##### 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 September 30, 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: 333-144472
 Topspin Medical, Inc.
 (Exact name of registrant as specified in its charter)
 DELAWARE
    
    51-0394637(State or other jurisdiction of incorporation or
    
    (IRS Employer Identification No.)organization)65 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 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 þ Yes o No
 761,470,882




---



##### 



TOPSPIN MEDICAL, INC.
 FORM 10-Q
 FOR THE QUARTER ENDED SEPTEMBER 30, 2009
 TABLE OF CONTENTS  NEED TO UPDATE
 PagePART I. FINANCIAL INFORMATION
    
    
    3ITEM 1. FINANCIAL STATEMENTS
    
    
    3ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
    
    
    25ITEM 4T. CONTROLS AND PROCEDURES
    
    
    30PART II. OTHER INFORMATION
    
    
    31ITEM 5. OTHER INFORMATION
    
    
    31ITEM 6. EXHIBITS
    
    
    31SIGNATURES
    
    
    32Exhibit 31.1Exhibit 31.2Exhibit 32.1




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##### Table of Contents



FORWARD-LOOKING STATEMENTS
    - 2 -




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 TOPSPIN MEDICAL, INC.
(A Development Stage Company)
 CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2009
  - 3 -




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##### Table of Contents



TOPSPIN MEDICAL, INC.
(A Development Stage Company)
 CONSOLIDATED FINANCIAL STATEMENTS
 AS OF SEPTEMBER 30, 2009
 INDEX
 PageConsolidated Balance Sheets
    
    
    5Consolidated Statements of Operations
    
    
    6Statements of Changes in Shareholders Deficiency
    
    
    7  10Consolidated Statements of Cash Flows
    
    
    11  13Notes to Consolidated Financial Statements
    
    
    13  24
  - 4 -




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 
 CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    September 30,2008
    
    
    2009Audited
    
    
    UnauditedNIS in thousandsASSETSCURRENT ASSETS:Cash and cash equivalents
    
    
    3,385
    
    
    
    1,704Other receivables and prepaid expenses
    
    
    385
    
    
    
    239Restricted deposits
    
    
    562
    
    
    
    75Prepaid lease payments
    
    
    49
    
    
    
    144,381
    
    
    
    2,032PROPERTY AND EQUIPMENT, NET
    
    
    10
    
    
    
    104,391
    
    
    
    2,042LIABILITIES AND SHAREHOLDERS DEFICIENCYCURRENT LIABILITIES:Trade payables
    
    
    455
    
    
    
    353Other accounts payables and accrued expenses
    
    
    2,821
    
    
    
    1,690Liability in respect of warrants
    
    
    250
    
    
    
    Liabilities in respect of options to employees and consultants
    
    
    10
    
    
    
    1Accrued severance pay liability
    
    
    270
    
    
    
    Tax provision
    
    
    
    
    
    
    1,3283,806
    
    
    
    3,372LONG TERM LIABILITIESTax provision
    
    
    1,344
    
    
    
    Liabilities in respect of options to employees and consultants
    
    
    38
    
    
    
    31,382
    
    
    
    3CONTINGENT LIABILITIES, COMMITMENTS AND CHARGESSHAREHOLDERS DEFICIENCY:Common shares of $0.001 par value:Authorized 1,000,000,000 shares as of September 30, 2009 and
December 31, 2008; Issued and outstanding 761,470,882 and
636,870,882 shares as of September 30, 2009 and December 31,
2008, respectively
    
    
    2,457
    
    
    
    2,975Additional paid in capital
    
    
    177,187
    
    
    
    177,936Accumulated deficit during the development stage
    
    
    (180,441
    )
    
    
    (182,244
    )(797
    )
    
    
    (1,333
    )4,391
    
    
    
    2,042
  November 15, 2009the Date of approval of
    
    Ehud Gilboa
    
    Eldad Yehielyfinancial statements
    
    Chairman of Board of Directors
    
    Finance Manager
  - 5 -




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Period frominception(September 20,Nine months ended
    
    
    Three months ended
    
    
    1999) throughSeptember 30,
    
    
    September 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009UnauditedNIS in thousandsResearch and development expenses
    
    
    
    
    
