UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 333-144472

Topspin Medical, Inc.

(Exact name of registrant as specified in its charter)

DELAWARE		51-0394637
(State or other jurisdiction of incorporation or		(IRS Employer Identification No.)
organization)
25 Lechi
Bnei-Brak, Israel		N/A
(Address of registrant’s principal executive offices)		(Zip Code)

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. þ Yes o 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). o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). þ Yes o No

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. o Yes o No

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of March 31, 2011, was 11,645,405.

 

 

TOPSPIN MEDICAL, INC.

FORM 10-Q

FOR THE QUARTER ENDED March 31, 2011

		Page
PART I. FINANCIAL INFORMATION			3
ITEM 1. FINANCIAL STATEMENTS			3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			25
ITEM 4T. CONTROLS AND PROCEDURES			30
PART II. OTHER INFORMATION			31
ITEM 5. OTHER INFORMATION			31
ITEM 6. EXHIBITS			31
SIGNATURES			32
EX-31.1
EX-31.2
EX-32.1

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the fiscal quarter ending March 31, 2011 contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Those statements are therefore entitled to the protection of the safe harbor provisions of these laws. These forward-looking statements, which are usually accompanied by words such as “may,” “might,” “will,” “should,” “could,” “intends,” “estimates,” “predicts,” “potential,” “continue,” “believes,” “anticipates,” “plans,” “expects” and similar expressions, involve risks and uncertainties, and relate to, without limitation, statements about our market opportunities, our strategy, our competition, our projected revenue and expense levels and the adequacy of our available cash resources. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or forecasted in, or implied by, such forward-looking statements.

Although we believe that the expectations reflected in these forward-looking statements are based upon reasonable assumptions, no assurance can be given that such expectations will be attained or that any deviations will not be material. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q for the quarter ending March 31, 2011 may not occur and our actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We disclaim any obligation or undertaking to disseminate any updates or revision to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

PART I. FINANCIAL INFORMATION

ITEM 1.		FINANCIAL STATEMENTS

TOPSPIN MEDICAL, INC.

(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2011

TOPSPIN MEDICAL, INC.

(A Development Stage Company)

CONSOLIDATED FINANCIAL STATEMENTS

AS OF March 31, 2011

INDEX

		Page
Consolidated Balance Sheets			5
Consolidated Statements of Operations			6
Statements of Changes in Shareholders’ Deficiency			7–10
Consolidated Statements of Cash Flows			11–13
Notes to Consolidated Financial Statements			13–24

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to assist you in understanding our financial condition and plan of operations. You should read the following discussion along with our financial statements and related notes included in this Quarterly Report on Form 10-Q.

Overview

We were incorporated in Delaware on September 20, 1999. We have conducted all of our business operations through our wholly-owned Israeli subsidiary, TopSpin Medical (Israel) Ltd. (TopSpin Israel). TopSpin Israel was incorporated on October 5, 1999 to engage in research and development of MRI technology using miniaturized MRI sensors. Until we suspended our activities due to financial considerations in October 2008, we were engaged through TopSpin Israel, in the design, research, development and manufacture of imaging devices that utilize MRI technology by means of miniature probes for various body organs.

On September 1, 2005, we issued securities to the public in Israel and our shares of common stock began to trade on the Tel Aviv Stock Exchange (TASE). In 2007, we registered some of our securities with the U.S. Securities and Exchange Commission (SEC). Our securities are traded only on the TASE in NIS. (See PART II, Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities”—”Market for Common Equity and Related Stockholder Matters”). On February 4, 2010, the Tel Aviv Stock Exchange (TASE) notified the Company that it failed to satisfy the minimum requirement that issuers whose securities are listed on TASE maintain a minimum equity value of NIS 2 million (approximately $509,609). Following two extensions, the Company will need to comply with this minimum required on or before June 18, 2012 in order to retain its listing on TASE.

In October 2008, we paid NIS 12,513,000 (approximately $3,291,163) as part of a settlement with holders of our Series A Debentures (see Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operation”). In addition, grants due to us for the years 2007 and 2008 from the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade and Labor (OCS), an Israeli governmental agency, were not paid. As a result of the combination of the substantial outlay of cash in connection with the settlement and the lack of cash inflow from the OCS grants, on October 27, 2008, we decided to terminate the employment of all of TopSpin Israel’s employees (excluding the finance department and employees who were pregnant or on maternity leave) and suspend our operational activities.

