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EX-32.1 - EXHIBIT 32.1 - ONLINE DISRUPTIVE TECHNOLOGIES, INC.exhibit32-1.htm
EX-31.1 - EXHIBIT 31.1 - ONLINE DISRUPTIVE TECHNOLOGIES, INC.exhibit31-1.htm

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 September 30, 2016

[  ] 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 organization) Identification No.)

3120 S. Durango Drive, Suite 305, Las Vegas, Nevada 89117
(Address of principal executive offices) (zip code)

702-579-7900
(Registrant’s 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]

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 issuer’s classes of common equity as of the latest practicable date:
As of November 7, 2016, there were 114,180,828 shares of common stock, par value $0.001, outstanding.


TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION   4
     
ITEM 1. FINANCIAL STATEMENTS 4
     
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 5
     
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 14
     
ITEM 4. CONTROLS AND PROCEDURES. 15
     
PART II - OTHER INFORMATION   15
     
ITEM 1. LEGAL PROCEEDINGS 15
     
ITEM 1A. RISK FACTORS   15
     
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 23
     
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 23
     
ITEM 4. MINE SAFETY DISCLOSURES 23
     
ITEM 5. OTHER INFORMATION 23
     
ITEM 6. EXHIBITS 23
     
SIGNATURES 25


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ONLINE DISRUPTIVE TECHNOLOGIES, INC.

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016

(U.S. DOLLARS)


Online Disruptive Technologies, Inc.
Consolidated Balance Sheets
(U.S. Dollars)
(Unaudited)

    September 30, 2016     December 31, 2015  
    $     $  
ASSETS            
             
Current Assets            
Cash   621,258     1,206,809  
Prepaid expenses   1,728     2,651  
VAT Receivable   28,718     22,208  
Total Current Assets   651,704     1,231,668  
             
Restricted cash (Note 8 (4))   13,329     12,814  
Fixed Assets (Note 3)   68,331     58,321  
Total Assets   733,364     1,302,803  
             
LIABILITIES            
             
Current Liabilities            
Accounts Payable   107,220     54,674  
Accrued Liabilities   157,905     72,117  
             
Total Current Liabilities   265,125     126,791  
             
Convertible debentures (Note 6)   500,950     380,199  
Total Liabilities   766,075     506,990  
             
EQUITY            
             
Authorized:
   20,000,000 Preferred Shares, par value $0.001
   500,000,000 Common Shares, par value $0.001
Issued and outstanding:
   Nil Preferred Shares 108,637,721 Common Shares (December
   31, 2015: 98,979,174 Common Shares)
  114,181     98,979  
Additional Paid-in Capital   9,374,398     8,700,219  
Accumulated Other Comprehensive Loss   (83,931 )   (88,720 )
Deficit   (9,483,096 )   (8,026,578 )
Equity Attributable to Shareholders of the Company   (78,448 )   683,900  
             
Non-Controlling Interests   45,737     111,913  
Total Equity   (32,711 )   795,813  
             
Total Liabilities and Equity   733,364     1,302,803  

The accompanying notes are an integral part of these consolidated financial statements.


Online Disruptive Technologies, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)

    Three months     Three months           Nine months  
    ended     ended     Nine months     ended  
    September 30,     September 30,     ended     September 30,  
    2016     2015     September     2015  
          (Restated     30, 2016     (Restated  
          Note11 )         Note 11 )
General and Administrative Expenses       $     $     $  
Accounting Fees   7,500     7,500     22,500     20,750  
Audit & Tax Fees   1,040     5,230     55,600     37,330  
Bank Fees   194     205     436     689  
Consulting Fees   107,272     197,043     291,216     521,881  
Filing and Transfer Agent Fees   1,832     3,223     9,561     7,942  
Insurance Expense   1,628     9,507     43,216     48,213  
Legal Fees   8,931     19,812     33,933     49,738  
                         
Marketing Expense   -     70     -     31,757  
Office and Miscellaneous Expense   23,834     4,776     55,109     7,704  
Payroll Expense   8,067     -     18,981     -  
Rent Expense   14,979     -     41,896     -  
Research and Development Expense   223,385     80,609     728,605     723,721  
Stock-Based Compensation   85,944     44,426     236,350     324,302  
Travel Expense   4,611     10,502     11,305     17,884  
    (489,217 )   (382,903 )   (1,548,708 )   (1,791,911 )
                         
Other Expense                        
Interest Accretion   (47,232 )   (68,493 )   (120,751 )   (129,955 )
Interest Expense   (679 )   -     (806 )   -  
Foreign Currency Gain (Loss)   11,006     22,759     5,117     (31,092 )
Net (Loss) for the period   (526,122 )   (428,637 )   (1,665,148 )   (1,952,958 )
                         
Other Comprehensive Income                        
Currency translation adjustments   8,714     (26,581 )   4,787     7,828  
Comprehensive (Loss) for the period   (517,408 )   (455,218 )   (1,660,361 )   (1,945,130 )
                         
Net (Loss) attributable to:                        
Common Stockholders   (469,723 )   (389,607 )   (1,456,518 )   (1,703,970 )
Non-Controlling Interests   (56,399 )   (39,030 )   (208,630 )   (248,988 )
    (526,122 )   (428,637 )   (1,665,148 )   (1,952,958 )
Net Comprehensive (Loss) Attributable to:                        
Common Stockholders   (462,215 )   (409,502 )   (1,452,411 )   (1,698,110 )
Non-Controlling Interests   (55,193 )   (45,716 )   (207,950 )   (247,020 )
    (517,408 )   (455,218 )   (1,660,361 )   (1,945,130 )
                         
Basic and Diluted Net Loss per Common Share   (0.00 )   (0.01 )   (0.02 )   (0.02 )
                         
Weighted Average Number of Common Shares Outstanding – Basic and Diluted   111,386,865     88,238,860     106,187,504     95,670,026  

The accompanying notes are an integral part of these consolidated financial statement.


Online Disruptive Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)

    Nine months ended     Nine months  
    September 30,     ended September  
    2016     30, 2015  
          (Restated Note11 )
             
Cash flow from Operating Activities   $     $  
Net loss for the period   (1,665,148 )   (1,952,958 )
Adjustment for items not involving cash:            
Stock-Based Compensation   236,350     324,302  
Foreign exchange gain/loss   (5,118 )   31,092  
Depreciation – fixed assets   -     5,058  
Interest expense   -     -  
Interest accretion   120,751     129,955  
Changes in non-cash working capital items:            
Increase in VAT receivable   (5,486 )   (72,781 )
Decrease in prepaid expense   1,005     -  
Increase in accounts payable and accrued liabilities   132,555     254,184  
Net cash (used in) operating activities   (1,185,091 )   (1,281,148 )
Cash flow from financing activities            
Share subscription received   625,500     1,800,812  
Common shares issued by subsidiary   -     708,483  
Net cash provided by financing activities   625,500     2,509,295  
Cash flow used in investing activities            
Cash utilized in purchase of assets   (7,485 )   (37,881 )
Net cash used in investing activities   (7,485 )   (37,881 )
             
Effects of exchange rate changes on cash and cash equivalents   (18,475 )   (65,766 )
             
Net (decrease) increase in cash   (585,551 )   1,124,500  
             
Cash, beginning of period   1,206,809     329,855  
Cash, end of period   621,258     1,454,355  
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
September 30, 2016
(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 and 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 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 positive working capital of $386,579 as at September 30, 2016 (December 31, 2015 – $1,104,876) and an accumulated deficit of $9,483,096. 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
September 30, 2016
(Unaudited)

Note 2 - Significant Accounting Policies

a)        Basis of Presentation
These consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“US GAAP”) and are expressed in United Stated dollars, unless otherwise noted.

These interim consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and should be read in conjunction with those annual consolidated financial statements filed for the year ended December 31, 2015. In the opinion of management, these interim consolidated financial statements reflect all adjustments, consisting of only normal recurring adjustments for a fair presentation of the interim consolidated financial statements. All significant inter-company accounts and transactions have been eliminated on consolidation. The results of operations for any interim period are not necessarily indicative of results for the full year.

For further information, refer to the Company’s consolidated financial statements and notes thereto filed on April 14, 2016 for the year ended December 31, 2015.

b)        Principles of Consolidation
These interim consolidated financial statements include the accounts of the Company and its 85.78% (December 31, 2015-77.00%; September 30, 2015-75.02%) interest in Savicell. All significant intercompany accounts and transactions have been eliminated upon consolidation.

c)        Use of Estimates
The preparation of interim consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant areas requiring the use of management estimates include assumptions and estimates relating to share-based payments, valuation allowances for deferred income tax assets and determination of useful lives of property, plant and equipment.

d)        Foreign Currency Translation
The Company’s functional currency is the U.S. dollar. Transactions in other currencies are recorded in U.S. dollars at the rates of exchange prevailing when the transactions occur. Monetary assets and liabilities denominated in other currencies are translated into U.S. dollars at rates of exchange in effect at the balance sheet dates. Exchange gains and losses are recorded in the statements of operations.

The Company’s subsidiary’s functional currency is the New Israeli Shekel (“NIS”). All transactions are recorded in NIS. Monetary assets and liabilities denominated in NIS are translated into U.S. dollars at rates of exchange in effect at the balance sheet dates and expenses are translated at the average exchange rates. Gains and losses from such translations are included in stockholders’ equity, as a component of other comprehensive income.


Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(Unaudited)

Note 2 - Significant Accounting Policies (Continued)

d)        Foreign Currency Translation (cont’d)
In the year ended 2013, Savicell’s functional currency was the U.S. dollar. During the year 2014, with the increased volume of transactions in the local currency, management reassessed Savicell’s functional currency to NIS based on the change in facts and effective as of January 1, 2014. Such change is still appropriate in year 2016.

As a result of the functional currency change discussed above, a cumulative translation adjustment of $4,787 is included in accumulated other comprehensive income and will only be adjusted in the event of a full or partial disposition of the Company's investment in Savicell.

e)        Cash and Cash Equivalents
Cash consist entirely of readily available cash balances. There were no cash equivalents as of September 30, 2016 and December 31, 2015.

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 September 30, 2016, the Company believes it has appropriately accounted for any unrecognized tax benefits. To the extent the Company prevails in matters for which a liability for an unrecognized benefit is established or is required to pay amounts in excess of the liability, the Company’s effective tax rate in a given financial statement period may be affected. Interest and penalties associated with the Company’s tax positions are recorded as Interest Expense.


Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(Unaudited)

Note 2 - Significant Accounting Policies (Continued)

h)        Comprehensive Income (Loss)
The Company accounts for comprehensive income under the provisions of ASC Topic 220-10, Comprehensive Income - Overall, which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its Statements of Operations and Comprehensive Loss.

i)        Earnings (Loss) Per Share
Basic loss per share is computed on the basis of the weighted average number of common shares outstanding during each period.

Diluted loss per share is computed on the basis of the weighted average number of common shares and dilutive securities outstanding. Stock options are considered to be common stock equivalents and were not included in the net loss per share calculation for the quarters ended September 30, 2016 and 2015 because the inclusion of such underlying shares would have had an anti-dilutive effect.

j)        Financial Instruments and Fair Value of Financial Instruments
Fair Value of Financial Instruments – the Company adopted SFAS ASC 820-10-50, “Fair Value Measurements”. This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

   

 

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

   

 

Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.

As at September 30, 2016, the fair value of cash and restricted cash measured using Level 1 inputs.

The Company’s financial instruments are cash, restricted cash, accounts payable and accrued liabilities and convertible debentures. The recorded values of cash and accounts payable and accrued liabilities approximate their fair values based on their short-term nature. The Company believes the recorded values of convertible debentures, net of the discount, approximate the fair value as the interest rate (stated or effective) approximates market rates for similar types of instruments.

k)        Research and Development Costs
In 2016, all research and development costs are charged to expense as incurred. The majority of these cost are in house expenses related to consulting fees, materials and legal expenses related to patents. Savicell’s financing commitment related to the License and Research Funding Agreement (as defined in Note 4 below) entered into with Ramot at Tel Aviv University was completely fulfilled by December 31, 2015.


Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(Unaudited)

Note 2 - Significant Accounting Policies (Continued)

l)        Fixed Assets
Property and Equipment are recorded at cost and are depreciated over their estimated useful life of 3-15 years on a straight line basis.

m)        Convertible debentures
Convertible debentures, for which the embedded conversion feature does not qualify for derivative treatment, are evaluated to determine if the effective or actual rate of conversion per the terms of the convertible note agreement is below market value. In these instances, the Company accounts for the value of the beneficial conversion feature as a debt discount, which is then accreted to interest expense over the life of the related debt using the effective interest method.

n)        Modifications to debt
The Company evaluates any modifications to its debt in accordance with the applicable guidance in ASC 470-50, Debt-Modifications and Extinguishments. If the debt instruments are substantially modified, the modification is accounted for in the same manner as a debt extinguishment (i.e., a major modification) and the fees paid are recognized as expense at the time of the modification. Otherwise, such fees are deferred and amortized as an adjustment of interest expense over the remaining term of the modified debt instrument using the interest method.

o)        Recently Adopted Accounting Pronouncements
In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The standard provides guidance that a performance target that affects vesting of a share-based payment and that could be achieved after the requisite service condition is a performance condition. As a result, the target is not reflected in the estimation of the award's grant date fair value. Share-based compensation cost for such award would be recognized over the required service period, if it is probable that the performance condition will be achieved. ASU 2014-12 is effective for annual reporting periods beginning after December 15, 2015. Early adoption is permitted. The guidance should be applied on a prospective basis to awards that are granted or modified on or after the effective date of the standard. The Company adopted ASU 2014-09 on January 1, 2016 and the adoption of this pronouncement did not have a material effect on the Company's interim consolidated financial position or results of operations.

In January 2015, the FASB issued ASU 2015-01, Income Statement-Extraordinary and Unusual Items (Subtopic 225-20), Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, which eliminates the concept of extraordinary items. Under this new guidance, entities will no longer be required to separately classify, present and disclose extraordinary events and transactions. The amendments in this update are effective for annual and interim periods beginning after December 15, 2015. The Company adopted ASU 2015-01 on January 1, 2016 and the adoption of this pronouncement did not have a material effect on the Company's interim consolidated financial position or results of operations.


Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(Unaudited)

Note 2 - Significant Accounting Policies (Continued)

In February 2015, the FASB issued ASU No. 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis"("ASU 2015-02"). ASU 2015-02 makes several modifications to the consolidation guidance for variable interest entities ("VIEs") and general partners' investments in limited partnerships, as well as modifications to the evaluation of whether limited partnerships are VIEs or voting interest entities. It is effective for annual and interim periods beginning after December 15, 2015. Early adoption is permitted. The Company adopted ASU 2015-02 on January 1, 2016 and the adoption of this pronouncement did not have a material effect on the Company's interim consolidated financial position or results of operations.

In April 2015, FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). In August 2015, FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU 2015-15”). ASU 2015-03 will require that debt issuance costs be presented in the balance sheet as a deduction from the carrying amount of the debt. ASU 2015-15 allows an entity to present debt issuance costs associated with a revolving line of credit arrangement as an asset, regardless of whether a balance is outstanding. The recognition and measurement guidance for debt issuance costs are not affected by ASU 2015-03 or ASU 2015-15. These ASU’s are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period, with early adoption permitted. ASU 2015-03 will require the Company to reclassify its deferred financing costs associated with its long-term debt from other assets to long-term debt on a retrospective basis. The new standard will not affect the Company’s results of operations or cash flows. The Company adopted ASU 2015-15 on January 1, 2016 and the adoption of this pronouncement did not have a material effect on the Company's interim consolidated financial position or results of operations.

p)        Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09). This accounting standard supersedes all existing US GAAP revenue recognition guidance. Under ASU 2014-09, a company will recognize revenue when it transfers the control of promised goods or services to customers in an amount that reflects the consideration which the company expects to collect in exchange for those goods or services. ASU 2014-09 will require additional disclosures in the notes to the consolidated financial statements and is effective for annual and interim reporting periods beginning after December 15, 2016. The Company is evaluating the impact of ASU 2014-09 and an estimate of the impact to the interim consolidated financial statements cannot be made at this time.

On March 30, 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting which amends ASC Topic 718, Compensation – Stock Compensation. The ASU simplifies several aspects of the accounting for employee share-based payment transactions. ASU 2016-09 is effective for public business entities for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period. Early adoption will be permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption.

The Company is evaluating the impact of the amended guidance on its interim consolidated financial statements.


Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(Unaudited)

Note 2 - Significant Accounting Policies (Continued)

p)        Recently Issued Accounting Pronouncements (continued)

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. The ASU provides guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The new standard requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date of issuance of the entity's financial statements (or within one year after the date on which the financial statements are available to be issued, when applicable). Further, an entity must provide certain disclosures if there is "substantial doubt about the entity's ability to continue as a going concern."

The ASU is effective for annual periods ending after December 15, 2016, and interim periods thereafter and early adoption is permitted. The Company is evaluating the impact of ASU 2014-15 and an estimate of the impact to the interim consolidated financial statements cannot be made at this time.

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09). This accounting standard supersedes all existing US GAAP revenue recognition guidance. Under ASU 2014-09, a company will recognize revenue when it transfers the control of promised goods or services to customers in an amount that reflects the consideration which the company expects to collect in exchange for those goods or services. ASU 2014-09 will require additional disclosures in the notes to the consolidated financial statements and is effective for annual and interim reporting periods beginning after December 15, 2017. The Company is evaluating the impact of ASU 2014-09 and an estimate of the impact to the consolidated financial statements cannot be made at this time.

On March 30, 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Compensation – Stock Compensation. The ASU simplifies several aspects of the accounting for employee share-based payment transactions.

ASU 2016-09 is effective for public business entities for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period. Early adoption will be permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption.

The Company is evaluating the impact of the amended guidance on its consolidated financial statements. There have been no other accountings pronouncements issued but not yet adopted by the Company which are expected to have a material impact on the Company’s financial position, results of operations or cash flows.


Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(Unaudited)

Note 3 – Property, Plant and Equipment

As of September 30, 2016, the fixed assets balance on the financial statement consist of the following:

    Cost     Accumulated     Net Book Value  
          Amortization        
Furniture and Fixtures $  1,833   $  -   $  1,833  
Computer Equipment   24,782     3,769     21,013  
Lab Equipment   45,448     2,429     43,019  
Foreign Exchange Movement   2,708     242     2,466  
Total as of September 30, 2016 $  74,771   $  6,440   $  68,331  
                   
Computer Equipment $  19,139   $  3,769   $  15,370  
Lab Equipment   45,448     2,429     43,019  
Foreign Exchange Movement   (74 )   (6 )   (68 )
Total as of December 31, 2015 $  64,513   $  6,192   $  58,321  

Note 4 – License and Research Funding Agreement

On July 25, 2012, the Company’s subsidiary Savicell entered into a License and Research Funding Agreement (“R&D Agreement”) with Ramot at Tel Aviv University (“Ramot”) pursuant to which:

  • In the course of research performed at Tel-Aviv University ("TAU"), Prof. Fernando Patolsky has developed technology relating to early detection of diseases by measuring metabolic activity in the immune system;
  • Savicell wishes to fund further research at TAU relating to such technology; and
  • Savicell wishes to obtain a license from Ramot with respect to such technology and the results of such further funded research in order to develop and commercialize products in the diagnostics space, and Ramot wishes to grant the Company such license, all in accordance with the terms and conditions of this R&D Agreement.

Pursuant to the above noted R&D Agreement, Savicell will fund research expenditures amounting to a total of $1,600,000 according to the following schedule:

  • $81,000 within 5 business days of the R&D Agreement (paid)
  • Before October 2012; $359,500 plus VAT as applicable (paid)
  • Before January 3, 2013; $359,500 plus VAT as applicable (paid)
  • Before April 3, 2013; $400,000 plus VAT as applicable (paid)
  • Before July 3, 2013; $400,000 plus VAT as applicable (paid)

The payments originally due on April 3, 2013 and July 3, 2013 were postponed by the parties until such time as the funds were actually required in furtherance of the joint research and development initiatives. As of December 31, 2015, Savicell’s entire financing commitment has been met and no more expenditures are mandated by the R&D Agreement on behalf of Ramot. Savicell is continuing the clinical research within its own laboratory situated in Haifa, Israel.


Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(Unaudited)

Note 4 – License and Research Funding Agreement (Continued)

In addition, Savicell issued to Ramot warrants (the “Warrants”) to purchase a number of ordinary shares of Savicell which together comprised 15% of issued shares of Savicell on an as-converted, fully diluted basis (equivalent to 1,765 Warrant Shares of Savicell). The Warrants are exercisable at an exercise price equal to the par value of the Warrant Shares, at any time and from time to time before Savicell completes a deemed liquidity event or the first underwritten offering of the Savicell's ordinary shares to the general public. The fair value of the Warrant Shares was estimated at $1,698.97 per Warrant Share which is equivalent to the price at which Savicell has issued shares to third parties, for a total of $2,998,682 which was included in research and development costs. As the exercise price inherent in the warrant certificate to purchase 1,765 common shares of Savicell is at nominal value, the warrant certificate is valued at the price of the subsequent equity issuance by Savicell ($1,698.97 per share) and the related common shares are considered to be issued and outstanding.