    
    14,213
    
    
    
    
    
    
    
    3,318
    
    
    
    135,023Less  participation by the office of the Chief Scientist
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,980
    )Research and development expenses, net
    
    
    
    
    
    
    14,213
    
    
    
    
    
    
    
    3,318
    
    
    
    117,043Sales and marketing expenses
    
    
    
    
    
    
    562
    
    
    
    
    
    
    
    5
    
    
    
    3,662General and administrative expenses
    
    
    2,061
    
    
    
    6,398
    
    
    
    211
    
    
    
    2,913
    
    
    
    58,260Operating loss
    
    
    (2,061
    )
    
    
    (21,173
    )
    
    
    (211
    )
    
    
    (6,236
    )
    
    
    (178,965
    )Financing income (expense), net
    
    
    258
    
    
    
    4,807
    
    
    
    91
    
    
    
    (13,359
    )
    
    
    6,244Loss before taxes on income
    
    
    (1,803
    )
    
    
    (16,366
    )
    
    
    (120
    )
    
    
    (19,595
    )
    
    
    (172,721
    )Taxes on income
    
    
    
    
    
    
    5,375
    
    
    
    
    
    
    
    5,375
    
    
    
    1,344Net loss
    
    
    (1,803
    )
    
    
    (21,741
    )
    
    
    (120
    )
    
    
    (24,970
    )
    
    
    (174,065
    )Basic and diluted loss per Common share
    
    
    (0.002
    )
    
    
    (0.11
    )
    
    
    (0.0002
    )
    
    
    (0.12
    )Weighted average number of Common shares outstanding
used in basic and diluted net loss per share calculation
    
    
    744,318,501
    
    
    
    207,759,583
    
    
    
    761,470,882
    
    
    
    207,759,583
   - 6 -




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 
 STATEMENTS OF CHANGES IN SHAREHOLDERS DEFICIENCY
 Non-
    
    
    Deficitrecourse
    
    
    accumulated
    
    
    TotalNumber of outstanding shares
    
    
    Share capital
    
    
    Additional
    
    
    Receivables
    
    
    receivables
    
    
    during the
    
    
    shareholdersPreferred
    
    
    
    
    
    
    Preferred
    
    
    paid-in
    
    
    for shares
    
    
    for shares
    
    
    development
    
    
    EquityCommon
    
    
    A
    
    
    B
    
    
    C
    
    
    Common
    
    
    A
    
    
    B
    
    
    C
    
    
    capital
    
    
    issued
    
    
    issued
    
    
    stage
    
    
    (Deficiency)Balance 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 shares based
compensation related to
issuance of shares to the Chief
Executive Officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,822
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,822Shares 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
   - 7 -




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 STATEMENTS OF CHANGES IN SHAREHOLDERS DEFICIENCY
 Non-
    
    
    Deficitrecourse
    
    
    accumulated
    
    
    TotalNumber of outstanding shares
    
    
    Share capital
    
    
    Additional
    
    
    Receivables
    
    
    receivables
    
    
    during the
    
    
    shareholdersPreferred
    
    
    
    
    
    
    Preferred
    
    
    paid-in
    
    
    for shares
    
    
    for shares
    
    
    development
    
    
    equityCommon
    
    
    A
    
    
    B
    
    
    C
    
    
    Common
    
    
    A
    
    
    B
    
    
    C
    
    
    capital
    
    
    issued
    
    
    issued
    
    
    stage
    
    
    (Deficiency)NIS in thousandsBalance 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
shares based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    736
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    736Deferred shares based
compensation related to
issuance of shares to the
Chief Executive Officer
    
    
    3,077,506
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,778
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,778Shares 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
shares based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    677
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    677Deferred shares based
compensation related to
issuance of shares to the
Chief Executive Officer
    
    
    630,793
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    615
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    615Shares 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
   - 8 -




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 STATEMENTS OF CHANGES IN SHAREHOLDERS DEFICIENCY
 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)NIS in thousandsBalance 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 shares 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 shares
based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    486
    
    
    
    
    
    
    
    
    
    
    
    486Shares 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
    )
    
    
    38,463Cumulative effect of the adoption
of ASC 718 (formerly SFAS 123(R))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (238
    )
    