In February 2009, we raised an aggregate of NIS 900,000 (approximately $238,410) through the issuance of shares of our Common Stock to support efforts to continue our activities.

On January 27, 2010, the Company entered into an investment agreement (the “Investment Agreement”) with Medgenesis Partners Ltd., a private company organized under the laws of Israel and controlled by Ascher Shmulewits (“Medgenesis” and the “Stockholder”, respectively). Under the terms of the Investment Agreement, the Company agreed to issue to Medgenesis (i) 423,346 shares of Common Stock of the Company; (ii) a warrant to purchase 245,871 shares of Common Stock; and (iii) a warrant to purchase 116,129 shares of Common Shares, all in exchange for payment by Medgenesis in the amount of $211,673 and the cancellation of a certain warrant issued by the Company to the Stockholder pursuant to a certain agreement, dated February 2, 2009, filed with the Securities and Exchange Commission on February 5, 2009.

On February 1, 2010 Medgenesis transferred $53,804 pursuant to the Investment Agreement (“Initial Payment”). The Investment Agreement has not been consummated since the Company failed to fulfill a precondition to the Closing pursuant to the Investment Agreement. The Initial Payment has been converted into Funds (as defined below) pursuant to the Loan Agreement entered into between the parties, as further detailed below.

In addition, the Company, Medgenesis and the Stockholder entered into a memorandum of understanding pursuant to which Medgenesis and the Stockholder will assist the Company to acquire interests in commercial and/or industrial biotech companies and/or assets. We are currently pursuing acquisition options.

Under the terms of the Investment Agreement, on April 29, 2010, we entered into a loan agreement (the “Loan Agreement”) with Medgenesis, pursuant to which Medgenesis agreed to loan the Company a total of $353,804 (the “Funds”), consisting of: (i) $53,804 already paid to the Company on February 1, 2010, pursuant to the Investment Agreement and (ii) an additional $300,000 to be placed in an escrow account and to be disbursed pursuant to an Escrow Instruction Letter (the “Letter”), dated April 29, 2010, between the Company, Medgenesis and the escrow agent. The Loan Agreement and the Letter provide that the Company may use the Funds for payment of legal fees, including fees associated with retaining its current counsel for bankruptcy counseling advice, and for the payment of all other outstanding obligations as may be required by the Plan (as defined below). The Loan Agreement also provides for the termination of the Investment Agreement and all obligations of the parties there-under.

Pursuant to the Loan Agreement, the Company filed a petition seeking relief under Chapter 11 of Title 11 of the United States Code, pursuant to which the Company applied to the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) to authorize the approval of transactions and all other actions required according to a plan to be prepared by the Company and approved by Medgenesis in writing prior to any filing (the “Plan”). Further, the Company covenanted not to engage in certain conduct while Funds loaned under the Loan Agreement are outstanding, including (i) hiring employees; (ii) applying for any credit or loan from a banking institution; (iii) amending any of the Company’s organizational documents; and (iv) acting in any manner that would result in a material adverse effect on the Company or in non-compliance with the Plan.

On June 28, 2010 the Company received a letter from Medgenesis requesting full repayment of the loan because, at that time, the Company had not yet filed its Chapter 11 petition pursuant to the Loan Agreement. On June 29, 2010, Medgenesis withdrew the remaining amount from the escrow account.

On July 12, 2010, in accordance with the Loan Agreement, the Company filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code with the Bankruptcy Court (Case No. 10-12213 (CSS)). As part of the Plan that the Company submitted to the Bankruptcy Court, the Company requested that the Bankruptcy Court approve an increase in its registered capital, a reverse split of the Company’s reorganized Common Stock (as further detailed below) and the conversion of the outstanding Funds into Company’s shares of Common Stock (all under terms that have not yet been authorized by the Company’s shareholders).

