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, 2018

 

or

 

[  ]	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: 000-55680

 

TECHCARE CORP.
(Exact Name Of Registrant As Specified In Its Charter)

 

Delaware		68-0080601
(State of Incorporation)		(I.R.S. Employer Identification No.)
1140 Avenue of the Americas, New York, NY		10036
(Address of Principal Executive Offices)		(ZIP Code)

 

Registrant’s Telephone Number, Including Area Code: + (972) 3 750-3060 or (646) 380-6645

 

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 every Interactive Data File required to be submitted 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 such files). [X] Yes [  ] No

 

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

 

	Large accelerated filer [  ]		Accelerated filer [  ]
	Non-Accelerated filer [X]		Smaller reporting company [X]
			Emerging Growth Company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

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

 

On November 12, 2018, the Registrant had 29,949,096 shares of common stock outstanding.

 

 

 

TABLE OF CONTENTS

 

Item		Description		Page
		PART I - FINANCIAL INFORMATION
ITEM 1.		FINANCIAL STATEMENTS (UNAUDITED).
		Condensed Consolidated Balance Sheets		3
		Condensed Consolidated Statements of Operations and Comprehensive loss		4
		Condensed Consolidated Statements of Cash Flows		5
		Notes to Unaudited Financial Statements		6
ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS.		18
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.		24
ITEM 4.		CONTROLS AND PROCEDURES.		25
		PART II - OTHER INFORMATION
ITEM 1.		LEGAL PROCEEDINGS.		26
ITEM 1A.		RISK FACTORS.		26
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.		26
ITEM 3.		DEFAULT UPON SENIOR SECURITIES.		26
ITEM 4.		MINE SAFETY DISCLOSURE.		27
ITEM 5.		OTHER INFORMATION.		27
ITEM 6.		EXHIBITS.		27
		SIGNITURES.		28

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

TechCare Corp.

Condensed Consolidated Balance Sheets

As of September 30, 2018 and December 31, 2017

(Unaudited)

 

		September 30, 2018				December 31, 2017
Assets
Current assets:
Cash and cash equivalents		$	384,495			$	589,818
Accounts receivables			173,626				3,318
Inventory			156,240				41,445
Other receivables			244,212				105,818
Total current assets			958,573				740,399
Non-current assets:
Severance pay fund			21,564				13,764
Long-term deposits			11,745				12,287
Property and equipment, net			133,365				95,984
Total non-current assets			166,674				122,035
Total assets		$	1,125,247			$	862,434
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses		$	252,376			$	106,362
Refund liability			107,460				-
Note payable			84,719				88,751
Option liability			-				132,470
Total current liabilities			444,555				327,583
Non-current liability:
Liability for severance pay			27,642				23,422
Total liabilities			472,197				351,005
Commitments
Stockholders’ equity:
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized: none issued and outstanding at September 30, 2018 and December 31, 2017			-				-
Common stock, par value $0.0001 per share, 500,000,000 shares authorized: 29,949,096 and 25,835,401 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively			2,995				2,584
Accumulated other comprehensive income			111,780				104,777
Additional paid-in capital			8,564,286				6,945,151
Stock to be issued			60,000				30,000
Accumulated deficit			(8,086,011	)			(6,571,083	)
Total stockholders’ equity			653,050				511,429
Total liabilities and stockholders’ equity		$	1,125,247			$	862,434

 

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

 

 

TechCare Corp.

Condensed Consolidated Statements of Operations

and Comprehensive loss

For the Nine and Three-Months Periods Ended September 30, 2018 and 2017

(Unaudited)

 

		For the nine				For the nine				For the three				For the three
		months ended				months ended				months ended				months ended
		September 30, 2018				September 30, 2017				September 30, 2018				September 30, 2017
						Restated								Restated
Revenues			188,809				-				90,367				-
Cost of revenues			128,842				-				71,224				-
Gross profit			59,967				-				19,143				-
Research and development expenses			191,316				263,268				143,400				83,030
Change in fair value of option liability			(132,470	)			182,720				-				(93,430	)
Marketing, General and administrative expenses			1,489,784				2,082,658				522,864				398,880
Operating loss			1,488,663				2,528,646				647,121				388,480
Financial expenses (income), net			26,265				(24,495	)			9,110				(5,304	)
Net loss		$	1,514,928				2,504,151				656,231			$	383,176
Net loss per common stock:
Basic		$	(0.05	)		$	(0.12	)			(0.02	)		$	(0.02	)
Diluted		$	(0.05	)		$	(0.12	)			(0.02	)		$	(0.02	)
Weighted average number of common stock outstanding:
Basic			31,709,944				21,722,199				32,529,717				21,752,409
Diluted			31,807,036				21,722,199				32,529,717				22,018,967
Comprehensive loss:
Net loss			1,514,928				2,504,151				656,231				383,176
Other comprehensive expense (income) attributable to foreign currency translation			(7,003	)			(10,058	)			8,702				2,344
Comprehensive loss			1,507,925				2,494,093				664,933				385,520

 

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

 

 

TechCare Corp.

Condensed Consolidated Statements of Cash Flows  

For the Nine-Months Periods Ended September 30, 2018 and 2017  

(Unaudited)  

 

		For the nine				For the nine
		months ended				months ended
		September 30, 2018				September 30, 2017
						Restated
Cash flows from operating activities:
Net loss		$	(1,514,928	)		$	(2,504,151	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			(9,329	)			10,193
Stock issued in relation to consulting services			-				70,964
Change in fair value of option liability			(132,470	)			182,720
Stock-based compensation			27,544				1,222,920
Changes in cash attributed to changes in operating assets and liabilities:
Other receivables and prepaid expenses			(310,877	)			7,055
Accounts payable and accrued expenses			151,413				(60,512	)
Liability for severance pay			(6,614	)			5,229
Refund liability			107,088				-
Inventory			(120,978	)			-
Net cash used in operating activities			(1,809,151	)			(1,065,582	)
Cash flow from investing activities:
Severance pay fund			3,485				(1,592	)
Purchase of fixed assets			(31,999	)			(4,170	)
Investment in long-term deposit			-				(6,059	)
Net cash used in investing activities			(28,514	)			(11,821	)
Cash flow from financing activities:
Proceeds from issuance of common stock			1,592,000				878,250
Proceeds from stock to be issued			30,000				-
Net cash provided by financing activities			1,622,000				878,250
Effect of exchange rates on cash and cash equivalents			10,342				8,394
Decrease in cash and cash equivalents			(205,323	)			(190,759	)
Cash and cash equivalents - beginning of period			589,818				275,041
Cash and cash equivalents - end of period		$	384,495			$	84,282
Non-cash financing activity during the period:
Issuance of common stock and warrants						$	194,995

 

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

 

 

TechCare Corp.

Notes to Unaudited Financial Statements

September 30, 2018 (Unaudited)

 

NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

A. Nature of operations

 

TechCare Corp. (“Techcare” or the “Company”), formally known as BreedIT Corp. (“BreedIt”) was incorporated under the laws of the State of Delaware on May 26, 2010. The Company’s common stock is traded in the United States on the OTCQB Market under the ticker symbol “TECR”.