    
    (238
    )Change of deferred shares
compensation into liability as a
result from accounting change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,768
    )
    
    
    
    
    
    
    
    
    
    
    (6,768
    )Exercise of options
    
    
    634,374
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    41Conversion of liability into equity
in respect of exercise of 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,565
    )
    
    
    (38,565
    )Balance as of December 31, 2006
    
    
    159,537,461
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    728
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    134,603
    
    
    
    (237
    )
    
    
    (141,502
    )
    
    
    (6,408
    )
 (*)
    
    Less than NIS 1.   - 9 -




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 STATEMENTS OF CHANGES IN SHAREHOLDERS DEFICIENCY
 Non-
    
    
    DeficitCommon
    
    
    
    
    
    
    recourse
    
    
    accumulatedNumber of
    
    
    
    
    
    
    Additional
    
    
    receivables
    
    
    during the
    
    
    Totaloutstanding
    
    
    Share
    
    
    paid-in
    
    
    for shares
    
    
    development
    
    
    shareholdersshares
    
    
    capital
    
    
    capital
    
    
    issued
    
    
    stage
    
    
    deficiencyBalance as of December 31, 2006
    
    
    159,537,461
    
    
    
    728
    
    
    
    134,603
    
    
    
    (237
    )
    
    
    (141,502
    )
    
    
    (6,408
    )Exercise of employees 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 ASC 825 (formerly 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
    )Exercise of options
    
    
    4,600,000
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19Issuance of Common shares and warrants (series 3)
    
    
    120,000,000
    
    
    
    499
    
    
    
    401
    
    
    
    
    
    
    
    
    
    
    
    900Classification of liability into equity in respect of exercise of options
    
    
    
    
    
    
    
    
    
    
    161
    
    
    
    
    
    
    
    
    
    
    
    161Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    187
    
    
    
    
    
    
    
    
    
    
    
    187Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,803
    )
    
    
    (1,803
    )Balance as of September 30, 2009 (unaudited)
    
    
    761,470,882
    
    
    
    2,975
    
    
    
    177,936
    
    
    
    
    
    
    
    (182,244
    )
    
    
    (1,333
    )
 (*)
    
    Less than 1 NIS.   - 10 -




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Period frominception(September 20,Nine months ended
    
    
    1999) throughSeptember 30
    
    
    September 30,2009
    
    
    2008
    
    
    2009Unaudited
    
    
    UnauditedNIS in thousandsCash flows from operating activities:Net loss
    
    
    (1,803
    )
    
    
    (21,741
    )
    
    
    (174,065
    )Adjustments to reconcile net loss to net cash used in
operating activities (a)
    
    
    (1,278
    )
    
    
    (1,216
    )
    
    
    15,143Net cash used in operating activities:
    
    
    (3,081
    )
    
    
    (22,957
    )
    
    
    (158,922
    )Cash flow from investing activities:Change in restricted deposit, net
    
    
    487
    
    
    
    
    
    
    
    (19
    )Restricted cash in respect of settlement agreement
    
    
    
    
    
    
    (12,500
    )
    
    
    1,298Purchase of fixed assets
    
    
    (6
    )
    
    
    (263
    )
    
    
    (9,074
    )Proceeds from sale of fixed assets
    
    
    
    
    
    
    
    
    
    
    467Loan to the Chief Executive Officer
    
    
    
    
    
    
    
    
    
    
    (231
    )Net cash provided by (used in) investing activities:
    
    
    481
    
    
    
    (12,763
    )
    
    
    (7559
    )Cash flows from financing activities:Exercise of shares options and warrants
    
    
    19
    
    
    
    42
    
    
    
    257Proceeds from issuance of shares and warrants (series
3), net of issuance expenses
    
    
    900
    
    
    
    
    
    
    
    138,805Settlement with convertible bonds holders
    
    
    
    
    
    
    
    
    
    
    (12,513
    )Proceeds from issuance convertible debentures and
warrants (series 2), net of issuance expenses
    
    
    
    
    
    
    
    
    
    
    41,636Net cash provided by financing activities:
    
    
    919
    
    
    
    42
    
    
    
    168,185Increase (decrease) in cash and cash equivalents
    
    
    (1,681
    )
    