On September 26, 2010, the Company and Medgenesis signed another loan agreement totaling up to $200,000. The purpose of the loan is to cover the Company’s then current expenses, complete the Chapter 11 proceeding and settle some of the unsecured creditors’ claims based on the settlement approved by the Bankruptcy Court and the relevant regulatory entities. The loan agreement was contingent on the Bankruptcy Court’s approval of the Chapter 11 proceeding in Delaware (the “Second Loan”).

On October 22, 2010, the Bankruptcy Court entered the Order Granting Motion Of Debtor And Debtor-In-Possession For Authority To Incur Unsecured Debt Under Loan Agreement And For Approval Of Loan Agreement, pursuant to which the Bankruptcy Court authorized the Company to incur up to an additional $200,000.00 under the Second Loan.

On December 13, 2010 the Plan was approved by the general meeting of the equity interest holders of the Company, and on December 21, 2010 the Plan was approved by the Bankruptcy Court. In accordance with the provisions of the Plan, the consolidation of the capital of the Company was approved, in such way that each 500 shares par value US $0.001 each shall be consolidated into 1 share par value US $0.001 US$ each, and each warrant exercisable into 1 share par value US $0.001 each, shall be exercisable into 0.0002 shares par value US $0.001 each, with the exercise price remaining the same. The Amended and Restated Certificate of Incorporation of the Company was amended, in such way that the authorized share capital of the Company was increased to a total of 50,000,000 shares par value US $0.001 each.

The aforesaid amendments to the Amended and Restated Certificate of Incorporation of the Company and the authorized capital of the Company were executed on February 13, 2011. In the course of the Plan, on February 13, 2011 the Company has allocated 10,122,463 shares to a Medgenesis as a repayment of a debt of US $484 thousand of the Company to Medgenesis.

Liquidity and Capital Resources

Since our inception, we have financed our operations principally through private and public sales of equity securities, issuance of convertible notes and receipt of grants from the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade and Labor, an Israeli governmental agency.

On February 2009, we raised net proceeds of NIS 900,000 (approximately $236,717) through the sale of 240,000 shares of our Common shares of $0.001 par value and 58,064,516 warrants exercisable into 116,129 common shares of the company for total consideration of NIS 900,000. Each warrant is exercisable into one Common share for the exercise price of NIS 0.01 for a period of 4 years following the issuance date. According to the Binomial model, with 92.96% volatility and 3.39% risk-free interest rate, the fair value of the warrants amounted to approximately NIS 401,000.

As of March 31, 2011, we held approximately NIS 74 thousand (approximately $21,000) in cash and cash equivalents.

The Company and its Subsidiary have not generated any revenues and have not achieved profitable operations or positive cash flows from operations. The Company has an accumulated deficit of NIS 185,147 thousand (approximately $51,413,000) as of March 31, 2011, and it incurred a net loss of NIS 715 thousand (approximately $101,000) and negative cash flow from operating activities in the amount of NIS 186,000 (approximately $52,000) for the three month period ended March 31, 2011.

We believe that our cash resources are insufficient for our operations at current levels for the next twelve months. We are contemplating and pursuing possibilities for new business activities for the Company and new avenues for raising capital.

We may not be able to raise additional funds required to resume our regular business operations or to engage in new fields of business that we may decide to pursue. The global stock and credit markets are experiencing significant price volatility, dislocations and liquidity disruptions, which have caused market prices of many stocks to fluctuate substantially and the spreads on prospective debt financings to widen considerably. These circumstances have materially impacted liquidity in the financial markets, making terms for certain financings less attractive, and in certain cases have resulted in the unavailability of certain types of financing. Continued uncertainty in the stock and credit markets may negatively affect our ability to raise necessary additional funds

Operating Activities

In the three months ended on March 31, 2011, we used NIS 186,000 (approximately $52,000) and in the same period in 2010 we used NIS 1,068,000 (approximately $291,000). The decrease in net cash used in operating activities in 2011 is primarily attributable to the completion of the arrangement according to chapter 11.

Financing Activities

In the three months ended on March 31, 2011, the cash from financing activities was NIS 227,000 (approximately $63,000) and in the same period in 2010 we used NIS 200,000 (approximately $54,000). The increase was primary due to loan from interested party.

