early and the resulting survival rates improve. Survival rate improves by at least four times when cancer is diagnosed early and before it has spread (American Cancer Society). Key issues with current early diagnosis tests include low sensitivity, low specificity, discomfort (e.g., colonoscopy), exposure to radioactivity, and cost.
The early diagnosis market can be divided into two broad segments. One is cancers with commercialized diagnostic tests. These generate multibillion dollars that are significantly supported by the existence of guidelines. Breast and colon cancers are examples, with guidelines for mammograms yearly and colonoscopies every 5 to 10 years. There are 14.5 million annual screening tests for colon cancer in the USA (Anesth Analg 2008;106:434 -9). There are estimated at 40 million mammograms annually (FDA news release Feb. 11, 2011). We believe that there is a need in this segment for an easier blood-based test that will increase compliance and minimize discomfort.
The second segment is comprised of cancers that lack early diagnostic solutions. For example, lung and ovarian cancers do not have good screening tests and we believe represent a new market. Organizations that determine guidelines already support a screening regimen for ovarian cancer. Once a reliable test is developed, market adaptation should be faster because the need has already been recognized. According to the American Cancer Society, it and “other health organizations, and ovarian cancer advocacy groups encourage additional research to develop an accurate and valid test for early detection of ovarian cancer.”
Development
The following is our anticipated development schedule:
Stage 1 0-12 months: Expand the scope of clinical testing to increase the population sizes for both the lung cancer and breast cancer testing. This includes optimization of the reagent matrix for the metabolic profile (MA) identification of breast cancer and for lung cancer.
Stage 2 12-24 months: Optimization of data mining algorithm for breast cancer and lung cancer; we anticipate concentrating on increasing the patient population and the number of test essays to a total of about 1,000 patients.
Savicell has received approval of the Ethics Committee of the Institutional Review Board of the Tel Aviv Sourasky Medical Center, Carmel Medical Center, Rambam Health Care Campus and Meir Medical Center to perform clinical trials on human blood for Savicell’s blood test for early diagnosis of breast cancer.
Savicell commenced such trials with encouraging early results albeit on a relatively small sample size. Specifically, we distinguished between breast cancer patients and healthy donors, and lung cancer patients and healthy donors, with high sensitivity and specificity (>95%) in both cancers.
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.
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, 2014, we expended $313,095 in research and development including $250,000 relating to our research expenditure agreement with Ramot. During the year ended December 31, 2015, we expended $637,848 in research and development.
Employees
We currently have eleven 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 nine 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. Savicell has patent pending of this patent in other countries including a continuance in the United States.
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.
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 worldwide economic downturn may reduce our ability to obtain the financing necessary to continue our business and may reduce the number of viable products and businesses that we may wish to acquire. If we cannot raise the funds that we need or find a suitable product or business to acquire, we may go out of business and investors will lose their entire investment in our company.
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.
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. We estimate our average monthly expenses over the next 12 months to be approximately $164,800 ($1,978,000 for the ensuing year), which includes the sum of (a) ongoing research and development expenses; (b) general and administrative expenses; and (c) capital asset acquisitions in furtherance of our product development initiatives. On December 31, 2015, we had cash and cash equivalents of $1,206,809. As of December 31, 2015, we had total liabilities of $506,990. 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.
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 the Pharmaceutical Business
If we are unable to successfully acquire, develop or commercialize new products, our operating results will suffer.
Our future results of operations will depend to a significant extent upon our ability to successfully develop and commercialize new products and businesses in a timely manner. There are numerous difficulties in, developing and commercializing new products, including:
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there are still major developmental steps required to bring the product to a clinical testing stage;
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clinical testing may not be positive;
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developing, testing and manufacturing products in compliance with regulatory standards in a timely manner;
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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;
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incomplete, unconvincing or equivocal clinical trials data;
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experiencing delays or unanticipated costs;
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significant and unpredictable changes in the payer landscape, coverage and reimbursement for our products;
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experiencing delays as a result of limited resources at regulatory agencies; and
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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 pharmaceutical companies are subject to extensive, complex, costly and evolving government regulation. For the U.S., this is principally administered by the FDA and to a lesser extent by the DEA and state government agencies, as well as by varying regulatory agencies in foreign countries where products or product candidates are being manufactured and/or marketed. The Federal Food, Drug and Cosmetic Act, the Controlled Substances Act and other federal statutes and regulations, and similar foreign statutes and regulations, govern or influence the testing, manufacturing, packing, labeling, storing, record keeping, safety, approval, advertising, promotion, sale and distribution of our products.
