##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED March 31, 2009
 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: 1-33428
 
 Topspin Medical, Inc.
 (Exact name of registrant as specified in its charter)
 
 DELAWARE
    
    51-0394637(State or other jurisdiction of incorporation or organization)
    
    (IRS Employer Identification No.)36 Rothschild Blvd.Tel Aviv, 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)
 þ o
 o Yes o No
   Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 þ o




---



##### 



TOPSPIN MEDICAL, INC.
 FORM 10-Q
 FOR THE QUARTER ENDED MARCH 31, 2009
 TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATION
    
    
    2Item 1. Financial Statements
    
    
    2Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 4T. Controls and Procedures
    
    
    26PART II. OTHER INFORMATION
    
    
    27Item 1. Legal ProceedingsItem 1A. Risk FactorsItem 4. Submission of Matters to a Vote of Security HoldersItem 6. Exhibits
    
    
    27SIGNATURES
    
    
    28Exhibit 10.1Exhibit 10.2Exhibit 10.3Exhibit 10.4Exhibit 31.1Exhibit 31.2Exhibit 32.1
   -i-




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FORWARD-LOOKING STATEMENTS




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##### Table of Contents



TOPSPIN MEDICAL, INC.
(A Development Stage Company)
 CONSOLIDATED FINANCIAL STATEMENTS
 AS OF MARCH 31, 2009
 (Unaudited)
 INDEX
 PageConsolidated Balance Sheets
    
    
    2-3Consolidated Statements of Operations
    
    
    4Statements of Changes in Shareholders Deficiency
    
    
    5-8Consolidated Statements of Cash Flows
    
    
    9-10Notes to Consolidated Financial Statements
    
    
    11-21




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 Topspin Medical, Inc.
(A Development Stage Company)
 
 CONSOLIDATED BALANCE SHEETS
NIS in thousands
 March 31,
    
    
    December 31,2009
    
    
    2008UnauditedASSETSCURRENT ASSETS:Cash and cash equivalents
    
    
    3,234
    
    
    
    3,385Other receivables and prepaid expenses
    
    
    230
    
    
    
    385Restricted deposits
    
    
    183
    
    
    
    562Prepaid lease payments
    
    
    37
    
    
    
    493,684
    
    
    
    4,381PROPERTY AND EQUIPMENT, NET
    
    
    8
    
    
    
    103,692
    
    
    
    4,391
  2




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 CONSOLIDATED BALANCE SHEETS
NIS in thousands
 March 31,
    
    
    December 31,2009
    
    
    2008UnauditedLIABILITIES AND SHAREHOLDERS EQUITY
(DEFICIENCY)CURRENT LIABILITIES:Trade payables
    
    
    143
    
    
    
    455Other accounts payables and accrued expenses
    
    
    2,587
    
    
    
    2,821Liability in respect of warrants (series 2)
    
    
    250
    
    
    
    250Liabilities in respect of options to employees
and consultants  short term
    
    
    1
    
    
    
    10Accrued severance pay
    
    
    74
    
    
    
    2703,055
    
    
    
    3,806LONG  TERM LIABILITIESTax provision
    
    
    1,480
    
    
    
    1,344Liabilities in respect of options to employees and
consultants  long term
    
    
    36
    
    
    
    381,516
    
    
    
    1,382SHAREHOLDERS DEFICIENCY:Common shares of $0.001 par value:Authorized 1,000,000,000 shares as of March
31, 2009 and December 31, 2008; Issued and
outstanding 756,870,882 and 636,870,882
shares as of March 31, 2009 and December 31,
2008, respectively
    
    
    2,956
    
    
    
    2,457Additional paid in capital
    
    
    177,588
    
    
    
    177,187Accumulated deficit during the development stage
    
    
    (181,423
    )
    
    
    (180,441
    )(879
    )
    
    
    (797
    )3,692
    
    
    
    4,391
  3




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 
 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
NIS in thousands
 Period frominception(September 20,Three months ended
    
    
    1999) throughMarch 31,
    
    
    March 31,2009
    
    
    2008
    
    
    2009Research and development expenses*
    
    
    
    
    
    
    5,094
    
    
    
    135,023Less  participation by the Office of
the Chief Scientist
    
    
    
    
    
    
    
    
    
    
    (17,980
    )Research and development expenses, net
    
    
    
    
    
    
    5,094
    
    
    
    117,043Selling and marketing expenses
    
    
    
    
    
    
    374
    
    
    
    3,662General and administrative expenses
    
    
    751
    
    
    
    1,493
    
    
    
    56,950Operating loss
    
    
    (751
    )
    
    
    (6,961
    )
    
    
    (177,655
    )Financing income (expenses) , net
    
    
    (231
    )
    
    
    7,228
    
    
    
    5,755Income (loss) before cumulative
effect of a change in accounting
principle
    
    
    (982
    )
    
    
    267
    
    
    
    (171,900
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    (1,344
    )Net income (loss)
    
    
    (982
    )
    
    
    267
    
    
    
    (173,244
    )Basic and diluted net income (loss)
per Ordinary share
    
    
    0.002
    
    
    
    0.001Weighted average number of Ordinary
shares outstanding used in basic and
diluted net loss per share
calculation
    
    
    636,870,882
    
    
    
    189,088,092
 *
    
    Including deduction of experimental sales in the amount of approximately 90,000 NIS for the
three months ended March 31, 2008.  4




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 
 STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIENCY)
NIS in thousands
 Non-
    
    
    Deficitrecourse
    
    
    accumulatedNumber of outstanding shares
    
    
    Share capital
    
    
    Additional
    
    
    Receivables
    
    
    receivables
    
    
    during the
    
    
    TotalPreferred
    
    
    
    
    
    
    Preferred
    
    
    paid-in
    
    
    for shares
    
    
    for shares
    
    
    development
    
    
    shareholdersCommon
    
    
    A
    
    
    B
    
    
    C
    
    
    Common
    
    
    A
    
    
    B
    
    
    C
    
    
    capital
    
    
    issued
    
    
    issued
    
    
    stage
    
    
    equityBalance as of September 20, 1999
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common shares
    