Upon successful development and commercialization of the technology, and in recognition of the rights and licenses granted to Savicell pursuant to this R&D Agreement, Savicell will be subject to (a) royalties based on the worldwide sales related to the technology; and (b) minimum annual royalties with respect to any calendar year following the first commercial sales as follows. The minimum annual royalties are subject to increases for each successive year.

During the nine months ended September 30, 2016, Savicell incurred $28,050 (2015 - $723,721) of expenses related to kits collaboration with Ramot that have been included in research and development costs.

Note 5– Related Party Transactions

The Company completed the following related party transactions:

During the nine months ended September 30, 2016, the Company incurred consulting fees and salaries of $450,726 payable to its directors and officers as well as a company controlled by a former director/officer.

As at September 30, 2016, included in accounts payable and accrued liabilities are amounts of $24,300 (December 31, 2015 - Nil) that was payable to a company controlled by a former director/officer of the Company and $121,842 (December 31, 2015-$16,325) that was payable to current officers or directors of the Company.

On November 4, 2011, the Company entered into a loan Agreement (“Loan Agreement”) with a shareholder of the Company to settle a loan payable in the amount of $74,062. Pursuant to the Loan Agreement, the terms of repayment were amended to specify that ten per cent (10%) of the gross proceeds of any prospective debt or equity financing undertaken by ODT would be applied to the repayment of the principal of this loan until fully repaid. The term loan is unsecured, non-interest bearing and requires that any balance remaining outstanding on November 4, 2016 would then be fully due and payable.


Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(Unaudited)

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.

The Company evaluated these convertible debenture for derivatives and determined that they do not qualify for derivative treatment. The Company then evaluated the debenture for beneficial conversion features and determined that some do contain beneficial conversion features. The aggregate intrinsic value of the beneficial conversion features was determined to be $852,418. This amount was recorded as a debt discount on April 15, 2015 that is being amortized over the life of the debenture at effective interest rate of 77%. Total debt discount amortization during the quarter ended September 30, 2016 was $120,751. (September 30, 2015 – $77,472)

      September 30, 2016     December 31, 2015  
               
  Convertible debentures $  1,040,503   $ 1,040,503  
  Convertible discount   (852,418 )   (852,418 )
  Net convertible debentures   188,085     188,085  
  Interest accretion   312,865     192,114  
  Balance, as at September 30, 2016 $  500,950     380,199  

Note 7 –Equity

Common shares

On April 19, 2015, the Company issued 3,550,000 common shares at $0.20 per share for total proceeds of $710,000.

On May 22, 2015, the Company issued 500,000 common shares at $0.20 per share for total proceeds of $100,000.

On May 28, 2015, the Company entered into a debt settlement agreement pursuant to which the Company settled a related party term loan in the aggregate amount of $74,062 by the issuance of 462,890 common shares at $0.20 per share.

On June 23 2015, stock options previously granted by the Company were exercised resulting in the issuance of 481,179 common shares at $0.01 per share for total proceeds of $4,812.

On June 23, 2015, stock options previously granted by the Company were exercised resulting in the issuance of 100,000 common shares at $0.01 per share for total proceeds of $1,000.


Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(Unaudited)

Note 7 –Equity (Continued)

Common shares (continued)

On June 25, 2015, the Company issued 5,000,000 common shares at $0.20 per share for total proceeds of $1,000,000.

On July 20, 2015, four shareholders of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 3,824,922 common shares at $0.16 per share which equals to 80% of the share pricing of the financing completed on April 19, 2015. Total book value of the issued common shares is $611,987.

On September 3, 2015, three shareholders of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 1,786,250 common shares at $0.16 per share which equals to 80% of the share pricing of the financing completed on April 19, 2015. Total book value of the issued common shares is $285,800.

On October 20, 2015, two shareholders of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 637,500 common shares at $0.16 per share which equals to 80% of the share pricing of the financing completed on April 19, 2015. Total book value of the issued common shares is $102,000.

As at January 31, 2016, three shareholders of Savicell exercised their right to convert their shareholding in Savicell into common shares of the Company. Accordingly, the Company issued 1,756,619 common shares at $0.16 per share which equals to 80% of the share pricing of the financing completed on April 19, 2015. Total book value of the issued common shares is $281,059.

On February 28, 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.


Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(Unaudited)

Note 7 –Equity (Continued)

Common shares (continued)

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.

For the year ended December 31, 2015, the Company recorded share issue cost of $15,000 for the shares issued.

As at September 30, 2016 the Company has 114,180,828 common shares issued and outstanding.

Preferred Shares

The Company has authorized 20,000,000 preferred shares at a par value of $0.001 per share. No preferred shares have been issued by the Company and accordingly none are outstanding.

Stock Options

On May 28, 2013, the Company granted a total of 962,358 stock options to a consultant. The stock options are exercisable at an exercise price of $0.01 per share. A quarter of the options will vest on each of the first four anniversaries of the date of initial grant. The options were valued based on the Black Scholes model. On June 22, 2015, 481,179 of these options were exercised at $0.01 per share for total proceeds of $4,812. For the nine months ended September 30, 2016, the Company recorded stock based compensation of $14,752 (September 30, 2015: $106,159) for such options.


Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(Unaudited)

Note 7 – Equity (Continued)

Stock Options (continued)

On August 22, 2013, the Company granted a total of 800,000 stock options to a consultant. The stock options are exercisable at the exercise price of $0.01 per share. 480,000 of the options so granted will vest as to one quarter of such options at the end of each completed year that the consultant provides the services. The remaining 320,000 options will be fully vested when the consultant has completed the provision of a minimum of 600 blood samples of lung cancer and control patients during the 4 years from August 22, 2013. One twelfth of these options will vest upon each 50 blood samples having been delivered by the consultant to the Company. The options were valued based on the Black Scholes model. For the nine months ended September 30, 2016, the Company recorded stock based compensation of $33,189 (September 30, 2015: $18,827) for such options.

On November 11, 2013, the Company granted a total of 1,924,717 stock options to a consultant. The stock options are exercisable at an exercise price of $0.01 per share. A quarter of the options will vest immediately and a quarter on each of the first three anniversaries of the date of initial grant. The options were valued based on the Black Scholes model. For the nine months ended September 30, 2016, the Company recorded stock based compensation of $22,934 (September 30, 2015: $141,156) for such options.

On January 1, 2014, the Company granted a total of 500,000 stock options to a consultant. The stock options are exercisable at an exercise price of $0.01 per share. A quarter of the options will vest immediately and a quarter will vest at end of each completed year that the consultant provides the services.

The options were valued based on the Black Scholes model. For the nine months ended September 30, 2016, the Company recorded stock based compensation of $7,910 (September 30, 2015: $nil) for such options.

On May 4, 2014 the Company granted a total of 150,000 stock options to a consultant. The stock options are exercisable at an exercise price of $0.01 per share. One third of the options will vest at end of each completed year that the consultant provides the services. The options were valued based on the Black Scholes model. For the nine months ended September 30, 2016, the Company recorded stock based compensation of $174 (September 30, 2015: $982) for such options.

On May 15, 2014 the Company granted a total of 150,000 stock options to a consultant. The stock options are exercisable at an exercise price of $0.01 per share. 25,000 of the options will vest immediately. Furthermore, 75,000 and 50,000 of the options respectively will vest on the first and second anniversaries that the consultant provides the services. The options were valued based on the Black Scholes model. For the nine months ended September 30, 2016, the Company recorded stock based compensation of $nil (September 30, 2015: $24,017) for such options. On June 23, 2015, 100,000 of these options were exercised at $0.01 per share for total proceeds of $1,000. In addition, on July 7, 2016, 50,000 of these options were exercised at $0.01 per share for total proceeds of $500.

On August 4, 2015 the Company granted a total of 150,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share. One third of the options will vest at end of each of June 21, 2016, June 21, 2017 and June 21, 2018 that the employee remains an employee of the Company or its subsidiaries. The options were valued based on the Black Scholes model. For the nine months ended September 30, 2016, the Company recorded stock based compensation of $7,397 for such options.


Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(Unaudited)

Note 7 – Equity (Continued)

Stock Options (continued)

On August 7, 2015 the Company granted a total of 1,730,000 stock options to four advisors of the Company. The stock options are exercisable at an exercise price of $0.20 per share. One third of the options will vest at end of each completed year for which the consultant provides the services. The options were valued based on the Black Scholes model. For year nine months ended September 30, 2016, the Company recorded stock based compensation of $98,785 for such options.

On September 1, 2015 the Company granted a total of 150,000 stock options to two employees. The stock options are exercisable at an exercise price of $0.20 per share. One third of the options will vest at the grant date of each of September 1, 2015, September 1, 2016 and September 1, 2017 that the employee remains an employee of the Company or its subsidiaries. The options were valued based on the Black Scholes model. For the nine months ended September 30, 2016, the Company recorded stock based compensation of $12,952 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. 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 the nine months ended September 30, 2016, the Company recorded stock based compensation of $3,114 for such options.

On December 1, 2015 the Company granted a total of 125,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share. One third of the options will vest at the grant date of each of December 1, 2016, December 1, 2017 and December 1, 2018 that the employee remains an employee of the Company or its subsidiaries. The options were valued based on the Black Scholes model. For the nine months ended September 30, 2016, the Company recorded stock based compensation of $7,958 for such options.

On December 6, 2015 the Company granted a total of 100,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share. One third of the options will vest at the grant date of each of December 6, 2016, December 6, 2017 and December 6, 2018 that the employee remains an employee of the Company or its subsidiaries. The options were valued based on the Black Scholes model. For the nine months ended September 30, 2016, the Company recorded stock based compensation of $7,047 for such options.

On February 15, 2016 the Company granted a total of 50,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share. 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 nine months ended September 30, 2016, the Company recorded stock based compensation of $2,062 for such options.

On March 7, 2016 the Company granted a total of 75,000 stock options to two employees. The stock options are exercisable at an exercise price of $0.20 per share. 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 nine months ended September 30, 2016, the Company recorded stock based compensation of $2,966 for such options.


Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(Unaudited)

Note 7 – Equity (Continued)

Stock Options (continued)

On May 5, 2016 the Company granted a total of 150,000 stock options to an employee. The stock options are exercisable at an exercise price of $0.20 per share. 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 nine months ended September 30, 2016, the Company recorded stock based compensation of $3,485 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. 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 nine months ended September 30, 2016, the Company recorded stock based compensation of $9,814 for such options.

The fair value of each option grant is calculated using the following assumptions:

  2016 2015
     
Expected life – yea 3-10 3-7
Interest rate 0.73 – 2.22% 0.97 – 2.09%
Volatility 65.99-99.04% 62.86 – 94.97%
Dividend yield --% --%

    Number of Options     Weighted     Expire date  
          Average Exercise        
          Price        
Balance, December 31, 2014   14,237,075   $  0.01        
                   
Exercised, on June 23, 2015   (481,179 )   0.01        
Exercised, on June 25, 2015   (100,000 )   0.01        
Granted, on August 4, 2015   150,000     0.20     May 4, 2022  
Granted, on August 7, 2015   1,610,000     0.20     August 7, 2022  
Granted, on August 25, 2015   120,000     0.20     August 25, 2022  
Granted, on September 1, 2015   150,000     0.20     September 1, 2022  
Granted, on November 22, 2015   50,000     0.20     November 22, 2022  
Granted, on December 1, 2015   125,000     0.20     December 1, 2022  
Granted, on December 6, 2015   100,000     0.20     December 6, 2022  
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        
Balance, September 30, 2016   16,985,896   $  0.05        


Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(Unaudited)

Note 7 – Equity (Continued)

Stock Options (continued)

        Outstanding as at September 30, 2016     Exercisable as at September 30, 2016  
                    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     5.92     9,750,000   $  0.01     5.92  
  0.01     481,179     0.01     1.66     240,589     0.01     1.66  
  0.01     800,000     0.01     1.89     680,001     0.01     1.89  
  0.01     1,924,717     0.01     4.12     1,443,538     0.01     4.12  
  0.01     500,000     0.01     2.25     333,334     0.01     2.25  
  0.01     150,000     0.01     4.59     100,000     0.01     4.59  
  0.20     150,000     0.20     4.59     50,000     0.20     4.59  
  0.20     120,000     0.20     5.90     40,000     0.20     4.90  
  0.20     1,610,000     0.20     5.85     536,667     0.20     4.85  
  0.20     150,000     0.20     5.92     50,000     0.20     5.92  
  0.20     50,000     0.20     6.15     -     -     -  
  0.20     125,000     0.20     6.17     -     -     -  
  0.20     100,000     0.20     6.19     -     -     -  
  0.20     50,000     0.20     6.38     -     -     -  
  0.20     75,000     0.20     6.44     50,000     0.2     5.92  
  0.20     150,000     0.20     9.60     30,000     0.20     9.6  
  0.20     800,000     0.20     4.68     -     -     -  
        16,985,896   $  0.05     5.25     13,254,129   $  0.02     5.34  


Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(Unaudited)

Note 7 – Equity (Continued)

Stock Options (continued)

        Outstanding as at December 31, 2015     Exercisable as at December 31, 2015  
                    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     6.67     9,750,000   $  0.01     6.67  
  0.01     481,179     0.01     2.41     -     -     -  
  0.01     800,000     0.01     2.64     453,334     0.01     2.64  
  0.01     1,924,717     0.01     4.87     1,443,538     0.01     4.87  
  0.01     500,000     0.01     3.01     333,334     0.01     3.01  
  0.01     150,000     0.01     5.35     50,000     0.01     5.35  
  0.01     50,000     0.01     3.37     -     -     -  
  0.20     150,000     0.20     5.35     -     -     -  
  0.20     120,000     0.20     6.65     -     -     -  
  0.20     1,610,000     0.20     6.61     -     -     -  
  0.20     150,000     0.20     6.67     50,000     0.20     6.67  
  0.20     50,000     0.20     6.90     -     -     -  
  0.20     125,000     0.20     6.92     -     -     -  
  0.20     100,000     0.20     6.94     -     -     -  
        15,960,896   $  0.04     5.97     12,080,205   $  0.01     6.20  

Non-Controlling Interests

The Company’s subsidiary, Savicell, granted a third party a warrant certificate to purchase 1,765 common shares of Savicell that initially represented 15% of the underlying common equity of Savicell. In the course of its initial equity issuances up to October 30, 2012 (the “Initial Closing”), Savicell issued a total of 592 ordinary shares at $1,698.97 per share to the non-related third party representing approximately 4.79% of the fully diluted common equity of Savicell for aggregate proceeds of $1,005,795. The Savicell investors are entitled to convert their Savicell shares into common shares of ODT at a price equal to 80% of the per share pricing of the first completed ODT financing of over $500,000 conducted after July 1, 2012 (the “Financing Price”) provided that for purposes of such conversion, the deemed maximum Financing Price shall be the per share price of the common shares of ODT based on (a) an aggregate ODT equity valuation of $30,000,000; and (b) the number of common shares of ODT outstanding at the time of the financing. Savicell continued its equity issuances following the Initial Closing.

As at December 31, 2012, Savicell had issued a total of 684 shares at $1,698.97 per share representing approximately 5.11% of the fully diluted common equity of Savicell for aggregate proceeds of $1,162,192.

During the year ended December 31, 2013, Savicell issued a total of 760 shares at $1,700 per share representing approximately 5.68% of the fully diluted common equity of Savicell for aggregate proceeds of $1,292,000.


Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(Unaudited)

Note 7 – Equity (Continued)

Non-Controlling Interests (continued)

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 nine months ended September 30, 2016, Savicell investors exchanged 1132 Savicell shares for 12,026,652 of ODT common shares with ODT receiving the Savicell shares so exchanged. As at September 30, 2016, Savicell received $1,086,018 from ODT and issued 639 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 85.78%, 12.01% and 2.21%, respectively (December 31, 2015-77%, 12.6% and 10.4%) .

Savicell’s Common Shares

    Number     Amount  
    of Shares        
Balance, December 31, 2013   13,209   $  2,454,192  
             
Issued for cash pursuant to share subscriptions   183     310,977  
Balance, December 31, 2014   13,392     2,765,169  
Issued for cash pursuant to share subscriptions   730     1,241,171  
Shares issued to settle inter-company debts   203     345,198  
Share subscription receivable   (313 )   (532,084 )
Balance, December 31, 2015   14,012   $  3,819,454  
Shares issued to settle inter-company debts   639     1,086,018  
Balance, September 30, 2016            
    14,651     4,905,472  

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.


Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(Unaudited)

Note 8 – Commitments and Guarantees

The Company did not become a guarantor to any parties as at September 30, 2016

  1.

On September 11, 2012, ODT signed an employment agreement with Giora Davidovits, its new chief executive officer and President, which agreement entailed an effective date of September 1, 2012. In return for acting as its chief executive officer, the Company will provide Mr. Davidovits an annual salary of $250,000 together with other benefits and the potential for additional bonuses as declared from time to time by the Company’s board of directors. The agreement is effective until August 31, 2017 unless terminated early in accordance with the termination provisions contained within the employment agreement and subject to agreed severance amounts. In connection with the execution of the employment agreement, the Company issued to Giora Davidovits options to purchase 3,750,000 common shares at a price per share of $0.01. The options are exercisable for 10 years. Mr. Davidovits is eligible for subsequent option grants at the discretion of the board of directors.

     
  2.

On October 30, 2012, ODT and Savicell signed an employment agreement with Eyal Davidovits, its new chief operating officer, which agreement entailed an effective date of September 1, 2012. In return for acting as its chief operating officer, the Company will provide Mr. Davidovits an annual salary of $112,324 (NIS 432,000), together with other fringe benefits including those related to the use of an automobile, health insurance, contributions to government run retirement programs and the potential for additional bonuses as declared from time to time by the Company’s board of directors. The agreement is effective until August 31, 2017 unless terminated early in accordance with the termination provisions contained within the employment agreement and subject to agreed severance amounts. In connection with the execution of the employment agreement, the Company issued to Eyal Davidovits options to purchase 2,750,000 common shares at a price per share of $0.01. The options are exercisable for 10 years. Mr. Davidovits is eligible for subsequent option grants at the discretion of the board of directors.

     
  3.

On November 8, 2012, ODT and Savicell signed an employment agreement with Dr. Irit Arbel, its new vice president, research and development, which agreement entailed an effective date of September 1, 2012. In return for acting as its new vice president, research and development officer, the Company will provide Dr. Arbel an annual salary of $106,084 (NIS 408,000) together with other fringe benefits, health insurance, contributions to government run retirement programs and the potential for additional bonuses as declared from time to time by the Company’s board of directors. The agreement is effective until August 31, 2017 unless terminated early in accordance with the termination provisions contained within the employment agreement and subject to agreed severance amounts. In connection with the execution of the employment agreement, the Company issued to Irit Arbel options to purchase 2,000,000 common shares at a price per share of $0.01.

     
 

The options are exercisable for 10 years. Dr. Arbel is eligible for subsequent option grants at the discretion of the board of directors.

     
  4.

On July 20, 2015, the Company signed an operating lease agreement to lease offices for a period ending July 31, 2018 with an option to renew the lease for an additional period of 2 years. The monthly lease expense is $3,152 (NIS 12,121). Future minimum lease commitment under the operating lease agreement is approximately $89,966 (NIS 339,388). The Company pledged a bank deposit which is used as a bank guarantee at an amount of $13,254 (NIS 50,000) to secure its payments under the lease agreement.



Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(Unaudited)

Note 8 – Commitments and Guarantees (continued)

The Minimum future payments for the above commitments are as follows:

  Consulting fee and              
Year   Salaries     Office rent     Total  
2016 $ 468,408   $ 37,824   $ 506,232  
2017   312,272     37,824     350,096  
2018   -     22,064     22,064  
Total $ 780,680   $ 97,712   $ 878,392  

Note 9 - Geographic Information

The Company’s head office is located in the United States (“US”). The operations of the Company are primarily in two geographic areas: the US and Israel. A summary of geographical information for the Company’s long lived assets is as follows:

Nine month ended September 30, 2016   US     Israel     Total  
Long-live assets $  -   $ 68,331   $  68,331  

Year ended December 31, 2015   US     Israel     Total  
Long-live assets $  -   $ 58,321   $  58,321  

Note 10 - Subsequent Event

On November 1, 2016, the Company granted a director of the Company 360,000 Stock Options. Each Option entitles the Optionee to acquire one common share in the capital of the Company (each, an “Option Share”) at the exercise price of $0.20 per Option Share until expiry on the date that is ten years after the date of grant. 180,000 of the options are vested immediately and the other180,000 will be vested at the end of year one, provided the Optionee remains director of Savicell Inc.