Under these regulations, we may become subject to periodic inspection of our facilities, procedures and operations and/or the testing of our products by the FDA, the DEA and other authorities, which conduct periodic inspections to confirm that we are in compliance with all applicable regulations. In addition, the FDA and foreign regulatory agencies conduct pre-approval and post-approval reviews and plant inspections to determine whether our systems and processes are in compliance with GMP and other regulations. Following such inspections, the FDA or other agency may issue observations, notices, citations and/or warning letters that could cause us to modify certain activities identified during the inspection. FDA guidelines specify that a warning letter is issued only for violations of “regulatory significance” for which the failure to adequately and promptly achieve correction may be expected to result in an enforcement action. We may also be required to report adverse events associated with our products to the FDA and other regulatory authorities. Unexpected or serious health or safety concerns would result in labeling changes, recalls, market withdrawals or other regulatory actions.
The range of possible sanctions includes, among others, FDA issuance of adverse publicity, product recalls or seizures, fines, total or partial suspension of production and/or distribution, suspension of the FDA’s review of product applications, enforcement actions, injunctions, and civil or criminal prosecution. Any such sanctions, if imposed, could have a material adverse effect on our business, operating results, financial condition and cash flows. Under certain circumstances, the FDA also has the authority to revoke previously granted drug approvals. Similar sanctions as detailed above may be available to the FDA under a consent decree, depending upon the actual terms of such decree. If internal compliance programs do not meet regulatory agency standards or if compliance is deemed deficient in any significant way, it could materially harm our business.
The product would be licensed for sale in the EU through an EC certification process, frequently shorthanded as “CE Mark” under the IVDD 98/79/EC. It is possible that general controls are sufficient and a conformity assessment of a QMS would 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;
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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;
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impose other civil or criminal penalties;
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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:
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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;
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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;
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the price for our products, as well as pricing decisions by our competitors, may have an effect on our revenues; and
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our revenues may diminish if third-party payers, including private health coverage insurers and health maintenance organizations, do not provide adequate coverage or reimbursement for our products.
If any of our future marketed products were to experience problems related to their efficacy, safety, or otherwise, or if new, more effective treatments were to be introduced, our revenues from such marketed products could decrease.
If any of our current or future marketed products become the subject of problems, including those related to, among others:
• efficacy or safety concerns with the products, even if not justified;
• regulatory proceedings subjecting the products to potential recall;
• publicity affecting doctor prescription or patient use of the product;
• pressure from competitive products; or
• introduction of more effective tests,
our revenues from such marketed products could decrease. For example, efficacy or safety concerns may arise, whether or not justified, that could lead to the recall or withdrawal of such marketed products. In the event of a recall or withdrawal of a product, our revenues would significantly decline.
Risks Relating to our Common Stock
If we issue additional shares in the future, it will result in the dilution of our existing shareholders.
Our articles of incorporation authorize the issuance of up to 500,000,000 shares of common stock with a par value of $0.001 per share and 20,000,000 shares of preferred stock with a par value of $0.001 per share. Our board of directors may choose to issue some or all of such shares to acquire one or more companies or products and to fund our overhead and general operating requirements. The issuance of any such shares will reduce the book value per share and may contribute to a reduction in the market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will reduce the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our corporation.
Trading of our stock is restricted by the Securities Exchange Commission’s penny stock regulations, which may limit a stockholder’s ability to buy and sell our common stock.
The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable
ITEM 2.
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 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 recently opened 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 $3,106. Our company pledged a bank deposit which is used as a bank guarantee at an amount of approximately $12,814 to secure its payments under the lease agreement.
Intellectual Property
The description of our intellectual property rights is under the section entitled “Intellectual Property” under Item 1. Business.
ITEM 3.
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.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
PART II
ITEM 5.
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, 2016, our common stock had no trading activity on OTC Pink.