Investing Activities

In the three month period ended March 31, 2011, we did not released restricted deposits, compared to NIS 48,000 (approximately $13,000) released in the same period in 2010.

Results of Operations

In the three months ended March 31, 2011 the net loss was NIS 715,000 (approximately $199,000), and in the same period in 2010 the net loss was NIS 779,000 (approximately $210,000).

Revenues

We have not recorded any revenues from operations since the time of our inception in September 1999. We have financed our operations principally through private and public sales of equity securities, issuance of convertible notes and the receipt of grants from the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade and Labor, an Israeli governmental agency. We used the funds generated by these activities to support research and development, administrative, and other expenses associated with developing, testing and marketing our proposed products. As discussed above under the heading “Liquidity and Capital Resources”, our reduced cash status caused us to suspend our operational activities as of October 2008.

Research and Development Expense

Since our Board’s decision to suspend non-administrative operations in October 2008, we have not incurred any R&D expense.

Selling and Marketing Expense

Following our Board’s decision in April 2008 to shift the Company’s focus to the Urology Product, which was not yet in the marketing phase, we did not incur any selling or marketing expenses during the three months ended March 31, 2010, or during the corresponding period in 2010.

General and Administrative Expense

General and Administrative (G&A) expenses include legal services, audit services and other professional services. G&A expenses for the three months ended on March 31, 2011 decreased to NIS 700,000, (approximately $194,000) from NIS 803,000, (approximately $215,000) spent in the same period in 2010. General and administrative expenses in the first quarter of 2011 are mainly due to legal service of NIS 107,000 (approximately $30,000), audit services of NIS 71,000 (approximately $20,000), management fees of NIS 100,000 (approximately $28,000), directors fees of NIS 310,000 (approximately $86,000), share based payment of NIS 27,000 (approximately $7,000) and other services of NIS 85,000 (approximately $24,000).

Financing Income

Finance expenses, net for the three months ended on March 31, 2011 was NIS 15,000 (approximately $4,000) compared to finance income, net of NIS 24,000 (approximately $6,000) in the same period in 2010. The decrease resulted mainly from financial expenses revaluation of loan from interested party.

Taxes on Income

In connection with the implementation of the Settlement Agreement, the Company recorded in December 2008, NIS 1,344,000 (approximately $353,000) which was revalued in March 2011 to NIS 1,231,000 (approximately $353,000) of provisional liabilities representing an estimate of potential tax liability that we may incur in connection with the conversion of the Series A Bonds.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Office Lease Commitments

From January 2010 to May 2010, we leased offices in Rothschild 65, Tel Aviv, Israel for the monthly rent payment of NIS 4,200 (approximately $1,206). In May 2010, the lease expired and the Company vacated the premises and sold certain technological and office equipment and supplies.

On June 15, 2010, the Company entered into an agreement with Tapuz clothing industry LTD, a company affiliated with Mr. Zvi Linkovsky, one our directors. The monthly rental fees are NIS 2,000 (approximately $575) plus the applicable value-added tax. The agreement with Tapuz clothing industry LTD is on a month-to-month basis. Both of the side may terminate this agreement by a notice of 15 days. We believe that this arrangement is sufficient to meet our current needs. However, in the long-term, we will reevaluate the need for additional facilities based on our growth and future needs with respect to management, administration, marketing and manufacturing requirements

ITEM 4T.		CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to provide reasonable assurance that the information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission rules, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

The Company’s principal executive officer and its principal financial officer evaluated the effectiveness of the Company’s disclosure controls and procedures, as of the end of the period covered by this report. Based on that evaluation, the principal executive officer and the principal financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2011.

Changes in Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f) or Exchange Act Rule 15d-15(f). Under the supervision and with the participation of our management, including the Chairman of our Board of Directors who is currently acting as our Principal Executive Officer and our Finance Manager, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2010 based on the Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Tread way Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of March 31, 2011.

There have not been any changes in our internal control over financial reporting during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 6.		EXHIBITS

Exhibit
Number				Description
	31.1			Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)
	31.2			Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)
	32.1			Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Certifications as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EXHIBIT INDEX

Exhibit
Number				Description
	31.1			Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)
	31.2			Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)
	32.1			Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Certifications as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002