    
    (35,678
    )
    
    
    1,704Cash and cash equivalents at the beginning of the period
    
    
    3,385
    
    
    
    40,978
    
    
    
    Cash and cash equivalents at the end of the period
    
    
    1,704
    
    
    
    5,300
    
    
    
    1,704
   - 11 -




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Period frominception(September 20,Nine months ended
    
    
    1999) throughSeptember 30
    
    
    September 30,2009
    
    
    2008
    
    
    2009Unaudited
    
    
    UnauditedNIS in thousands(a) Adjustments to reconcile net loss to net cash used
in operating activities:Depreciation and amortization
    
    
    6
    
    
    
    1,213
    
    
    
    7,462Impairment of property and equipment
    
    
    
    
    
    
    1,269
    
    
    
    1,270Capital loss (gain)
    
    
    
    
    
    
    (1
    )
    
    
    (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 deposit
    
    
    
    
    
    
    (10
    )
    
    
    (1,354
    )Change in fair value of liability in respect of
warrants (series 2)
    
    
    (250
    )
    
    
    (725
    )
    
    
    (7,744
    )Change in fair value of conversion feature
    
    
    
    
    
    
    
    
    
    
    (2,746
    )Change in fair value of convertible bonds
    
    
    
    
    
    
    (3,799
    )
    
    
    (3,786
    )Change in fair value of embedded derivative
    
    
    (500
    )
    
    
    325
    
    
    
    (846
    )Amortization of deferred issuance expenses and
debentures discount
    
    
    
    
    
    
    
    
    
    
    6,228Amortization of deferred shares based compensation
related to employees
    
    
    
    
    
    
    
    
    
    
    6,487Stock-based compensation expense
    
    
    187
    
    
    
    
    
    
    
    187Change in fair value and amortization of shares
options classified as a liability
    
    
    117
    
    
    
    (2,046
    )
    
    
    4,616Amortization of deferred shares based compensation
related to consultants
    
    
    
    
    
    
    
    
    
    
    1,632Accrued severance pay, net
    
    
    (270
    )
    
    
    (54
    )
    
    
    Decrease (increase) in other accounts receivable and
prepaid expenses (including prepaid lease payments)
    
    
    181
    
    
    
    1,448
    
    
    
    (253
    )Increase (decrease) in trade payables
    
    
    (102
    )
    
    
    (1,557
    )
    
    
    249Increase (decrease) in other accounts payable and
tax provision
    
    
    (647
    )
    
    
    2,721
    
    
    
    3,018Total adjustments
    
    
    (1,278
    )
    
    
    (1,216
    )
    
    
    15,143(b) Supplemental disclosure of cash flow activities:Cash paid during the period for:Taxes paid due to non-deductible expenses
    
    
    
    
    
    
    46
    
    
    
    787Interest paid
    
    
    
    
    
    
    
    
    
    
    3,951(c) Supplemental disclosure of non cash flows activities:Accrued issuance expenses
    
    
    
    
    
    
    
    
    
    
    2,868Classification of liabilities into equity
    
    
    161
    
    
    
    125
    
    
    
    11,622
   - 12 -




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1:- GENERAL
 a.
    
    TopSpin Medical, Inc. (the Company) and its subsidiary, TopSpin
Medical (Israel) Ltd. (the Subsidiary or TopSpin) were engaged in research and
development of a medical MRI technology. On October 2008 the Company suspended its
activities as described in note 1c below.
 The Company was incorporated and commenced operation in September 1999 as a private
company registered in Delaware, U.S. On September 1, 2005, the Company issued
securities to the public in Israel and became publicly traded in the Tel Aviv
Shares Exchange (TASE). In 2007 the Company registered some of its securities
with the U.S. Securities and Exchange Commission (SEC). The Companys shares 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 ASC 915
Accounting and reporting by development Stage Enterprises (formerly SFAS No. 7).
 c.
    
    In October 2008, the Company terminated the employment of all of its
subsidiarys employees (excluding two employees from the finance department) and
suspended its operational activities.
 d.
    