    
    625,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Issuance of Preferred A shares
net of issuance expenses of NIS
20
    
    
    
    
    
    
    375,001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    3,134
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,136Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (380
    )
    
    
    (380
    )Balance as of December 31, 1999
    
    
    625,000
    
    
    
    375,001
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    3,134
    
    
    
    
    
    
    
    
    
    
    
    (380
    )
    
    
    2,759Issuance of Preferred B shares
net of issuance expenses of NIS
61
    
    
    
    
    
    
    
    
    
    
    208,329
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    10,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,184Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,880
    )
    
    
    (3,880
    )Balance as of December 31, 2000
    
    
    625,000
    
    
    
    375,001
    
    
    
    208,329
    
    
    
    
    
    
    
    3
    
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    13,317
    
    
    
    
    
    
    
    
    
    
    
    (4,260
    )
    
    
    9,063Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,254
    )
    
    
    (7,254
    )Balance as of December 31, 2001
    
    
    625,000
    
    
    
    375,001
    
    
    
    208,329
    
    
    
    
    
    
    
    3
    
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    13,317
    
    
    
    
    
    
    
    
    
    
    
    (11,514
    )
    
    
    1,809Issuance of Preferred C shares
net of issuance expenses of NIS 2,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,386,858
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    410
    
    
    
    47,578
    
    
    
    (630
    )
    
    
    
    
    
    
    
    
    
    
    47,358Beneficial conversion feature
related to Preferred A and
Preferred B shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,320
    
    
    
    
    
    
    
    
    
    
    
    (13,320
    )
    
    
    Issuance of Common shares to
the Chief Executive Officer
    
    
    6,957,841
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    413
    
    
    
    
    
    
    
    (469
    )
    
    
    
    
    
    
    Deferred stock based
compensation related to
issuance of shares to the Chief
Executive Officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,822
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,822Stock based compensation
related to options granted to
consultants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,286
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,286Accrued interest and exchange
rate differences on a loan to
the Chief Executive Officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,414
    )
    
    
    (15,414
    )Balance as of December 31, 2002
    
    
    7,582,841
    
    
    
    375,001
    
    
    
    208,329
    
    
    
    87,386,858
    
    
    
    59
    
    
    
    2
    
    
    
    1
    
    
    
    410
    
    
    
    78,740
    
    
    
    (630
    )
    
    
    (473
    )
    
    
    (40,248
    )
    
    
    37,861
  5




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIENCY)
NIS in thousands
 Non-
    
    
    DeficitRecourse
    
    
    accumulatedNumber of outstanding shares
    
    
    Share capital
    
    
    Additional
    
    
    Receivables
    
    
    receivables
    
    
    during the
    
    
    TotalPreferred
    
    
    
    
    
    
    Preferred
    
    
    paid-in
    
    
    for shares
    
    
    for shares
    
    
    development
    
    
    shareholdersCommon
    
    
    A
    
    
    B
    
    
    C
    
    
    Common
    
    
    A
    
    
    B
    
    
    C
    
    
    capital
    
    
    issued
    
    
    issued
    
    
    stage
    
    
    equityBalance as of December 31, 2002
    
    
    7,582,841
    
    
    
    375,001
    
    
    
    208,329
    
    
    
    87,386,858
    
    
    
    59
    
    
    
    2
    
    
    
    1
    
    
    
    410
    
    
    
    78,740
    
    
    
    (630
    )
    
    
    (473
    )
    
    
    (40,248
    )
    
    
    37,861Receivables in respect of
Preferred C shares issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,828
    
    
    
    630
    
    
    
    
    
    
    
    
    
    
    
    26,458Amortization of deferred stock
based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    736
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    736Deferred stock based
compensation related to
issuance of shares to the
Chief Executive Officer
    
    
    3,077,506
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,778
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,778Stock based compensation
related to options granted to
consultants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19Accrued interest and exchange
rate differences on a loan to
the Chief Executive Officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,693
    )
    
    
    (27,693
    )Balance as of December 31, 2003
    
    
    10,660,347
    
    
    
    375,001
    
    
    
    208,329
    
    
    
    87,386,858
    
    
    
    59
    
    
    
    2
    
    
    
    1
    
    
    
    410
    
    
    
    107,087
    
    
    
    
    
    
    
    (459
    )
    
    
    (67,941
    )
    
    
    39,159Exercise of options
    
    
    418,746
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64Amortization of deferred stock
based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    677
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    677Deferred stock based
compensation related to
issuance of shares to the
Chief Executive Officer
    
    
    630,793
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    615
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    615Stock based compensation
related to options granted to
consultants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    261
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    261Accrued interest and exchange
rate differences on a loan to
the Chief Executive Officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,433
    )
    
    
    (20,433
    )Balance as of December 31, 2004
    
    
    11,709,886
    
    
    
    375,001
    
    
    
    208,329
    
    
    
    87,386,858
    
    
    
    61
    
    
    
    2
    
    
    
    1
    
    
    
    410
    
    
    
    108,718
    
    
    
    
    
    
    
    (475
    )
    
    
    (88,374
    )
    
    
    20,343
  6




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIENCY)
NIS in thousands
 Non-
    
    
    Deficitrecourse
    
    
    accumulated
    
    
    TotalNumber of outstanding shares
    
    
    Share capital
    
    
    Additional
    
    
    Receivables
    
    
    during the
    
    
    shareholdersPreferred
    
    
    
    
    
    
    Preferred
    
    
    paid-in
    
    
    for shares
    
    
    development
    
    
    equityCommon
    
    
    A
    
    
    B
    
    
    C
    
    
    Common
    
    
    A
    
    
    B
    
    
    C
    
    
    capital
    
    
    issued
    
    
    stage
    
    
    (deficiency)Balance as of December 31, 2004
    
    
    11,709,886
    
    
    
    375,001
    
    
    
    208,329
    
    
    
    87,386,858
    
    
    
