UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from _________ to ________
Commission File No. 000-54394
ONLINE DISRUPTIVE TECHNOLOGIES,
INC.
(Exact name of registrant as specified in its
charter)
Nevada | 27-1404923 |
(State or other jurisdiction | (I.R.S. Employer |
of incorporation or | Identification No.) |
organization) |
3120 S. Durango Drive, Suite 305, Las Vegas, Nevada
89117
(Address of principal executive offices) (zip code)
702-579-7900
(Registrants telephone
number, including area code)
N/A
(Former name, former address and
former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] | Accelerated filer [ ] | |
Non-accelerated filer [ ] | (Do not check if a smaller reporting company) | Smaller reporting company [X] |
Emerging growth company [ ] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities and Exchange Act of 1933 subsequent to the distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuers classes of common equity as of the latest practicable date: As of August 31, 2018, there were 120,578,912 shares of common stock, par value $0.001, outstanding.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ONLINE DISRUPTIVE TECHNOLOGIES, INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2018
(Unaudited)
Online Disruptive Technologies, Inc.
Interim
Consolidated Balance Sheets
(U.S. Dollars)
(Unaudited)
March 31, 2018 | December 31, 2017 | |||||
$ | $ | |||||
ASSETS | ||||||
Current Assets | ||||||
Cash and Cash Equivalents | 335,127 | 232,247 | ||||
Prepaid Expenses | 5,743 | 7,247 | ||||
VAT Receivable | 8,349 | 16,160 | ||||
Total Current Assets | 349,219 | 255,654 | ||||
Restricted Cash (Note 10 (3)) | 22,963 | 23,091 | ||||
Fixed Assets (Note 3) | 35,171 | 47,135 | ||||
Total Assets | 407,353 | 325,880 | ||||
LIABILITIES | ||||||
Current Liabilities | ||||||
Accounts Payable | 767,641 | 705,693 | ||||
Accrued Liabilities | 177,100 | 154,796 | ||||
Total Current Liabilities | 944,741 | 860,489 | ||||
Convertible Debentures (Note 6) | 1,196,699 | 1,071,172 | ||||
Convertible Loan (Note 7) | 384,978 | - | ||||
Total Liabilities | 2,526,418 | 1,931,661 | ||||
DEFICIT | ||||||
Authorized: |
119,164 | 119,164 | ||||
Additional Paid-in Capital | 10,533,688 | 10,451,520 | ||||
Accumulated Other Comprehensive Loss | (74,233 | ) | (74,233 | ) | ||
Deficit | (12,603,465 | ) | (12,046,656 | ) | ||
Deficit Attributable to Shareholders of the Company | (2,024,846 | ) | (1,550,205 | ) | ||
Non-Controlling Interests | (94,219 | ) | (55,576 | ) | ||
Total Deficit | (2,119,065 | ) | (1,605,781 | ) | ||
Total Liabilities and Deficit | 407,353 | 325,880 |
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)
(Unaudited)
Three months ended | Three months ended | |||||
March 31, 2018 | March 31, 2017 | |||||
General and Administrative Expenses | $ | $ | ||||
Accounting Fees | 7,500 | 7,500 | ||||
Audit & Tax Fees | 14,564 | 33,982 | ||||
Bank Fees | 136 | 263 | ||||
Consulting Fees | 112,152 | 91,652 | ||||
Filing and Transfer Agent Fees | 90 | 2,273 | ||||
Insurance Expense | 13,217 | 9,167 | ||||
Legal Fees | 3,665 | 11,132 | ||||
Office and Miscellaneous Expense | 2,970 | 8,350 | ||||
Payroll Expense | 9,382 | 8,702 | ||||
Rent Expense | 984 | 1,217 | ||||
Research and Development Expense (Note 2k, 4) | 266,822 | 243,981 | ||||
Travel Expenses | 3,667 | 2,130 | ||||
435,149 | 420,349 | |||||
Other Expense | ||||||
Fair Value Through Profit and Loss on Loan | 34,978 | - | ||||
Interest Accretion | 122,745 | 64,098 | ||||
Interest Expense | 56 | 55 | ||||
Foreign Currency Loss | 2,524 | 1,269 | ||||
Net Loss and Comprehensive Loss for the period | (595,452 | ) | (485,771 | ) | ||
Net Loss Attributable to: | ||||||
Common Stockholders | (556,809 | ) | (447,794 | ) | ||
Non-Controlling Interests | (38,643 | ) | (37,977 | ) | ||
(595,452 | ) | (485,771 | ) | |||
Net Comprehensive Loss Attributable to: | ||||||
Common Stockholders | (556,809 | ) | (447,794 | ) | ||
Non-Controlling Interests | (38,643 | ) | (37,977 | ) | ||
(595,452 | ) | (485,771 | ) | |||
Basic and Diluted Net Loss per Common Share | (0.00 | ) | (0.00 | ) | ||
Weighted Average Number of Common Shares
Outstanding Basic and Diluted |
118,009,579 |
114,180,828 |
The accompanying notes are an integral part of these consolidated financial statements.
Online Disruptive Technologies, Inc.
Consolidated
Statements of Cash Flows
(U.S. Dollars)
(Unaudited)
Three months | Three months | |||||
ended March | ended March | |||||
31, 2018 | 31, 2017 | |||||
$ | $ | |||||
Cash flow from Operating Activities | ||||||
Net loss for the period | (595,452 | ) | (485,771 | ) | ||
Adjustment for items not involving cash: | ||||||
Stock-based compensation | 74,023 | 41,645 | ||||
Foreign exchange gain/loss | 2,524 | 1,269 | ||||
Fair value through profit and loss on loan | 34,978 | - | ||||
Depreciation fixed assets | 11,803 | 3,354 | ||||
Debt settlement for Consulting Services | - | - | ||||
Interest accretion | 122,745 | 64,098 | ||||
Changes in non-cash working capital items: | ||||||
Decrease(increase) in VAT receivable | 7,788 | (891 | ) | |||
Decrease in prepaid expense | 1,487 | - | ||||
Increase in accounts payable and accrued liabilities | 85,760 | 52,453 | ||||
Net cash used in operating activities | (254,344 | ) | (323,843 | ) | ||
Cash flow from financing activities | ||||||
Common shares issued, net of issuance costs | - | 180,000 | ||||
Share subscription received | 8,145 | |||||
Convertible loan | 350,000 | - | ||||
Net cash provided by financing activities | 358,145 | 180,000 | ||||
Cash flow from investing activities | ||||||
Cash utilized in purchase of assets | - | - | ||||
Cash restricted for office lease and bank | - | - | ||||
Net cash used in investing activities | - | - | ||||
Effects of exchange rate changes on cash and cash equivalents | (921 | ) | (52 | ) | ||
Net decrease in cash and cash equivalents | 102,880 | (143,895 | ) | |||
Cash and cash equivalents, beginning of period | 232,247 | 452,376 | ||||
Cash and cash equivalents, end of period | 335,127 | 308,481 | ||||
Supplementary Information | ||||||
Interest Paid | - | - | ||||
Income Taxes Paid | - | - |
The accompanying notes are an integral part of these consolidated financial statements.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
March 31, 2018
(Unaudited)
Note 1 - Nature of Operations and Going Concern
Online Disruptive Technologies, Inc. (“ODT” or the “Company”) was incorporated on November 16, 2009 in the State of Nevada, U.S.A. The Company was in the business of operating websites with advertising revenue platforms. However, as described below, the Company changed its primary business focus to the development and commercialization of a biotechnology platform. The Company has limited operations that has had no revenues from inception to date. The Company has a December 31 year-end.
Effective March 24, 2010, the Company acquired 100% of the issued and outstanding shares of RelationshipScoreboard.com Entertainment Inc. (“RS” or “RelationshipScoreboard.com”), a company incorporated on November 16, 2009 in the state of Nevada, U.S.A. in exchange for 16,000,000 shares of the Company’s common stock. Upon the completion of the acquisition, the former sole shareholder of RS held 89% of the Company’s issued and outstanding common stock. As a result, the transaction was accounted for as a reverse takeover transaction (“RTO”) for accounting purpose, as RS was deemed to be the acquirer, and these consolidated financial statements are a continuation of the financial statements of RS. On January 28, 2013, RelationshipScoreboard.com was closed and dissolved. The Company sold the website assets for $10 to an arm’s length individual and wrote off all supplier payables in the amount of $430.
On April 23, 2012, the Company established an Israeli subsidiary named Savicell Diagnostic Ltd. (“Savicell”) with the intention of exploring business ventures in the biotechnology sector. On July 25, 2012, Savicell entered into a definitive licensing agreement with a division of the Tel Aviv University for the purpose of developing and commercializing a new technology relative to the early detection of various forms of disease. With the consummation of this transaction, the Company is now entirely focused on its biotechnology efforts.
These consolidated financial statements have been prepared with the ongoing assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The Company has a working capital deficit balance of $595,522 as at March 31, 2018 (working capital balance December 2017 – $604,835) and an accumulated deficit of $12,603,465. 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
March 31, 2018
(Unaudited)
Note 2 - Significant Accounting Policies
a) Basis of Presentation
These consolidated financial statements have been prepared for interim financial reporting in conformity with generally accepted accounting principles in the United States of America (“US GAAP”), and are expressed in United States dollars, unless otherwise noted. All adjustments considered necessary for a fair presentation of financial position as at March 31, 2018, and results of operations and cash flows for the three months ended March 31, 2018 have been included. The results of operations for the period ended March 31, 2018 are not necessarily indicative of the operating results for the full year. The interim financial statements should be read in conjunction with the audited Consolidated Financial Statements, including the notes thereto, included in our 2017 Annual Report on Form 10-K.
b) Principles of Consolidation
These consolidated financial statements include the accounts of the Company and its 86.65% (December 31, 2017 - 86.65%) interest in Savicell. All significant intercompany accounts and transactions have been eliminated upon consolidation.
c) Use of Estimates
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant areas requiring the use of management estimates include assumptions and estimates relating to share-based payments, valuation allowances for deferred tax assets, effective interest rate for convertible debentures, and determination of useful lives of fixed assets.
d) Foreign Currency Translation
The Company’s functional currency is the U.S. dollar. Transactions in other currencies are recorded in U.S. dollars at the rates of exchange prevailing when the transactions occur. Monetary assets and liabilities denominated in other currencies are translated into U.S. dollars at rates of exchange in effect at the balance sheet dates. Exchange gains and losses are recorded in the statements of operations.
The Company’s subsidiary’s functional currency is the New Israeli Shekel (“NIS”). All transactions are recorded in NIS. Not only monetary assets and liabilities denominated in NIS are translated into U.S. dollars at rates of exchange in effect at the balance sheet dates and expenses are translated at the average exchange rates. Gains and losses from such translations are included in stockholders’ equity, as a component of other comprehensive loss.
e) Cash and Cash Equivalents
Cash and cash equivalents consist entirely of readily available cash balances. There were no cash equivalents as of March 31, 2018 and December 31, 2017.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
March 31, 2018
(Unaudited)
Note 2 - Significant Accounting Policies (Continued)
f) Stock-based Compensation
The Company accounts for its stock-based compensation awards in accordance with ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized as expense in the statements of operations based on their grant date fair values. For stock options granted to employees and to members of the Board of Directors for their services on the Board of Directors, the Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model. The use of the Black-Scholes option-pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock.