    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 182,244,000 as of September 30, 2009, and
it incurred a net loss of NIS 1,803,000 and negative cash flow from operating
activities in the amount of NIS 3,081 thousands for the nine months ended September
30, 2009.
 There is uncertainty about the Companys ability to generate revenues or raise
sufficient funds in the near term, if any. These factors, among other factors raise
substantial doubt about the Companys ability to continue as a going concern. The
Company is operating to get the necessary funds. In addition, the Company filed an
application to receive OCS grants in a total amount of NIS 3,200,000 in
consideration of expenses recorded in the year 2008. There is an uncertainty
regarding the amount and the time the aforementioned amount will be received.
 e.
    
    On June 2, 2009, the Company entered into an acquisition and investment
agreement with Anavid Insulation Products Kiryat Anavim ACS Ltd. (Anavid), Kiryat
Anavim Holdings and Development ACS Ltd. (Holdings and Development) and Kiryat
Anavim Silicone Ltd. (the acquiree) according to which the Company will acquire
all of Anavids holdings in the Company, representing 89% of Ordinary share capital
and 100% of the Companys Management shares.
 The parties agreed that the transactions contemplated by the agreement would be
consummated by August 15, 2009, subject to an extension of 60 days at the request
of either party. The Company requested such an extension, pursuant to which the
closing date would be moved to October 15, 2009. Because the agreement was not
consummated by October 15, 2009, the parties agreed to defer the signing to October
21, 2009.
 On October 26, 2009, Anavid informed the Company that the agreement was cancelled
and that the failure to complete the acquisition transaction by the last agreed
upon date constitutes a fundamental breach of the agreement. Following
consultation with its legal advisors, the Company rejects Anavids claim of
fundamental breach and maintains its position that the termination of the agreement
was in accordance with the terms of the agreement.
  - 13 -




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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 On the date of closing, the Company would have acquired from
Anavid 1,610,000 of the Company’s Management shares of NIS 1 par value each and 89 shares of NIS 1 par value each
of the Company, representing 89% of the Company’s issued Ordinary share capital and approximately 65.93% of
Ordinary shares on a fully diluted basis in consideration for payment of $10,000.
 In addition, on the closing date, the acquiree would have
allocated an option for the purchase of up to 35 Ordinary shares, representing at June 2, 2009 about 25.93% of the
Company’s Ordinary share capital on a fully diluted basis. The option would have been exercisable on the
3rd anniversary of the execution date, or sooner in the event of the Company’s offering of shares, the
Company’s merger with a third party or the sale of its assets. At any time after the closing date, the Company
would have had the right to acquire all or part of the acquiree’s  shares or convertible securities for the
purchase of its shares which would have been held by Holdings and Development in exchange for the payment of
consideration in the amount of $625,000 in the first year after execution. The consideration payable would have
increased at the beginning of each following year by $250,000 but would not have exceeded $1,875,000.
 If the agreement had been consummated, the Company would have
paid an amount equal to approximately NIS 40,000 (approximately $10,000) and also would have deposited an amount
of NIS 810,000 to be used by the acquiree to repay additional amounts that had been paid by Anavid to related
parties and third parties on behalf of the Company. The Company also would have undertaken to guarantee that the
acquiree transfer to Anavid an amount of NIS 1,000,000 to repay liabilities to third parties and to repay a bank
loan of the acquiree in a total of approximately NIS 1,000,000.
 The acquiree also would have undertaken to pay future
royalties based on the following mechanism: for a 5-year period starting from January 1, 2010, royalties of 2%-4%;
and starting from January 1, 2015, royalties of 2% up to an overall amount of $ 90,000. Based on a valuation
undertaken by the parties, the fair value of the future payments was estimated at approximately NIS 260,000. The
royalties were to have been paid as a percentage of total income as defined in the agreement.
 The Company would have guaranteed the acquiree’s
liability to repay loans in connection with related parties and the financing of a machine. In connection with these
loans, the Company would have provided a bank guarantee of NIS 100,000 and a liability deed of NIS 750,000 to
be realized if the Company did not meet its loan obligations. In such event, the Company would have been able to
convert the bank guarantee for its shares. The acquiree had committed to continue employing several Kibbutz employees
for a period of 3 years, as detailed in the agreement, and to relocate the plant within three years of the closing
date.
 For a period of one year, the Company’s shareholders
would have continue to guarantee the acquiree’s payments for the machine after which period the Company would
have acted to have the guarantee removed, provided that the outstanding liability for the machine did not exceed
NIS 671,000, less payments made up to the closing date. The amount of the guarantee and liability deed would have
been reduced when the loan liability was settled.
 The Company also would have undertaken to indemnify the
acquiree’s former shareholders in connection with any loss incurred due to non payment to the lessor or non
removal of guarantees. Upon closing, two new agreements regarding rent and services would have become effective as well
as a verbal agreement with shareholders regarding consulting fees.
 f.
    