    61
    
    
    
    2
    
    
    
    1
    
    
    
    410
    
    
    
    108,718
    
    
    
    (475
    )
    
    
    (88,374
    )
    
    
    20,343Conversion of Preferred A, B and C
into Common shares
    
    
    104,378,107
    
    
    
    (375,001
    )
    
    
    (208,329
    )
    
    
    (87,386,858
    )
    
    
    477
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    (410
    )
    
    
    (64
    )
    
    
    
    
    
    
    
    
    
    
    Exercise of options
    
    
    3,553,507
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *)   
    
    
    
    
    
    
    
    
    
    
    
    16Issuance of Common shares net of
issuance expenses of NIS 3,292
    
    
    38,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    171
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,920
    
    
    
    
    
    
    
    
    
    
    
    29,091Issuance of options net of issuance
expenses of NIS 378
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,339
    
    
    
    
    
    
    
    
    
    
    
    3,339Deferred stock based compensation
related to issuance of shares to
the Chief Executive Officer
    
    
    630,793
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (627
    )
    
    
    
    
    
    
    
    
    
    
    (627
    )Grant to the Chief Executive Officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74
    
    
    
    
    
    
    
    74Amortization of deferred stock
based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    486
    
    
    
    
    
    
    
    
    
    
    
    486Stock based compensation related to
options granted to consultants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    66Accrued interest and exchange rate
differences on a loan to the Chief
Executive Officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    (58
    )
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,325
    )
    
    
    (14,325
    )Balance as of December 31, 2005
    
    
    158,272,293
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    725
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    140,896
    
    
    
    (459
    )
    
    
    (102,699
    )
    
    
    38,463Change of deferred stock
compensation into liability as a
result from accounting change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,768
    )
    
    
    
    
    
    
    
    
    
    
    (6,768
    )Exercise of options
    
    
    634,374
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    41Classification of liability into
equity in respect of exercise
options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    451
    
    
    
    
    
    
    
    
    
    
    
    451Grant to the Chief Executive Officer
    
    
    630,794
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    208
    
    
    
    
    
    
    
    208Accrued interest and exchange rate
differences on a loan to the Chief
Executive Officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    14
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,803
    )
    
    
    (38,803
    )Balance as of December 31, 2006
    
    
    159,537,461
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    728
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    134,603
    
    
    
    (237
    )
    
    
    (141,502
    )
    
    
    (6,408
    )
 *)
    
    Less than NIS 1.  7




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIENCY)
NIS in thousands
 Non-
    
    
    DeficitNumber of
    
    
    
    
    
    
    
    
    
    
    recourse
    
    
    accumulated
    
    
    Totaloutstanding
    
    
    Share
    
    
    Additional
    
    
    receivables
    
    
    during the
    
    
    shareholdersshares
    
    
    capital
    
    
    paid-in
    
    
    for shares
    
    
    development
    
    
    equityCommon
    
    
    capital
    
    
    issued
    
    
    stage
    
    
    (deficiency)Balance as of December 31, 2006
    
    
    159,537,461
    
    
    
    728
    
    
    
    134,603
    
    
    
    (237
    )
    
    
    (141,502
    )
    
    
    (6,408
    )Exercise of options
    
    
    2,270,935
    
    
    
    9
    
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    75Classification of liability into equity in respect of exercise of options
    
    
    
    
    
    
    
    
    
    
    1,665
    
    
    
    
    
    
    
    
    
    
    
    1,665Repayment of non-recourse loan and classification of liability into equity
    
    
    
    
    
    
    
    
    
    
    9,220
    
    
    
    237
    
    
    
    
    
    
    
    9,457Issuance of Common shares and warrants (series 3), net of issuance
expenses of NIS 1,013
    
    
    24,398,402
    
    
    
    100
    
    
    
    18,236
    
    
    
    
    
    
    
    
    
    
    
    18,336Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,168
    )
    
    
    (24,168
    )Balance as of December 31, 2007
    
    
    186,206,798
    
    
    
    837
    
    
    
    163,790
    
    
    
    
    
    
    
    (165,670
    )
    
    
    (1,043
    )Cumulative effect of the adoption of SFAS 159
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,379
    
    
    
    5,379Exercise of options
    
    
    641,562
    
    
    
    2
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    22Exercise of warrants (series 1)
    
    
    22,522
    
    
    
    (*
    )
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    20Classification of liability into equity in respect of exercise of options
    
    
    
    
    
    
    
    
    
    
    125
    
    
    
    
    
    
    
    
    
    
    
    125Settlement with convertible bonds holders
    
    
    450,000,000
    
    
    
    1,618
    
    
    
    13,232
    
    
    
    
    
    
    
    
    
    
    
    14,850Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,150
    )
    
    
    (20,150
    )Balance as of December 31, 2008
    
    
    636,870,882
    
    
    
    2,457
    
    
    
    177,187
    
    
    
    
    
    
    
    (180,441
    )
    
    
    (797
    )Issuance of Common shares and warrants (series 3)
    
    
    120,000,000
    
    
    
    499
    
    
    
    401
    
    
    
    
    
    
    
    
    
    
    
    900Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (982
    )
    
    
    (982
    )Balance as of March 31, 2009
    
    
    756,870,882
    
    
    
    2,956
    
    
    
    177,588
    
    
    
    
    
    
    
    (181,423
    )
    
    
    (879
    )
  8




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
NIS in thousands, except for share and per share data
 Period frominception(September 20,Three months ended
    
    
    1999) throughMarch 31,
    
    
    March 31,2009
    
    
    2008
    
    
    2009Cash flows from operating activities:Net income (loss)
    
    
    (982
    )
    
    
    267
    
    
    
    (168,103
    )Adjustments to reconcile net loss to net cash used
in operating activities (a)
    
    
    (448
    )
    
    
    (8,117
    )
    
    
    10,832Net cash used in operating activities:
    
    
    (1,430
    )
    
    
    (7,850
    )
    
    
    157,271Cash flows from investing activities:Change in restricted deposit, net
    
    
    379
    
    
    