 

On February 8, 2016, the Company signed a Merger Agreement with Novomic Ltd. (“Novomic”), a private company incorporated under the laws of the State of Israel. The closing of the Merger took place on August 9, 2016 pursuant to which Novomic became a wholly-owned subsidiary of the Company. The Merger was structured as a reverse Merger.

 

Novomic was incorporated as a private company in Israel in 2009. Since inception, Novomic has been a technology company engaged in the design, development and commercialization of a unique delivery platform utilizing vaporization of various natural compounds for multiple health, beauty and wellness applications. Novomic’s delivery platform is proprietary and patented.

 

Novomic’s first product is Novokid® - an innovative home use device which vaporizes a natural, plant-based, pesticides and silicone-free compound that effectively treats head lice and eggs. The Novokid® kit includes a vaporizer, treatment capsules and treatment cap alongside ancillary components. Novokid® is currently being sold in Israel and the Netherlands.

 

Novomic is currently working on the research and development of future product offerings for its delivery platform, including Shine, a revolutionary cosmetic device for the treatment and rejuvenation of the hair and scalp.

 

Going Concern

 

During the nine months period ended September 30, 2018, the Company had a comprehensive loss of approximately $1.5 million. As of September 30, 2018, the Company had accumulated losses of approximately $8 million.

 

Based on the projected cash flows and Company’s cash balances as of September 30, 2018, Company’s management is of the opinion that without further fund raising it will not have sufficient resources to enable it to continue advancing its activities including the development, manufacturing and marketing of its products for a period of at least 12 months from the date of issuance of these financial statements. As a result, there is substantial doubt about the Company’s ability to continue as a going concern.

 

Management’s plans include the continued commercialization of the products, continue taking cost reduction steps and securing sufficient financing through the sale of additional equity securities, debt or capital inflows from strategic partnerships. There are no assurances however, that the Company will be successful in obtaining the level of financing needed for its operations. If the Company is unsuccessful in commercializing its products and securing sufficient financing, it may need to reduce activities, curtail or cease operations. These financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

 

B. Summary of significant accounting policies

 

The accounting policies adopted are consistent with those of the previous financial year.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements and condensed footnotes have been prepared in accordance with the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”), for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for fair statement of results for the interim periods presented have been included. The results of operations for the nine and the three months ended September 30, 2018 are not necessarily indicative of the results to be expected for the year or for other interim periods or for future years. The consolidated balance sheet as of December 31, 2017 is derived from audited financial statements as of that date; however, it does not include all of the information and footnotes required by GAAP for complete financial statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on April 2, 2018.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of TechCare, and its subsidiary, Novomic. All intercompany balances and transactions have been eliminated in consolidation.

 

Revenue Recognition

 

Effective January 1, 2018, the Company adopted the new accounting standard related to the recognition of revenue in contracts with customers. Since the Company had no revenues prior to January 1, 2018, the new standard had no impact on revenues and results of operations for prior periods.

 

The Company derives revenues from sales of its product Novokid directly or indirectly through its distributors in the Netherlands and in Israel.

 

The Company determines revenue recognition through the following steps:

 

	●	Identification of the contract, or contracts, with a customer.
	●	Identification of the performance obligations in the contract.
	●	Determination of the transaction price.
	●	Allocation of the transaction price to the performance obligations in the contract.
	●	Recognition of revenue when, or as, the Company satisfies a performance obligation.

 

Revenue is measured as the amount of consideration expected to receive in exchange for transferring goods to the end customer or to the distributor.The Company also considers products that might be returned mostly based on the terms stipulated in the agreements with its distributors.The Company recognize the amount received or receivable that is expected to be returned as a refund liability,representing its obligation to return the clients’ consideration.

 

The Company reports revenue net of any revenue based taxes assessed by governmental authorities that are imposed on and concurrent with specific revenue-producing transactions.

 

Revenue from products are recognized when the customer or the distributor has obtained control of the goods (for the Company’s current arrangements, this is at the point in time) based on the shipping terms. The Company recognizes revenue on sales to distributors upon shipment of the goods, when the distributor has economic substance apart from the Company and the distributor is considered the principal for the transaction with the end-user client.

 

 

NOTE 2: NEW ACCOUNTING PRONOUNCEMENTS

 

Accounting Pronouncements Adopted in Current Period

 

In May 2014, and in following related amendments, the Financial Accounting Standards Board (the “FASB”) issued a new comprehensive revenue recognition guidance on revenue from contracts with customers ( the “Standard”) that will supersede the current revenue recognition guidance. The Standard provides a unified model to determine when and how revenue is recognized. The core principle of the Standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted this guidance on January 1, 2018, which resulted in no impact on its consolidated financial statements since the Company had no revenues prior to 2018.

 

In January 2016, the FASB issued an Accounting Standards Update (an “ASU”) which changes to the current measurement model primarily affects all equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting), financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. Under the new ASU equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) with readily determinable fair values will be measured at fair value through earnings. Equity investments that do not have readily determinable fair values may be measured at fair value or at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The Company adopted this guidance on January 1, 2018, which resulted in no impact on its consolidated financial statements.

 

In November 2016, the FASB issued an ASU which requires entities to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this guidance on January 1, 2018, which resulted in no impact on its consolidated financial statements.

 

In June 2018, the FASB issued an ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). These amendments expand the scope of Topic 718, Compensation—Stock Compensation (which previously included share-based payments to employees only) to include share based payments issued to nonemployees for goods or services, with certain exceptions. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. ASU 2018-07 supersedes Subtopic 505-50, Equity—Equity-Based Payments to Non-Employees, and is effective for all public entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers. The Company early adopted ASU 2018-07 commencing July 1, 2018, with no impact on its consolidated financial statements.

 

Recently Issued Accounting Pronouncements Not Yet Adopted

 

In February 2016, the FASB issued a new ASU which revises lease accounting guidance. Under the new guidance, lessees will be required to recognize a right-of-use asset and a lease liability for all leases, other than leases that meet the definition of a short-term lease. The liability and the right-of-use asset arising from the lease will be measured as the present value of the lease payments. In addition, this guidance requires disclosure of key information about leasing arrangements to increase transparency and comparability among organizations. The new standard is effective for fiscal year beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition approach, with certain practical expedients. The Company is currently evaluating the impact of the adoption of the new lease accounting guidance on its consolidated financial statements.

 

 

NOTE 3: RESTATEMENT OF 2017 CONDENSED CONSOLIDATED QUARTERLY FINANCIAL STATEMENTS

 

As discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, during the preparation of the 2017 annual financial statements, the Company became aware of misstatements in its condensed consolidated financial statements for the quarter ended March 31, 2017, the six months ended June 30, 2017, and the nine months ended September 30, 2017, that were included in each of the Company’s 2017 Form 10-Qs. The misstatement stemmed from an erroneous recording of additional stock compensation expense of $943,901 during the three months ended March 31, 2017 related to certain fully vested awards that were granted in December 31, 2016, and were properly fully expensed in 2016. As a result, the Company’s previously reported net loss for each of the three aforementioned periods in 2017 was overstated by this amount. The Board of Directors and the Company concluded that due to this error the condensed consolidated financial statements for each of these periods was materially misstated and should be restated (the Restatement).