    On July 15, 2009 the Board of Directors decided to obtain the approval
of the shareholders of the Company to increase the registered capital of the
Company by 500,000,000 shares of
common shares and to amend the corporations certificate of incorporation that the
total number of authorized shares of common shares shall be increased by
500,000,000 shares.
 A Shareholders meeting was set for September 3, 2009. Since a sufficient
quorum was not present at the shareholders meeting, the number of authorized shares of the Company was not increased, As of September 30, 2009 the increase in
the Companys number of authorized shares has not been approved.
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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
 a.
    
    The accompanying unaudited interim consolidated financial statements
have been prepared as of September 30, 2009 and for the three-month and nine-month
periods 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 (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating results
for the three-month and nine-month periods ended September 30, 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 consistent to those applied in the preparation of the
latest annual financial statements
 b.
    
    Impact of recently issued accounting standards:
 In June 2009, the Financial Accounting Standards Board (FASB) Accounting Standards
Codification (Codification) became the single source of authoritative US
GAAP. The Codification did not create any new GAAP standards but incorporated
existing accounting and reporting standards into a new topical structure with a new
referencing system to identify authoritative accounting standards, replacing the
prior references to Statement of Financial Accounting Standards (SFAS), Emerging
Issues Task Force (EITF), FASB Staff Position (FSP), etc. Authoritative standards
included in the Codification are designated by their Accounting Standards
Codification (ASC) topical reference, and new standards will be designated as
Accounting Standards Updates (ASU), with a year and assigned sequence
number. Beginning with this interim report for the third quarter of 2009,
references to prior standards have been updated to reflect the new referencing
system.
 In June 2009, the FASB concurrently issued amendments to ASC 860, Transfers and
Servicing (formerly SFAS No. 166), and ASC 810, Consolidation (formerly SFAS No.
167), that change the way entities account for securitizations and other transfers
of financial instruments. In addition to increased disclosure, these amendments
eliminate the concept of qualifying special purpose entities and change the test
for consolidation of variable interest entities. These amendments will be
effective for us as of January 1, 2010. The Company has evaluated these amendments
and believes they will have no impact on its financial condition or results of
operations.
 NOTE 3:- CONTINGENT LIABILITIES, COMMITMENTS AND CHARGES
 a.
    
    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 September 30, 2009, total grants
obtained amounts to NIS 17,980.
 The Company filed an application to receive OCS grants in a total amount of NIS
3,200,000 in consideration of expenses recorded in the year 2008. There is an
uncertainty regarding the amount and the time the aforementioned amount will be
received.
 b.
    
    TopSpin leases motor vehicles under operating lease arrangements for 36
months. The monthly lease payments are approximately NIS 3,000. As of September 30,
2009 the Companys car lease deposits amounted to NIS 8,000 covering rental
payments for the last three months in respect of these contracts.
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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 4:- SHAREHOLDERS EQUITY
 a.
    
    Composition of share capital:
 The Companys authorized common shares consist 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 shares are entitled to equal ratable rights to dividends and distributions with
respect to the common shares, as may be declared by the Board of Directors out of
funds legally available. The common shares are registered and publicly traded on
the Tel-Aviv Shares Exchange.
 b.
    
    Share capital:
 1.
    