    
    
    
    
    (127
    )Restricted deposit in respect of settlement agreement
    
    
    
    
    
    
    
    
    
    
    1,298Restricted cash in respect of issuance of convertible
bonds
    
    
    
    
    
    
    (211
    )
    
    
    Purchase of fixed assets
    
    
    
    
    
    
    
    
    
    
    (9,068
    )Proceeds from sale of fixed assets
    
    
    
    
    
    
    
    
    
    
    467Loan to the Chief Executive Officer
    
    
    
    
    
    
    
    
    
    
    (231
    )Net cash provided by (used in) investing activities:
    
    
    379
    
    
    
    (211
    )
    
    
    (7,661
    )Cash flows from financing activities:Exercise of stock options and warrants (series 1)
    
    
    
    
    
    
    42
    
    
    
    238Proceeds from issuance of Common shares and
warrants (series 3), net of issuance expenses
    
    
    900
    
    
    
    
    
    
    
    138,805Settlement with convertible bonds holders
    
    
    
    
    
    
    
    
    
    
    (12,513
    )Proceeds from issuance of convertible bonds and
warrants series 2, net of issuance expenses
    
    
    
    
    
    
    
    
    
    
    41,636Net cash provided by financing activities:
    
    
    900
    
    
    
    42
    
    
    
    168,166Increase (decrease) in cash and cash equivalents
    
    
    (151
    )
    
    
    (8,019
    )
    
    
    3,234Cash and cash equivalents at the beginning of the period
    
    
    3,385
    
    
    
    40,978
    
    
    
    Cash and cash equivalents at the end of the period
    
    
    3,234
    
    
    
    32,959
    
    
    
    3,234
  9




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NIS in thousands, except for share and per share data
 Period frominception(September 20,Three months ended
    
    
    1999) throughMarch 31,
    
    
    March 31,2009
    
    
    2008
    
    
    2009(a) Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    2
    
    
    
    399
    
    
    
    7,458Impairment of property and equipment
    
    
    
    
    
    
    
    
    
    
    1,270Capital loss
    
    
    
    
    
    
    
    
    
    
    (31
    )Interest and exchange rate differences on loan to the Chief
Executive Officer
    
    
    
    
    
    
    
    
    
    
    (35
    )Non-cash bonus to the Chief Executive Officer
    
    
    
    
    
    
    
    
    
    
    789Interest on restricted deposits
    
    
    
    
    
    
    (4
    )
    
    
    (1,354
    )Change in fair value of liability in respect of warrants
    
    
    
    
    
    
    (450
    )
    
    
    (7,494
    )Change in fair value of conversion feature
    
    
    
    
    
    
    
    
    
    
    (2,746
    )Change in fair value of convertible bonds
    
    
    
    
    
    
    (7,160
    )
    
    
    (3,786
    )Change in fair value of embedded derivative
    
    
    
    
    
    
    (3
    )
    
    
    (346
    )Amortization of deferred issuance expenses and bonds
discount
    
    
    
    
    
    
    
    
    
    
    6,228Amortization of deferred stock based compensation related
to employees
    
    
    
    
    
    
    
    
    
    
    6,487Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (5,141
    )Change in fair value and amortization of stock options
classified as a liability
    
    
    (11
    )
    
    
    (796
    )
    
    
    4,488Amortization of deferred stock based compensation related
to consultants
    
    
    
    
    
    
    
    
    
    
    1,632Accrued severance pay, net
    
    
    (196
    )
    
    
    (38
    )
    
    
    74Decrease (Increase) in accounts receivable (including
long-term receivables)
    
    
    167
    
    
    
    305
    
    
    
    (267
    )Increase (decrease) in trade payables
    
    
    (312
    )
    
    
    (622
    )
    
    
    39Increase in other accounts payable
    
    
    (98
    )
    
    
    252
    
    
    
    3,567Total adjustments
    
    
    (448
    )
    
    
    (8,117
    )
    
    
    10,832(b) Supplemental disclosure of cash flow activities:Cash paid during the period for:Taxes paid due to non-deductible expenses
    
    
    (*
    )
    
    
    14
    
    
    
    787Interest paid
    
    
    
    
    
    
    
    
    
    
    3,951(c) Supplemental disclosure of non cash flows activities:Accrued issuance expenses
    
    
    
    
    
    
    
    
    
    
    2,868Classification of liabilities into equity
    
    
    
    
    
    
    125
    
    
    
    11,461
 (*)
    
    Less than NIS 1.  10




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NIS in thousands
 NOTE
1: GENERAL
 a.
    
    TopSpin Medical, Inc (the Company) and its subsidiary, TopSpin
Medical (Israel) Ltd. (the Subsidiary or TopSpin) are engaged in research and
development of medical MRI technology.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 registered some of its
securities with the U.S. Securities and Exchange Commission (SEC). The Companys
securities are traded only in Israel in NIS.b.
    
    Since its inception, the Company has devoted substantially most of its
efforts to business planning, research and development, marketing, recruiting
management and technical staff, acquiring assets and raising capital. Accordingly,
the Company is considered to be in the development stage, as defined in Statement
of Financial Accounting Standards No. 7, Accounting and reporting by development
Stage Enterprises (SFAS No. 7).c.
    
    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 181,423 as of March 31, 2009, and it
incurred a net loss of NIS 982 and negative cash flow from operating activities in
the amount of NIS 1,430 for the period ended March 31, 2009.According to the Companys approved budget, which took into account the expected
expenses for operating the Company in its current conditions, the Company believes
that its financial condition will be sufficient for its limited activities for at
least 12 months period from the date of these financial statements. The Companys
liabilities include a tax provision in the amount of approximately NIS 1,480,
which there is no assurance that the Company will be required to pay. Based on its
current financial condition the Company will have to raise additional funds, in
order to redeem its long term liabilities.The Companys management and its professional advisors believe that it is highly
probable that the Company will receive grants from the Office of the Chief
Scientist of the Israeli Ministry of Industry, Trade and Labor (OCS) on behalf of
expenses recorded in the year 2008.
  11




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NIS in thousands
 NOTE
2: SIGNIFICANT ACCOUNTING POLICIES
 a.
    