Share-based payments issued to non-employees are recorded at their fair values at each reporting date, as the equity instruments vest and are recognized as expense over the related service period in accordance with the provisions of ASC 718 and ASC Topic 505, Equity. For equity instruments granted to non-employees, the Company recognizes stock-based compensation expense on a straight-line basis.
g) Income Taxes
Income taxes are accounted for under the liability method of accounting for income taxes. Under the liability method, deferred tax liabilities and assets are recognized for the estimated future tax consequences attributable to differences between the amounts reported in the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply when the asset is realized or the liability is settled. The effect of a change in income tax rates on deferred tax liabilities and assets is recognized in income in the period in which the change occurs. Deferred tax assets are recognized to the extent that they are considered more likely than not to be realized.
Per FASB ASC 740 “Income taxes” under the liability method, it is the Company’s policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. At December 31, 2017, the Company believes it has appropriately accounted for any unrecognized tax benefits. To the extent the Company prevails in matters for which a liability for an unrecognized benefit is established or is required to pay amounts in excess of the liability, the Company’s effective tax rate in a given financial statement period may be affected. Interest and penalties associated with the Company’s tax positions are recorded as Interest Expense.
h) Comprehensive Income (Loss)
The Company accounts for comprehensive income under the provisions of ASC Topic 220-10, Comprehensive Income - Overall, which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its Statements of Operations and Comprehensive Loss.
Online Disruptive Technologies, Inc.
Notes to the
Consolidated Financial Statements
March 31, 2018
(Unaudited)
Note 2 - Significant Accounting Policies (Continued)
i) Earnings (Loss) Per Share
Basic loss per share is computed on the basis of the weighted average number of common shares outstanding during each period.
Diluted loss per share is computed on the basis of the weighted average number of common shares and dilutive securities outstanding. Stock options are considered to be common stock equivalents and were not included in the net loss per share calculation for the quarter ended March 31, 2018 and 2017 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. |
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|
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• | 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. |
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• | Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement. |
As at March 31, 2018, the fair value of cash and cash equivalents was measured using Level 1 inputs, and the fair value of convertible debentures was measured using Level 2 inputs.
The Companys financial instruments are cash and cash equivalents, restricted cash, accounts payable, accrued liabilities and convertible debentures. The recorded values of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities approximate their fair values based on their short-term nature. The Company believes the recorded values of convertible debentures, net of the discount, approximate the fair value as the interest rate (stated or effective) approximates market rates for similar types of instruments.
Online Disruptive Technologies, Inc.
Notes to the
Consolidated Financial Statements
March 31,
2018
(Unaudited)
Note 2 - Significant Accounting Policies (Continued)
k) Research and Development Expenses
In the quarter ended March 31, 2018, all research and development costs are charged to expense as incurred. The majority of these costs are in-house expenses related to consulting fees, materials, salaries of employees working on the R&D projects, rent and legal expenses related to patents. A breakdown of the R&D costs is as follows:
Three months ended | Three months ended | ||||||
March 31, 2018 | March 31, 2017 | ||||||
Research and Development Expenses | $ | $ | |||||
Consulting fees | 9,458 | 24,818 | |||||
Legal fees | 717 | 6,709 | |||||
Office and Miscellaneous Expense | 5,204 | 3,801 | |||||
Payroll expense | 154,098 | 124,835 | |||||
R&D materials and supplies | 14,463 | 31,217 | |||||
Rent | 8,859 | 10,956 | |||||
Share-based compensation | 74,023 | 41,645 | |||||
Total | 266,822 | 243,981 |
Savicells financing commitment related to the License and Research Funding Agreement (as defined in Note 4 below) entered into with Ramot at Tel Aviv University was completely fulfilled by December 31, 2015.
l) Fixed Assets
The depreciation rates applicable to each category of fixed assets are as follows:
Class of Properties | Depreciation Rate |
Furniture and Fixtures | 15-year; straight-line basis |
Computer Equipment | 3 to 4-year; straight-line basis |
Lab Equipment | 3 to 15-year; straight-line basis |
m) Convertible Debentures
Convertible debentures, for which the embedded conversion feature does not qualify for derivative treatment, is evaluated to determine if the effective or actual rate of conversion per the terms of the convertible note agreement is below market value. In these instances, the Company accounts for the value of the beneficial conversion feature as a debt discount, which is then accreted to interest expense over the life of the related debt using the effective interest method.
n) Modifications to Debt
The Company evaluates any modifications to its debt in accordance with the applicable guidance in ASC 470-50, Debt-Modifications and Extinguishments. If the debt instruments are substantially modified, the modification is accounted for in the same manner as a debt extinguishment (i.e., a major modification) and the fees paid are recognized as expense at the time of the modification. Otherwise, such fees are deferred and amortized as an adjustment of interest expense over the remaining term of the modified debt instrument using the interest method.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
March 31, 2018
(Unaudited)
Note 2 - Significant Accounting Policies (Continued)
o) Recently Adopted Accounting Pronouncements
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for public business entities for fiscal years beginning after 15 December 2017, and interim periods within those years. For all other entities, it is effective for fiscal years beginning after 15 December 2018, and interim periods within fiscal years beginning after 15 December 2019. Early adoption is permitted. Entities will have to apply the guidance retrospectively, but if it is impracticable to do so for an issue, the amendments related to that issue would be applied prospectively. The Company has adopted the methodologies prescribed by this ASU by the date required and there is no material impact on the Company’s consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments to the guidance enhance the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation, and disclosure. The updated guidance is effective for use beginning January 1, 2018. The Company has adopted the methodologies prescribed by this ASU by the date required and there is no material impact on the Company’s consolidated financial statements.
p) Recently Issued Accounting Pronouncements
In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. This update will provide clarity and reduce both diversity in practice and cost and complexity when applying the guidance in Topic 718, Compensation – Stock Compensation, to a change to the terms or conditions of a share-based payment award. This standard is effective for annual periods beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the potential impact this guidance will have on our consolidated financial statements, if any.
On November 17, 2016, the FASB issued ASU 2016-18, Restricted Cash. Entities will be required to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements, if any. ASU 2016-18 will be effective for use for fiscal years beginning after December 15, 2017, with early adoption permitted. Entities are required to use a modified retrospective transition method for restricted cash. The Company is currently evaluating the potential impact this guidance will have on our consolidated financial statements, if any.
p) Recently Issued Accounting Pronouncements (continued)
In March 2016, the FASB issued ASU 2016-02, Leases, which supersedes ASC Topic 840, Leases, and sets forth the principles for the recognition, measurement, presentation, and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record on the balance sheet a right-of-use asset and a lease liability, equal to the present value of the remaining lease payments, for all leases with a term greater than 12 months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or a straight-line basis over the term of the lease. ASU 2016-02 will be effective for use beginning January 1, 2019, with early adoption permitted. Entities are required to use a modified retrospective transition method for existing leases. The Company is currently evaluating the potential impact this guidance will have on our consolidated financial statements, if any.
Online Disruptive Technologies, Inc.
Notes to the
Consolidated Financial Statements
March 31, 2018
(Unaudited)
Note 2 - Significant Accounting Policies (Continued)
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, as a new Topic, ASC 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The effective date for ASC 606 is annual reporting periods beginning after December 15, 2017. Early application is permitted only as of annual reporting periods beginning after December 15, 2016. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Companies may apply the new guidance using either the full retrospective transition method, which requires restating each prior period presented, or the modified retrospective transition method, under which the new guidance is applied to the current period presented in the financial statements and a cumulative-effect adjustment is recorded as of the date of adoption. The Company is evaluating the potential impact this guidance will have on our consolidated financial statements, if any.
Note 3 Fixed Assets
As of March 31, 2018, the fixed assets balance on the consolidated financial statement consist of the following:
Furniture and | ||||||||||||
Cost: | Fixtures | Computer Equipment | Lab Equipment | Total | ||||||||
December 31, 2016 | $ | 3,496 | $ | 26,489 | $ | 44,432 | $ | 74,417 | ||||
Exchange difference | 375 | 2,836 | 4,759 | 7,970 | ||||||||
December 31, 2017 | $ | 3,871 | $ | 29,325 | $ | 49,191 | $ | 82,387 | ||||
Exchange difference | (21 | ) | (162 | ) | (273 | ) | (456 | ) | ||||
March 31, 2018 | $ | 3,850 | $ | 29,163 | $ | 48,918 | $ | 81,931 |
Furniture and | ||||||||||||
Depreciation: | Fixtures | Computer Equipment | Lab Equipment | Total | ||||||||
December 31, 2016 | $ | 405 | $ | 10,645 | $ | 7,923 | $ | 18,973 | ||||
Additions | 424 | 7,446 | 5,887 | 13,757 | ||||||||
Exchange difference | 58 | 1,406 | 1,058 | 2,522 | ||||||||
December 31, 2017 | $ | 887 | $ | 19,497 | $ | 14,868 | $ | 35,252 | ||||
Additions | 441 | 5,248 | 6,114 | 11,803 | ||||||||
Exchange difference | (9 | ) | (152 | ) | (134 | ) | (295 | ) | ||||
March 31, 2018 | $ | 1,319 | $ | 24,593 | $ | 20,848 | $ | 46,760 |
Online Disruptive Technologies, Inc.
Notes to the
Consolidated Financial Statements
March 31, 2018
(Unaudited)
Furniture and | ||||||||||||
Net Book Value: | Fixtures | Computer Equipment | Lab Equipment | Total | ||||||||
December 31, 2017 | $ | 2,984 | $ | 9,828 | $ | 34,323 | $ | 47,135 | ||||
March 31, 2018 | $ | 2,531 | $ | 4,570 | $ | 28,070 | $ | 35,171 |
The Company recorded depreciation in R&D materials and supplies in Research and Development expenses as disclosed in Note 2 k).
Note 4 License and Research Funding Agreement
On July 25, 2012, the Companys subsidiary Savicell entered into a License and Research Funding Agreement (R&D Agreement) with Ramot at Tel Aviv University (Ramot) pursuant to which:
Pursuant to the above noted R&D Agreement, Savicell funded research expenditures amounting to a total of $1,600,000 (paid in prior years).
In addition, Savicell agreed to issue to Ramot warrants (the Warrants) to purchase a number of ordinary shares of Savicell which shall together comprise 15% of issued shares of Savicell on an as-converted, fully diluted basis (equivalent to 1,765 Warrant Shares of Savicell). The fair value of the Warrant Shares has been estimated for a total of $2,998,682 which has been included in research and development costs in 2012. As the exercise price inherent in the warrant certificate to purchase 1,765 common shares of Savicell is at nominal value, the warrant certificate is valued at the price of the subsequent equity issuance by Savicell ($1,698.97 per share) and the related common shares are considered to be issued and outstanding.