Note 11- Restatement

Subsequent to the issuance of certain previously issued financial statements, we determined that there were errors in those financial statements related to the incorrect accounting treatment of convertible debentures which has overstated liabilities, additional paid-in capital and expenses . The effect of the error was material to the financial statements for each of the fiscal quarters ended June 30, 2015 and September 30, 2015 so those quarters will be restated for the effects of the error correction.

We have changed our previously issued (i) consolidated balance sheet at June 30, 2015 and September 30, 2015, (ii) consolidated statement of operations and comprehensive income and consolidated statement of cash flows for the periods ended June 30, 2015 and September 30, 2015, and (iii) unaudited financial information for the quarters within fiscal year 2015. We are restating our previously issued unaudited financial information for the fiscal quarters ended June 30, 2015 and September 30, 2015. The following tables summarize the impact of the error correction on our consolidated financial statements, each as compared with the amounts presented in previously issued financial statements.


Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(Unaudited)

Note 11- Restatement (continued)

The following tables summarize the as previously reported balances, adjustments, and corrected and restated balances on our consolidated balance sheets by financial statement line item:

    As at June 30, 2015  
    (Unaudited)  
    As Reported     Adjustment     As Restated  
    $     $     $  
Total Assets   1,910,811           1,910,811  
                   
Convertible debenture (Note 6)   1,257,522     (1,201,366 )   56,156  
Total Liabilities   1,496,543     (1,201,366 )   295,177  
                   
Additional Paid-in Capital   8,360,774     (1,394,865 )   6,965,909  
(Deficit) Accumulated During the Development Stage   (10,005,458 )   2,596,231     (7,409,227 )
Equity Attributable to Shareholders of the Company   252,669     1,201,366     1,454,035  
Total Equity   479,484     1,201,366     1,680,850  
Total Liabilities and Equity   1,910,811           1,910,811  

    As at September 30, 2015  
    (Unaudited)  
    As Reported     Adjustment     As Restated  
    $     $     $  
Total Assets   1,586,164     -     1,586,164  
                   
Convertible debenture (Note 6)   1,304,573     (1,180,438 )   124,135  
Total Liabilities   1,496,543     (1,180,438 )   316,105  
                   
Additional Paid-in Capital   10,499,854     (1,394,865 )   9,104,989  
(Deficit) Accumulated During the Development Stage   (10,413,168 )   2,575,303     (7,837,865 )
Equity Attributable to Shareholders of the Company   81,505     1,180,438     1,261,943  
Total Equity   89,621     1,180,438     1,270,059  
Total Liabilities and Equity   1,586,164     -     1,586,164  


Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(Unaudited)

Note 11- Restatement (continued)

The following tables summarize the as previously reported balances, adjustments and corrected and restated balances on our consolidated statements of operations and comprehensive income by financial statement line item for the periods ended:

    Three months ended June 30, 2015  
    (Unaudited)  
    As Reported     Adjustment     As Restated  
General and Administrative Expenses   $              
Stock-Based Compensation   2,901,171     (2,621,965 )   279,206  
Other Expense                  
Interest Expense   (31,624 )   (25,734 )   (57,358 )
Net (Loss) for the period   (3,785,016 )   2,596,231     (1,188,785 )
Comprehensive Income (Loss) for the period   (3,728,937 )   2,596,231     (1,132,706 )
                   
Net (Loss) attributable to:                  
Common Stockholders   (2,783,652 )   1,786,179     (997,473 )
Non-Controlling Interests   (1,001,364 )   810,052     (191,312 )
    (3,785,016 )   2,596,231     (1,188,785 )
Net Comprehensive Income (Loss) Attributable to:                  
Common Stockholders   (2,742,409 )   1,785,548     (956,861 )
Non-Controlling Interests   (986,528 )   810,683     (175,845 )
    (3,728,937 )   2,596,231     (1,132,706 )
                   
Basic and Diluted Net Loss per Common Share   (0.04 )         (0.01 )

    Six months ended June 30, 2015  
    (Unaudited)  
    As Reported     Adjustment     As Restated  
General and Administrative Expenses   $              
Stock-Based Compensation   2,901,842     (2,621,966 )   279,876  
Other Expense                  
Interest Expense   (35,726 )   (25,735 )   (61,461 )
Net (Loss) for the period   (4,120,551 )   2,596,231     (1,524,320 )
Comprehensive Income (Loss) for the period   (4,086,144 )   2,596,231     (1,489,913 )
                   
Net (Loss) attributable to:                  
Common Stockholders   (3,030,418 )   1,731,854     (1,298,564 )
Non-Controlling Interests   (1,090,133 )   864,377     (225,756 )
    (4,120,551 )   2,596,231     (1,524,320 )
Net Comprehensive Income (Loss) Attributable to:                  
Common Stockholders   (3,005,113 )   1,731,467     (1,273,646 )
Non-Controlling Interests   (1,081,031 )   864,764     (216,267 )
    (4,086,144 )   2,596,231     (1,489,913 )
                   
Basic and Diluted Net Loss per Common Share   (0.05 )   -     (0.02 )


Online Disruptive Technologies, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(Unaudited)

Note 11- Restatement (continued)

    Three months ended September 30, 2015  
    (Unaudited)  
    As Reported     Adjustment     As Restated  
Other Expense                  
Interest Expense   (47,565 )   (20,928 )   (68,493 )
Net (Loss) for the period   (407,709 )   (20,928 )   (428,637 )
Comprehensive Income (Loss) for the period   (434,290 )   (20,928 )   (455,218 )
                   
Net (Loss) attributable to:                  
Common Stockholders   (312,891 )   (76,716 )   (389,607 )
Non-Controlling Interests   (94,818 )   55,788     (39,030 )
    (407,709 )   (20,928 )   (428,637 )
Net Comprehensive Income (Loss) Attributable to:                  
Common Stockholders   (332,786 )   (76,716 )   (409,502 )
Non-Controlling Interests   (101,504 )   55,788     (45,716 )
    (434,290 )   (20,928 )   (455,218 )
                   
Basic and Diluted Net Loss per Common Share   (0.05 )         (0.01 )

    Nine months ended September 30, 2015  
    (Unaudited)  
    As Reported     Adjustment     As Restated  
General and Administrative Expenses                
Stock-Based Compensation   2,946,268     (2,621,966 )   324,302  
Other Expense                  
Interest Expense   (83,292 )   (46,663 )   (129,955 )
Net (Loss) for the period   (4,528,261 )   2,575,303     (1,952,958 )
Comprehensive Income (Loss) for the period   (4,520,433 )   2,575,303     (1,945,130 )
                   
Net (Loss) attributable to:                  
Common Stockholders   (3,397,021 )   1,693,051     (1,703,970 )
Non-Controlling Interests   (1,131,240 )   882,252     (248,988 )
    (4,528,261 )   2,575,303     (1,952,958 )
Net Comprehensive Income (Loss) Attributable to:                  
Common Stockholders   (3,391,161 )   1,693,051     (1,698,110 )
Non-Controlling Interests   (1,129,272 )   882,252     (247,020 )
    (4,520,433 )   2,575,303     (1,945,130 )
                   
Basic and Diluted Net Loss per Common Share   (0.05 )         (0.02 )


ITEM 2. MANAGEMENT’S 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:

 

our anticipation that future broad clinical trial studies encompassing larger populations of cancer patients with varying cancers should reveal the full potential of the existing developed strategy;

 

our beliefs regarding the future of our competitors;

 

our belief that there is a large unmet need in cancer diagnostics exists in early diagnosis; accurate diagnosis;

 

our belief that there is a need in this segment for an easier blood-based test that will increase compliance and minimize discomfort;

 

our expectation that the demand for our products will eventually increase;

 

our expectation that we will be able to raise capital when we need it; and

 

our expectation that there is a new market for screening tests.

These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” and the risks set out below, any of which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and not in limitation:

 

general economic and business conditions;

 

our ability to identify attractive products and negotiate their acquisition or licensing;

 

volatility in prices for our products;

 

risks inherent in the pharmaceutical industry;

 

competition for, among other things, capital, pharmaceutical products and skilled personnel; and

 

other factors discussed under the section entitled “Risk Factors”.

While these forward-looking statements and any assumptions upon which they are based are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

As used in this 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.

5


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-Shield’s ImmunoBiopsy platform receives data directly from the immune system. Importantly, Well-Shield is different in that it is a functional test measuring the metabolic activation profile of the immune system as an indicator of disease status. As an immune system test, it is inherently suited for early detection.

6


The technology has now received intellectual property protection with a patent approved in the United States, China and Japan. Furthermore, the patent process is ongoing in several other countries.

Disease intrusion and cell malformation, including cancer, are first detected by the immune system, which energizes to rid the body of the malignancy. The initial immune response to disease is intricate, deploying different metabolic pathways and subtypes of cells. The Savicell Well-Shield™ technology is designed to detect and interpret these differential metabolic responses.

The Savicell vision is to develop and commercialize a line of patient-friendly blood tests that enable early diagnosis, staging, and monitoring, thereby saving lives and ensuring appropriate treatment. Cancer is our initial focus.

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.


7


Using technologies based on circulating tumor cells, exosomes, and circulating tumor nucleic acids, liquid biopsy companies are making progress in developing products that have advantages versus current technologies. However, it appears more likely that these types of liquid biopsy technologies best support late stage cancers, with technical challenges remaining for early-stage cancers and early cancer screening.

In contrast, the Well-Shield patented ImmunoBiopsy platform is unique in the Liquid Biopsy market. And we believe that as an immune system functional test it is inherently better suited for early detection.

Product focus

Savicell conducted clinical work for tests specific to breast and lung cancers in multiple medical centers. We had encouraging early reviews of our breast cancer and lung cancer analyses albeit on relatively small sample sizes. Specifically, we distinguished between breast cancer patients and healthy donors, and lung cancer patients and healthy donors, with high sensitivity and specificity of greater than 95% in both cancers. In addition, we were able to show that there is a metabolic profile difference between other breast disease donors and breast cancer donors and between COPD (chronic obstructive pulmonary disease) donors and lung cancer donors.

Based on this early potential, Savicell has decided to focus our resources on lung cancer as our lead product. We are working to increase the population size of the lung cancer clinical test and continue to fine-tune a predictive algorithm to identify lung cancer. Early results of this effort generated promising cross-validation of 72 donors from our clinical study. This cohort includes 36 diseased donors, together with a control group of 36 age- and sex-matched healthy donors. In practice this means that every lung cancer (patient) donor in the cohort was matched with a healthy donor of the same gender and similar age. This practice helps us control for sampling biases.