    In September 1999, the Company issued 625,000 Ordinary 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 thousand (net of issuance expenses of NIS 20
thousand) at a price of $2 per share.
 In May 2000, the Company issued 208,329 Preferred B shares in consideration
for NIS 10,184 thousand (net of issuance expenses of NIS 61 thousand) 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 thousand (net of issuance
expenses of NIS 2,200 thousand) at a price of $0.1886 per share.
 The consideration for the issued shares was paid at the closing day (NIS
47,358 thousand) and the remaining of the consideration was paid during 2003,
after the Company achieved the development milestone, as detailed in the
agreement (commencement of clinical trials of its products on humans).
 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 Ordinary 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.
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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 4:- SHAREHOLDERS EQUITY (Cont.)
 All classes of shares, as above, conferred equal voting rights in the
Companys general meetings on the basis of conversion into the underlying
Ordinary shares.
 Preferred A, B and C shares were convertible into Ordinary shares according
to conversion rates of 15.5885, 53.4998 and 1 per Ordinary 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 Ordinary shares, 208,329 Preferred B shares
were converted into 11,145,557 Ordinary shares and 87,386,858 Preferred C shares were converted into 87,386,858 Ordinary shares.
 2.
    
    According to an agreement signed in December 2002, the
Company issued to the Chief Executive Officer (CEO) 11,927,727 Ordinary shares
in consideration for $100, subject to repurchase right according to certain
vesting terms. The subsidiary, TopSpin, gave the CEO a loan to finance the
purchase of the Companys shares. The loan is 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.
 The agreement determines 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 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 thousand 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 are subject to the
Companys right of repurchase according to the following terms:
 1)
    
    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.
 2)
    
    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.
 Through December 31, 2005, the Company accounted for these shares as a
variable plan and re-measured compensation at the period such shares were
vested. As of January 1, 2006 the fair value of the vested shares was
classified as a liability.
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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 4:- SHAREHOLDERS EQUITY (Cont.)
 In August 2005, according to the modifications in the employment agreement
and the loan agreement the security for the loan was replaced such that the
CEOs shares in a private company which holds 475,000 of the Companys shares
were pledged till the loan is fully paid.
 On March 4, 2007 the General Meeting of the Company approved to cancel the
pledge on the above mentioned shares and to repay the outstanding loan with
the grant.
 Consequently, the liability related to this loan in the amount of NIS 9,220
thousand was classified as equity.
 Compensation expenses (income) related to the CEO in the amount of NIS 8,866
thousand were recognized from inception.
 3.
    
    In December 2002, the Company granted fully vested options to
holders of Ordinary shares, for their services, which are exercisable into
1,805,138 Ordinary shares of the Company at $0.001 per share. The options
were exercised in September 2005 in consideration for NIS 7 thousand.
 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 Ordinary shares.
 5.
    
    On August 23, 2005, the Company increased its authorized
share capital to 500 million Ordinary 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 Ordinary 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 Ordinary 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 28, 2008, 22,522 options (Series 1) have been
exercised and the rest have been forfeited.
 Net proceeds total approximately NIS 32,430 thousand (net of issuance
expenses of NIS 3,670 thousand). 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 Ordinary shares 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.
 In the context of the registration statement, the Company is entitled to
offer up to 53,000,000 Ordinary shares and 26,500,000 warrants (series 3),
offered in 26,500,000 Units (each consisting of 2 Ordinary shares and 1
warrant (series 3)), for a period of one year from the date the registration
statement became effective.
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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 4:- SHAREHOLDERS EQUITY (Cont.)
 On June 6, 2007, the Company issued 24,398,402 Ordinary shares 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
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
thousand (net of issuance expenses of NIS 1,013 thousand).
 The shares issued represented 15.20% of the Companys issued and outstanding
share capital and voting rights prior to issuing the Ordinary shares.
 Each warrant (series 3) was exercisable into one Ordinary share of the
Company until June 30, 2009, in consideration for a cash payment of NIS 0.84.
On June 30, 2009, no warrants (series 3) have been exercised and all have
been forfeited.
 Series 2 expired on May 31, 2009. As a result, the entire liability in the
amount of NIS 250 thousand on account of series 2 was written off against
finance expenses.
 8.
    
    On October 12, 2008 the Company issued 450,000,000 shares of
common shares due to the settlement with convertible bonds holders
 9.
    