Upon successful development and commercialization of the technology, and in recognition of the rights and licenses granted to Savicell pursuant to this R&D Agreement, Savicell will be subject to (a) royalties based on the worldwide sales related to the technology; and (b) minimum annual royalties with respect to any calendar year following the first commercial sales as follows. The minimum annual royalties are subject to increases for each successive year.
During the quarter ended March 31, 2018, Savicell incurred research and development expenses of $266,822 (March 2017 - $243,891) which were included in the consolidated statements of operations and comprehensive loss.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
March 31, 2018
(Unaudited)
Note 5 – Related Party Transactions
The Company completed the following related party transactions:
During the quarter ended March 31, 2018, the Company incurred consulting fees and salaries of $140,785 (for the quarter ended March 31, 2017 - $118,777) payable to its directors and officers, recorded in consulting fees and research and development expense. The Company incurred consulting fees payable to a company controlled by a former director/officer of $27,000 (for the quarter ended March 31, 2017 - $27,000), recorded in consulting fees.
As at March 31, 2018, included in accounts payable and accrued liabilities are amounts of $129,214 (December 31, 2017 – $102,214) that was payable to a company controlled by a former director/officer of the Company and $558,995 (December 31, 2017 – $426,648) that was payable to current officers or directors of the Company.
As at March 31, 2018, included in convertible debentures are amounts of $1,193,917 (December 31, 2017 - $1,071,172) that was entered into with two directors, one consultant, and one key management personnel of the Company (Note 6).
Note 6 – Convertible debentures
On April 15, 2015, the Company entered into debt conversion option agreements with two directors, one consultant and one employee of the Company pursuant to which the Company collectively settled debts in the aggregate amount of $852,418. Pursuant to the agreements, these individuals may convert a portion or all of the debt amounts into common shares of the Company at a price per share of $0.055 over a seven year term.
On December 31, 2015, the Company entered into debt conversion option agreements with two directors, one consultant and one employee of the Company pursuant to which the Company collectively settled debts in the aggregate amount of $188,085 with an unsecured and non-interest bearing convertible debenture. Pursuant to the agreements, these individuals may convert a portion or all of the debt amounts into common shares of the Company at a price per share of $0.20 over a seven year term.
On December 31, 2016, the Company entered into debt conversion option agreements with two directors, one consultant and one employee of the Company pursuant to which the Company collectively settled debts in the aggregate amount of $172,895 with an unsecured and non-interest bearing convertible debenture. Pursuant to the agreements, these individuals may convert a portion or all of the debt amounts into common shares of the Company at a price per share of $0.20 over a seven-year term.
The Company evaluated these convertible debentures for derivatives and determined that they do not qualify for derivative treatment. The Company then evaluated the debenture for beneficial conversion features and determined that the convertible loan issued on April 15, 2015 does contain beneficial conversion features. The aggregate intrinsic value of the beneficial conversion features was determined to be $852,418. This amount was recorded as a debt discount on April 15, 2015 that is being amortized over the life of the debenture at effective interest rate of 77%. Total debt discount accumulated amortization as at March 31, 2018 was $828,402 (December 31, 2017 – $705,657).
Online Disruptive Technologies, Inc.
Notes to the
Consolidated Financial Statements
March 31,
2018
(Unaudited)
December 31, 2017 | Additions | March 31, 2018 | |||||||
Giora Davidovits | $ | 510,416 | - | $ | 510,416 | ||||
Eyal Davidovits | 243,825 | - | 243,825 | ||||||
Irit Arbel | 225,822 | - | 225,822 | ||||||
Robbie Manis | 233,334 | - | 233,334 | ||||||
Total | $ | 1,213,397 | - | $ | 1,213,397 |
December 31, 2017 | Additions | March 31, 2018 | |||||||
Convertible debentures | $ | 1,213,397 | - | $ | 1,213,397 | ||||
Convertible discount | (852,418 | ) | - | (852,418 | ) | ||||
Net convertible debentures | 360,979 | - | 360,979 | ||||||
Interest accretion | 705,657 | 122,745 | 828,402 | ||||||
Exchange difference | 4,536 | 2,782 | 7,318 | ||||||
Balance | $ | 1,071,172 | $ | 125,527 | $ | 1,196,699 |
Note 7 Convertible Loan
On March 8, 2018, the Company issued one convertible loan in the face amount of $350,000 to two current shareholders. The convertible loan matures after two years and bears interest at a rate of 10% per annum. The convertible loan may be converted common shares of the Company at the earlier of (a) fifteen days after the maturity date and (b) the date the Company raises gross proceeds of $5,000,000 through private placements or files a registration statement with the Securities and Exchange Commission in the United States. The conversion price is $0.20 per share or such lesser price that the Company may issue additional shares to third parties, and, on conversion or repayment of the convertible loan, the Company will issue warrants in a number that is equal to the amount of the Loan divided by the Conversion price, exercisable at the Funding Price. The convertible loan contains multiple embedded derivatives and accordingly the Company has elected to use the fair value option to measure the entire hybrid instrument at fair value at each reporting period, with changes in fair value recognized in profit and loss. The fair value of the loan at March 31, 2018 has been determined to be $384,978.
Note 8 Equity
Common Shares
The Company has authorized 500,000,000 common shares at par value of $0.001 per share.
As at January 31, 2016, three shareholders of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 1,756,619 common shares at $0.16 per share which equals to 80% of the share pricing of the financing completed on April 19, 2015. Total book value of the issued common shares is $281,059.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
March 31, 2018
(Unaudited)
Note 8 – Equity (Continued)
Common Shares (continued)
On March 31, 2016, one shareholder of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 2,198,819 common shares at $0.16 per share which equals to 80% of the share pricing of the financing completed on April 19, 2015. Total book value of the issued common shares is $351,811.
On March 31, 2016, one shareholder of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 318,742 common shares at $0.16 per share which equals to 80% of the share pricing of the financing completed on April 19, 2015. Total book value of the issued common shares is $50,999.
On April 18, 2016, the Company issued 625,000 common shares at $0.20 per share for total proceeds of $125,000. On April 21, 2016, two shareholders of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 824,992 common shares at $0.16 per share which equals to 80% of the share pricing of the financing completed on April 19, 2015. Total book value of the issued common shares is $131,999.
On April 22, 2016, one shareholder of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 318,749 common shares at $0.16 per share which equals to 80% of the share pricing of the financing completed on April 19, 2015. Total book value of the issued common shares is $50,999.
On June 6, 2016, eight shareholders of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 1,115,625 common shares at $0.16 per share which equals to 80% of the share pricing of the financing completed on April 19, 2015. Total book value of the issued common shares is $178,500.
On June 14, 2016, the Company issued 2,500,000 common shares at $0.20 per share for total proceeds of $500,000.
On July 5, 2016, stock options previously granted by the Company were exercised resulting in the issuance of 50,000 common shares at $0.01 per share for total proceeds of $500.
On July 7, 2016, one shareholder of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 839,375 common shares at $0.16 per share which equals to 80% of the share pricing of the financing completed on April 19, 2015. Total book value of the issued common shares is $134,300.
On September 1, 2016, eight shareholders of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 4,653,732 common shares at $0.16 per share which equals to 80% of the share pricing of the financing completed on April 19, 2015. Total book value of the issued common shares is $744,597.
Online Disruptive Technologies, Inc.
Notes to the
Consolidated Financial Statements
March 31,
2018
(Unaudited)
Note 8 Equity (Continued)
Common Shares (continued)
On April 3, 2017, one shareholder of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 288,830 common shares at $0.16 per share. Total book value of the issued common shares is $46,213.
On April 3, 2017, the Company issued 1,693,750 units at $0.20 per unit for total proceeds of $338,750. Each unit comprises one share and one warrant to purchase a further share at a price of $0.20. Each warrant entitles the holder to acquire one additional share of common stock at a price of $0.20 per share until April 3, 2019. $158,750 was received in December 2016.
On May 4, 2017, the Company issued an aggregate of 1,250,000 common shares at a price of $0.20 per share for gross proceeds of $250,000.
On August 3, 2017, the Company issued an aggregate of 600,000 common shares at a price of $0.20 per share for gross proceeds of $120,000.
On September 21, 2017, an employee exercised 150,000 options and accordingly received 150,000 common shares at an exercise price of $0.01 per share for aggregate consideration of $1,500.
On December 27, 2017, the Company issued an aggregate of 1,000,000 common shares at a price of $0.20 per share for gross proceeds of $200,000.
For the quarter ended March 31, 2018, one consultant exercised 481,179 options at an exercise price of $0.01 per share for aggregate consideration of $4,812. The shares were subsequently issued in April 2018. One employee exercised 16,667 options at an exercise price of $0.20 per share for aggregate consideration of $3,333. The shares have not yet been issued.
As at March 31, 2018, the Company has 119,163,408 common shares (December 31, 2017 119,163,408) issued and outstanding.
Warrants
A summary of warrants as at March 31, 2018 and December 31, 2017 is as follows:
Warrant Outstanding | ||||||
Weighted Average | ||||||
Number of warrant | Exercise Price | |||||
Balance, December 31, 2017 | 1,693,750 | $ 0.20 | ||||
Issued | - | 0.20 | ||||
Balance, March 31, 2018 | 1,693,750 | $ 0.20 |
Number | Exercise | Expiry | Remaining |
Outstanding | Price | Date | Life |
1,693,750 | $0.20 | April 3, 2019 | 1.25 |
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
March 31, 2018
(Unaudited)
Note 8 – Equity (Continued)
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
In August 2015 the Company granted a total of 1,730,000 stock options to four advisors of the Company. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for six-seven years. One third of the options will vest at end of each completed year for which the consultant provides the services. The options were valued based on the Black Scholes model. For quarter ended March 31, 2018, the Company recorded stock based compensation of $5,691 (2017: $36,184) 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 and may be exercised for seven years. One third of the options will vest at the grant date of each of September 1, 2015, September 1, 2016 and September 1, 2017 that the employee remains an employee of the Company or its subsidiaries. As of June 30, 2017, one of these employees is no longer with the Company and as such 75,000 options has expired. The options were valued based on the Black Scholes model. As of March 31, 2018, the Company has fully recorded the stock based compensation for such options.
On November 22, 2015 the Company granted a total of 50,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for seven years. One third of the options will vest at the grant date of each of November 22, 2016, November 22, 2017 and November 22, 2018 that the employee remains an employee of the Company or its subsidiaries. The options were valued based on the Black Scholes model. For quarter ended March 31, 2018, the Company recorded stock based compensation of $212 (2017: $2,038) for such options.
On December 1, 2015 the Company granted a total of 125,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for seven years. One third of the options will vest at the grant date of each of December 1, 2016, December 1, 2017 and December 1, 2018 that the employee remains an employee of the Company or its subsidiaries. The options were valued based on the Black Scholes model. For quarter ended March 31, 2018, the Company recorded stock based compensation of $534 (2017: $5,144) for such options.