 

The Restatement also corrects certain other misstatements during the 2017 interim periods, including (i) an error related to the accounting for advances to suppliers that were previously expensed that impacted the quarters ended June 30, 2017, and September 30, 2017, and (ii) errors in the classification of certain expenses within the consolidated statements of operations and comprehensive loss which impacts classification only and does not impact the total net loss or comprehensive loss reported for any of the periods.

 

The Restatement does not result in a change to the Company’s previously reported total amounts of net cash flows from operating activities, investing activities, or financing activities. There was no impact to net change in cash and cash equivalents for any previously reported periods. Certain corrections of classifications within the operating cash flow section were impacted by the Restatement.

 

 

Condensed consolidated balance sheet as of September 30, 2017 (Unaudited):

 

		As previously reported				Adjustments				As Restated
Assets
Current assets:
Cash and cash equivalents		$	84,282								84,282
Other receivables			160,620				29,755				190,375
Total current assets			244,902				29,755				274,657
Non-current assets:
Severance pay fund			10,403								10,403
Long-term deposit			12,071								12,071
Property and equipment, net			99,744								99,744
Total non-current assets			122,218								122,218
Total assets		$	367,120				29,755				396,875
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses		$	137,780								137,780
Option liability			182,720								182,720
Note payable			87,192								87,192
Total current liabilities			407,692								407,692
Non-current liability:
Liability for severance pay			21,184								21,184
Total liabilities			428,876								428,876
Commitments
Stockholders’ equity:
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized: none issued and outstanding at September 30, 2017			-								-
Common stock, par value $0.0001 per share, 500,000,000 shares authorized: 21,776,762 shares issued and outstanding at September 30, 2017			2,177								2,177
Accumulated other comprehensive income			107,061								107,061
Additional paid-in capital			6,970,542				(943,901	)			6,026,641
Stock to be issued			48,964								48,964
Accumulated deficit			(7,190,500	)			973,656				(6,216,844	)
Total capital deficiency			(61,756	)			29,755				(32,001	)
Total liabilities and capital deficiency		$	367,120				29,755				396,875

 

 

Condensed consolidated statement of operations and comprehensive loss for the nine month period ended September 30, 2017 (Unaudited):

 

		As previously reported				Adjustments				As Restated
Research and development expenses			872,874				(609,606	)			263,268
Change in fair value of option liability			182,720								182,720
Marketing, general and administrative expenses			2,441,860				(359,202	)			2,082,658
Operating loss			3,497,454				(968,808	)			2,528,646
Financial income, net			24,495								24,495
Loss before income taxes			3,472,959				(968,808	)			2,504,151
Tax expenses			4,848				(4,848	)			-
Net loss		$	3,477,807				(973,656	)			2,504,151
Net loss per common stock:
Basic		$	(0.16	)			0.04				(0.12	)
Diluted		$	(0.16	)			0.04				(0.12	)
Weighted average number of common stock outstanding:
Basic			21,722,199								21,722,199
Diluted			21,722,199								21,722,199
Comprehensive loss:
Net loss			3,477,807				(973,656	)			2,504,151
Other comprehensive income attributable to foreign currency translation			10,058								10,058
Comprehensive loss			3,467,749				(973,656	)			2,494,093

 

 

Condensed consolidated statement of operations and comprehensive loss for the three month period ended September 30, 2017 (Unaudited):

 

		As previously reported				Adjustments				As Restated
Research and development expenses			131,765				(48,735	)			83,030
Change in fair value of option liability			(93,430	)							(93,430	)
Marketing, general and administrative expenses			361,342				37,538				398,880
Operating loss			399,677				(11,197	)			388,480
Financial income, net			5,304								5,304
Loss before income taxes			394,373				(11,197	)			383,176
Tax expenses			-								-
Net loss		$	394,373				(11,197	)			383,176
Net loss per common stock:
Basic		$	(0.018	)			-				(0.018	)
Diluted		$	(0.022	)			-				(0.022	)
Weighted average number of common stock outstanding:
Basic			21,752,409								21,752,409
Diluted			22,018,967								22,018,967
Comprehensive loss:
Net loss			394,373				(11,197	)			383,176
Other comprehensive expense attributable to foreign currency translation			2,344								2,344
Comprehensive loss			396,717				(11,197	)			385,520

 

NOTE 4: STOCKHOLDERS’ EQUITY

 

Share capital

 

During the nine months ended September 30, 2018, the Company entered into several agreements, under which the Company raised an aggregate amount of $ 1,622,000, as follows:

 

	a)	1,291,990 shares of its common stock at a purchase price of $0.387 for a total consideration of $500,000 and warrants to purchase up to 645,995 stock with an exercise price of $0.387, exercisable until June 30, 2018. The warrants expired on June 30, 2018.
	b)	1,033,592 shares of common stock of the Company at a purchase price of $0.387 for a total consideration of $400,000, and warrants to purchase up to 516,796 stock with an exercise price of $0.387, exercisable until September 30, 2018. The warrants expired on September 30, 2018.
	c)	108,527 shares of common stock of the Company at a purchase price of $0.387 for a total consideration of $42,000, and warrants to purchase up to 70,000 stock with an exercise price of $0.60, exercisable until June 17, 2019.

 

 

Investment agreements signed during the three months ended September 30, 2018:

 

	d)	645,995 shares of common stock of the Company at a purchase price of $0.387 for a total consideration of $250,000, and warrants to purchase up to 416,667 stock with an exercise price of $0.6, exercisable until June 27, 2019.
	e)	645,995 shares of common stock of the Company at a purchase price of $0.387 for a total consideration of $250,000, and warrants to purchase up to 416,667 stock with an exercise price of $0.6, exercisable until August 7, 2019.
	f)	129,199 shares of common stock of the Company at a purchase price of $0.387 for a total consideration of $50,000, and warrants to purchase up to 83,333 stock with an exercise price of $0.6, exercisable until August 7, 2019.
	g)	258,398 shares of common stock of the Company at a purchase price of $0.387 for a total consideration of $100,000, and warrants to purchase up to 166,667 stock with an exercise price of $0.6, exercisable until August 7, 2019.
	h)	77,519 shares of common stock of the Company at a purchase price of $0.387 for a total consideration of $30,000, and warrants to purchase up to 50,000 shares of common stock with an exercise price of $0.6, exercisable until August 21, 2019. As of September 30, 2018, the Company had not yet issued the shares of common stock and, therefore, recorded stock to be issued in the amount of $30,000 in the consolidated financial statements.
	i)	77,519 shares of common stock of the Company at a purchase price of $0.387 for a total consideration of $30,000, and warrants to purchase up to 50,000 stock with an exercise price of $0.6, exercisable until August 21, 2019. As of September 30, 2018, the Company had not yet received the investment proceeds and therefore had not issued the shares of common stock for such investment.

 

Stock-Based Compensation to employees and directors

 

Stock based awards are accounted for using the fair value method in accordance with ASC 718, Shared Based Payment. The Company’s primary type of stock-based compensation consists of stock options to directors, employees and officers. The Company uses Black-Scholes option pricing model in valuing options.

 

During the nine months ended September 30, 2018 the Company had not granted any options to employees and directors.