As of April 13th, 2016, we had 103,253,354 shares of our common stock issued and outstanding as well as options to acquire up to 16,085,896 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 16,438,961 of our common shares at per share prices ranging from $0.055 -$0.20.
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 13th, 2016, we had approximately 114 holders of our common stock.
Registration Rights
We have not granted registration rights to any person.
Dividends
We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to increase our working capital and do not anticipate paying any cash dividends in the foreseeable future.
We must not declare, pay or set apart for payment any dividend or other distribution (unless payable solely in shares of our common stock or other class of stock junior to our preferred stock as to dividends or upon liquidation) in respect of our common stock, or other class of stock junior to our preferred stock, nor must we redeem, purchase or otherwise acquire for consideration shares of any of the foregoing, unless dividends, if any, payable to holders of our preferred stock for the current period (and in the case of cumulative dividends, if any, payable to holders of our preferred stock for the current period and in the case of cumulative dividends, if any, for all past periods) have been paid, are being paid or have been set aside for payment, in accordance with the terms of our preferred stock, as fixed by our board of directors.
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, 2015, 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, 2015:
(1)
A total of 4,849,717 options have been granted pursuant to our 2013 Stock Incentive Plan and 11,111,179 options have been granted outside of the 2013 Stock Incentive Plan.
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 4,849,717 stock options have been granted pursuant to the plan.
Issuer Purchases of Equity Securities
During the fiscal year ended December 31, 2015, we did not purchase any of our equity securities.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
ITEM 7.
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, 2015 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 may be appropriate for broader clinical testing.
We estimate our operating expenses and working capital requirements for the next 12 months to be as follows:
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.
Results of Operations
Revenue
We have not earned any revenue from operations since our inception and further losses are anticipated in the development of our business. We are currently in the development stage of our business and we can provide no assurances that we will generate revenue in the foreseeable future.
Expenses
For the years ended December 31, 2015 and December 31, 2014, we incurred the following expenses:
Significant changes in the expense items from 2014 to 2015 are summarized as follows.
• Consulting Fees decreased by 43% as a result of the fact that certain personnel who had been remunerated as consultants in 2014 were actually paid as employees in 2015. Accordingly, the payroll expense has correspondingly realized a material increase in 2015;
• Legal Fees increased by 111% as a result of continued issuance of new equity securities as well as increased granting of options and warrants all of which required enhanced consultation with our legal counsel. In addition, the audit and review fees related to our financial statements continue to increase with the broadening of our scope of operations;
• Office and Miscellaneous Expense increased by 385% primarily as a result of the opening of our new laboratory facility in Haifa and the securing of leased lab space by Savicell;
• Research and Development Expense increased by 104% as a result of Savicell fulfilling its final obligations pursuant to the License Agreement and the increased scope of our clinical testing;
• Marketing Expense increased from nil to $32,383 as a result of increased financing activities;
• Payroll Expense increased by 1,580% as a result of (a) two personnel commencing to be paid as employees as opposed to consultants; (b) three employees previously paid by Ramot have been transferred to the payroll of Savicell; and (c) additional staff was engaged; and
• Stock-Based Compensation increased by 4,405% as a result of the issuance of additional options at an exercise price of $0.20 versus the previous price of $0.01. In addition, we recognized a material stock compensation expense upon vesting of stock options to several consultants and employees.
Liquidity and Capital Resources
Working Capital
Our working capital increased because we were successful in raising additional equity financing, only a portion of which had been spent by the year end date of December 31, 2015.
Cash Flows
Cash Used In Operating Activities
The largest component related to the increased use of cash in operating activities relates to the expanded scope of our research and development activities together with the enhanced staffing cost associated with our laboratory facilities.
Cash from Financing Activities
The increased cash from financing activities was primarily a result of increased equity financings by both our company and our Subsidiary in 2015 relative to 2014. We completed equity financings resulting in the issuance of 9,050,000 common shares for gross proceeds of $1,810,000. Our Subsidiary completed equity financings resulting in the issuance of 417 ordinary shares for gross proceeds of $709,087. In addition, we realized additional proceeds from the exercise of outstanding stock options in the aggregate amount of $5,812.
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, 2015, our company has accumulated deficit of $8,026,578since inception. We do not have sufficient working capital to enable us to carry out our stated plan of operation for the next 12 months.