On December 6, 2015 the Company granted a total of 100,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for seven years. One third of the options will vest at the grant date of each of December 6, 2016, December 6, 2017 and December 6, 2018 that the employee remains an employee of the Company or its subsidiaries. The options were valued based on the Black Scholes model. For quarter ended March 31, 2018, the Company recorded stock based compensation of $439 (2017: 4,267) for such options.
Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
March 31, 2018
(Unaudited)
Note 8 – Equity (Continued)
Stock Options (continued)
On February 15, 2016 the Company granted a total of 50,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for seven years. One third of the options will vest on each of the first, second and third anniversaries of the date of grant provided the employee remains an employee of the Company or its subsidiaries. The options were valued based on the Black Scholes model. During the quarter ended March 31, 2018, 16,667 options were exercised at $0.20 per share resulting in total proceeds of $3,333. The remainder options 33,333 were cancelled and no stock based compensation was recorded for the quarter.
On March 7, 2016 the Company granted a total of 75,000 stock options to two employees. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for seven years. One third of the options will vest on each of the first, second and third anniversaries of the date of grant provided the employee remains an employee of the Company or its subsidiaries. The options were valued based on the Black Scholes model. For year quarter ended March 31, 2018, the Company recorded stock based compensation of $405 (2017: $2,744) for such options.
On May 5, 2016 the Company granted a total of 150,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for ten years. One third of the options will vest on each of the first, second and third anniversaries of the date of grant provided the employee remains an employee of the Company or its subsidiaries. The options were valued based on the Black Scholes model. For the quarter ended March 31, 2018 the Company recorded stock based compensation of $650 (2017: $7,216) for such options.
On June 6, 2016 the Company granted a total of 800,000 stock options to a consultant. The stock options are exercisable at the exercise price of $0.20 per share and may be exercised for five years. 480,000 of the options so granted will vest as to one quarter of such options at the end of each completed year that the consultant provides the services. The remaining 320,000 options will be fully vested when the consultant has completed the provision of a minimum of 600 blood samples of lung cancer and control patients during the 4 years following June 6, 2016. One twelfth of these options will vest upon each 50 blood samples having been delivered by the consultant to the Company. The options were valued based on the Black Scholes model. For the quarter ended March 31, 2018, the Company recorded stock based compensation of $13,132 (2017: $22,870) for such options.
On November 1, 2016, the Company granted a total of 360,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for seven years. One half of the options will vest immediately and one-half shall vest on the on the first anniversary date of grant provided the grantee remains a board member of the Company or its subsidiaries. The options were valued based on the Black Scholes model. As of December 31, 2017, the Company has fully recorded the stock based compensation for such options.
On May 31, 2017, the Company granted a total of 875,000 stock options to six employees. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for seven years. One third of the options will vest on each of the first, second and third anniversaries of the date of grant, namely May 31, 2018, May 31, 2019 and May 31, 2020 provided the employee remains an employee of the Company or its subsidiaries. The options were
Online Disruptive Technologies, Inc.
Notes to the
Consolidated Financial Statements
March 31,
2018
(Unaudited)
Note 8 Equity (Continued)
Stock Options (continued)
valued based on the Black Scholes model. For the quarter ended March 31, 2018, the Company recorded stock based compensation of $18,203 (2017: $43,283) for such options.
On July 2, 2017, the Company granted a total of 150,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for seven years. One third of the options will vest on the date of grant, namely July 2, 2018, July 2, 2019 and July 2, 2020 provided the employee remains an employee of the Company or its subsidiaries. The options were valued based on the Black Scholes model. For the quarter ended March 31, 2018, the Company recorded stock based compensation of $3,100 (2017: $6,269) for such options.
On July 12, 2017, the Company granted a total of 260,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share and may be exercised for seven years. 50,000 options vested on grant date. Off the remaining 210,000, one third of the options will vest on the date of grant, namely July 12, 2018, July 12, 2019 and July 12, 2020 provided the employee remains a consultant of the Company or its subsidiaries. The options were valued based on the Black Scholes model. For the quarter ended March 31, 2018, the Company recorded stock based compensation of $5,235 (2017: $18,818) for such options.
On February 13, 2018, the Company granted a total of 231,250 stock options to a consultant. The stock options vest immediately and are exercisable at an exercise price of $0.20 per share and may be exercised over five years. The options were valued based on the Black Scholes model. For the quarter ended March 31, 2018, the Company recorded stock based compensation of $26,422 for such options.
The fair value of each option grant is calculated using the following assumptions:
2018 | 2017 | |
Expected life year | 5 | 7-10 |
Interest rate | 2.56% | 1.60-2.40% |
Volatility | 66.42% | 73.01-90.69% |
Dividend yield | --% | --% |
Forfeiture rate | --% | --% |
Number of Options | Weighted | Expire date | |||||||
Average Exercise | |||||||||
Price | |||||||||
Balance, December 31, 2015 | 15,960,896 | $ | 0.04 | ||||||
Granted, on February 15, 2016 | 50,000 | 0.20 | February 15, 2023 | ||||||
Granted, on March 7, 2016 | 75,000 | 0.20 | March 7, 2023 | ||||||
Granted, on May 5, 2016 | 150,000 | 0.20 | May 5, 2026 | ||||||
Granted, on June 6, 2016 | 800,000 | 0.20 | June 6, 2021 | ||||||
Exercised, on July 7, 2016 | (50,000 | ) | 0.01 | ||||||
Granted, on November 1, 2016 | 360,000 | 0.20 | October 31, 2023 |
Balance, December 31, 2016 | 17,345,896 | $ | 0.05 | ||||||
Granted, on May 31, 2017 | 875,000 | 0.20 | May 31, 2024 | ||||||
Expired, July 1, 2017 | (75,000 | ) | 0.20 | July 1, 2017 | |||||
Granted, on July 2, 2017 | 150,000 | 0.20 | July 2, 2024 | ||||||
Granted, on July 12th, 2017 | 260,000 | 0.20 | July 12, 2027 | ||||||
Exercised, on September 25, 2017 | (150,000 | ) | 0.01 | September 25, 2017 | |||||
Balance, December 31, 2017 | 18,405,896 | $ | 0.04 | ||||||
Granted, on February 13, 2018 | 231,250 | 0.20 | February 13, 2023 | ||||||
Exercised, on January 28, 2018 | (16,667 | ) | 0.20 | ||||||
Cancelled, on January 28 2018 | (33,333 | ) | 0.20 | ||||||
Exercised, on March 20, 2018 | (481,179 | ) | 0.001 | ||||||
Balance, March 31, 2018 | |||||||||
18,105,967 | $ | 0.06 |
Outstanding March 31, 2018 | Exercisable as at March 31, 2018 | |||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||
Weighted | Average | Weighted | Average | |||||||||||||||||
Average | Remaining | Average | Remaining | |||||||||||||||||
Exercise | Number of | Exercise | Contractual | Number of | Exercise | Contractual | ||||||||||||||
Price | Options | Price | Life (years) | Options | Price | Life (years) | ||||||||||||||
$ | 0.01 | 9,750,000 | $ | 0.01 | 4.67 | 9,750,000 | $ | 0.01 | 4.42 | |||||||||||
0.01 | 800,000 | 0.01 | 0.64 | 800,000 | 0.01 | 0.39 | ||||||||||||||
0.01 | 1,924,717 | 0.01 | 2.87 | 1,924,717 | 0.01 | 2.62 | ||||||||||||||
0.01 | 500,000 | 0.01 | 1.00 | 500,000 | 0.01 | 0.76 | ||||||||||||||
0.20 | 150,000 | 0.20 | 3.34 | 150,000 | 0.20 | 3.10 | ||||||||||||||
0.20 | 120,000 | 0.20 | 3.65 | 80,000 | 0.20 | 4.41 | ||||||||||||||
0.20 | 1,610,000 | 0.20 | 4.60 | 1,073,334 | 0.20 | 4.36 | ||||||||||||||
0.20 | 75,000 | 0.20 | 4.67 | 75,000 | 0.20 | 4.42 | ||||||||||||||
0.20 | 50,000 | 0.20 | 4.90 | 33,334 | 0.20 | 4.65 | ||||||||||||||
0.20 | 125,000 | 0.20 | 4.92 | 83,334 | 0.20 | 4.67 | ||||||||||||||
0.20 | 100,000 | 0.20 | 4.93 | 66,666 | 0.20 | 4.69 | ||||||||||||||
0.20 | 75,000 | 0.20 | 5.18 | 50,000 | 0.20 | 4.94 | ||||||||||||||
0.20 | 150,000 | 0.20 | 8.35 | 70,000 | 0.20 | 8.10 | ||||||||||||||
0.20 | 800,000 | 0.20 | 3.43 | 226,667 | 0.20 | 3.19 | ||||||||||||||
0.20 | 360,000 | 0.20 | 5.84 | 360,000 | 0.20 | 5.59 | ||||||||||||||
0.20 | 875,000 | 0.20 | 6.42 | - | - | 6.17 | ||||||||||||||
0.20 | 150,000 | 0.20 | 6.51 | - | - | 2.26 | ||||||||||||||
0.20 | 260,000 | 0.20 | 9.53 | 50,000 | 0.20 | 2.28 | ||||||||||||||
0.20 | 231,250 | 0.20 | 9.53 | 231,250 | 0.20 | 4.88 | ||||||||||||||
18,105,967 | $ | 0.06 | 4.10 | 15,524,302 | $ | 0.04 | 3.90 |
Online Disruptive Technologies, Inc.
Notes to the
Consolidated Financial Statements
March 31,
2018
(Unaudited)
Note 8 Equity (Continued)
Non-Controlling Interests
The Companys subsidiary, Savicell, granted a third party a warrant certificate to purchase 1,765 common shares of Savicell that initially represented 15% of the underlying common equity of Savicell. In the course of its initial equity issuances up to October 30, 2012 (the Initial Closing), Savicell issued a total of 592 ordinary shares at $1,698.97 per share to the non-related third party representing approximately 4.79% of the fully diluted common equity of Savicell for aggregate proceeds of $1,005,795. The Savicell investors are entitled to convert their Savicell shares into common shares of ODT (1:10,625) at a price equal to 80% of the per share pricing of the first completed ODT financing of over $500,000 conducted after July 1, 2012 (the Financing Price) provided that for purposes of such conversion, the deemed maximum Financing Price shall be the per share price of the common shares of ODT based on (a) an aggregate ODT equity valuation of $30,000,000; and (b) the number of common shares of ODT outstanding at the time of the financing. Savicell continued its equity issuances following the Initial Closing.
As at December 31, 2012, Savicell had issued a total of 684 shares at $1,698.97 per share representing approximately 5.11% of the fully diluted common equity of Savicell for aggregate proceeds of $1,162,192.
During the year ended December 31, 2013, Savicell issued a total of 760 shares at $1,700 per share representing approximately 5.68% of the fully diluted common equity of Savicell for aggregate proceeds of $1,292,000.
During the year ended December 31, 2014, Savicell issued a total of 183 shares at $1,699 per share representing approximately 1.37% of the fully diluted common equity of Savicell for aggregate proceeds of $310,977.