 

During March 2017, the Company granted to certain employees options to purchase 869,596 of the Company’s common stock for an exercise price of $0.0001. The options granted were fully vested on the date of the grant and exercisable into the Company’s common stock at a 1:1 ratio for 2.5 years from the date of the grant.

 

The following assumptions were applied in determining the options’ fair value on their grant date:

 

Risk-free interest rate			1.54	%
Expected shares price volatility			70	%
Expected option term (years)			2.5-5
Dividend yield			-

 

The Company based the risk-free interest rate on the U.S. Treasury yield curve. The expected term in years represents the period of time that the awards granted are expected to be outstanding. The assumption for dividend yield is zero because the Company has not historically paid dividends nor does it expect to do so in the foreseeable future. The volatility was based on the historical stock volatility of several peer companies, as the Company has limited trading history to use the volatility of its own common stock.

 

 

A summary of the stock option activity for employees and directors for the nine months ended September 30, 2018:

 

		Number of Options				Weighted Average Exercise Price
						U.S Dollar
Options outstanding at December 31, 2017			2,640,334				0.0001
Granted			-				-
Options outstanding at September 30, 2018			2,640,334				0.0001
Options exercisable at September 30, 2018			2,640,334				0.0001

 

Stock-based compensation expenses related to employee awards, included in the Company’s statements of operations and comprehensive loss, were allocated as follows:

 

		Nine months ended September 30, 2018				Nine months ended September 30, 2017
						Restated (see note 3)
Research and development expenses		$	-				103,795
Marketing ,general and administrative			-				1,119,125
		$	-				1,222,920

 

Stock-Based Compensation to non-employees – Options and Warrants

 

The Company early adopted ASU 2018-07 commencing July 1, 2018, with no impact on its consolidated financial statements. Prior to the adoption of ASU 2018-07 stock options issued to consultants and other non-employees, as compensation for services provided to the Company, were accounted for based upon the fair value of the options. The fair value of the options granted were measured on a final basis at the end of the related service period and were recognized over the related service period using the straight line method. After the adoption of ASU 2018-07, the measurement date for non-employee awards is the date of the grant. The compensation expense for non-employees is recognized, without changes in the fair value of the award, over the requisite service period, which is the vesting period of the respective award.

 

In the second quarter of 2018, as part of consulting agreements, the Company granted options to non-employees, as follows:

 

	1)	83,393 options exercisable to purchase 83,393 shares of common stock of the Company, at an exercise price of $0.0001 per option. The options will be vested in accordance with the following vesting periods: 25% of the options will be exercisable on December 1, 2018, and the remaining 75% will be considered exercisable at the end of each subsequent three-month period thereafter, over the course of 12 quarters.
	2)	83,393 options to a related party exercisable to purchase 83,393 shares of common stock of the Company, at an exercise price of $0.0001 per option. The options will be vested in accordance with the following vesting periods: 25% of the options will be exercisable on January 1, 2019, and the remaining 75% will be considered exercisable at the end of each subsequent three-month period thereafter, over the course of 12 quarters.
	3)	436,349 options to a related party exercisable to purchase 436,349 shares of common stock of the Company, at an exercise price of $0.387 per option. The options will be vested in accordance with the following vesting periods: 33.33% of the options will be exercisable on January 1, 2019, and the remaining 66.67% will be considered exercisable at the end of each subsequent three-month period thereafter, over the course of 8 quarters.

 

The following assumptions were applied in determining the options’ fair value on their grant date:

 

Risk-free interest rate			2.65%-2.85	%
Expected shares price volatility			70	%
Expected option term (years)			5
Dividend yield			-

 

 

The Company based the risk-free interest rate on the U.S. Treasury yield curve. The expected term in years represents the period of time that the awards granted are expected to be outstanding. The assumption for dividend yield is zero because the Company has not historically paid dividends nor does it expect to do so in the foreseeable future. The volatility was based on the historical stock volatility of several peer companies, as the Company has limited trading history to use the volatility of its own common stock.

 

During January 2017, as part of a consulting agreement, the Company granted to a non-employee warrants exercisable to purchase 100,000 of the Company’s common stock at an exercise price of $1.50 per warrant exercisable for a period of 24 months commencing on the date of the agreement, fully vested on the date of the grant.

 

During March 2017, the Company granted to a non-employee options to purchase 521,065 of the Company’s common stock for an exercise price of $0.0001. The options granted were fully vested on the date of the grant and exercisable into the Company’s common stock at a 1:1 ratio for 5 years from the date of the grant.

 

The following assumptions were applied in determining the options’ fair value on their grant date:

 

Risk-free interest rate			1.54	%
Expected shares price volatility			70	%
Expected option term (years)			2-5
Dividend yield			-

 

A summary of the stock option activity related to non-employees, for the nine months ended September 30, 2018:

 

		Number of Options				Weighted Average Exercise Price
						U.S Dollar
Options outstanding at December 31, 2017			621,065				0.2416
Granted			603,135				0.2800
Options outstanding at September 30, 2018			1,224,200				0.2605
Options exercisable at September 30, 2018			621,065				0.2416

 

Stock-based compensation expenses in the amount of $27,544 included in the Company’s statements of operations and comprehensive loss for the nine months period ended September 30, 2018 recorded in marketing, general and administrative.

 

NOTE 5: OEM DISTRIBUTION AGREEMENT

 

On June 23, 2017, the Company entered into an OEM agreement (the “OEM Agreement”) with a medical device and wellness applications company based in the United States (the “OEM Distributor”), according to which the OEM Distributor will manufacture, distribute and sell the Company’s Novokid head lice treatment products in the United States, Canada, Brazil, Argentina, Costa Rica and Colombia, all on an exclusive basis, pursuant to and in accordance with the terms and conditions set forth in the OEM Agreement, including minimum royalties commitments. The OEM Distributor will be solely responsible for obtaining and maintaining the approval from the US Food and Drug Administration (the “FDA”) and shall bear all costs related to such approval. The Company, through its OEM Distributor, has been communicating with the FDA regarding Novokid’s designation as a medical device. An Application to the FDA Office of Combination (OCP division) is under preparation.

 

As of the date of these financial statements, an FDA approval was not obtained, hence, the Company did not generate any revenues from the OEM agreement.

 

 

As part of the OEM Agreement, the OEM Distributor paid a royalty advance of $10,000 and also an amount of $140,000 which is held in an escrow account, until the Company completes certain milestones, as described in the OEM Agreement. As of September 30, 2018, the milestones have not been achieved.

 

Also, as part of the OEM Agreement, the Company granted the OEM Distributor an option to purchase up to 9.09% of the Company’s common stock for a total consideration of up to $900,000,exercisable until January 15, 2018.

 

The fair value of the option as of June 23, 2017 (initial recognition) amounted to $432,518.The key assumptions used in the options’ valuation was as follows:

 

Risk-free interest rate			1.14	%
Expected shares price volatility			70	%
Expected option term (years)			0.56
Dividend yield			-

 

The fair value of the option as of December 31, 2017 amounted to $132,470.The key assumptions used in the options’ valuation was as follows:

 

Risk-free interest rate			1.28	%
Expected shares price volatility			70	%
Expected option term (years)			0.04
Dividend yield			-

 

The option expired on January 15, 2018.