Due to the uncertainty of our ability to meet our current operating expenses and the capital expenses noted above in their report on the financial statements for the year ended December 31, 2015, 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
ONLINE DISRUPTIVE TECHNOLOGIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2015
Online Disruptive Technologies, Inc.
Consolidated Balance Sheets
(U.S. Dollars)
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)
The accompanying notes are an integral part of these consolidated financial statement
Online Disruptive Technologies, Inc.
Consolidated Statements of Equity (Deficiency)
For the years ended December 31, 2015 and 2014
(U.S. Dollars)
The accompanying notes are an integral part of these consolidated financial statement.
Online Disruptive Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(U.S. Dollars)
The accompanying notes are an integral part of these consolidated financial statements
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2015
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 balance of $1,104,876 as at December 31, 2015 (working capital deficiency 2014 -$528,707) and an accumulated deficit of $8,026,578. 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, 2015
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”). All adjustments considered necessary for a fair presentation of financial position, results of operations and cash flows as at December 31, 2015 have been included.
b)
Principles of Consolidation
These consolidated financial statements include the accounts of the Company and its 77.00% 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 income tax assets and determination of useful lives of property, plant and equipment.
In the year ended 2014, the management had a change in estimates with regards to Savicell’s functional currency (see note 2(d))
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. 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 income.
In the year ended 2013, Savicell’s functional currency was the U.S. dollar. During the year 2014, with the increased volume of transactions in the local currency, the management reassessed Savicell’s functional currency to NIS based on the change in facts and effective as of January 1, 2014. Such change is still appropriates in year 2015.
As a result of the functional currency change discussed above, a cumulative translation adjustment of $14,145 is included in accumulated other comprehensive income and will only be adjusted in the event of a full or partial disposition of the Company's investment in Savicell.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2015
Note 2 - Significant Accounting Policies (Continued)
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, 2015 and 2014.
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, 2015, 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.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2015
Note 2 - Significant Accounting Policies (Continued)
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.
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, 2015 and 2014 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, 2015, the fair value of cash and cash equivalents was and restricted cash measured using Level 1 inputs.
The Company’s financial instruments are cash and cash equivalents, restricted cash accounts payable and accrued liabilities and convertible debentures. The recorded values of cash and cash equivalents and 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, 2015
Note 2 - Significant Accounting Policies (Continued)
k)
Research and Development Costs
All research and development costs are charged to expense as incurred and consist principally of costs related to the License and Research Funding Agreement entered by the Company’s subsidiary with Ramot at Tel Aviv University (See Note 3).
l)
Fixed Assets
Property and Equipment are recorded at cost and are amortized over their estimated useful life of 3-15 years on a straight line basis.
m)
Convertible debentures
Convertible debentures, for which the embedded conversion feature does not qualify for derivative treatment, are 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.
o)
Recently Issued Accounting Pronouncements
In April 2014, the FASB issued Accounting Standards Update ("ASU") 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued operations and Disclosures of Disposals of Components of an Entity. The amendments in ASU 2014-08 change the criteria for reporting discontinued operations while enhancing disclosures in this area. They also address sources of confusion and inconsistent application related to financial reporting of discontinued operations guidance in U.S. GAAP. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the entity's operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The amendments in this ASU are effective for the first quarter of 2015 for public entities with calendar year ends. The Company adopted ASU 2014-08 on January 1, 2015 and the adoption of this pronouncement did not have a material effect on the Company's consolidated financial position or results of operations.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2015
Note 2 - Significant Accounting Policies (Continued)
o)
Recently Issued Accounting Pronouncements (continued)
In June 2014, the FASB issued ASU 2014-10, "Development Stage Entities: Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation". This ASU eliminates the concept of a development-stage entity from US GAAP along with the associated presentation and disclosure requirements for development-stage entities. The removal of the development stage entity reporting requirements is effective for annual reporting periods beginning after December 15, 2014 and does not have a material impact to the Company. The consolidation guidance was also amended to eliminate the development stage entity relief when applying the variable interest entity model and evaluating the sufficiency of equity at risk. The Company adopted ASU 2014-10 on January 1, 2015. The new standard requires these amendments be applied retrospectively.