During the year ended December 31, 2015, Savicell issued a total of 417 shares at $1,700 per share to third parties for aggregate proceeds of $709,087. As at December 31, 2015, Savicell also issued 516 shares at $1,700 to ODT, which of $532,084 has not been received as at December 31, 2015. In addition, Savicell investors exchanged 588 Savicell shares for 6,248,672 of ODT common shares with ODT receiving the Savicell shares so exchanged. Following these share issuances, the Company, the Warrant holder and the Savicell investors held underlying interests in the equity of Savicell of 77.00%, 12.6% and 10.4% respectively (December 31, 2014-74.67%, 13.18% and 12.15%) .
During the year ended December 31, 2016, Savicell investors exchanged 1,132 Savicell shares for 12,026,654 of ODT common shares with ODT receiving the Savicell shares so exchanged. As at December 31, 2016, Savicell received $1,786,656 from ODT and issued 1,051 shares to ODT in return. Following these share issuances, the Company, the Warrant holder and the Savicell investors held underlying interests in the equity of Savicell of 86.65%, 11.72% and 2.15%, respectively (December 31, 2015-77%, 12.6% and 10.4%) . As a result, ODTs shareholding increased, which increased the additional paid-in capital during the year.
During the year ended December 31, 2017, Savicell investors exchanged 27 Savicell shares for 288,830 of ODT common shares with ODT receiving the Savicell shares so exchanged. As at December 31, 2017, Savicell received $658,711 from ODT and issued 387 shares to ODT in return. As at December 31, 2017, the Company, the Warrant holder and the Savicell investors held underlying interests in the equity of Savicell of 86.65%, 11.42% and 1.93%, respectively (December 31, 2016 -86.13%, 11.72% and 2.15%) .
Online Disruptive Technologies, Inc.
Notes to the
Consolidated Financial Statements
March 31,
2018
(Unaudited)
Note 8 Equity (Continued)
Non-Controlling Interests (continued)
As at March 31, 2018, The Company, the Warrant holder and the Savicell investors held underlying interests in the equity of Savicell of 86.65%, 11.42% and 1.93%, respectively (December 31, 2017 - 86.65%, 11.42% and 1.93%) .
Savicells Common Shares
Number | Amount | |||||
of Shares | ||||||
Balance, December 31, 2015 | 14,012 | $ | 3,819,454 | |||
Shares issued to settle inter-company debts | 1,051 | 1,786,656 | ||||
Balance, December 31, 2016 | 15,063 | 5,606,110 | ||||
Shares issued to settle inter-company debts | 387 | 658,711 | ||||
Balance, March 31, 2018 and December 31, 2017 | 15,450 | 6,264,821 |
As the exercise price inherent in the warrant certificate to purchase 1,765 common shares of Savicell is at nominal value, the warrant certificate is valued at the price of the subsequent equity issuance by Savicell ($1,698.97 per share) and the related common shares are considered to be issued and outstanding.
Note 9 Loss per Share
Certain stock options whose terms and conditions are described in Note 8, Stock Options could potentially dilute basic and dilute loss per share in the future, but were not included in the computation of diluted loss per share because to do so would have been anti-dilutive. Those anti-dilutive options are as follows.
March 31, 2018 | December 31, 2017 | |||||
Anti-dilutive options | 18,587,146 | 18,405,896 |
Note 10 Commitments and Guarantees
The Company was not a guarantor to any parties as at March 31, 2018.
1. | On September 11, 2012, ODT signed an employment agreement with Giora Davidovits, its chief executive officer and President, which agreement entailed an effective date of September 1, 2012. In return for acting as its chief executive officer, the Company will provide Mr. Davidovits an annual salary of $250,000 together with other benefits and the potential for additional bonuses as declared from time to time by the Companys board of directors. The agreement is effective until August 31, 2022 unless terminated early in accordance with the termination provisions contained within the employment agreement and subject to agreed severance amounts. In connection with the execution of the employment agreement, the Company issued to Giora Davidovits options to purchase 3,750,000 common shares at a price per share of $0.01. |
Online Disruptive Technologies, Inc.
Notes to the
Consolidated Financial Statements
March 31,
2018
(Unaudited)
Note 10 Commitments and Guarantees (Continued)
The options are exercisable for 10 years. Mr. Davidovits is eligible for subsequent option grants at the discretion of the board of directors. |
||
2. | On October 30, 2012, ODT and Savicell signed an employment agreement with Eyal Davidovits, its chief operating officer, which agreement entailed an effective date of September 1, 2012. In return for acting as its chief operating officer, the Company will provide Mr. Davidovits an annual salary of $120,180 (NIS 432,000), together with other fringe benefits including those related to the use of an automobile, health insurance, contributions to government run retirement programs and the potential for additional bonuses as declared from time to time by the Companys board of directors. The agreement is effective until August 31, 2022 unless terminated early in accordance with the termination provisions contained within the employment agreement and subject to agreed severance amounts. In connection with the execution of the employment agreement, the Company issued to Eyal Davidovits options to purchase 2,750,000 common shares at a price per share of $0.01. The options are exercisable for 10 years. Mr. Davidovits is eligible for subsequent option grants at the discretion of the board of directors. |
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3. | On July 20, 2015, the Company signed an operating lease agreement to lease offices for a period ending July 31, 2018 with an option to renew the lease for an additional period of 2 years. The monthly lease expense is $3,372 (NIS 12,121). Future minimum lease commitment under the operating lease agreement is approximately $23,604 (NIS 84,847). The Company pledged a bank deposit which is used as a bank guarantee at an amount of $14,404 (NIS 50,000) to secure its payments under the lease agreement. The Company pledged a bank deposit which is used as a bank guarantee at an amount of $9,837 (NIS 30,146) to secure its compliance with obligations. |
The minimum future payments for the above commitments are as follows:
Consulting fee and | |||||||||
Year | Salaries | Office rent | Total | ||||||
2018 | $ | 370,180 | $ | 23,604 | $ | 393,784 | |||
2019 | 370,180 | - | 370,180 | ||||||
2020 | 370,180 | - | 370,180 | ||||||
2021 | 370,180 | - | 370,180 | ||||||
2022 | 246,787 | - | 246,787 | ||||||
Total | $ | 1,727,507 | $ | 23,604 | $ | 1,751,111 |
Online Disruptive Technologies, Inc.
Notes to the
Consolidated Financial Statements
March 31,
2018
(Unaudited)
Note 11 Geographic Information
The Companys 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 Companys net loss is as follows:
Three Months Ended March 31, | ||||||
Net Loss | 2018 | 2017 | ||||
US | $ | 305,907 | $ | 211,965 | ||
Israel | 289,545 | 273,806 | ||||
Consolidated | $ | 595,452 | $ | 485,771 |
Note 12 Subsequent Events
1. | In May and June of 2018, the Company issued convertible debentures in the aggregate amount of $187,000 to four individual lenders. The debentures are interest bearing and have a term to maturity of two years. The debentures are convertible into common shares of the Company at the lower of $0.20 per share and the price of a future financing initiative. Moreover, warrants will be granted to the debentureholders upon the earlier of repayment of the debentures of conversion thereof. |
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2. | On June 22, 2018, the Company granted a total of 14,400,000 stock options to its directors, officers and employees. The options are exercisable at the exercise price of US$0.20 per share until June 22, 2025 and have various vesting provisions. In addition, on July 18, 2018, the Company granted a total of 360,000 stock options to an advisor. Such options are exercisable at a per share price of US$0.20 for a period of 10 years subject to vesting provisions. |
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3. | On July 30, 2018 the Company issued a total of 117,660 common shares to a consultant at a deemed price of $0.20 per share pursuant to a consulting agreement for the provision of services throughout out the 2018 fiscal year. |
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4. | On August 24, 2018 the Company issued 16,665 common shares to a former employee who had exercised her vested stock options upon the termination of her employment. The shares were issued at the exercise price of $0.20 per share. |
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5. | On August 24, 2018 the Company issued 800,000 common shares to a consultant who had exercised his vested options. The shares were issued at the exercise price of $0.01 per share. |
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as may, should, expects, plans, anticipates, believes, estimates, predicts, potential or continue or the negative of these terms or other comparable terminology. Forward-looking statements made in this Form 10-Q include statements about:
These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled Risk Factors and the risks set out below, any of which may cause our or our industrys actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and not in limitation:
While these forward-looking statements and any assumptions upon which they are based are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
As used in this interim report on Form 10-Q and unless otherwise indicated, the terms we, us and our refer to Online Disruptive Technologies Inc. and our subsidiary, Savicell Diagnostic Ltd., an Israeli corporation (the Subsidiary or Savicell). Unless otherwise specified, all dollar amounts are expressed in United States dollars.
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Corporate Overview
We were incorporated in the State of Nevada on November 16, 2009 under the name Online Disruptive Technologies, Inc. with authorized capital of 500,000,000 shares of common stock with a par value of $0.001 per share and 20,000,000 shares of preferred stock with a par value of $0.001 per share. On March 24, 2010, we entered into a share purchase agreement with Benjamin Cherniak, whereby we acquired all of the issued and outstanding shares of RelationshipScoreboard.com Entertainment, Inc. in consideration for the issuance of 16,000,000 of our common shares. RSE was incorporated in the State of Nevada on November 16, 2009. There were no related party interests in the acquisition of RelationshipScoreboard.com Entertainment, Inc.
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, our Subsidiary will pay, issue and fund the following to Ramot:
(a) |
a royalty (the Royalty) on worldwide net sales of the Products by our company and its affiliates or sublicensee; | |
(b) |
a minimum annual royalty, credited against the Royalty; | |
(c) |
percentages of all payments received in connection with a sublicense; | |
(d) |
issue warrants to purchase, for nominal consideration, the number of common shares of the Subsidiary such that Ramot holds a minority interest in the Subsidiary; and | |
(e) |
fund research expenditures for the research of the Technology. |
After the entry into of the License Agreement, we are focused on the development of Savicell.
Our Current Business
Savicell
The Savicell platform is a blood test designed for the early detection of disease. It is a broad platform with applications for cancer, autoimmune diseases, and infectious diseases. While our focus initially is on early diagnosis of disease, we believe our technology may have additional applications in drug response monitoring for therapies that impact immune response. Immunotherapy, both for treating cancer and autoimmune diseases, is an example where metabolic shift profiles could indicate response to drug treatment.
Initially, Savicell is focused on the multibillion-dollar cancer diagnosis market. Savicell deploys Well-Shield technology, a Liquid ImmunoBiopsy diagnostic platform. In contrast to existing technologies that evaluate secretions of cancer cells, Well-Shields ImmunoBiopsy platform receives data directly from the immune system. Importantly, Well-Shield is different in that it is a functional test measuring the metabolic activation profile of the immune system as an indicator of disease status. As an immune system test, it is inherently suited for early detection.
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The technology has now received intellectual property protection with a patent approved in the United States, China, Japan and Europe. Furthermore, the patent process is ongoing in several other countries.