Table 1 - Cross-validation (CV)

CV: None LOO LTO 20F
Sensitivity 92% 92% 92% 86%
Specificity 78% 75% 69% 69%
Positive predictive value 80% 79% 75% 74%
Positive predictive value 90% 90% 89% 83%
Accuracy 85% 83% 81% 78%

Cross-validation (CV) – we let the algorithm train on a large subset of labeled donors and then let it make a prediction on a small subset of unlabeled donors that were not in the training set. This process is repeated several times until every donor in the cohort is given a prediction.

8


We use several types of cross- validation: LOO – Leave one out – one donor is left out of the training set each iteration (total of n iterations), LTO – Stratified leave two out – two donors are left out of the training set each iteration, a sick donor and its matched healthy donor (total of n/2 iterations), 20F – Stratified 20-fold CV – the cohort is split into 20 semi- equal-sized subsets; each subset, containing both sick and healthy donors, is left out once (total of 20 iterations). In addition, we run the algorithm once without cross- validation, meaning that the entire cohort is used for training and prediction. While we are pleased with these promising results, please note that results can change as we increase the cohort size.

Lung cancer

American Cancer Society estimates there will be 221,200 new cases of lung cancer in the USA in 2015, representing 13% 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-Shield’s 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): 41–48[?] 

(2) MacMahon H, Austin JH, Gamsu G, et al. Guidelines for management of small pulmonary nodules detected on CT scans: a statement from the Fleischner Society. Radiology. 2005;237:395–400. doi:10.1148/radiol. 2372041887. [PubMed]

[?] (3)Michael K. Gould et al. Recent Trends in the Identification of Incidental Pulmonary Nodules. Am J Respir Crit Care Med Vol 192, Iss 10, pp 1208–1214, Nov 15, 2015

[?] (4) Apichat Tantraworasin et al. ISRN Surgery Volume 2013, Article ID 175304, 7 pages

(5)Moving Beyond the National Lung Screening Trial: Discussing Strategies for Implementation of Lung Cancer Screening Programs Bernando H.L. Goulard, The Oncologist. 2013 Aug; 18(8): 941–946

[?] (6) Assume 10 million patients screened and sensitivity and specificity of 92% and 75% respectively. Well-Shield may have higher or lower sensitivity and specificity.

(7) Cancer Facts & Figures 2015.[?]

(8) World Cancer Report 2014.

Results of Operations

Subsequent to the issuance of the financial statements for the quarters ended June 30, 2015 and September 30, 2015, we determined that there were errors in those financial statements related to the incorrect accounting treatment of convertible debentures which has overstated liabilities, additional paid-in capital and expenses. The effect of the errors was material to the financial statements for each of the fiscal quarters ended June 30, 2015 and September 30, 2015 so those quarters will be restated for the effects of the error correction. The details of such restatement and the accounting effects stemming therefrom have been detailed in Note 11 to the financials statements for the period ended September 30, 2016. Given that the restatement relates to the treatment of convertible debentures and the corresponding calculation of stock compensation expense resulting from granting to certain management personnel with a conversion option in respect to receivable balances owing to them by our company, there was no cash effect to the restatements. Moreover, the aggregate asset balance is unaffected by such change.

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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 and nine months ended September 30, 2016 and 2015, we incurred the following general and administrative expenses:

    Three months     Three months     Nine months     Nine months  
    ended     ended September     ended     ended September  
    September 30,     30, 2015     September 30,     30, 2015  
    2016     (Restated)     2016     (Restated)  
    (Unaudited)           (Unaudited)        
                         
General and Administrative Expenses  $    $    $    $  
Accounting Fees   7,500     7,250     22,500     20,750  
Audit & Tax Fees   1,040     5,230     55,600     37,330  
Bank Fees   194     205     436     689  
Consulting Fees   107,272     197,043     291,216     521,881  
Filing and Transfer Agent Fees   1,832     3,223     9,561     7,942  
Insurance Expense   1,628     9,507     43,216     48,213  
Legal Fees   8,931     19,812     33,933     49,738  
Marketing Expense   -     70     -     31,757  
Office and Miscellaneous Expense   23,834     4,776     55,109     7,704  
Payroll Expense   8,067     -     18,981     -  
Rent Expense   14,979     -     41,896     -  
Research and Development Expense   223,385     80,609     728,605     723,721  
Stock-Based Compensation   85,944     44,426     236,350     324,302  
Travel Expense   4,611     10,502     11,305     17,884  
    (489,217 )   (382,903 )   (1,548,708 )   (1,791,911 )

Our expenses decreased by approximately 13% during the nine months ended September 30, 2016 compared to the same period in 2015 primarily due to a decrease in stock compensation expense, a non-cash expense item, partially offset by increases in office and miscellaneous expenses.

The research and development expenses recognized in the nine months ended September 30, 2016 is consistent with that of the corresponding period of 2015. However, there are two important items to note. First, during the 2015 period the final contractual payment was made to Ramot and was expensed at the time of disbursement. No similar payment was made or expensed during the 2016 period. Second, compensation paid to two officers of Savicell that was included in consulting fees in 2015 has instead been classified as part of research and development expense in 2016. The level of research and development activity has actually increased in 2016 versus 2015 once the effects of the final Ramot payment are considered. Given that the research is now being conducted within Savicell’s proprietary laboratory in Haifa, Israel, it incurred significant compensation expense for employees and consultants for a total amount of $612,614 in the nine months ended September 30, 2016. Ramot continues to file patent applications and related submissions on behalf of Savicell for which Savicell reimburses Ramot for a total amount of$28,050 during the 2016 period.

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In addition, we realized increases in rent expense and office and miscellaneous expenses that result from the opening of Savicell’s new laboratory facility in Haifa, Israel.

As stated above, while the consulting expense decreased during the period of comparison, that is because for certain individuals, their compensation was previously classified as consulting expense whereas they are currently included in the research and development expense, the area in which their efforts are dedicated. Specifically, the compensation paid to Savicell’s two senior officers are classified as part of research and development expenses and totaled $164,000 for the none months ended September 30, 2016.

The expenses for the three months ended September 30, 2016 have increased by 28%. This is primarily due to a 177% increase in research and development expenses for the reasons discussed above. Moreover, office expenses increased by $19,068 due additional expense being incurred as a result of the opening of the laboratory in Haifa. Furthermore, rent expense increased by $14,979 due to the current premises arrangements requiring monthly rental payments by Savicell.

Liquidity And Capital Resources

Working Capital

September 30, 2016
$
December 31, 2015
$
Total Current Assets 651,704 1,231,668
Total Current Liabilities 265,125 126,792
Working Capital 386,579 1,104,876

Our operations consumed less cash in the first nine months of 2016 versus the corresponding period in 2015 primarily due to the absence of contractual payments to Ramot in 2016. However, on a collective basis between our company and Savicell, we raised fewer dollars of new equity capital. Given that the equity raised in the first nine months of 2016 was less than the cash used in operations as well as investing activities, we experienced a decline in our working capital.

Recent Financings

The Company did not complete any financings for the three month period ended September 30, 2016.

Conversions into Common Stock

On October 30, 2012, we announced the entry into a conversion and participation rights agreement with investors who have purchased ordinary shares of our subsidiary, Savicell Diagnostic Ltd. (as detailed in our current report on Form 8-K filed with the SEC on November 1, 2012). Pursuant to the agreement, we have permitted investors to convert their shares held in Savicell into shares of our company at 80% of the per share pricing of the first completed financing of over US$500,000 conducted after July 1, 2012. In each case of conversion of shares from Savicell to shares of our Company, our proportional interest in Savicell increases as the shareholder tenders to our Company their shares of Savicell in return for treasury issued shares of our Company. In respect of the above conversion terms:

On July 7, 2016 we issued an aggregate of 839,375 shares of common stock converted from shares of our subsidiary Savicell at the conversion price at $0.16 per share of our common stock.

On September 1, 2016 we issued an aggregate of 4,653,732 shares of common stock converted from shares of our subsidiary Savicell at the conversion price at $0.16 per share of our common stock.

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In both these cases, funds had been provided to our subsidiary Savicell in prior fiscal periods, so no net cash was provided by these Financing Activities.

On July 7, 2016 we issued an aggregate of 50,000 shares of common stock converted from a stock option exercise notice at the conversion price at $0.01 per share of our common stock.

Cash Flows

      Nine months ended     Nine months ended  
      September 30, 2016     September 30, 2015  
     $    $  
  Net Cash (Used in) Operating Activities   (1,185,091 )   (1,283,651 )
  Net Cash Provided by Financing Activities   625,500     2,509,295  
  Net Cash Provided by (Used in) Investing Activities   (7,485 )   (37,881 )

Cash (Used in) Operating Activities

The decrease in cash used in operating activities compared to the same period last year is due to an overall decrease in expenses incurred, primarily related to the fact that there was no payment to Ramot during the nine months ended September 30, 2016 whereas there had been a material such payment $800,000 during the comparable period in 2015 that served to increase the research and development expense.

Cash Provided by Financing Activities

The decrease in cash provided by financing activities compared to the same period last year results from fewer equity financings completed by ourselves and Savicell during the first nine months of 2016 compared to the corresponding period of 2015. In the relevant period of 2015, we and Savicell realized equity financings of $1,800,812 and $708,483 respectively. By contrast, in 2016 all the equity financing was realized by ourselves and amounted to only $625,500 (including $500 generated by the exercise of vested stock options).

Cash Provided by (Used in) Investing Activities

The decrease in cash used in investing activities compared to the same period last year results from the decreased purchase of assets used in the furtherance of Savicell’s research and development.

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 12 month period are to further develop the Technology and to advance the Technology so that it may be appropriate for broader clinical testing. Once this objective is achieved, we aim to proceed to the commercialization of the Technology. In order to achieve our objectives we need to raise additional financing. The quantum of financing to be raised will dictate the pace at which we are able to implement our business strategies. Once such financing quantum is known, we will be able to establish an expenditure budget for the ensuing year.

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.

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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 September 30, 2016, our company has accumulated deficit of $9,483,096 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, 2015, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

The continuation of our business is dependent upon us raising additional financial support. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

Future Financings

We will require additional financing to fund our planned operations, including further development, clinical testing, regulatory requirements, and commercializing our existing assets. We currently do not have committed sources of additional financing and may not be able to obtain additional financing, particularly, if the volatile conditions in the stock and financial markets, and more particularly, the market for early development stage pharmaceutical company stocks persist.