p)
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09). This accounting standard supersedes all existing US GAAP revenue recognition guidance. Under ASU 2014-09, a company will recognize revenue when it transfers the control of promised goods or services to customers in an amount that reflects the consideration which the company expects to collect in exchange for those goods or services. ASU 2014-09 will require additional disclosures in the notes to the consolidated financial statements and is effective for annual and interim reporting periods beginning after December 15, 2016. The Company is evaluating the impact of ASU 2014-09 and an estimate of the impact to the consolidated financial statements cannot be made at this time. In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The standard provides guidance that a performance target that affects vesting of a share-based payment and that could be achieved after the requisite service condition is a performance condition. As a result, the target is not reflected in the estimation of the award's grant date fair value. Share-based compensation cost for such award would be recognized over the required service period, if it is probable that the performance condition will be achieved. ASU 2014-12 is effective for annual reporting periods beginning after December 15, 2015. Early adoption is permitted. The guidance should be applied on a prospective basis to awards that are granted or modified on or after the effective date of the standard. Companies also have the option to apply the guidance on a modified retrospective basis for awards with performance targets outstanding on or after the beginning of the first annual period presented after the effective date of the standard. The Company is evaluating the impact of ASU 2014-12 and an estimate of the impact to the consolidated financial statements cannot be made at this time.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. The ASU provides guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The new standard requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date of issuance of the entity's financial statements (or within one year after the date on which the financial statements are available to be issued, when applicable). Further, an entity must provide certain disclosures if there is "substantial doubt about the entity's ability to continue as a going concern."
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2015
Note 2 - Significant Accounting Policies (Continued)
p)
Recently Issued Accounting Pronouncements (continued)
The ASU is effective for annual periods ending after December 15, 2016, and interim periods thereafter and early adoption is permitted. The Company is evaluating the impact of ASU 2014-15 and an estimate of the impact to the consolidated financial statements cannot be made at this time.
In January 2015, the FASB issued ASU 2015-01, Income Statement-Extraordinary and Unusual Items (Subtopic 225-20), Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, which eliminates the concept of extraordinary items. Under this new guidance, entities will no longer be required to separately classify, present and disclose extraordinary events and transactions. The amendments in this update are effective for annual and interim periods beginning after December 15, 2015. The Company is evaluating the impact of ASU 2015-01 and an estimate of the impact to the consolidated financial statements cannot be made at this time.
In February 2015, the FASB issued ASU No. 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis"("ASU 2015-02"). ASU 2015-02 makes several modifications to the consolidation guidance for variable interest entities ("VIEs") and general partners' investments in limited partnerships, as well as modifications to the evaluation of whether limited partnerships are VIEs or voting interest entities. It is effective for annual and interim periods beginning after December 15, 2015. Early adoption is permitted.
In April 2015, FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). In August 2015, FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU 2015-15”). ASU 2015-03 will require that debt issuance costs be presented in the balance sheet as a deduction from the carrying amount of the debt. ASU 2015-15 allows an entity to present debt issuance costs associated with a revolving line of credit arrangement as an asset, regardless of whether a balance is outstanding. The recognition and measurement guidance for debt issuance costs are not affected by ASU 2015-03 or ASU 2015-15. These ASU’s are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period, with early adoption permitted. ASU 2015-03 will require the Company to reclassify its deferred financing costs associated with its long-term debt from other assets to long-term debt on a retrospective basis. The new standard will not affect the Company’s results of operations or cash flows.
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, 201 6, 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 is evaluating the impact of the amended guidance on its consolidated financial statements. There have been no other accountings pronouncements issued but not yet adopted by the Company which are expected to have a material impact on the Company’s financial position, results of operations or cash flows.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2015
Note 3 - License and Research Funding Agreement
On July 25, 2012, the Company’s subsidiary Savicell entered into a License and Research Funding Agreement (“R&D Agreement”) with Ramot at Tel Aviv University (“Ramot”) pursuant to which:
•
In the course of research performed at Tel-Aviv University ("TAU"), Prof. Fernando Patolsky has developed technology relating to early detection of diseases by measuring metabolic activity in the immune system;
•
Savicell wishes to fund further research at TAU relating to such technology; and
•
Savicell wishes to obtain a license from Ramot with respect to such technology and the results of such further funded research in order to develop and commercialize products in the diagnostics space, and Ramot wishes to grant the Company such license, all in accordance with the terms and conditions of this R&D Agreement.