    The accompanying unaudited interim consolidated financial statements
have been prepared as of March 31, 2009 for the three-month period then ended, in
accordance with United States generally accepted accounting principles relating to
the preparation of financial statements for interim periods. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have been
included. Operating results for the three-month period ended Match 31, 2009 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2009.The significant accounting policies followed in the preparation of
these financial statements are identical to those applied in the preparation of
the latest annual financial statements.b.
    
    Impact of recently issued accounting standards:
 1.
    
    FASB Staff Position FAS 157-4FAS 157-4 Determining Whether a Market Is Not Active and a Transaction Is Not
Distressed,or FSP FAS 157-4; FSP FAS 157-4 provides guidelines for making
fair value measurements more consistent with the principles presented in
SFAS 157. FSP FAS 157-4 provides additional authoritative guidance in
determining whether a market is active or inactive, and whether a transaction
is distressed, is applicable to all assets and liabilities (i.e. financial and
nonfinancial) and will require enhanced disclosures. This standard is
effective for periods ending after June 15, 2009.The Company does not expect
the adoption of FAS 157-4 will have a material impact on its financial
position, results of operations or cash flows.2.
    
    FASB Staff Position FAS 115-2, FAS 124-2, and EITF 99-20-2FASB Staff Position FAS 115-2, FAS 124-2, and EITF 99-20-2, Recognition and
Presentation of Other-Than-Temporary Impairments, or FSP FAS 115-2, FAS 124-2,
and EITF 99-20-2; and FSP FAS 115-2, FAS 124-2, and EITF 99-20-2 provides
additional guidance to provide greater clarity about the credit and noncredit
component of an other-than-temporary impairment event and to more effectively
communicate when an other-than-temporary impairment event has occurred. This
FSP applies to debt securities. This standard is effective for periods ending
after June 15, 2009. The Company does not expect the adoption of FAS 115-2,
FAS 124-2, and EITF 99-20-2 will have a material impact on its financial
position, results of operations or cash flows.3.
    
    FASB Staff Position FAS 107-1 and APB 28-1FASB Staff Position FAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments, or FSP FAS 107-1 and APB 28-1. FSP FAS 107-1
and APB 28-1, amends FASB Statement No. 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about fair value of financial
instruments in interim as well as in annual financial statements. This FSP
also amends APB Opinion No. 28, Interim Financial Reporting, to require those
disclosures in all interim financial statements. This standard is effective
for periods ending after June 15, 2009. The Company will implement these
pronouncements in its interim financial statements.
  12




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NIS in thousands
 NOTE 3: CONTINGENT LIABILITIES
 1.
    
    Commitments to pay royalties to the Office of the Chief Scientist:The Subsidiary had obtained from the Chief Scientist of the State of Israel grants
for participation in research and development and, in return, the Subsidiary is
obligated to pay royalties amounting to 3% of the sales in the first three years
from the beginning of the repayment and 3.5% of the sales from the fourth year up
to the amount of the grant. The grant is linked to the exchange rate of the dollar
and bears interest of LIBOR per annum. Through December 31, 2008, total grants
obtained amounts to NIS 17,980.The Company has requested from the OCS grant in the amount of approximately
NIS 3,200 on behalf of expenses recorded in the year 2008. The Companys
management and its professional advisors believe that it is highly probable that
the Company will receive these grants. As there is uncertainty regarding receiving
the aforementioned amount, the Company did not record an asset in its financial
statements.2.
    
    TopSpin pledged a bank deposit which is used as a bank guarantee amounting
to NIS 108 to secure its payments under the Lease Agreement. The deposit bears an
average annual interest of approximately 0.24% and presented at cost plus accrued
interest. As of March 31, 2009 the bank deposite remains pledget to the landlord
pending restoration of the premises to their original condition.3.
    
    TopSpin leases motor vehicles under operating lease arrangements for 36
months. The monthly lease payments are approximately NIS 11. As of March 31, 2009 the
Companys car lease deposits amounts to NIS 37 covering rental payments for the last
three months in respect of these contracts, out of which an amount of NIS 18 is
expected to be paid in the following year as an early termination penalty.4.
    
    On April 22, 2009 an ex-employee of the subsidiary filed a suit to the
district court in the amount of NIS 20 on behalf of holdover of payroll. The
subsidiary rejects this claim and believes that the probability that the claim will be
accepted is low. Therefore, the Company did not record any provision regarding this
claim in its financial statements.
 NOTE 4: SHAREHOLDERS EQUITY
 a.
    
    Composition of share capital:The Companys authorized common stock consists of 1,000,000,000 shares with a par
value of $ 0.001 per share. All shares have equal voting rights and are entitled
to one non-cumulative vote per share in all matters to be voted upon by
shareholders. The shares have no preemptive, subscription, conversion or
redemption rights and may be issued only as fully paid and non-assessable shares.
Holders of the common stock are entitled to equal ratable rights to dividends and
distributions with respect to the common stock, as may be declared by the Board of
Directors out of funds legally available. The common stocks are registered and
publicly traded on the Tel-Aviv Stock Exchange.
  13




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NIS in thousands
 NOTE 4: SHAREHOLDERS EQUITY (CONT.)
 b.
    
    Share capital:
 1.
    