Metabolic changes in the immune system modulate cell fate and function, influencing immune response outcomes. Savicell technology measures the energy changes of the immune system, which are disease-specific, and identifies the ailment.
Immune cells are the first to recognize and respond to the formation of cancer cells. When naïve lymphocytes detect cancer antigen, they undergo various differentiation processes aimed at initiating the immune response and bringing it to an optimal level of activity.
One of the most important recent discoveries is that immune system cells alter their energy generation in order to obtain an effector function. The metabolic change is called a metabolic shift, and its key purpose is command and control of the effector function, which produces and secretes cytokines and chemokines.
The immune system is composed of several groups each with a number of subgroups. Each group and subgroup has a specific energy generation profile. Example of groups are naïve cells, effector cells, regulator cells, and memory cells. The metabolic changes of the immune system cells are direct indicators of the performance of the immune system.
Immune cells use various processes to generate energy. These include oxidative phosphorylation, glycolysis, and the breakdown of proteins and nitrogenous bases. The energy generation produces changes in extracellular acidification. Lactic acid is generated in glycolysis, carbon dioxide from oxidative phosphorylation, and ammonia from the breakdown of proteins and nitrogenous bases. Acidification is measured in "open" versus "closed" (air-sealed) wells to track the accumulations of soluble versus volatile metabolic products (lactic acid versus carbon dioxide and ammonia). Savicell's tests measure these acidification (pH) changes.
Our technology exposes the immune system cells to stimulants that have been characterized specifically for the method. The process of acid production described above and the monitoring of the pH level in the cell environment allows early detection of disease. This is because the metabolic profiles of immune cells in sick people are different from those of the healthy.
Immune cells of sick people have already been activated (metabolic shift) in vivo against cancer proteins. As a result, acidification rates are different compared to the immune cells of healthy individuals that have not been exposed in vivo to cancer proteins. To measure extracellular acidification Savicell adds a pH-sensitive impermeable fluorescence probe along with the cells and stimulants to the microwell plate, which is monitored over time. Various stimulants are chosen to increase the pH signal and to more specifically characterize the disease.
Savicell ImmunoBiopsy platform uses three types of stimulants:
1. General stimulants that activate all immune system cells in a non-specific mode, and are used as positive controls for testing. Examples are para-methoxyamphetamine (PMA), lipopolysaccharides (LPS), and concanavalinA (ConA).
2. Metabolic stimulants used as substrates, whose consumption increases in activated cells, especially those undergoing increased glycolysis. Examples are glucose and L-glutamine.
3. Cancer-specific stimulants, including those by cancer type (e.g. lung). These enhance separation by specific cancer type as well as distinguishing cancer from healthy and other diseases. Examples are human epidermal growth factor receptor 2 (HER2) and New York esophageal squamous cell carcinoma 1 (NY-ESO-1).
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The Savicell vision is to develop and commercialize a line of patient-friendly blood tests that enable early diagnosis, staging, and monitoring, thereby saving lives and ensuring appropriate treatment. Cancer is our initial focus.
The need for early diagnosis
Cancer cases are increasing, with more than 20 million new cases predicted in 2025, compared to 12 million in 2008. Early detection is very important because it can improve outcomes. Typically, more treatment options are available when cancer is diagnosed early, and survival improves. In the United States, the five-year survival rate improves by at least four times with early diagnosis and before cancer has spread. Unfortunately, to date, the majority of cancer patients are diagnosed at later stages.
While surgical biopsies are the norm, they are invasive and expensive. The need for simpler and more efficient processes for cancer detection has incentivized some 38 companies in the United States to work on creating liquid biopsies. In a 2015 report, investment bank Piper Jaffray valued the potential market for liquid biopsies at $29 billion in the United States alone.
Using technologies based on circulating tumor cells, exosomes, and circulating tumor nucleic acids, liquid biopsy companies are making progress in developing products that have advantages versus current technologies. However, it appears more likely that these types of liquid biopsy technologies best support late stage cancers, with technical challenges remaining for early-stage cancers and early cancer screening.
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In contrast, the Well-Shield patented ImmunoBiopsy platform is unique in the Liquid Biopsy market. And we believe that as an immune system functional test it is inherently better suited for early detection.
Product focus
Savicell conducted clinical work for tests specific to breast and lung cancers in multiple medical centers. We had encouraging early reviews of our breast cancer and lung cancer analyses albeit on relatively small sample sizes. Specifically, we distinguished between breast cancer patients and healthy donors, and lung cancer patients and healthy donors, with high sensitivity and specificity of greater than 95% in both cancers. In addition, we were able to show that there is a metabolic profile difference between other breast disease donors and breast cancer donors and between COPD (chronic obstructive pulmonary disease) donors and lung cancer donors. Based on this early potential, Savicell has decided to focus our resources on lung cancer as our lead product.
Savicell's lung cancer clinical study results were published in Cancer Immunology and Immunotherapy that validate the promise of Savicell’s Liquid ImmunoBiopsy™. The published study uses the Savicell Diagnostics, Ltd. platform to diagnose lung cancer, producing 91% sensitivity and 80% specificity in a 20-fold cross-validation. Diagnosis of Stage 1 lung cancer is as accurate as later stages.
Novel non-invasive early detection of lung cancer using liquid immunobiopsy metabolic activity profiles Adir, Y., Tirman, S., Abramovitch, S. et al. Cancer Immunol Immunother (2018).
https://doi.org/10.1007/s00262-018-2173-5
https://link.springer.com/article/10.1007%2Fs00262-018-2173-5
Abstract
Lung cancer is the leading cause of cancer death worldwide. Survival is largely dependent on the stage of diagnosis: the localized disease has a 5-year survival greater than 55%, whereas, for spread tumors, this rate is only 4%. Therefore, the early detection of lung cancer is key for improving prognosis. In this study, we present an innovative, non-invasive, cancer detection approach based on measurements of the metabolic activity profiles of immune system cells. For each Liquid ImmunoBiopsy test, a 384 multi-well plate is loaded with freshly separated PBMCs, and each well contains 1 of the 16 selected stimulants in several increasing concentrations. The extracellular acidity is measured in both air-open and hermetically-sealed states, using a commercial fluorescence plate reader, for approximately 1.5 h. Both states enable the measurement of real-time accumulation of ‘soluble’ versus ‘volatile’ metabolic products, thereby differentiating between oxidative phosphorylation and aerobic glycolysis. The metabolic activity profiles are analyzed for cancer diagnosis by machine-learning tools. We present a diagnostic accuracy study, using a multivariable prediction model to differentiate between lung cancer and control blood samples. The model was developed and tested using a cohort of 200 subjects (100 lung cancer and 100 control subjects), yielding 91% sensitivity and 80% specificity in a 20-fold cross-validation. Our results clearly indicate that the proposed clinical model is suitable for non-invasive early lung cancer diagnosis, and is indifferent to lung cancer stage and histological type.
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Lung cancer
American Cancer Society estimates there will be 222,500 new cases of lung cancer in the USA in 2017, representing 13.6% of all cancer diagnoses. Worldwide, there were an estimated 1.8 million new cases of lung cancer in 2012, accounting for 12.9% of all cancers. Lung cancer is the leading cancer killer in both men and women in the USA and worldwide. (7) (8)
Less than 20% of lung cancers are diagnosed at an early stage, with a five-year survival rate (completely resected NSCLC stage 1A) that ranges from 67 to 89% (4). Unfortunately, the majority of lung cancer cases (57%) are diagnosed at an advanced stage when five-year survival is as low as 4%. This is because lung cancer symptoms present themselves at later stages of the disease.
Cigarette smoke remains the main risk factor for lung cancer, with 85% to 90% of lung cancer cases in the USA occurring in current or former smokers. There are about 94 million current and former smokers in the USA. While clinicians can identify those at risk, they lack effective tools to diagnose lung cancer early.
With improved low-dose computed tomography (LDCT) technology, it is possible to detect potential malignant nodules in high-risk populations. Pulmonary nodules are small, focal, radiographic opacities that may be solitary or multiple. The management goal of patients with pulmonary nodules is to distinguish between benign and malignant nodules, speeding diagnosis for malignant nodules while minimizing unnecessary and invasive testing of those that are benign. Many pulmonary nodules are detected incidentally in computed tomography (CT) and chest x-rays examination (not related to the indication for obtaining the CT or x-rays examination) and in scheduled LDCT screening.
The largest USA National Screening Trial (NLST) demonstrated that screening high-risk subjects decreases mortality. The current standard of care for diagnosing lung cancer in high-risk patients is LDCT scanning. This large trial of 53,454 current or former heavy smokers, ages 55 to 74, demonstrated that screening high-risk subjects using LDCT decreases mortality from lung cancer by 20%. Based on this study, the United States Preventive Services Task force (USPSTF) guidelines recommend annual LDCTs for patients at high risk for lung cancer. However, there are major limitations to CT screening that create the following two important market needs:
Broader Screening
Because of cost-benefit ratios (including possible radiation risks), LDCT was approved only for a heavy- use segment of past and current smokers. Specifically, Americans aged 55 to 80 years old who have a 30 pack-year smoking history and currently smoke or have quit within the past 15 years. This represents about 10 million people or about 11% of the 94 million past and current smokers in the US. There is still a major unmet need for a safer, cost- effective liquid biopsy test that can help screen for lung cancer in the broader past and current smoker population.
Indeterminate Nodules
A total of 96.4% of the positive screening results (NLST) in the low- dose CT group and 94.5% in the radiography group were false positive results. The estimated number of pulmonary nodules in the USA ranges from 2 million to 4.9 million annually (1)(2)(3). Using an estimate of 3 million annual pulmonary nodules, and a false positive rate of 96.4% for LDCT and 94% for x-ray, would generate up to 2.8 million false positive cases a year. In addition, 25% of all LDCTs are indeterminate, and require additional follow-up procedures. A full implementation of LDCT screening in the USA will identify 2.5 million indeterminate nodules and is expected to further increase the number of false positive cases.
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After nodule findings, the follow-up procedures to diagnose lung cancer are expensive, invasive procedures like biopsy. Bronchoscopy can have significant complication risks, and follow-up imaging adds to radiation risks. Millions of false positive cases annually could lead to unnecessary invasive procedures on many smokers or past smokers who do not actually have lung cancer, driving higher costs, mortality and morbidity.
There is an important need for a safer liquid biopsy test that can assist in the diagnosis of indeterminate nodules and significantly reduce the number of false positive results.
Lung cancer strategy
In the longer term, we plan to develop a screening test for lung cancer. However, our initial goal is to provide an additional tool for clinicians, designed to assist in the diagnosis of indeterminate nodules identified by imaging. The Well-Shield test is intended to help a clinician decide on invasive and/or non-invasive follow- up. It could help reduce the majority of the false positive results and reduce the number of unnecessary invasive procedures by more than 200,000 annually in the US (5)(6). As a result, Well-Shields test could drive $3.6 billion in annual cost savings in the USA alone.