Pursuant to the above noted R&D Agreement, Savicell will fund research expenditures amounting to a total of $1,600,000 according to the following schedule:
•
$81,000 within 5 business days of the R&D Agreement (paid)
•
Before October 2012; $359,500 plus VAT as applicable (paid)
•
Before January 3, 2013; $359,500 plus VAT as applicable (paid)
Before April 3, 2013; $400,000 plus VAT as applicable (paid)
•
•
Before July 3, 2013; $400,000 plus VAT as applicable (paid)
The payments originally due on April 3, 2013 and July 3, 2013 were postponed by the parties until such time as the funds were actually required in furtherance of the joint research and development initiatives. As of December 31, 2015, the remaining balance of $800,000 has been paid in connection with the R&D agreement.
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 Warrants shall be exercisable at an exercise price equal to the par value of the Warrant Shares, at any time and from time to time before Savicell completes a deemed liquidity event or the first underwritten offering of the Savicell's ordinary shares to the general public. The fair value of the Warrant Shares has been estimated at $1,698.97 per Warrant Share which is equivalent to the price at which Savicell has issued shares to third parties, for a total of $2,998,682 which has been included in research and development costs. 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, 2015, Savicell incurred research and development costs of $637,868 (2014 -$313,095) which were included in the consolidated statements of operations and comprehensive loss.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2015
Note 4 - Term Loan - Related Party
On November 4, 2011, the Company entered into a loan Agreement (“Loan Agreement”) with a shareholder of the Company to settle a loan payable in the amount of $74,062. Pursuant to the Loan Agreement, the terms of repayment were amended to specify that ten per cent (10%) of the gross proceeds of any prospective debt or equity financing undertaken by ODT would be applied to the repayment of the principal of this loan until fully repaid. The term loan is unsecured, non-interest bearing and requires that any balance remaining outstanding on November 4, 2016 would then be fully due and payable.
On May 28, 2015, the Company entered into a debt settlement agreement pursuant to which the Company settled the term loan in the aggregate amount of $74,062 by the issuance of 462,890 common shares at a per share price of $0.20. As this is a related party transaction, the Company recognized a loss on extinguishment of $36,987 to additional paid in capital.
A summary of the Term Loan is as follows:
Note 5 - Related Party Transactions
The Company completed the following related party transactions:
During the year ended December 31, 2015, the Company incurred consulting fees and salaries of $574,595 payable to its directors and officers as well as a company controlled by a former director/officer of the Company (December 31, 2014 - $593,783).
As at December 31, 2015, there was no outstanding balance in accounts payable and accrued liabilities that was payable to a company controlled by a former director/officer of the Company (December 31, 2014 - $160,433) but there was $16,325 (December 31, 2014 - $644,285) that was payable to current officers or directors of the Company.
See Notes 4 and 7.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2015
Note 6 - Convertible debenture
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.
The Company evaluated these convertible debenture 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 some do 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 amortization during the period from April 15, 2015 through December 31, 2015 was $192,114.
Note 7 -Equity
Common shares
On April 19, 2015, the Company issued 3,550,000 common shares at $0.20 per share for total proceeds of $710,000.
On May 22, 2015, the Company issued 500,000 common shares at $0.20 per share for total proceeds of $100,000.
On May 28, 2015, the Company entered into a debt settlement agreement pursuant to which the Company settled a related party term loan in the aggregate amount of $74,062 by the issuance of 462,890 common shares at $0.20 per share.
On June 23 2015, stock options previously granted by the Company were exercised resulting in the issuance of 481,179 common shares at $0.01 per share for total proceeds of $4,812.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2015
Note 7 -Equity (Continued)
On June 23, 2015, stock options previously granted by the Company were exercised resulting in the issuance of 100,000 common shares at $0.01 per share for total proceeds of $1,000.
On June 25, 2015, the Company issued 5,000,000 common shares at $0.20 per share for total proceeds of $1,000,000.
On July 20, 2015, four shareholders of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 3,824,922 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 $611,987.
On September 3, 2015, three shareholders of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 1,786,250 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 $285,800.