    In September 1999, the Company issued 625,000 Common shares
at a price of $0.001 per share.In October 1999, the Company issued 375,001 Preferred A shares in
consideration for NIS 3,136 (net of issuance expenses of NIS 20) at a price
of $2 per share.In May 2000, the Company issued 208,329 Preferred B shares in consideration
for NIS 10,184 (net of issuance expenses of NIS 61) at a price of $12 per
share.In December 2002, the Company issued 87,386,858 Preferred C shares in
consideration for a total amount of NIS 73,816 (net of issuance expenses of
NIS 2,200) at a price of $0.1886 per share.The consideration for the issued stock was paid at the closing day (NIS
47,358) and the remaining of the consideration was paid when the Company
achieved the development milestone, as detailed in the agreement
(commencement of clinical trials of its products on humans) in 2003.Preferred C shares conferred, among others, preference rights in respect of
distribution of the Companys earnings and distribution of the Companys
assets upon liquidation. Preferred A and B shares conferred, among others,
preference rights in respect of distribution of the Companys assets upon
liquidation, after such distribution is made to holders of Preferred C shares
and Common shares conferred voting rights and rights in distribution of the
Companys assets upon liquidation, after such distribution is made to holders
of Preferred shares.All classes of shares, as above, conferred equal voting rights in the
Companys general meetings on the basis of conversion into the underlying
Common shares.Preferred A, B and C shares were convertible into Common shares according to
conversion rates of 15.5885, 53.4998 and 1 per Common share, respectively.On August 22, 2005, the Company effected a consolidation and distribution of
its share capital in such a manner that 375,001 Preferred A shares of $ 0.001
were converted into 5,845,692 Common shares, 208,329 Preferred B shares were
converted into 11,145,557 Common shares and 87,386,858 Preferred C shares
were converted into
87,386,858 Common shares.2.
    
    According to an agreement signed in December 2002, the
Company issued to the Chief Executive Officer (CEO) 11,927,727 Common shares
in consideration for $100,000, subject to repurchase right according to
certain vesting terms. The Subsidiary gave the CEO a loan to finance the
purchase of the Companys shares. The loan was denominated in U.S dollars and
bears interest at the rate of 5%. As a security to ensure the repayment of
the loan, the CEO pledged these shares for the benefit of the Company. The
pledged shares and the related balance of the loan were deducted from the
shareholders equity.
 
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Topspin Medical, Inc.
(A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NIS in thousands
 NOTE 4: SHAREHOLDERS EQUITY (CONT.)
 b.
    
    Share capital (cont.)
 2.
    
    (Cont.)The agreement determined that in case of lack of ability to repay the loan,
the loan may be repaid only out of the return on the pledged shares. The CEO
has also undertaken that if the first of the events detailed in the agreement
occurs (such as the Company becomes an issuer, as defined by the
Sarbanes-Oxley Act of 2002), he will repay the outstanding loan amount, if he
is required to do so by TopSpin.In August 2005, the Company and the CEO signed an agreement that modifies the
employment conditions of the CEO and revises the terms of the loan and the
pledge. The first half of the $ 100,000 loan that the CEO received in order
to purchase Companys shares, including the accrued interest thereon, will
become a grant at the end of the second anniversary of the IPO, and the other
half at the end of the third anniversary of the IPO, provided that the CEO
continues to be employed in TopSpin or is a consultant in TopSpin or in any
of its related companies at such time. Accordingly, for the period from
inception amounts of NIS 523 became a grant and were recorded as expenses.Upon closing of the agreement 7/12 (seven twelfths) of the shares were
immediately vested. The other portions of the shares were subject to the
Companys right of repurchase according to the following terms:
 a.
    
    The Companys right of repurchase shall lapse on
a monthly basis over four years period commencing on the date of
execution of the original agreement.b.
    
    The Companys right of repurchase shall lapse,
with respect to 1/6 (one sixth) of the shares in the event that the
Company achieves a milestone as defined in the agreement. This milestone
has been achieved in September 2003.
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Topspin Medical, Inc.
(A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NIS in thousands
 NOTE 4: SHAREHOLDERS EQUITY (CONT.)
 3.
    
    In December 2002, the Company granted fully vested options
to holders of Common shares, for their services, which are exercisable into
1,805,138 Common shares of the Company at $ 0.001 per share. The options were
exercised in September 2005 in consideration for NIS 7.4.
    
    In December 2002, the Company granted fully vested options
to Hemisphere Capital Corp., for their services, which are exercisable into
1,590,668 Preferred C shares of the Company at $ 0.1886 per share. In
September 2005, all the options were cash-less exercised into 170,247 Common
 shares.5.
    
    On August 23, 2005, the Company increased its authorized
share capital to 500 million Common shares of $ 0.001 par value each.6.
    
    On August 25, 2005, the Company published a prospectus for
the issuance of securities to the public in Israel. The securities were
issued in 38 thousand units (the units) and the price per unit, as
determined in a tender, was NIS 0.95 per unit. Each unit consisted
of 1,000 Common shares at NIS 0.95 per share and 600 options at no
consideration.As such, the Company has 22,800,000 registered options (series 1) which are
exercisable into 22,800,000 Common shares of $ 0.001 par value with an
exercise price of NIS 1.1 per share, linked to the changes in the dollar/NIS
exchange rate from August 25, 2005. The options were exercisable up to
February 28, 2008. On February 2008, 22,522 options (series 1) have been
exercised and the rest have been forfeited.Net proceeds total approximately NIS 32,430 (net of issuance expenses of
NIS 3,670). The net proceeds were allocated to the shares and options based
on their relative market value.7.
    
    On April 19, 2007, the Company filed a registration
statement pursuant to the United States Securities Act of 1933 (the
registration statement and Securities Act respectively) with the U.S.
Securities and Exchange Commission (SEC) regarding the sale of shares of
common stock and warrants (series 3) and the shares resulting from the
exercise of the warrants (series 3). On June 4, 2007, the registration
statement became effective.Pursuant to the registration statement, the Company is entitled to offer up
to 53,000,000 shares of common stock and 26,500,000 warrants (series 3),
offered in 26,500,000 Units (each consisting of 2 common shares and 1 warrant
(series 3)), for a period of one year from the date the registration
statement became effective.On June 6, 2007, the Company issued 24,398,402 shares of common stock which
are listed for trade on the TASE together with 12,199,201 warrants (series 3)
that are listed for trade on the TASE since September 17, 2007. The issued
securities were issued in consideration for NIS 1.586 in cash per Unit. The
total net proceeds from the issuance amounted to approximately NIS 18,336
(net of issuance expenses of NIS 1,013).Each warrant (series 3) is exercisable into one share of common stock of the
Company until June 30, 2009, in consideration for a cash payment of NIS 0.84.
Warrants (series 3) which are not exercised by June 30, 2009 (inclusive) will
expire, become null and void and not confer their holders any rights
whatsoever.
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Topspin Medical, Inc.
(A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NIS in thousands
 NOTE 4: SHAREHOLDERS EQUITY (CONT.)
 8.
    
