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Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
Amendment No. 1
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED March 31, 2011.
or
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                      TO                     
Commission File Number: 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)
972-3-5257368
(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. 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
         
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 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1

 

 


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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.

 

 


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PART I. FINANCIAL INFORMATION
ITEM 1.  
FINANCIAL STATEMENTS
TOPSPIN MEDICAL, INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2011

 

 


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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2011

 

 


 

TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2011
UNAUDITED
INDEX
         
    Page  
 
       
    2  
 
       
    3  
 
       
    4  
 
       
    5 – 6  
 
       
    7 – 9  
 
       

 

 


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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
NIS in thousands (except share and per share data)
                 
    December 31,     March 31,  
    2010     2011  
            Unaudited  
 
               
ASSETS
               
 
               
CURRENT ASSETS:
               
Cash and cash equivalents
    33       74  
Accounts receivable and prepaid expenses
    49       72  
 
           
 
               
 
    82       146  
 
           
 
               
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
               
 
               
CURRENT LIABILITIES:
               
Trade payables
    658       795  
Other payables and accrued expenses
    63       452  
Tax provision
    1,254       1,231  
 
           
 
               
 
    1,975       2,478  
 
           
 
               
SHAREHOLDERS’ DEFICIENCY:
               
Share capital -
               
Common shares of $0.001 par value -
               
Authorized 2,000,000 and 50,000,000 shares as of December 31, 2010 and March 31, 2011; Issued and outstanding 1,522,942 and 11,645,405 shares as of December 31, 2010 and March 31, 2011, respectively
    6       43  
Additional paid-in capital
    181,015       182,772  
Receipts on account of shares
    1,518        
Accumulated deficit
    (184,432 )     (185,147 )
 
           
 
               
 
    (1,893 )     (2,332 )
 
           
 
               
 
    82       146  
 
           
The accompanying notes are an integral part of the interim consolidated financial statements.
             
May 31, 2011            
Date of approval of the
  Ascher Shmulewitz   Eitan Shtarkman   Uri Ben-Or
financial statements   Chairman of the Board   CEO   CFO

 

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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
NIS in thousands (except share and per share data)
                         
    Year ended     Three months ended  
    December 31,     March 31,  
    2010     2010     2011  
            Unaudited  
 
                       
General and administrative expenses
    2,512       803       700  
 
                       
Financial income (expenses), net
    197       24       (15 )
 
                 
 
                       
Net loss
    (2,315 )     (779 )     (715 )
 
                 
 
                       
Basic and diluted loss per Common share
    (1.520 )     (0.511 )     (0.109 )
 
                 
 
                       
Weighted average number of Common shares outstanding used in basic and diluted net loss per share calculation
    1,522,942       1,522,942       6,584,174  
 
                 
The accompanying notes are an integral part of the interim consolidated financial statements.

 

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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIENCY
NIS in thousands (except share data)
                                                 
    Number of                                  
    outstanding     Share     Additional     Receipts             Total  
    shares     capital     paid-in     on account     Accumulated     shareholders’  
    Common *)     capital     of shares     deficit     deficiency  
 
                                               
Balance as of January 1, 2010
    1,522,942       6       180,935             (182,117 )     (1,176 )
 
                                               
Stock-based compensation expense
                80                   80  
Receipts on account of shares
                      1,518             1,518  
Net loss
                            (2,315 )     (2,315 )
 
                                   
 
                                               
Balance as of December 31, 2010
    1,522,942       6       181,015       1,518       (184,432 )     (1,893 )
 
                                               
Stock-based compensation expense
                27                   27  
Shares issuance
    10,122,463       37       1,730       (1,518 )             249  
Net loss
                            (715 )     (715 )
 
                                   
 
                                               
Balance as of March 31, 2011 (unaudited)
    11,645,405       43       182,772             (185,147 )     (2,332 )
 
                                   
 
     
*)  
In December 2010, the Company recorded a share consolidation of 500 for one against all shares of the Company, see Note 1d. Accordingly, all share and per share data in the financial statements were retroactively adjusted to reflect the share consolidation.
The accompanying notes are an integral part of the interim consolidated financial statements.

 

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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NIS in thousands
                         
    Year ended     Three months ended  
    December 31,     March 31,  
    2010     2010     2011  
            Unaudited  
Cash flows from operating activities:
                       
 
                       
Net loss
    (2,315 )     (779 )     (715 )
Adjustments to reconcile net loss to net cash used in operating activities (a)
    (255 )     (289 )     529  
 
                 
 
                       
Net cash used in operating activities
    (2,570 )     (1,068 )     (186 )
 
                 
 
                       
Cash flows from investing activities:
                       
 
                       
Change in restricted deposits, net
    59       48        
 
                 
 
                       
Net cash provided by investing activities
    59       48        
 
                 
 
                       
Cash flows from financing activities:
                       
 
                       
Issuance of shares
                208  
Loan from related party
    1,542       200       19  
 
                 
 
                       
Net cash provided by financing activities
    1,542       200       227  
 
                 
 
                       
Increase (decrease) in cash and cash equivalents
    (969 )     (820 )     41  
Cash and cash equivalents at the beginning of the period
    1,002       1,002       33  
 
                 
 
                       
Cash and cash equivalents at the end of the period
    33       182       74  
 
                 
The accompanying notes are an integral part of the interim consolidated financial statements.