 

NOTE 6: INCOME TAXES

 

a. Basis of taxation

 

The Company and its subsidiary are taxed under the domestic tax laws of the jurisdiction of incorporation of each entity (United States and Israel).

 

b. Carryforward Tax Losses

 

Carryforward Tax Losses of the US Company as of September 30, 2018 amounted to approximately $0.4 million. Carryforward Tax Losses of the Israeli subsidiary amounted to approximately $5.1 million. A full valuation allowance was created against these carry forward tax losses since the realization of any future benefit from these net operating losses cannot be sufficiently assured at September 30, 2018.

 

c. Corporate tax rates

 

The regular corporate tax rate in Israel in 2017 is 24% and 23% in 2018.

 

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “TCJA”), which among other reduces the federal corporate tax rate from 35% to 21%, effective January 1, 2018.

 

The Company has no impact of the TCJA on these condensed consolidated financial statements.

 

NOTE 7: LOSS PER SHARE

 

Loss per share is based on the loss that is attributed to the stockholders holding common stock, divided by the weighted average number of common stock in issue during the period.

 

For purposes of the calculation of the diluted loss per share, the Company adjusts the weighted average number of common stock using the treasury stock method assuming conversion of all of the dilutive potential stock. The potential stock are taken into account only if their effect is dilutive (increases loss per share).

 

 

NOTE 8: FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The carrying amount of the Company’s financial instruments, including cash equivalents, current assets, accounts payable and accrued liabilities and notes payables approximate their fair value, due to their short term in nature and their carrying amounts approximates the amounts expected to be received or paid.

 

A hierarchy has been established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The Company accounts for option liability as Level 3 since its inputs are unobservable inputs for the liability.

 

The following table is a reconciliation of the change for the financial liability where fair value measurement is estimated utilizing Level 3 inputs:

 

		2018				2017
		US dollar				US dollar
Fair value as of January 1		$	132,470				-
Change in fair value recognized in statement of operations and comprehensive loss			(132,470	)			276,150
Fair value as of September 30		$	-				276,150

 

NOTE 9: RELATED PARTIES

 

	(a)	On June 28, 2018 the Company entered into a subscription agreement with an investor, pursuant to which the Company will issue 645,995 shares of its common stock at a purchase price of $0.387 for a total consideration of $250,000 and warrants to purchase up to 416,667 stock with an exercise price of $0.60, exercisable until June 28, 2019. In August 2018, the funds were received and the shares of common stock were issued.
	(b)	On August 8, 2018 the Company entered into subscription agreements with several investors who are related parties, pursuant to which the Company issued 904,393 shares of its common stock at a purchase price of $0.387 for a total consideration of $350,000 and warrants to purchase up to 583,334 stock with an exercise price of $0.60, exercisable until August 7, 2019.
	(c)	On July 16, 2018, the Board of Directors of the Company has appointed Mr. Doron Biran as the new Chief Executive Officer of the Company and its wholly-owned subsidiary Novomic. Pursuant to the service agreement (the “Agreement”) signed with Mr, Biran, Mr. Biran will receive a monthly compensation of NIS 52 thousand (approximately $14.3 thousand) plus VAT. In the event of a capital raise exceeding $1,000 thousand Mr. Biran will be entitled to compensation increase to a total of NIS 65 thousand (approximately $17.9 thousand). Furthermore, upon the earlier of either 24 months from the effective date of the Agreement, or a capital raise exceeding $5,000 thousand and listing of the Company on the Nasdaq Stock Market, Mr. Biran shall become an employee of the Company and shall receive a base salary of NIS 60 thousand as well as NIS 5 thousands for automobile expenses (approximately $16.5 thousand) and other customary social benefits.
		Pursuant to the Agreement, Mr. Biran is entitled to options to purchase 870,958 common stock of the Company (the “Options”). The Options shall vest over a period of four years in quarterly increments, commencing on June 11, 2018, subject to continued provision of services by Mr. Biran in accordance with the Agreement. The Options shall accelerate and become fully vested in the event of a merger or acquisition of the Company at an evaluation exceeding $50 million or in the event that the Company’s traded value exceeds $50 million (each, “Acceleration Event” and together “Acceleration Events”), provided that Mr. Biran provided his services to the Company for a period of at least 12 months prior to the Acceleration Event. The exercise price of each Option shall be $0.279, equal to the volume weighted average price of the Company’s common stock during a 30 days’ period prior to the signing of Mr. Biran’s services Agreement. As of the date of the report Options were not granted yet.

 

NOTE 10: SUBSEQUENT EVENT

 

On October 28, 2018, the Company entered into an amendment to the subscription agreement mentioned in note 4e (the “Amendment”). Pursuant to the Amendment, the investor has increased its initial investment by an additional sum of $250,000 to a total investment of $500,000 and is to be issued a total of 1,915,708 shares of common stock at a price per share of $0.261, out of which 645,995 shares of common stock were issued in August 2018. In addition, the investor was issued additional warrants to purchase up to 416,667 shares of common stock with an exercise price of $0.6, exercisable until October 27, 2019. The funds were received in November 2018.

 

 

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

 

FORWARD-LOOKING STATEMENTS

 

The following discussion provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Certain statements that the Company may make from time to time, including all statements contained in this Form 10-Q that are not statements of historical fact, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and the safe harbor provisions set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may be identified by words such as “plans,” “expects,” “believes,” “anticipates,” “estimates,” “projects,” “will,” “should,” and other words of similar meaning used in conjunction with, among other things, discussions of future operations, financial performance, product development and new product launches, market position and expenditures. The Company assumes no obligation to update any forward-looking statements. Additional information concerning factors which could cause differences between forward-looking statements and future actual results is discussed under the heading “Risk Factors” in the Company’s Annual report on Form 10-K as filed with the SEC on April 2, 2018. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand our historical results of operations during the periods presented and our financial condition for the periods ended September 30, 2018 and 2017. This MD&A should be read in conjunction with our consolidated financial statements and the accompanying notes to consolidated financial statements for the years ended December 31, 2017 and 2016.

 

Overview and Recent Developments

 

We are a technology company engaged in the design, development and commercialization of a unique delivery platform utilizing vaporization of various natural compounds for multiple health, beauty and wellness applications. Novomic’s delivery platform is proprietary and patented.

 

Our current product offering includes Novokid® - an innovative home use device which vaporizes a natural, plant-based, pesticides and silicone-free compound that effectively treats head lice and eggs. Following our soft launch of Novokid® in the Netherlands, we expanded our distribution network and launched Novokid in Israel during late May 2018 through Super Pharm, Israel’s largest and leading drugstore chain. The launch was accompanied by a radio and digital brand awareness and marketing campaign and supported by Meditrend, our Israeli distributor, specializing in health and wellness products while representing leading brands.

 

During the following months, we will work to expand our sales points to additional drugstore chains, pharmacies, department stores, HMOs, various online outlets, and the like.

 

 

As we remain focused on increasing our global footprint and expanding our distribution network, we showcased Novokid® and met potential distributors and partners at CPhI Worldwide, a renowned and leading pharma tradeshow held in Madrid during October 2018.