    On October 12, 2008 the Company issued 450,000,000
shares of common stock due to the settlement with convertible bonds
holders.9.
    
    On February 2, 2009 the Company entered, with an
investor, into a private placement agreement. According to the agreement
the Company issued 120,000,000 common shares of $ 0.001 par value and
58,064,516 warrants exercisable into common shares of the Company for total
consideration of NIS 900. 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.
 NOTE
5:  STOCK BASED COMPENSATION
 a.
    
    On February 26, 2009 the Board of Directors approved an increase of an
additional 25 million shares of Common Stock (21 out of them available for grant)
to be granted under the 2003 Israeli Stock Option Plan.b.
    
    Options to employees:A summary of the Companys share option activities for options granted to
employees under the plans excluding performance base options is as follows:
 WeightedaverageWeighted
    
    
    remaining
    
    
    Aggregateaverage
    
    
    contractual
    
    
    intrinsicexercise
    
    
    terms
    
    
    valueNumber
    
    
    price
    
    
    (in years)
    
    
    priceOptions outstanding at
January 1, 2009
    
    
    7,213,251
    
    
    $
    0.053Options forfeited
    
    
    (906,876
    )
    
    $
    0.759Options outstanding at
March 31, 2009
    
    
    6,306,375
    
    
    $
    0.012
    
    
    
    3.2
    
    
    
    27Options vested and
expected to vest at
March 31, 2009
    
    
    6,250,125
    
    
    $
    0.096
    
    
    
    3.2
    
    
    
    27Options exercisable
at March 31, 2009
    
    
    6,203,250
    
    
    $
    0.093
    
    
    
    3.2
    
    
    
    27
    17




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NIS in thousands
 NOTE 5: STOCK BASED COMPENSATION (Cont.)
 b.
    
    Options to employees (cont.)A summary of the activity under the performance share-based options granted to
employees is as follows:
 WeightedaverageWeighted
    
    
    remaining
    
    
    Aggregateaverage
    
    
    contractual
    
    
    intrinsicexercise
    
    
    terms
    
    
    valueNumber
    
    
    price
    
    
    (in years)
    
    
    priceOptions outstanding
at January 1, 2009
and March 31, 2009
    
    
    2,390,000
    
    
    $
    0.150
    
    
    
    6.0
    
    
    
    Options vested and
expected to vest at
March 31, 2009
    
    
    2,390,000
    
    
    $
    0.150
    
    
    
    6.0
    
    
    
    Options exercisable
at March 31, 2009
    
    
    2,390,000
    
    
    $
    0.150
    
    
    
    6.0
    
    
    
    
  Weighed averageExercise price
    
    
    
    
    Options for
    
    
    Options
    
    
    remainingper share
    
    
    
    
    Common shares
    
    
    exercisable
    
    
    contractual terms$
    0.001
    
    
    
    
    
    4,650,000
    
    
    
    4,650,000
    
    
    
    1.8$
    0.02
    
    
    
    
    
    1,972,000
    
    
    
    1,962,625
    
    
    
    5.7$
    0.149
    
    
    
    
    
    150,000
    
    
    
    150,000
    
    
    
    0.2$
    0.111
    
    
    
    
    
    28,125
    
    
    
    28,125
    
    
    
    7.5$
    0.150
    
    
    
    
    
    1,740,000
    
    
    
    1,740,000
    
    
    
    7.8$
    0.182
    
    
    
    
    
    156,250
    
    
    
    62,500
    
    
    
    8.58,696,375
    
    
    
    8,593,250
  Period frominception(September 20,Three month ended
    
    
    1999) throughMarch 31,
    
    
    March 31,2009
    
    
    2008
    
    
    2009Research and development expenses
    
    
    (7
    )
    
    
    (439
    )
    
    
    527General and administrative expenses
    
    
    (2
    )
    
    
    (146
    )
    
    
    9,881(9
    )
    
    
    (585
    )
    
    
    10,408
  18




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Topspin Medical, Inc.
(A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NIS in thousands
 NOTE 5: STOCK BASED COMPENSATION (Cont.)
 b.
    
    Options to employees (cont.)As of March 31, 2009, there was NIS 0.035 of total unrecognized compensation
cost related to non-vested share-based compensation arrangements granted to
employees under the Companys stock option plans. That cost is expected to be
recognized over a weighted-average period of 0.25 years.c.
    
    Options to non-employees:A summary of the Companys share option activities for options granted to
non-employees under the plans excluding performance base options is as follows:
 WeightedaverageWeighted
    
    
    remaining
    
    
    Aggregateaverage
    
    
    contractual
    
    
    intrinsicexercise
    
    
    terms
    
    
    valueNumber
    
    
    price
    
    
    (in years)
    
    
    priceOptions outstanding
at January 1, 2009
    
    
    1,378,510
    
    
    $
    0.189Options forfeited
    
    
    (812,500
    )
    
    $
    0.076Options
outstanding, vested
and expected to
vest at
March 31, 2009
    
    
    566,010
    
    
    $
    0.346
    
    
    
    4.8
    
    
    
    Options exercisable
at March 31, 2009
    
    
    566,010
    
    
    $
    0.346
    
    
    
    4.8
    
    
    
    
   WeightedaverageWeighted
    
    
    remaining
    
    
    Aggregateaverage
    
    
    contractual
    
    
    intrinsicexercise
    
    
    terms
    
    
    valueNumber
    
    
    Price
    
    
    (in years)
    
    
    priceOptions outstanding
at January 1, 2009
and December 31,
2009
    
    
    900,000
    
    
    $
    0.111
    
    
    
    7.5
    
    
    
    Options expected to
vest at March 31,
2009
    
    
    300,000
    
    
    $
    0.111
    
    
    
    7.5
    
    
    
    Options exercisable
at March 31, 2009
    
    
    300,000
    
    
    $
    0.111
    
    
    
    7.5
    
    
    
    
   19




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Topspin Medical, Inc.
(A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NIS in thousands
 NOTE 5: STOCK BASED COMPENSATION (Cont.)
 c.
    