There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to delay or scale down some or all of our development activities or perhaps even cease the operation of our business.

Since inception we have funded our operations primarily through equity and debt financings and we expect that we will continue to fund our operations through the equity and debt financing. If we raise additional financing by issuing equity securities, our existing stockholders’ ownership will be diluted. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his, her, or its investment in our common stock. Further, we may continue to be unprofitable.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

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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 SEC’s 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 September 30, 2016. 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 September 30, 2016, our disclosure controls and procedures are not 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 April 14, 2016. While we continue to address the shortcomings, we note that a restatement of certain items previously included in the financial statements for the periods ended June 30, 2016 and September 30, 2016 was required due to the subsequent recognition of errors. The details of such restatement are highlighted in Note 11 of the financial statements issued in respect of the period ended September 30, 2016.

Changes in Internal Control over Financial Reporting

During fiscal quarter ended September 30, 2016, 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. However, the company recognizes its need to improve the quality of its financial reporting specifically as it relates to the operations of Savicell. To that end, we have recently engaged a professional accountant on a part time basis at the Savicell level to upgrade our capabilities in this area. As our operations continue to expand, we intend to engage additional accounting personnel as required.

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.

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.

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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. With our stated goal of completing our clinical testing, furthering our research and development and achieving commercialization of the Technology, the pace of our progress will depend on the quantum of financing raised. As additional financing is raised, we will continue to accelerate the pace of our overall business initiatives. Until the amount of financing is known, we cannot precisely forecast the expenditure budget. On September 30, 2016, we had cash of $621,258 and total liabilities of $766,075. If we are unable to meet our debt service obligations and other financial obligations, we could be forced to restructure or refinance, seek additional equity capital or sell our assets. We might then be unable to obtain such financing or capital or sell our assets on satisfactory terms.

We may need to raise additional funds in the future which may not be available on acceptable terms or at all.

We may consider issuing additional debt or equity securities in the future to fund potential acquisitions or investments, to refinance existing debt, or for general corporate purposes. If we issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. If we incur additional debt, it may increase our leverage relative to our earnings or to our equity capitalization, requiring us to pay additional interest expenses. We may not be able to market such issuances on favorable terms, or at all, in which case, we may not be able to develop or enhance our products, execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated customer requirements.

We are an early-stage company with a limited operating history, which may hinder our ability to successfully meet our objectives.

We are an early-stage company with only a limited operating history upon which to base an evaluation of our current business and future prospects. As a result, the revenue and income potential of our business is unproven. In addition, because of our limited operating history, we have limited insight into trends that may emerge and affect our business. Errors may be made in predicting and reacting to relevant business trends and we will be subject to the risks, uncertainties and difficulties frequently encountered by early-stage companies in evolving markets. We may not be able to successfully address any or all of these risks and uncertainties. Failure to adequately do so could cause our business, results of operations and financial condition to suffer.

Because our directors and officers are not all residents of the United States, investors may find it difficult to enforce, within the United States, any judgments obtained against our directors and officers.

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Our directors and officer are not all residents of the United States, and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against our directors and officers, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.

If we are unable to successfully recruit and retain qualified personnel, we may not be able to continue our operations.

In order to successfully implement and manage our business plan, we will depend upon, among other things, successfully recruiting and retaining qualified personnel having experience in the pharmaceutical industry. Competition for qualified individuals is intense. We may not be able to find, attract and retain qualified personnel on acceptable terms. If we are unable to find, attract and retain qualified personnel with technical expertise, our business operations could suffer.

Future growth could strain our resources, and if we are unable to manage our growth, we may not be able to successfully implement our business plan.

We hope to experience rapid growth in our operations, which will place a significant strain on our management, administrative, operational and financial infrastructure. Our future success will depend in part upon the ability of our executive officers to manage growth effectively. This will require that we hire and train additional personnel to manage our expanding operations. In addition, we must continue to improve our operational, financial and management controls and our reporting systems and procedures. If we fail to successfully manage our growth, we may be unable to execute upon our business plan.

Risks Relating to our Operations in Israel

Conditions in Israel and the surrounding Middle East may materially adversely affect our Subsidiary’s operations and personnel.

Our Subsidiary has significant operations in Israel, including research and development. Since the establishment of the State of Israel in 1948, a number of armed conflicts and terrorist acts have taken place, which in the past, and may in the future, lead to security and economic problems for Israel. In addition, certain countries in the Middle East adjacent to Israel, including Egypt and Syria, recently experienced and some continue to experience political unrest and instability marked by civil demonstrations and violence, which in some cases resulted in the replacement of governments and regimes. Current and future conflicts and political, economic and/or military conditions in Israel and the Middle East region may affect our operations in Israel. The exacerbation of violence within Israel or the outbreak of violent conflicts involving Israel may impede our Subsidiary’s ability to engage in research and development, or otherwise adversely affect its business or operations. In addition, our Subsidiary’s employees in Israel may be required to perform annual mandatory military service and are subject to being called to active duty at any time under emergency circumstances. The absence of these employees may have an adverse effect on our Subsidiary’s operations. Hostilities involving Israel may also result in the interruption or curtailment of trade between Israel and its trading partners, which could materially adversely affect our results of operations.

The ability of our Subsidiary to pay dividends is subject to limitations under Israeli law and dividends paid and loans extended by our Subsidiary may be subject to taxes.

The ability of our Subsidiary to pay dividends is governed by Israeli law, which provides that dividends may be paid by an Israeli corporation only out of its earnings as defined in accordance with the Israeli Companies Law of 1999, provided that there is no reasonable concern that such payment will cause such subsidiary to fail to meet its current and expected liabilities as they come due. Cash dividends paid by an Israeli corporation to United States resident corporate parents are subject to provisions of the Convention for the Avoidance of Double Taxation between Israel and the United States, which may result in our Subsidiary having to pay taxes on any dividends it declares.

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Risks Relating to the Pharmaceutical Business

If we are unable to successfully acquire, develop or commercialize new products, our operating results will suffer.

Our future results of operations will depend to a significant extent upon our ability to successfully develop and commercialize new products and businesses in a timely manner. There are numerous difficulties in, developing and commercializing new products, including:

 

there are still major developmental steps required to bring the product to a clinical testing stage;

 

clinical testing may not be positive;

 

developing, testing and manufacturing products in compliance with regulatory standards in a timely manner;

 

failure to receive requisite regulatory approvals for such products in a timely manner or at all;

 

developing and commercializing a new product is time consuming, costly and subject to numerous factors, including legal actions brought by our competitors, that may delay or prevent the development and commercialization of new products;

 

incomplete, unconvincing or equivocal clinical trials data;

 

experiencing delays or unanticipated costs;

 

significant and unpredictable changes in the payer landscape, coverage and reimbursement for our products;

 

experiencing delays as a result of limited resources at regulatory agencies; and

 

changing review and approval policies and standards at regulatory agencies.

As a result of these and other difficulties, products in development by us may or may not receive timely regulatory approvals, or approvals at all, necessary for marketing by us or other third-party partners. If any of our products are not approved in a timely fashion or, when acquired or developed and approved, cannot be successfully manufactured, commercialized or reimbursed, our operating results could be adversely affected. We cannot guarantee that any investment we make in developing products will be recouped, even if we are successful in commercializing those products.

Our expenditures may not result in commercially successful products.

We cannot be sure our business expenditures will result in the successful acquisition, development or launch of products that will prove to be commercially successful or will improve the long-term profitability of our business. If such business expenditures do not result in successful acquisition, development or launch of commercially successful brand products our results of operations and financial condition could be materially adversely affected.

Third parties may claim that we infringe their proprietary rights and may prevent us from manufacturing and selling some of our products.

The manufacture, use and sale of new products that are the subject of conflicting patent rights have been the subject of substantial litigation in the pharmaceutical industry. These lawsuits relate to the validity and infringement of patents or proprietary rights of third parties. Litigation may be costly and time-consuming, and could divert the attention of our management and technical personnel. In addition, if we infringe on the rights of others, we could lose our right to develop, manufacture or market products or could be required to pay monetary damages or royalties to license proprietary rights from third parties. Although the parties to patent and intellectual property disputes in the pharmaceutical industry have often settled their disputes through licensing or similar arrangements, the costs associated with these arrangements may be substantial and could include ongoing royalties. Furthermore, we cannot be certain that the necessary licenses would be available to us on commercially reasonable terms, or at all. As a result, an adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling our products, and could have a material adverse effect on our business, results of operations, financial condition and cash flows.

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Extensive industry regulation has had, and will continue to have, a significant impact on our business, especially our product development, manufacturing and distribution capabilities.

All pharmaceutical companies are subject to extensive, complex, costly and evolving government regulation. For the U.S., this is principally administered by the FDA and to a lesser extent by the DEA and state government agencies, as well as by varying regulatory agencies in foreign countries where products or product candidates are being manufactured and/or marketed. The Federal Food, Drug and Cosmetic Act, the Controlled Substances Act and other federal statutes and regulations, and similar foreign statutes and regulations, govern or influence the testing, manufacturing, packing, labeling, storing, record keeping, safety, approval, advertising, promotion, sale and distribution of our products.

Under these regulations, we may become subject to periodic inspection of our facilities, procedures and operations and/or the testing of our products by the FDA, the DEA and other authorities, which conduct periodic inspections to confirm that we are in compliance with all applicable regulations. In addition, the FDA and foreign regulatory agencies conduct pre-approval and post-approval reviews and plant inspections to determine whether our systems and processes are in compliance with GMP and other regulations. Following such inspections, the FDA or other agency may issue observations, notices, citations and/or warning letters that could cause us to modify certain activities identified during the inspection. FDA guidelines specify that a warning letter is issued only for violations of “regulatory significance” for which the failure to adequately and promptly achieve correction may be expected to result in an enforcement action. We may also be required to report adverse events associated with our products to the FDA and other regulatory authorities. Unexpected or serious health or safety concerns would result in labeling changes, recalls, market withdrawals or other regulatory actions.

The range of possible sanctions includes, among others, FDA issuance of adverse publicity, product recalls or seizures, fines, total or partial suspension of production and/or distribution, suspension of the FDA’s review of product applications, enforcement actions, injunctions, and civil or criminal prosecution. Any such sanctions, if imposed, could have a material adverse effect on our business, operating results, financial condition and cash flows. Under certain circumstances, the FDA also has the authority to revoke previously granted drug approvals. Similar sanctions as detailed above may be available to the FDA under a consent decree, depending upon the actual terms of such decree. If internal compliance programs do not meet regulatory agency standards or if compliance is deemed deficient in any significant way, it could materially harm our business.