 

We are also working on erecting an automated production line which is expected to ramp up our manufacturing capacity while reducing its costs.

 

In July 2018, our board of directors has appointed Mr. Doron Biran as the new chief executive officer of the Company and its wholly-owned subsidiary Novomic. Mr. Biran replaced Mr. Zvi Yemini, our chairman of the board of directors, who served as our chief executive officer of the Company and its wholly-owned subsidiary Novomic since June 2018. In September 2018, we appointed Mr. Nir Shemesh as the new chief financial officer of the Company and its wholly owned subsidiary Novomic. Mr. Shemesh replaced Tzahi Geld who had served as chief financial officer of the Company since July 2017.

 

As of the date hereof, we have limited operations and revenues from our business operations. There is substantial doubt that we can continue as a going concern and an on-going business for the next twelve months without the success of our business operations which foresees the generation of revenues throughout 2018. Before we enter the U.S. market, we will need to secure approval from the FDA which will take approximately 12-24 months.

 

We project that we will need to raise up to $2,000,000 during the next 12 months in order to successfully implement our business plan, of which there can be no assurance. Failure to obtain this necessary capital at acceptable terms, if at all, when needed, may force us to delay, limit, or terminate our products development efforts and secure regulatory approvals and would adversely impact our planned research and development efforts in connection with the Company’s future products, which may make it more difficult for us to attain profitability.

 

Our Treatment Solutions

 

Novokid – Natural, Plant-based and Effective Lice Treatment

 

Parents and children exposed to head lice are now forced to use standard over-the-counter, or OTC, treatments that are toxic, often ineffective, time consuming and expensive. According to the Journal of Medical Entomology, 98% of lice have developed resistance to existing treatments in the US and they have now referred to as “super-lice”. Most current treatments contain pesticides, alcohol or silicone, which are all associated with a wide variety of hazardous side effects.

 

Novokid is a non-pesticide, natural, plant-based and eco-friendly solution that eliminates lice and super lice by a 10 minute dry treatment. This compares with current treatments that required 20-40 minutes of shampooing and daily combing. Our treatment is fast, dry, clean, and easily administered at home or on the go. Novokid can also be used as a maintenance and preventative treatment if used regularly.

 

Shine – Natural Haircare rejuvenation

 

Shine uses cold vaporization and a proprietary formulation to clean, treat and improve the appearance of the hair and scalp. In addition to removing the residue of products, the treatments will balance the hair’s pH levels, add body and shine, define curls, and strengthen and protect hair from further damage. Like our solution for lice, users simply put a Shine capsule in the compressor, place the attached cap on their head and sit for a 10-minute treatment. There is no need to rinse or shampoo following the treatment.

 

The global hair care market is estimated to be in excess of $80 billion per annum and we are looking to establish a presence in the home treatment niche. To that end, we are in the process of expanding the Shine treatment product line to include formulations for the needs of specific hair types, such as dry, curly, colored, and over-processed hair.

 

 

Recent Developments and Plans

 

Our current and future products are all based on the Platform which was developed over a period of seven years. During the past 18 months, we have achieved the following:

 

	●	Performed extensive market research for the lice treatment/prevention market;
	●	Completed product development of Novokid, which included finalization of commercial design of vaporizer, capsules and head cap, optimizing the product efficiency, negotiating and finalizing the product supply chain across various suppliers;
	●	Received the Israeli Ministry of health approval, or AMAR, to market our Novokid head lice treatment products in Israel;
	●	Attained ISO 9001 certification;
	●	Obtained CE approval for Novokid, classified as a Class I medical device;
	●	Obtained recommendations from leading senior pediatrics;
	●	Opened Company headquarters offices in Israel’s Rosh Ha’ayin Industrial Park;
	●	Entered into an Original Equipment Manufacturer, or OEM, Agreement, which we refer to as the OEM Agreement, according to which the OEM distributor will manufacture, distribute and sell the Company’s Novokid head lice treatment products, in the United States, Canada, Brazil, Argentina, Costa Rica and Colombia, all on an exclusive basis;
	●	Entered into a distribution agreement with an exclusive distributor of our Novokid product line in the Netherlands;
	●	Entered into a distribution agreement with an exclusive distributor of our Novokid product line in Israel;
	●	Contracted and set up production facilities in China and Israel; and
	●	Showcased Novokid® in CPhI Madrid, the world’s leading pharma tradeshow, held in Madrid, Spain, during October 2018.

 

During the next 12-18 months, we plan to focus our efforts on the following:

 

	●	Showcasing Novokid® and Shine and meet potential distributors and partners in multiple tradeshows around the world;
	●	Finalizing additional distribution, OEM and JV agreements with well-known distributes and manufacturers, in Israel and throughout the world;
	●	Erecting automated production and assembly lines;
	●	Reduction of manufacturing costs;
	●	Finalizing the development and commercialization of Shine, the Company’s hair treatment devices exploiting our proprietary vapor based delivery platform;
	●	Obtain the approval of the FDA for Novokid, by and through our OEM distributor;
	●	Obtain CE and FDA approvals for Shine;
	●	Complete preparations for mass production by launching an automated capsule production line;
	●	Presenting the platform and its application in leading conferences around the globe; and
	●	Developing our dermatology and pests control applications, based on our Platform.

 

 

We may be required to obtain additional regulatory approvals for our head lice treatment platform and any future products. If unable to receive regulatory approval or commercialize our product candidates, our business will be adversely affected. CE approval is required for the marketing, distributing and sale of our products in the EU, whereas FDA approval is required for such marketing, distributing and sale in the United States. In the event that our products are to be sold in certain territories requiring additional regulatory approvals, such approvals will need to be obtained by us or by our distributors.

 

Sales and Marketing

 

While the vaporizer for both Novokid and Shine is designated to be a one-time purchase, the head cap and the capsules, will be sold separately based on the razor/razor-blade business model. Based on our estimates, which we believe are both reasonable and conservative, our target customers are expected to purchase between 12-16 capsule units per year. Therefore, we estimate that the majority of our revenues will be generated in the future based on capsules sales for both Novokid and Shine products.

 

The Company plans to focus its initial sales and marketing efforts on the European Union where CE approval was obtained in Q3 2017, and once FDA approval for the Novokid product is received, also the United States.

 

In order to achieve our intended global footprint and market presence, we plan to base our primary distribution method on the distribution model, in which the distributer will sell our products under our name and branding. In specific instances, we will consider implementing the OEM model, in which the distributer will sell our products under a co-branding arrangement. We believe that these models will reduce our marketing costs to a minimum while starting to generate revenues to support our research and development efforts for utilizing our technological platform to expand our product line.

 

The Company also plans to market and advertise its products through implementing an omni-channel strategy, both through online and retail sales outlets, which we believe will present a huge opportunity for generating sales and market acceptance.

 

Production

 

We manufacture our products through third party manufacturers in Israel and China. The Novokid vaporizer is manufactured in China by a local manufacturer which also handles assembly, integration and quality assurance for the vaporizer and manufactures the cap and the ancillary components of the Novokid Kit. The Novokid treatment capsules are manufactured and filled in Israel by third party contractors. We are working with industry experts to erect an automated production and assembly line, which we expect to increase our manufacturing capacity as well as reduce its costs.