    Options to non-employees (cont.)The Companys outstanding options to non-employees as of March 31, 2009, have been
separated into ranges of exercise prices as follows:
 Weighed averageExercise price
    
    
    
    
    Options for
    
    
    Options
    
    
    remainingper share
    
    
    
    

Common shares
    
    
    exercisable
    
    

contractual terms$
    12
    
    
    
    
    
    14,010
    
    
    
    14,010
    
    
    
    3.5$
    0.05
    
    
    
    
    
    552,000
    
    
    
    552,000
    
    
    
    4.8$
    0.111
    
    
    
    
    
    900,000
    
    
    
    300,000
    
    
    
    7.51,466,010
    
    
    
    866,010
  Period frominception(September 20,Three months ended
    
    
    1999) throughMarch 31,
    
    
    March 31,2009
    
    
    2008
    
    
    2009Research and development expenses
    
    
    (1
    )
    
    
    (122
    )
    
    
    166General and administrative expenses
    
    
    (1
    )
    
    
    (61
    )
    
    
    1,306(2
    )
    
    
    (183
    )
    
    
    1,472
 NOTE 6: SUBSEQUENT EVENTS
 a.
    
    On April 19, 2009 the Companys Board of Directors nominated Mr.
Ehud Gilboa, the chairman of the Companys and the subsidiarys (together the
Group) Board of Director, to serve as a temporary Chief Executive Officer (CEO)
of the Group and entered into a Consulting Agreement.On May 5, 2009 the Board of Directors amended the agreement in a way that Mr. Ehud
Gilboa will provide consulting services instead of temporary CEO.In consideration for the services he will provide, Mr. Gilboa is entitled to a
monthly fee of NIS 34, plus VAT, and the Company will pay up to 50% of all fixed
and variable maintenance costs of the cellular phone used by the Consultant,
retroactively from January 1, 2009.
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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NIS in thousands
 NOTE 6: SUBSEQUANT EVENTS (Cont.)
 a.
    
    (cont.)The Consulting Agreement is valid until termination by one of the parties thereto
at any time or reason, with advance notice of 45 days. In addition, the subsidiary
is entitled to early termination in connection with certain events as detailed in
the Consulting Agreement.b.
    
    On April 2, 2009 Mrs. Tami Sharbit-Bachar notified the Company of her
resignation from her position as the Director of Finance and Secretary. Pursuant to
Mrs. Sharbit-Bachars amended employment agreement with the Company, Mrs.
Sharbit-Bachar will continue in her position as Director of Finance and Secretary
for 45 days following the date of notice, or until such other time as
Mrs. Sharbit-Bachar and the Company mutually agree.c.
    
    On May 6, 2009 the Board of Directores of the Company approved the
designation of new Finance Manager to the Company. As part of the employment
agreement of the new Finance Manager the Company will allocate 1,500,000
unmarketable options which are convertable to 1,500,000 Common shares of $0.001 par
value each, 750,000 of the options will be excercisable at an exercise price of
NIS 0.011 per share and the balance of 750,000 options at an exercise price of NIS
0.022 per share. According to the Binomial model, with 113.67% volatility and
0.95%-8.09% risk-free interest rate, the compensation resulted from the grant
amounted to approximately NIS 10.
 
  21




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
    Liquidity and Capital Resources
      22




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##### Table of Contents



Operating Activities
  Financing Activities
   Investing Activities
  Results of Operations
  Research and Development Expense
   23




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Selling and Marketing Expense
  General and Administrative Expense
   Income taxes
  Critical Accounting Policies
   FASB Staff Position FAS 157-4
  FASB Staff Position FAS 115-2, FAS 124-2, and EITF 99-20-2
   24




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##### Table of Contents



FASB Staff Position FAS 107-1 and APB 28-1
  Off-Balance Sheet Arrangements
 Commitments to Pay Royalties to the Chief Scientist
   Office Lease Commitments
  Motor Vehicles Lease Commitment
   25




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ITEM 4T. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
     26




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##### Table of Contents



PART II. OTHER INFORMATION
 ITEM 5. OTHER INFORMATION
   
 ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description10.1
    
    
    Stock Purchase Agreement by and between TopSpin Medical, Inc. and Asher
Shmulewitz, dated February 1, 2009.10.2
    
    
    TopSpin Medical, Inc.s 2003 Israeli Stock Option Plan,
as amended on February 26, 2009.10.3
    
    
    Employment Agreement by and between TopSpin Medical, Inc. and Eldad Yehieli,
dated May 6, 2009.10.4
    
    
    Form of Director Indemnification Director by and between TopSpin Medical, Inc.
and each of its Directors31.1
    
    
    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
  27




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##### Table of Contents



SIGNATURES
  Date: May 15, 2009
    TOPSPIN MEDICAL, INC.By:

/s/
Ehud-Moshe GilboaChairman of the Board of DirectorsDate: May 15, 2009
    By:
    /s/   Tami Sharbit-BacharDirector of Finance  28




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EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    
    Stock Purchase Agreement by and between TopSpin Medical, Inc. and Asher Shmulewitz, dated
February 1, 2009.10.2
    
    

TopSpin
Medical, Inc.s 2003 Israeli Stock Option Plan, as amended on February
26, 2009.10.3
    
    
    Employment Agreement by and between TopSpin Medical, Inc. and Eldad Yehieli, dated May 6,
2009.10.4
    
    
    Form of Director Indemnification Director by and between TopSpin Medical, Inc. and each of
its Directors.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
  29