 

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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NIS in thousands
                         
    Year ended     Three months ended  
    December 31,     March 31,  
    2010     2010     2011  
            Unaudited  
(a) Adjustments to reconcile net loss to net cash used in operating activities:
                       
 
                       
Depreciation
    9       1        
Finance expenses (income) on loan from interested party
    (24 )           41  
Stock-based compensation
    80       2       27  
Decrease (increase) in accounts receivables and prepaid expenses
    193       (68 )     (23 )
Increase (decrease) in trade payables
    518       (58 )     137  
Decrease in liabilities in respect of options to employees and consultants
    (3 )            
Increase (decrease) in tax provision, other payables and accrued expenses
    (1,028 )     (166 )     347  
 
                 
 
                       
Total adjustments
    (255 )     (289 )     529  
 
                 
 
                       
(b) Supplemental disclosure of non cash flows activities:
                       
 
                       
Loan converted into receipts on account of shares
    1,518              
 
                 
 
                       
Issuance of shares
                1,518  
 
                 
The accompanying notes are an integral part of the interim consolidated financial statements.

 

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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NIS in thousands (except share and per share data)
NOTE 1:- GENERAL
  a.  
Topspin Medical, Inc. (“the Company”) and its subsidiary, Topspin Medical (Israel) Ltd. (“the subsidiary”) (collectively “the Group”) were engaged in research and development of a medical MRI technology.
     
In October 2008, the Company suspended its activities as described in b below.
     
The Company was incorporated and commenced operation in September 1999 as a private company registered in Delaware, U.S. On September 1, 2005, the Company issued securities to the public in Israel and became publicly traded on the Tel Aviv Stock Exchange (“TASE”). In 2007, the Company listed some of its securities with the U.S. Securities and Exchange Commission (“SEC”). The Company’s shares are traded only in Israel in NIS.
     
On January 24, 2010, the Company decided to discontinue the development of its intellectual property due to management’s assessment from December 2009 that the Company will not be able to finalize the development of its intellectual property or sell products based on such intellectual property.
  b.  
Since the suspension of the Company’s operational activity in October 2008 and as of the date of the financial statements, the Company is not engaged in any operational activity. Additionally, in January 2010, Company’s management decided to suspend the support in protection of its intellectual property (registered patent and patent applications).
  c.  
The Group has not generated any revenues and has not achieved profitable operations or positive cash flows from operations. The Company has an accumulated deficit of NIS 185,147 as of March 31, 2011, and it incurred a net loss of NIS 715 and negative cash flows from operating activities in the amount of NIS 186 for the three months ended March 31, 2011.
     
There is uncertainty about the Company’s ability to generate revenues or raise sufficient funds in the near term, if any. These factors, among other factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
     
The Company’s management is currently acting to raise the necessary funds for the operation of the Company and for finding operational activities for the Company in the field of life science or other fields.

 

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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NIS in thousands (except share and per share data)
NOTE 1:- GENERAL (Cont.)
  d.  
On February 13, 2011 the Company effected the Chapter 11 settlement according to which the Company’s capital structure was modified effective from that date. The Company’s authorized share capital increased to 50,000,000 shares of $ 0.001 par value each. The Company also initiated a proceeding for swapping the (unquoted) share and warrant certificates with the holders of shares and warrants that are registered in the registry of the Company’s shareholders and warrant holders.
     
In addition, as part of the settlement, on February 13, 2011, the Company completed the allocation of 10,122,463 shares to Medgenesis against the write off of the Company’s debt totaling $484 thousand.
  e.  
On February 4, 2010, the Tel Aviv Stock Exchange (“TASE”) notified the Company that it does not comply with the preservation regulations due to having equity lower than NIS 2,000 in the last four reporting quarters. The Company was given an extension until June 30, 2010 to increase its equity. If the required increase in equity does not occur until that date, the TASE Board of Directors will discuss transferring the Company’s shares to the preservation list.
     
On July 18, 2010, the Company received notification from TASE that the Company’s shares will be transferred to the maintenance list beginning July 19, 2010. The Company was given an extension until July 18, 2012 to increase its equity, otherwise, its shares will be eliminated from trading commencing July 20, 2012.
  f.  
On March 2, 2010, the Board of Directors approved to grant Mr. Zvi Linkovski, director in the Company, 10 million options which are exercisable into 10 million Common shares of $0.001 par value each which make up 1.19% of the Company’s fully diluted equity. The options’ exercise price is NIS 0.0143. 50% of the options would vest on February 16, 2011 and after then, every quarter 6.25% of the options would vest. The grant is conditional on enlarging the option pool as part of increasing the Company’s issued stock, changing the Company’s status from a shell company (as defined in the ‘Securities Exchange Act of 1934’) into an active one. As of the date of the financial statements, the option pool and the Company’s status were not enlarged.
     
As of March 31, 2011, an expense was recorded in the amount of approximately NIS 107.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
     
The significant accounting policies applied in the annual financial statements of the Company as of December 31, 2010 are applied consistently in these consolidated financial statements.

 

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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NIS in thousands (except share and per share data)
NOTE 3:- UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
     
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ended December 31, 2011.

 

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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.

 

 


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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

 

 


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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.

 

 


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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.

 

 


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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

 

 


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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.
         
Date: June 9, 2011  TOPSPIN MEDICAL, INC.
 
 
  By:   Ascher Smuelevitz    
    Chairman of the Board of Directors and
acting Principal Executive Officer  
 
       
 

 

 


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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