 

Research and Development

 

We incurred approximately $696 thousand on research and development during the past two years. During this period, the Company completed the development of both the Novokid and Shine products, which included finalization of commercial design of the compressor, capsules and head cap and optimizing the products efficiency.

 

We plan to build upon the research and development achievements we had with the completion of the Novokid product for head lice treatment as the basis to expand our variety of treatments and solutions, which will also be based on the developed Platform and the knowledge we gained during the past two years.

 

We are working on a new and proprietary capsule (patent-pending) which will enable a wider variety of future applications for our delivery platform.

 

 

Intellectual Property

 

Due to the importance of patents, we have devoted significant efforts and resources and will continue to invest resources in strengthening our patent portfolio. Below is the list of patents registered by the Company to date:

 

Patents		Each patent’s relevance to the program		Date and status of registration
EP 2 438 830 B1		Treating lice with gaseous compounds in airtight space.		Approved on July 16, 2014
US 9/307820 B2		Treating lice with gaseous compounds in airtight space.		Approved on April 12, 2016
US 15/438842		Treating an object with gaseous compounds in an airtight space.		February 22, 2017 *
US 62661868		A capsule for the vaporization of liquid		April 24, 2018 *

 

* Under approval process

 

We plan to expand our existing patents portfolio to encompass additional applications.

 

Results of Operations during the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017

 

During the Nine months ended September 30, 2018, we generated approximately $189 thousand in revenues, compared to no revenues in the Nine months ended September 30, 2017. Our revenues are derived from the launch of Novokid® in the Netherlands and in Israel.

 

Our research and development expenses during the nine months ended September 30, 2018 were approximately $191 thousand. Our research and development expenses during the nine months ended September 30, 2017, were approximately $263 thousand, comprised of approximately $47 thousand of ongoing research and development expenses, and additional sum of approximately $216 thousand in stock based compensation to the Company’s research and development employees.

 

Our marketing, general and administrative expenses during the nine months ended September 30, 2018, were approximately $1.5 million, comprised of approximately $1.5 million in payroll and service providers’ consultancy, and additional sum of $28 thousand in stock based compensation to our management, consultants and service providers. Our marketing, general and administrative expenses during the nine months ended September 30, 2017 were approximately $2.1 million, comprised of approximately $1 million in payroll and service providers’ consultancy, and an additional sum of approximately $1.1 million in stock based compensation to our management, consultants and service providers.

 

During the nine months ended September 30, 2018, we incurred a net loss of approximately $1.5 million. Excluding a sum of $28 thousand in stock based compensation, we incurred a net loss of approximately $656 thousand during the three month period ended September 30, 2018. During the nine months ended September 30, 2017, we incurred a net loss of approximately $2.5 million. Excluding a sum of approximately $1.2 million in stock based compensation, we incurred a net loss of $383 thousand during the three month period ended September 30, 2017.

 

Results of Operations during the three months ended September 30, 2018 as compared to the three months ended September 30, 2017

 

During the three months ended September 30, 2018, we generated approximately $90 thousand in revenues, compared to no revenues in the three months ended September 30, 2017.Our revenues are derived from the launch of Novokid® in the Netherlands and in Israel.

 

Our research and development expenses during the three months ended September 30, 2018 were approximately $143 thousand. Our research and development expenses during the three months ended September 30, 2017, were approximately $83 thousand, all expenses resulted from ongoing research and development expenses.

 

 

Our marketing, general and administrative expenses during the three months ended September 30, 2018, were approximately $523 thousand, comprised of approximately $514 thousand in payroll and service providers’ consultancy, and additional sum of approximately $9 thousand in stock based compensation to our management, consultants and service providers. Our marketing, general and administrative expenses during the three months ended September 30, 2017 were approximately $399 thousand, all expenses resulted from payroll and service providers’ consultancy.

 

During the three months ended September 30, 2018, we incurred a net loss of approximately $656 thousand. Excluding a sum of approximately $9 thousand in stock based compensation, we incurred a net loss of approximately $647 thousand during the three month period ended September 30, 2018. During the three months ended September 30, 2017, we incurred a net loss of $383 thousand.

 

Liquidity and Capital Resources

 

Our balance sheet as of September 30, 2018, reflects total assets of approximately $1.1 million, consisting mainly of cash and cash equivalents in the amount of approximately $384 thousand, accounts receivables of approximately $174 thousand, inventory of approximately $156 thousand and other receivables of approximately $244 thousand. As of December 31, 2017, our balance sheet reflects total assets of approximately $862 thousand, consisting mainly of cash and cash equivalents in the amount of approximately $590 thousand, other receivables of approximately $106 thousand, inventory of approximately $41 thousand and property and equipment, net of approximately $96 thousand.

 

As of September 30, 2018, we had total current liabilities of approximately $444 thousand, consisting mainly of accounts payable and accrued expenses of approximately $252 thousand, refund liability of approximately $107 thousand and note payable of approximately $85 thousand. As of December 31, 2017, we had total current liabilities of approximately $328 thousand, consisting mainly of accounts payable and accrued expenses of approximately $106 thousand, note payable of approximately $89 thousand and option liability of approximately $132 thousand.

 

As of September 30, 2018, we had positive working capital of approximately $514 thousand, compared to positive working capital of approximately $412 thousand at December 31, 2017. The working capital has been sufficient to sustain our operations to date, although there is substantial doubt about our ability to continue as going concern. Our total liabilities as of September 30, 2018 were approximately $473 thousand, compared to approximately $351 thousand at December 31, 2017.

 

During the nine months ended September 30, 2018, we used approximately $1.8 million of cash in our operating activities. This resulted mainly from an overall net loss of approximately $1.5 million, an increase in other receivables of approximately $310 thousand, an increase in inventory of approximately $121 thousand and fair value option income of approximately $132 thousand, offset by an increase in accounts payable and accrued expenses of approximately $151 thousand.

 

During the nine months ended September 30, 2018, our financing activities provided us with approximately $1.6 million, as compared to approximately $878 thousand in the same period in the prior year, through the issuance of common stock and proceeds from stock to be issued.

 

While management believes the Company will be successful in its current and planned operating activities, there can be no assurance that the Company will be successful in the achievement of sales of its products that will generate sufficient revenues to earn a profit and sustain the operations of the Company. Our ability to create sufficient working capital to sustain us over the next twelve-month period and beyond, is dependent on our ability to raise additional funds through the issuance of equity or debt instrument. There can be no assurance that sufficient capital will be available to us. We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources.

 

 

Going Concern Consideration

 

As result of the above, there is substantial doubt about our ability to continue as a going concern. Our financial statements contain additional note disclosures with respect to this matter, but no accounting adjustments that relate to this matter.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Critical Accounting Policies

 

There was no change to our critical accounting policies since the year ended December 31, 2017, except for the adoption of the new revenue accounting standard and the improvements to Non-Employee Share-Based Payment Accounting.

 

a.

Effective January 1, 2018, the Company adopted the new accounting standard related to the recognition of revenue in contracts with customers. Since the Company had no revenues prior to January 1, 2018 the new standard had no impact to revenues and results of operations for prior periods.