On October 20, 2015, two shareholders of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 637,500 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 $102,000.
For the year ended December 31, 2015, the Company recorded share issue cost of $15,000 for the shares issued.
As at December 31, 2015 the Company has 98,979,174 common shares issued and outstanding.
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. 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, 2015, the Company recorded stock based compensation of $112,888 (2014: $1,859) 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. 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, 2015, the Company recorded stock based compensation of $72,453 (2014: $1,282) for such options.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2015
Note 7 -Equity (Continued)
Stock Options (continued)
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. 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. For the year ended December 31, 2015, the Company recorded stock based compensation of $154,271 (2014: $6,515) for such options.
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. 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. For the year ended December 31, 2015, the Company recorded stock based compensation of $52,865 (2014: $970) 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. 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. For the year ended December 31, 2015, the Company recorded stock based compensation of $982 (2014: $nil) 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. 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 2015, the Company recorded stock based compensation of $24,016 (2014: $174) 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. 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. The options were valued based on the Black Scholes model. For the year ended December 31 2015, the Company recorded stock based compensation of $5,413 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. 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, 2015, the Company recorded stock based compensation of $53,701 for such options.
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. 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. The options were valued based on the Black Scholes model. For year ended December 31, 2015, the Company recorded stock based compensation of $4,879 for such options.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2015
Note 7 -Equity (Continued)
Stock Options (continued)
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. 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, 2015, the Company recorded stock based compensation of $500 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. 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, 2015, the Company recorded stock based compensation of $978 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. 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, 2015, the Company recorded stock based compensation of $677 for such options.
The fair value of each option grant is calculated using the following assumptions:
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2015
Note 7 - Equity (Continued)
Stock Options (continued)
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2015
Note 7 - Equity (Continued)
Stock Options (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 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.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2015
Note 7 - Equity (Continued)
Non-Controlling Interests (continued)
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%) .
Savicell’s Common Shares
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.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2015
Note 8 - Income Taxes (Continued)
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, 2015 and 2014 are comprised of the following:
As at December 31, 2015, the Company's US net operating loss carry forwards total $7,356,417 (2014 - $6,173,246). These losses expire as follow:
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2015
Note 8 - Income Taxes (continued)
As at December 31, 2015, the Company's Israeli net operating loss carry forwards total $3,244,221 (2014 - $780,693). 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 - Commitments and Guarantees
The Company did not become a guarantor to any parties as at December 31, 2015.
1.
On September 11, 2012, ODT signed an employment agreement with Giora Davidovits, its new chief executive officer and President, which agreement entailed an effective date of September 1, 2012. In return for acting as its chief executive officer, the Company will provide Mr. Davidovits an annual salary of $250,000 together with other benefits and the potential for additional bonuses as declared from time to time by the Company’s board of directors. The agreement is effective until August 31, 2017 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 new chief operating officer, which agreement entailed an effective date of September 1, 2012. In return for acting as its chief operating officer, the Company will provide Mr. Davidovits an annual salary of $111,392 (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, 2017 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 November 8, 2012, ODT and Savicell signed an employment agreement with Dr. Irit Arbel, its new vice president, research and development, which agreement entailed an effective date of September 1, 2012. In return for acting as its new vice president, research and development officer, the Company will provide Dr. Arbel an annual salary of $105,203 (NIS 408,000) together with other fringe benefits, 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, 2017 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 Irit Arbel options to purchase 2,000,000 common shares at a price per share of $0.01. The options are exercisable for 10 years. Dr. Arbel is eligible for subsequent option grants at the discretion of the board of directors.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2015
Note 9 - Commitments and Guarantees (continued)
4.
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 $3,106 (NIS 12,121). Future minimum lease commitment under the operating lease agreement is approximately $96,286 (NIS 375,751). The Company pledged a bank deposit which is used as a bank guarantee at an amount of $12,814 (NIS 50,000) to secure its payments under the lease agreement.
The Minimum future payments for the above commitments are as follows:
10. 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:
Note 11 - Subsequent Event
1.
As at January 15, 2016, pursuant to the Savicell conversion and participation rights agreement, an investor of Savicell has elected to exchange 59 shares of Savicell for common shares of the Company. The conversion resulted in an issuance of 626,875 common shares at a price per share of $0.16.