Sources Quoted
(1) Luba Frank and Leslie E. Quint Chest CT incidentalomas: thyroid lesions, enlarged mediastinal lymph nodes, and lung nodules Cancer Imaging. 2012; 12(1): 4148
(2) MacMahon H, Austin JH, Gamsu G, et al. Guidelines for management of small pulmonary nodules detected on CT scans: a statement from the Fleischner Society. Radiology. 2005;237:395400. doi:10.1148/radiol. 2372041887. [PubMed]
(3)Michael K. Gould et al. Recent Trends in the Identification of Incidental Pulmonary Nodules. Am J Respir Crit Care Med Vol 192, Iss 10, pp 12081214, Nov 15, 2015
(4) Apichat Tantraworasin et al. ISRN Surgery Volume 2013, Article ID 175304, 7 pages
(5)Moving Beyond the National Lung Screening Trial: Discussing Strategies for Implementation of Lung Cancer Screening Programs Bernando H.L. Goulard, The Oncologist. 2013 Aug; 18(8): 941946
(6) Assume 10 million patients screened and sensitivity and specificity of 92% and 75% respectively. Well-Shield may have higher or lower sensitivity and specificity.
(7) Cancer Facts & Figures 2015.
(8) World Cancer Report 2014.
Results of Operations
Revenues
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 three months ended March 31, 2018 and 2017, we incurred the following general and administrative expenses:
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Three months | ||||||
Three months ended | ended March 31, | |||||
March 31, 2018 | 2017 | |||||
(Unaudited) | (Unaudited) | |||||
$ | $ | |||||
General and Administrative Expenses | ||||||
Accounting Fees | 7,500 | 7,500 | ||||
Audit & Tax Fees | 14,564 | 33,982 | ||||
Bank Fees | 136 | 263 | ||||
Consulting Fees | 112,152 | 91,652 | ||||
Filing and Transfer Agent Fees | 90 | 2,273 | ||||
Insurance Expense | 13,217 | 9,167 | ||||
Legal Fees | 3,665 | 11,132 | ||||
Office and Miscellaneous Expense | 2,970 | 8,350 | ||||
Payroll Expense | 9,382 | 8,702 | ||||
Rent Expense | 984 | 1,217 | ||||
Research and Development Expense (Note 2k, 4) | 266,822 | 243,981 | ||||
Travel Expenses | 3,667 | 2,130 | ||||
435,149 | 420,349 |
Three-Month Period Ended March 31, 2018
Our expenses increased by approximately 4% during the three months ended March 31, 2018 compared to the same period in 2017. This increase resulted primarily from (a) an increase in consulting expenses and research and development expenses that related to a slight increase in the overall dedication of human resources; (b) an increase in insurance expense which related to a general increase in insurance premiums; and (c) mitigation of the expense reductions due to (i) a decrease in the audit and tax expense recognized in the current fiscal quarter primarily due to timing issues; (ii) a reduction in filing and transfer agent fees due to fewer share issuances; (iii) a reduction in legal fees due to a slower pace of equity financings that typically require the services of legal professionals to implement such transactions; and (iv) a reduction in office and miscellaneous expenses as efforts were made to reduce the incurrence of non-core expenses.
Liquidity And Capital Resources
Working Capital
March 31, 2018 $ |
December 31, 2017
$ | |
Total Current Assets | 349,219 | 255,654 |
Total Current Liabilities | 944,741 | 860,489 |
Working Capital (Deficiency) | (595,522) | (604,835) |
While our operations consumed slightly less cash in the first quarter of 2018 as compared to the corresponding quarter in 2017, we raised more financing dollars between debt and equity issuances. This enabled an increase in our overall cash position relative to our most recent year end, December 31, 2017. Nonetheless, our current liabilities continue to grow as a result of accrued but unpaid compensation owing to senior management and consultants.
Given that we have a monthly expenditure budget of approximately $100,000 assuming that current compensation is, in fact, paid to management and consultants, there is a need to raise additional financing in the short term as current cash balances are not sufficient to sustain our operations. Efforts are ongoing to secure additional convertible debt and equity financing and we are hopeful to realize such transactions imminently.
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Recent Financings
On February 13, 2018 we issued 231,250 stock options to one U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) and we relied on the exemption from the registration requirements provided for in Section 4(2) of the Securities Act of 1933, as amended.
On March 8, 2018 we issued one convertible loan in the face amount of $350,000 to two accredited investors who are not U.S. persons (as that term is defined in Regulation S of the Securities Act of 1933, as amended) and we relied on the exemption from the registration requirements provided for in Regulation S. The convertible loan evidences a debt due on demand that bears interest at a rate of 10% per annum. The holder of the convertible loan may convert part or all of the sums due at any time and from time-to-time, at its discretion, plus accrued interest, into common shares of the Registrant at a conversion price of $0.20 per share or such lesser price that the Registrant may issue additional shares to third parties (the Conversion Price), and, on conversion or repayment of the convertible loan, the Registrant will issue warrants of the Registrant in a number that is equal to the amount of the Loan divided by the Conversion price, exercisable at the Funding Price (as defined in the Agreements) per Warrant.
On May 10, 2018 we issued one convertible loan in the face amount of $25,000 to one accredited investor who is not a U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) and we relied on the exemption from the registration requirements provided for in Regulation S. The convertible loan evidences a debt due on demand that bears interest at a rate of 10% per annum. The holder of the convertible loan may convert part or all of the sums due at any time and from time-to-time, at its discretion, plus accrued interest, into common shares of the Registrant at a conversion price of $0.20 per share or such lesser price that the Registrant may issue additional shares to third parties (the Conversion Price), and, on conversion or repayment of the convertible loan, the Registrant will issue warrants of the Registrant in a number that is equal to the amount of the Loan divided by the Conversion price, exercisable at the Funding Price (as defined in the Agreements) per Warrant.
On May 15, 2018 we issued one convertible loan in the face amount of $37,000 to one accredited investor who is not a U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) and we relied on the exemption from the registration requirements provided for in Regulation S. The convertible loan evidences a debt due on demand that bears interest at a rate of 10% per annum. The holder of the convertible loan may convert part or all of the sums due at any time and from time-to-time, at its discretion, plus accrued interest, into common shares of the Registrant at a conversion price of $0.20 per share or such lesser price that the Registrant may issue additional shares to third parties (the Conversion Price), and, on conversion or repayment of the convertible loan, the Registrant will issue warrants of the Registrant in a number that is equal to the amount of the Loan divided by the Conversion price, exercisable at the Funding Price (as defined in the Agreements) per Warrant.
On May 30, 2018 we issued one convertible loan in the face amount of $50,000 to one accredited investor who is not a U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) and we relied on the exemption from the registration requirements provided for in Regulation S. The convertible loan evidences a debt due on demand that bears interest at a rate of 10% per annum. The holder of the convertible loan may convert part or all of the sums due at any time and from time-to-time, at its discretion, plus accrued interest, into common shares of the Registrant at a conversion price of $0.20 per share or such lesser price that the Registrant may issue additional shares to third parties (the Conversion Price), and, on conversion or repayment of the convertible loan, the Registrant will issue warrants of the Registrant in a number that is equal to the amount of the Loan divided by the Conversion price, exercisable at the Funding Price (as defined in the Agreements) per Warrant.
On June 14, 2018 we issued one convertible loan in the face amount of $75,000 to one accredited investor who is not a U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) and we relied on the exemption from the registration requirements provided for in Regulation S. The convertible loan evidences a debt due on demand that bears interest at a rate of 10% per annum. The holder of the convertible loan may convert part or all of the sums due at any time and from time-to-time, at its discretion, plus accrued interest, into common shares of the Registrant at a conversion price of $0.20 per share or such lesser price that the Registrant may issue additional shares to third parties (the Conversion Price), and, on conversion or repayment of the convertible loan, the Registrant will issue warrants of the Registrant in a number that is equal to the amount of the Loan divided by the Conversion price, exercisable at the Funding Price (as defined in the Agreements) per Warrant.
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On June 22, 2018 we granted a total of 14,400,000 stock options to our directors, officers, employees and consultants. The stock options are exercisable at the exercise price of US$0.20 per share until June 22, 2025 and have various vesting provisions. 12,200,000 of these stock options were granted to thirteen non-U.S. persons (as that term is defined in Regulation S of the Securities Act of 1933, as amended) relying on Section 4(2) of the Securities Act of 1933, as amended and/or Rule 506 promulgated pursuant to the Securities Act of 1933, as amended. 2,200,000 of these stock options were granted to three U.S. persons (as that term is defined in Regulation S of the Securities Act of 1933) relying on Section 4(2) of the Securities Act of 1933 and/or Rule 506 promulgated pursuant to the Securities Act of 1933.
On July 18, 2018, we granted a total of 360,000 stock options to an advisor. Such options are exercisable at a per share price of US$0.20 for a period of 10 years subject to vesting provisions.
Cash Flows
Three months | ||||||
Three months ended | ended March 31, | |||||
March 31, 2018 | 2017 | |||||
$ | $ | |||||
Net Cash (Used in) Operating Activities | (254,344 | ) | (323,843 | ) | ||
Net Cash Provided by Financing Activities | 358,145 | 180,000 | ||||
Net Cash (Used in) Investing Activities | - | - |
Cash (Used in) Operating Activities
The decrease in cash used in operating activities compared to the same period last year is due primarily to reductions in office and miscellaneous expense as well as legal, audit and tax fees and filing and transfer agent fees. Efforts have been made to reduce the incurrence of non-core expenditures in order to preserve existing cash balances.
Cash Provided by Financing Activities
The increase in cash provided by financing activities compared to the same period last year results primarily from an increase in the issuance of convertible debt securities during the first quarter of 2018 compared to the corresponding period of 2017.
Cash Used in Investing Activities
There was no cash used in or provided by investing activities during the first quarter of 2018.
Plan of Operation
We are an early-stage company. There exists substantial doubt that we can continue as an on-going business for the next 12 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 and the related clinical testing. The pace at which we will advance the development of the Technology will depend, in part, on the quantum of additional financing that we are able to raise within the balance of 2018. Once such amount becomes known, we will be in a position to estimate the overall expenditure profile for the ensuing 12 months.
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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.
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 March 31, 2018, our company has accumulated deficit of $(12,603,465) since inception. We do not have sufficient working capital to enable us to carry out our stated plan of operation for the next 12 months.
Due to the uncertainty of our ability to meet our current operating expenses and the capital expenses noted in their report on the financial statements for the year ended December 31, 2017, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
The continuation of our business is dependent upon us raising additional financial support. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
Future Financings
We will require additional financing to fund our planned operations, including further development, clinical testing, regulatory requirements, and commercializing our existing assets. We currently do not have committed sources of additional financing and may not be able to obtain additional financing, particularly, if the volatile conditions in the stock and financial markets, and more particularly, the market for early development stage pharmaceutical company stocks persist.
There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to delay or scale down some or all of our development activities or perhaps even cease the operation of our business.
Since inception we have funded our operations primarily through equity and debt financings and we expect that we will continue to fund our operations through the equity and debt financing. If we raise additional financing by issuing equity securities, our existing stockholders ownership will be diluted. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his, her, or its investment in our common stock. Further, we may continue to be unprofitable.