 

The Company derives revenues from sales of its products directly or indirectly through its distributors.

 

The Company determines revenue recognition through the following steps:

 

	●	Identification of the contract, or contracts, with a customer.
	●	Identification of the performance obligations in the contract.
	●	Determination of the transaction price.
	●	Allocation of the transaction price to the performance obligations in the contract.
	●	Recognition of revenue when, or as, the Company satisfies a performance obligation.

 

Revenue is measured as the amount of consideration expected to receive in exchange for transferring goods to the end customer or to the distributor.

 

The Company reports revenue net of any revenue based taxes assessed by governmental authorities that are imposed on and concurrent with specific revenue-producing transactions.

 

Revenue from products are recognized when the customer or the distributor has obtained control of the goods (for the Company’s current arrangements, this is at the point in time) based on the shipping terms. The Company recognizes revenue on sales to distributors upon shipment of the goods, when the distributor has economic substance apart from the Company and the distributor is considered the principal for the transaction with the end-user client.

 

b.

Effective July 2018, the Company early adopted the new improvement to Nonemployee Share-Based Payment Accounting with no impact on its consolidated financial statements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not Applicable.

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures.

 

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer (CEO) (who is the Company’s principal executive officer) and the Company’s Chief Financial Officer (CFO) (who is the Company’s principal financial officer) to allow for timely decisions regarding required disclosure. In designing and evaluating the Company’s disclosure controls and procedures, the Company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and the Company’s management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on our evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2018, our Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.

 

Management’s Remediation Plan

 

Since the time our material weaknesses were identified in early 2017 related to (i) inadequate segregation of duties consistent with control objectives; and (ii) ineffective controls over period-end financial reporting and disclosure processes we initiated the following procedures during the year ended December 31, 2017:

 

	(i)	Due to inadequate finance resources as of the end of Q1 2017, we hired during the second quarter of 2017 a new outsourced finance team and replaced our Chief Financial Officer.
	(ii)	Began implementing processes and controls to properly perform an effective period-end financial reporting process.

 

We have started to implement the following additional steps: (i) Appoint additional qualified personnel (such as a new Chief Executive Officer as of July 2018 and a new internal Chief Financial Officer as of September 2018) to address inadequate segregation of duties and ineffective controls over period-end financial reporting as well as continue implementing modifications to our operating procedures and financial controls to address such inadequacies; and (ii) Adopt sufficient policies and procedures for period-end financial reporting.

 

The remediation efforts, which are not completed as of September 30, 2018, set out is largely dependent upon our Company securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

 

Changes in Internal Control over Financial Reporting

 

During the three months ended September 30, 2018, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We know of no material, active or pending legal proceedings against our Company, nor of any proceedings that a governmental authority is contemplating against us. We know of no material proceedings to which any of our directors, officers, affiliates, owner of record or beneficially of more than 5 percent of our voting securities or security holders is an adverse party or has a material interest adverse to our interest.

 

ITEM 1A. RISK FACTORS

 

Not applicable.

 

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

 

On June 18, 2018, the Company entered into a subscription agreement with an investor, pursuant to which the Company issued 108,527 shares of common stock at a purchase price of $0.387 and warrants to purchase up to 70,000 shares of common stock with an exercise price of $0.60, exercisable until June 17, 2019, for a total consideration of $42,000.

 

On June 28, 2018, the Company entered into a subscription agreement with an investor, pursuant to which the Company issued 645,995 shares of its common stock at a purchase price of $0.387 and warrants to purchase up to 416,667 stock with an exercise price of $0.6, exercisable until June 27, 2019, for a total consideration of $250,000.

 

On August 8, 2018, the Company entered into subscription agreements with several investors, pursuant to which the Company issued 1,033,592 shares of its common stock at a purchase price of $0.387 and warrants to purchase up to 666,667 stock with an exercise price of $0.60, exercisable until August 7, 2019 for a total consideration of $400,000.

 

On August 22, 2018 the Company entered into subscription agreements with several investors, pursuant to which the Company will issue 155,038 shares of its common stock at a purchase price of $0.387 and warrants to purchase up to 100,000 stock with an exercise price of $0.60, exercisable until August 21, 2019 for a total consideration of $60,000.

 

On October 28, 2018, the Company entered into an amendment to a subscription agreement entered between the Company and an investor on August 8, 2018 (the “Amendment”). Pursuant to the Amendment, the investor has increased its initial investment by an additional sum of $250,000 to a total investment of $500,000 and was issued a total of 1,915,708 shares of common stock at a price per share of $0.261, out of which 645,995 shares of common stock were issued in August 2018. In addition, the investor was issued additional warrants to purchase up to 416,667 shares of common stock with an exercise price of $0.6, exercisable until October 27, 2019.

 

The shares issued pursuant to the aforementioned subscription agreements have been offered pursuant to Regulation D or Regulation S under the United States Securities Act of 1933, as amended, or the Securities Act, and therefore will be restricted securities and may be offered and resold only in transactions that are exempt from registration under the Securities Act and other applicable securities laws.

 

With respect to grants of share options, we claimed exemption from registration under the Securities Act for these issuances under Section 4(a)(2), Regulation S promulgated under the Securities Act or Rule 701 of the Securities Act as transactions pursuant to written compensatory plans or pursuant to a written contract relating to compensation.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

 

ITEM 4. MINE SAFETY DISCLOSURE.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

Not applicable.

 

ITEM 6. EXHIBITS

 

(a) The following documents are filed as exhibits to this report on Form 10-Q or incorporated by reference herein. Any document incorporated by reference is identified by a parenthetical reference to the SEC filing that included such document.

 

Exhibit No.		Description
10.1		Form of Service Agreement by and between the Company and Mr. Doron Biran (incorporated herein by reference to Exhibit 10.1 on Form 8-K filed with the SEC on July 20, 2018)
10.2		Form of Employment Agreement by and between the Company and Mr. Nir Shemesh
10.3		Subscription Agreement between the Registrant and Traistman Radziejewski Fundacja Ltd., dated August 8, 2018
10.4		Subscription Agreement between the Registrant and Y.M.Y Industry Ltd., dated August 8, 2018
10.5		Amended Subscription Agreement between the Registrant and Y.M.Y Industry Ltd., dated October 28, 2018
31.1		Section 302 Certification of the Sarbanes-Oxley Act of 2002 of Doron Biran
31.2		Section 302 Certification of the Sarbanes-Oxley Act of 2002 of Nir Shemesh
32.1		Section 906 of the Sarbanes-Oxley Act of 2002 of Doron Biran
32.2		Section 906 of the Sarbanes-Oxley Act of 2002 of Nir Shemesh
101		Financial information from TechCare Corp’s Quarterly Report on Form 10-Q for the nine and three months ended September 30, 2018 formatted in XBRL (eXtensible Business Reporting Language).

 

* English Transition of Hebrew original document.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned.

 

	TechCare Corp.
	By:	/s/ Doron Biran
		Doron Biran
		Chief Executive Officer
		(Principal Executive Officer)
	Date:	November 13, 2018
	By:	/s/ Nir Shemesh
		Nir Shemesh
		Chief Financial Officer
		(Principal Financial and Principal Accounting Officer)
	Date:	November 13, 2018