The product would be licensed for sale in the EU through an EC certification process, frequently shorthanded as “CE Mark” under the IVDD 98/79/EC. It is possible that general controls are sufficient and a conformity assessment of a QMS would be sufficient to support clinical testing in the EU. If a Notified Body must be used, the CE Marking process has two stages: a certification of the manufacturer’s QMS (ability to safely develop devices) and the certification of the device performance and safety itself. Regulatory approval may be delayed, limited or denied for a number of reasons, including insufficient clinical data, the product not meeting safety or efficacy requirements or any relevant manufacturing processes or facilities not meeting applicable requirements.

Further trials and other costly and time-consuming assessments of the product may be required to obtain or maintain regulatory approval. We may be required to conduct additional trials beyond those currently planned, which could require significant time and expense.

The diagnostic industry is highly competitive.

The diagnostic industry has an intensely competitive environment that will require an ongoing, extensive search for technological innovations and the ability to market products effectively, including the ability to communicate the effectiveness, safety and value of products to healthcare professionals in private practice, group practices and payers in managed care organizations, group purchasing organizations and Medicare & Medicaid services. We are smaller than almost all of our competitors. Most of our competitors have been in business for a longer period of time than us, have a greater number of products on the market and have greater financial and other resources than we do. Furthermore, recent trends in this industry are toward further market consolidation of large drug companies into a smaller number of very large entities, further concentrating financial, technical and market strength and increasing competitive pressure in the industry. If we directly compete with them for the same markets and/or products, their financial strength could prevent us from capturing a profitable share of those markets. It is possible that developments by our competitors will make any products or technologies that we acquire non-competitive or obsolete.

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Even if our product candidates receive regulatory approval, they may still face future development and regulatory difficulties.

Even if U.S. regulatory approval or clearance is obtained, the FDA can impose significant restrictions on a product’s indicated uses or marketing or may impose ongoing requirements for potentially costly post-approval studies. Any of these restrictions or requirements could adversely affect our potential product revenues. Our product candidates will also be subject to ongoing FDA requirements for the labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-market information on the drug. In addition, approved products, manufacturers and manufacturers’ facilities are subject to continual review and periodic inspections. If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If our product candidates fail to comply with applicable regulatory requirements, such as current Good Manufacturing Practices, or “CGMPs”, a regulatory agency may:

 

issue warning letters or untitled letters;

 

require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;

 

impose other civil or criminal penalties;

 

suspend regulatory approval;

 

suspend any ongoing clinical trials;

 

refuse to approve pending applications or supplements to approved applications filed by us;

 

impose restrictions on operations, including costly new manufacturing requirements; or

 

seize or detain products or require a product recall.

Our commercialization efforts will be greatly dependent upon our ability to demonstrate product efficacy in clinical trials. Laboratories will be reluctant to order our products, and medical practitioners will be reluctant to prescribe our products, without compelling supporting data. The failure to demonstrate efficacy in our clinical trials, or a delay or failure to complete our clinical trials, would have a material adverse effect on our business, prospects, financial condition and operating results.

Our failure to convince medical practitioners to use our technologies will limit our revenue and profitability.

If we, or our commercialization partners, fail to convince medical practitioners to prescribe products using our technologies, we will not be able to sell our products or license our technologies in sufficient volume for our business to become profitable. We will need to make leading physicians aware of the benefits of products using our technologies through published papers, presentations at scientific conferences and favorable results from our clinical studies. Our failure to be successful in these efforts would make it difficult for us to convince medical practitioners to prescribe products using our technologies for their patients. Failure to convince medical practitioners to prescribe our products will damage our commercialization efforts and would have a material adverse effect on our business, prospects, financial condition and operating results.

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We may not be able to market or generate sales of our products to the extent anticipated.

Assuming that we are successful in receiving regulatory clearances to market any of our products, our ability to successfully penetrate the market and generate sales of those products may be limited by a number of factors, including the following:

 

Certain of our competitors in the field have already received regulatory approvals for and have begun marketing similar products, which may result in greater physician awareness of their products as compared to ours;

 

Information from our competitors or the academic community indicating that current products or new products are more effective than our products could, if and when it is generated, impede our market penetration or decrease our existing market share;

 

The price for our products, as well as pricing decisions by our competitors, may have an effect on our revenues; and

 

Our revenues may diminish if third-party payers, including private health coverage insurers and health maintenance organizations, do not provide adequate coverage or reimbursement for our products.

If any of our future marketed products were to experience problems related to their efficacy, safety, or otherwise, or if new, more effective treatments were to be introduced, our revenues from such marketed products could decrease.

If any of our current or future marketed products become the subject of problems, including those related to, among others:

 

efficacy or safety concerns with the products, even if not justified;

 

regulatory proceedings subjecting the products to potential recall;

 

publicity affecting doctor prescription or patient use of the product;

 

pressure from competitive products; or

 

introduction of more effective tests.

Our revenues from such marketed products could decrease. For example, efficacy or safety concerns may arise, whether or not justified, that could lead to the recall or withdrawal of such marketed products. In the event of a recall or withdrawal of a product, our revenues would significantly decline.

Risks Relating to our Common Stock

If we issue additional shares in the future, it will result in the dilution of our existing shareholders.

Our articles of incorporation authorize the issuance of up to 500,000,000 shares of common stock with a par value of $0.001 per share and 20,000,000 shares of preferred stock with a par value of $0.001 per share. Our board of directors may choose to issue some or all of such shares to acquire one or more companies or products and to fund our overhead and general operating requirements. The issuance of any such shares will reduce the book value per share and may contribute to a reduction in the market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will reduce the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our corporation.

Trading of our stock is restricted by the Securities Exchange Commission’s penny stock regulations, which may limit a stockholder’s ability to buy and sell our common stock.

The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

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FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.

In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (known as “FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

Our common stock is illiquid and the price of our common stock may be negatively impacted by factors which are unrelated to our operations.

Although our common stock is currently listed for quotation on 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 stock’s price. This may never happen and investors may lose all of their investment in our company.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Since the beginning of the nine month period ended September 30, 2016, we have not sold any equity securities that were not registered under the Securities Act of 1933 that were not previously reported in an annual report on Form 10-K, in a quarterly report on Form 10-Q or in a current report on Form 8-K.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit
Number
Description
(2)

Plan of acquisition, reorganization, arrangement, liquidation or succession

2.1

License and Research Funding Agreement dated July 25, 2012 between Ramot at Tel Aviv University Ltd. and Savicell Diagnostic Ltd. (portions of the exhibit has been omitted pursuant to a request for confidential treatment) (incorporated by reference to an exhibit to a current report on Form 8-K filed July 16, 2013)

(3)

Articles of Incorporation and Bylaws

3.1

Articles of Incorporation (incorporated by reference to an exhibit to a registration statement on Form S-1 filed on August 10, 2010)

3.2

Bylaws (incorporated by reference to an exhibit to a registration statement on Form S-1 filed on August 10, 2010)

(10)

Material Contracts

10.1

Loan Terms Agreement dated February 13, 2012 with Ori Ackerman (incorporated by reference to an exhibit to a current report on Form 8-K filed February 13, 2012)

10.2

Form of Subscription Agreement for Non-US Subscribers (incorporated by reference to an exhibit to a current report on Form 8-K filed May 24, 2012)

10.3

Form of Subscription Agreement for US Subscribers (incorporated by reference to an exhibit to a current report on Form 8-K filed May 24, 2012)

10.4

Form of Shares for Debt Agreement for Canadian Subscribers (incorporated by reference to an exhibit to a current report on Form 8-K filed July 18, 2012)

10.5

Form of Subscription Agreement for Non-US Subscribers (incorporated by reference to an exhibit to a current report on Form 8-K filed July 18, 2012)

10.6

Warrant Agreement dated July 25, 2012 between Savicell Diagnostic Ltd. and Ramot at Tel Aviv University Ltd. (incorporated by reference to an exhibit to a current report on Form 8-K filed August 19, 2013)

10.7

Employment Agreement with Giora Davidovits dated September 1, 2012 (incorporated by reference to an exhibit to a current report on Form 8-K filed September 19, 2012)

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Exhibit
Number
Description
10.8 Form of Conversion and Participation Rights Agreement (incorporated by reference to an exhibit to a current report on Form 8-K filed November 1, 2012)
10.9 Employment Agreement with Eyal Davidovits dated October 30, 2012 (incorporated by reference to an exhibit to a current report on Form 8-K filed November 5, 2012)
10.10 Form of Debt Conversion Agreement (incorporated by reference to an exhibit to a current report on Form 8-K filed November 16, 2012)
10.11 Form of Offshore Debt Conversion Agreement (incorporated by reference to an exhibit to a current report on Form 8-K filed November 16, 2012)
10.12 Form of Canadian Debt Conversion Agreement (incorporated by reference to an exhibit to a current report on Form 8-K filed November 16, 2012)
10.13 Form of Debt Conversion Option Agreement (incorporated by reference to an exhibit to a current report on Form 8-K filed April 22, 2015)
10.14 Form of Private Placement Subscription Agreement (incorporated by reference to an exhibit to a current report on Form 8-K filed April 22, 2015)
10.15 Form of Private Placement Subscription Agreement (incorporated by reference to an exhibit to a current report on Form 8-K filed June 2, 2015)
10.16 Shares for Debt Acknowledgement and Subscription Agreement (incorporated by reference to an exhibit to a current report on Form 8-K filed June 2, 2015)
10.17 Form of Private Placement Subscription Agreement (incorporated by reference to an exhibit to a current report on Form 8-K filed July 9, 2015)
10.18 Form of Board of Advisors Consulting Agreement (incorporated by reference to an exhibit to a current report on Form 8-K filed August 26, 2015)
10.19 Form of Stock Option Agreement (incorporated by reference to an exhibit to a current report on Form 8-K filed August 26, 2015)
(21) Subsidiaries
21.1 Savicell Diagnostic Ltd. our approximately 75.88% subsidiary incorporated in Israel on April 23, 2012
21.2 Savicell Ltd.
(33) Certification
31.1* Section 302 of the Sarbanes-Oxley Act of 2002 of Giora Davidovits
32.1* Section 906 Certifications under Sarbanes-Oxley Act of 2002 of Giora Davidovits
(101) XBRL
101.INS* XBRL INSTANCE DOCUMENT
101.SCH* XBRL TAXONOMY EXTENSION SCHEMA
101.CAL* XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF* XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB* XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE* XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

*Filed herewith.

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SIGNATURES

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)  

November 14, 2016

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