2.
As at March 18, 2016, pursuant to the Savicell conversion and participation rights agreement, certain investors of Savicell have elected to exchange an aggregate 343 shares of Savicell for common shares of the Company. The conversion resulted in an issuance of 3,647,305 common shares at a price per share of $0.16.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
December 31, 2015
Note 11 - Subsequent Event (continued)
3.
On February 15, 2016, the Company granted options to purchase 50,000 shares of its common stock to a new employee, pursuant to an employment agreement. The exercise price of the options is $0.20 per share and may be exercised for seven years. The options vest as to one third on first, second and third anniversaries of the date of grant provided the employee continues to be employed by the Company.
4.
On March 7, 2016, the Company granted options to purchase 75,000 shares of its common stock to two employees, pursuant to an employment agreement. The exercise price of the options is $0.20 per share and may be exercised for seven years. The options vest as to one third on first, second and third anniversaries of the date of grant provided the employee continues to be employed by the Company.
5.
In March of 2016, the Company received $50,000 toward the subscription for 250,000 common shares of the Company.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A.
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, 2015 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, 2015 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, 2016: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out in (i) is largely dependent upon our company securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely effected in a material manner.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting during the fourth quarter of our fiscal year ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
ITEM 9B
ITEM 9B OTHER INFORMATION
None
PART III
ITEM 10.
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:
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.
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.
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, 2015, 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
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.
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, 2015;
(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, 2015 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, 2015,
who we will collectively refer to as the named executive officers, for the years ended December 31, 2015 and 2014, are set out in the following summary compensation table (in USD):
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 will end on August 31, 2017 unless terminated under the terms of the employment agreement.
We may terminate Giora Davidovits' employment at any time without just cause (as defined in the employment agreement) by providing Giora Davidovits with ninety days prior written notice. In the event we terminate Giora Davidovits' employment without just cause or in the event of a change of control (as defined in the employment agreement), we must:
(a)
continue to pay Giora Davidovits his base salary of US$250,000 for a period of two years from the date Giora Davidovits' employment is terminated or the change of control occurs; and
(b)
continue to provide, for this duration, such employee benefits (as defined in the employment agreement) as may be permitted by and in accordance with the formal plan which governs each of the employee benefits.
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 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 per month;
(e)
group extended health and dental, life and long-term disability insurance, pension and other benefits; and
(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 will end on August 31, 2017 unless terminated under the terms of the employment agreement.
We may terminate Eyal Davidovits' employment at any time without just cause (as defined in the employment agreement) by providing Eyal Davidovits with ninety days prior written notice. In the event we terminate Eyal Davidovits' employment without just cause or in the event of a change of control (as defined in the employment agreement), we must:
(a)
continue to pay Eyal Davidovits his base salary of 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, 2015:
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, 2015:
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Security Ownership
The following table sets forth, as of April 13th 2016, 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
Beneficial Holders
(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 103,253,354 shares of common stock issued and outstanding as of April 13th 2016. 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.
(6)
Includes 4,473,334 shares of common stock and 1,000,000 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.
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, 2014, 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, 2015, we incurred consulting fees and salaries of $574,591 payable to our directors and officers and companies controlled by a former director/officer of our company (for the year ended December 31, 2014 - $593,783), only a portion of which was paid in cash with the balance accrued and remaining payable.
During the year ended December 31, 2015, our company incurred consulting fees and salary expense of $574,591 payable to its directors and officers as well as a company controlled by Robbie Manis, a former director/officer of our company (December 31, 2014 - $593,783). As at December 31, 2015, there was no outstanding balance in accounts payable and accrued liabilities that was payable to a company controlled by Robbie Manis, a former director/officer of our company (December 31, 2014 - $160,433) but there was a $16,325 balance payable to current officers or directors of our company (December 31, 2014 - $644,285).
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.
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, 2015 and 2014:
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.
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
Exhibits required by Item 601 of Regulation S-K:
*Filed herewith.
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)
April 13, 2016
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)
April 13, 2016
/s/ Benjamin Cherniak
Benjamin Cherniak
Director
April 13, 2016
/s/ Eyal Davidovits
Eyal Davidovits
Director
April 13, 2016