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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 are material to stockholders.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act), are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Rules 13a-15(b) and 15d-15(b) under the Exchange Act, requires us to carry out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2018. This evaluation was implemented under the supervision and with the participation of our Chief Executive Officer.
Based on this evaluation, management concluded that, as of March 31, 2018, our disclosure controls and procedures are not fully effective. The ineffectiveness of our disclosure controls and procedures was due to the existence of material weaknesses identified in our annual report on Form 10-K filed with the SEC on June 4, 2018. As we continue to grow we are adding additional personnel in key positions, including accounting, that will enable us to improve our overall control procedures.
Changes in Internal Control over Financial Reporting
During fiscal quarter ended March 31, 2018, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. 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.
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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 quarterly report on Form 10-Q in evaluating our company and our business before purchasing shares of our common stock. Our business, operating results and financial condition could be seriously harmed as a result of the occurrence of any of the following risks. You could lose all or part of your investment due to any of these risks. You should invest in our common stock only if you can afford to lose your entire investment.
Risks Related to our Company
The slowing of the worldwide economic growth may reduce our ability to obtain the financing necessary to continue our business and may reduce the number of viable products and businesses that we may wish to acquire. If we cannot raise the funds that we need or find a suitable product or business to acquire, we may go out of business and investors will lose their entire investment in our company.
There has been a downturn in general worldwide economic conditions due to many factors, including the effects of slower economic activity, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions, increased unemployment and liquidity concerns. In addition, these economic effects, including the resulting recession in various countries and slowing of the global economy, will likely result in fewer business opportunities as companies face increased financial hardship. Tightening credit and liquidity issues will also result in increased difficulties for our company to raise capital for our continued operations. We may not be able to raise money through the sale of our equity securities or through borrowing funds on terms we find acceptable. If we cannot raise the funds that we need or find a suitable product or business to acquire, we will go out of business. If we go out of business, investors will lose their entire investment in our company.
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 and work toward the commercialization of the Technology. We estimate our average monthly expenses over the next 12 months to be approximately $100,000 ($1,200,000 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 March 31, 2018, we had cash and cash equivalents of $335,127. As of March 31, 2018, we had total current liabilities of $944,741. Accordingly, we currently have negative working capital of $609,614 with a significant portion of the current liabilities representing salary and consulting fees owing to management and consultants which have been forestalled. If we are unable to meet our 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.
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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 officer are not all residents of the United States, and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against our directors and officers, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.
If we are unable to successfully recruit and retain qualified personnel, we may not be able to continue our operations.
In order to successfully implement and manage our business plan, we will depend upon, among other things, successfully recruiting and retaining qualified personnel having experience in the pharmaceutical industry. Competition for qualified individuals is intense. We may not be able to find, attract and retain qualified personnel on acceptable terms. If we are unable to find, attract and retain qualified personnel with technical expertise, our business operations could suffer.
Future growth could strain our resources, and if we are unable to manage our growth, we may not be able to successfully implement our business plan.
We hope to experience rapid growth in our operations, which will place a significant strain on our management, administrative, operational and financial infrastructure. Our future success will depend in part upon the ability of our executive officers to manage growth effectively. This will require that we hire and train additional personnel to manage our expanding operations. In addition, we must continue to improve our operational, financial and management controls and our reporting systems and procedures. If we fail to successfully manage our growth, we may be unable to execute upon our business plan.
Risks Relating to our Operations in Israel
Conditions in Israel and the surrounding Middle East may materially adversely affect our Subsidiarys 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 Subsidiarys ability to engage in research and development, or otherwise adversely affect its business or operations. In addition, our Subsidiarys 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 Subsidiarys 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.
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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:
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.
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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 FDAs 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 manufacturers 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.
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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 products 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:
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.
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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:
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:
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.
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Trading of our stock is restricted by the Securities Exchange Commissions penny stock regulations, which may limit a stockholders 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 customers 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 customers 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 purchasers 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 stockholders 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 customers 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.
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Our common stock is illiquid and the price of our common stock may be negatively impacted by factors which are unrelated to our operations.
Although our common stock is currently listed for quotation on the OTC Markets Pink Sheets, there is no market for our common stock. Even when a market is established and trading begins, trading through the OTC Markets Pink Sheets 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 stocks price. This may never happen and investors may lose all of their investment in our company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On February 13, 2018 we issued 231,250 stock options to one U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) and we relied on the exemption from the registration requirements provided for in Section 4(2) of the Securities Act of 1933, as amended.
On March 8, 2018 we issued one convertible loan in the face amount of $350,000 to two accredited investors who are not U.S. persons (as that term is defined in Regulation S of the Securities Act of 1933, as amended) and we relied on the exemption from the registration requirements provided for in Regulation S. The convertible loan evidences a debt due on demand that bears interest at a rate of 10% per annum. The holder of the convertible loan may convert part or all of the sums due at any time and from time-to-time, at its discretion, plus accrued interest, into common shares of the Registrant at a conversion price of $0.20 per share or such lesser price that the Registrant may issue additional shares to third parties (the Conversion Price), and, on conversion or repayment of the convertible loan, the Registrant will issue warrants of the Registrant in a number that is equal to the amount of the Loan divided by the Conversion price, exercisable at the Funding Price (as defined in the Agreements) per Warrant.
On May 10, 2018 we issued one convertible loan in the face amount of $25,000 to one accredited investor who is not a U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) and we relied on the exemption from the registration requirements provided for in Regulation S. The convertible loan evidences a debt due on demand that bears interest at a rate of 10% per annum. The holder of the convertible loan may convert part or all of the sums due at any time and from time-to-time, at its discretion, plus accrued interest, into common shares of the Registrant at a conversion price of $0.20 per share or such lesser price that the Registrant may issue additional shares to third parties (the Conversion Price), and, on conversion or repayment of the convertible loan, the Registrant will issue warrants of the Registrant in a number that is equal to the amount of the Loan divided by the Conversion price, exercisable at the Funding Price (as defined in the Agreements) per Warrant.
On May 15, 2018 we issued one convertible loan in the face amount of $37,000 to one accredited investor who is not a U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) and we relied on the exemption from the registration requirements provided for in Regulation S. The convertible loan evidences a debt due on demand that bears interest at a rate of 10% per annum. The holder of the convertible loan may convert part or all of the sums due at any time and from time-to-time, at its discretion, plus accrued interest, into common shares of the Registrant at a conversion price of $0.20 per share or such lesser price that the Registrant may issue additional shares to third parties (the Conversion Price), and, on conversion or repayment of the convertible loan, the Registrant will issue warrants of the Registrant in a number that is equal to the amount of the Loan divided by the Conversion price, exercisable at the Funding Price (as defined in the Agreements) per Warrant.
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On May 30, 2018 we issued one convertible loan in the face amount of $50,000 to one accredited investor who is not a U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) and we relied on the exemption from the registration requirements provided for in Regulation S. The convertible loan evidences a debt due on demand that bears interest at a rate of 10% per annum. The holder of the convertible loan may convert part or all of the sums due at any time and from time-to-time, at its discretion, plus accrued interest, into common shares of the Registrant at a conversion price of $0.20 per share or such lesser price that the Registrant may issue additional shares to third parties (the Conversion Price), and, on conversion or repayment of the convertible loan, the Registrant will issue warrants of the Registrant in a number that is equal to the amount of the Loan divided by the Conversion price, exercisable at the Funding Price (as defined in the Agreements) per Warrant.
On June 14, 2018 we issued one convertible loan in the face amount of $75,000 to one accredited investor who is not a U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) and we relied on the exemption from the registration requirements provided for in Regulation S. The convertible loan evidences a debt due on demand that bears interest at a rate of 10% per annum. The holder of the convertible loan may convert part or all of the sums due at any time and from time-to-time, at its discretion, plus accrued interest, into common shares of the Registrant at a conversion price of $0.20 per share or such lesser price that the Registrant may issue additional shares to third parties (the Conversion Price), and, on conversion or repayment of the convertible loan, the Registrant will issue warrants of the Registrant in a number that is equal to the amount of the Loan divided by the Conversion price, exercisable at the Funding Price (as defined in the Agreements) per Warrant.
On June 22, 2018 we granted a total of 14,400,000 stock options to our directors, officers, employees and consultants. The stock options are exercisable at the exercise price of US$0.20 per share until June 22, 2025 and have various vesting provisions.
On June 22, 2018 we granted 12,200,000 of these stock options to thirteen non-U.S. persons (as that term is defined in Regulation S of the Securities Act of 1933, as amended) relying on Section 4(2) of the Securities Act of 1933, as amended and/or Rule 506 promulgated pursuant to the Securities Act of 1933, as amended.
On June 22, 2018, we granted 2,200,000 of these stock options to three U.S. persons (as that term is defined in Regulation S of the Securities Act of 1933) relying on Section 4(2) of the Securities Act of 1933 and/or Rule 506 promulgated pursuant to the Securities Act of 1933.
On July 18, 2018, we granted a total of 360,000 stock options to an advisor. Such options are exercisable at a per share price of US$0.20 for a period of 10 years subject to vesting provisions.
All the proceeds of the various financings were used for working capital.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
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None.
ITEM 6. EXHIBITS
Exhibits required by Item 601 of Regulation S-K:
Exhibit |
|
(2) |
Plan of acquisition, reorganization, arrangement, liquidation or succession |
(3) |
Articles of Incorporation and Bylaws |
(10) |
Material Contracts |
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Exhibit |
|
(21) |
Subsidiaries |
21.1 |
Savicell Diagnostic Ltd. our approximately 86.65% subsidiary incorporated in Israel |
(31) |
Rule 13a-14 Certifications |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Giora Davidovits | |
(32) |
Section 1350 Certifications |
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Giora Davidovits | |
(101) |
XBRL |
*Filed herewith.
27
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ONLINE DISRUPTIVE TECHNOLOGIES, INC.
By
/s/ Giora
Davidovits
Giora Davidovits
Chief Executive Officer, Chief Financial
Officer,
President, Secretary, Treasurer and Director
(Principal
Executive Officer, Principal Financial Officer and Principal Accounting Officer)
September 4, 2018
28
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Giora Davidovits, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Online Disruptive Technologies, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; | |
(c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
(d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; |
5. |
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: September 4, 2018
/s/ Giora Davidovits
Giora Davidovits
Chief
Executive Officer, Chief Financial Officer, President, Secretary, Treasurer and
Director
(Principal Executive Officer, Principal Financial Officer and
Principal Accounting Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
the quarterly report on Form 10-Q of Online Disruptive Technologies, Inc. for the interim period ended March 31, 2018 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
(2) |
the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Online Disruptive Technologies, Inc. |
Dated: September 4, 2018
/s/ Giora Davidovits | |
Giora Davidovits, Chief Executive Officer, | |
Chief Financial Officer, President, Secretary and Treasurer | |
(Principal Executive Officer, Principal Financial Officer and | |
Principal Accounting Officer) |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Online Disruptive Technologies, Inc. and will be retained by Online Disruptive Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
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