    On February 2, 2009 the Company entered into a private
placement agreement with an investor. 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
900,000. Each warrant is exercisable into one common share for the exercise
price of NIS 0.01 for a period of 4 years following the issuance date.
According to the Binomial model, with 92.96% volatility and 3.39% risk-free
interest rate, the fair value of the warrants amounted to approximately NIS
401,000.
 NOTE 5:- SHARES-BASED COMPENSATION
 a.
    
    On February 26, 2009 the Board of Directors approved an increase of an
additional 25,000,000 shares of Common Shares (20,872,261 of them available for
grant) to be granted under the 2003 Israeli Shares Option Plan.
 b.
    
    Issuance of options to employees, directors and consultants:
 1.
    
    On May 6, 2009 the Board of Directors of the Company approved
the designation of a new Finance Manager to the Company. As part of the
employment agreement of the new Finance Manager the Company granted 1,500,000
options which are exercisable into 1,500,000 Common shares of $0.001 par value
each, of which 750,000 will be exercisable 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. 25% of the options will vest after one year and the rest will vest
in a straight line over 12 quarters. According to the Binomial model, with
113.67% volatility and 4.5% average risk-free interest rate, the compensation
resulted from the grant amounted to approximately NIS 10,000.
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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 5:- SHARES-BASED COMPENSATION (Cont.)
 2.
    
    On June 23, 2009 the Audit Committee of the Company granted
24,500,000 options which are exercisable to purchase 24,500,000 Common shares
of $0.001 par value each at an exercise price of NIS 0.0143 per share. Fifty
percent of the options will vest within less than 6 months of the grant date
and the rest will vest in a straight line over 8 quarters. According to the
Binomial model, with 136.4% volatility and 4.5% average risk-free interest
rate, the compensation resulted from the grant amounted to approximately NIS
493,000.
 3.
    
    On September 22, 2009, one of the directors resigned and the
options granted to him in the amount of 5,500,000 were forfeited.
 c.
    
    Options to employees:
 1.
    
    A summary of the Companys share option activities for
options granted to employees under the plans excluding performance base
options is as follows:
 Nine months ended September 30, 2009WeightedaverageWeighted
    
    
    remainingaverage
    
    
    contractual
    
    
    Aggregateexercise
    
    
    term
    
    
    intrinsicNumber
    
    
    Price (**)
    
    
    (in years)
    
    
    valueOptions outstanding at January 1, 2009
    
    
    7,213,251
    
    
    NIS
    0.050Options
granted (*)
    
    
    26,000,000
    
    
    NIS
    0.014Options exercised
    
    
    (4,100,000
    )
    
    NIS
    0.004Options forfeited
    
    
    (8,380,438
    )
    
    NIS
    0.346Options outstanding at September 30,
2009
    
    
    20,732,813
    
    
    NIS
    0.016
    
    
    
    9.67
    
    
    
    237.7Options vested and expected to vest at
September 30, 2009
    
    
    20,732,813
    
    
    NIS
    0.016
    
    
    
    9.67
    
    
    
    237.7Options exercisable at September 30, 2009
    
    
    232,813
    
    
    NIS
    0.158
    
    
    
    5.73
    
    
    
    1.11
 (*)
    
    Options granted to directors of the Company are pending the approval
of the Tel Aviv Shares Exchange (TASE) and the Securities Exchange
Committee (SEC) The aggregate intrinsic value in the tables above
represents the total intrinsic value (the difference between the
Companys closing shares price on the last trading day of September 2009
and the exercise price, multiplied by the number of in-the-money
options) that would have been received by the option holders had all
option holders exercised their options on September 30, 2009. This
amount changes based on the fair market value of the Companys shares.
Total intrinsic value of options exercised by employees for the nine
months ended September 30, 2009 was zero.(**)
    
    Exercise prices for options granted before 2009
were nominated in US dollar, while exercise prices for options granted
in 2009 were nominated in NIS. The fair value for these options was estimated using the Binomial model
option-pricing model.
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Topspin Medical, Inc.
(A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 5:- SHARES-BASED COMPENSATION (Cont.)
 2.
    
    A summary of the activity under the performance share based
options granted to employees as follows:
 Nine months ended September 30, 2009WeightedaverageWeighted
    
    
    remainingaverage
    
    
    contractual
    
    
    Aggregateexercise
    
    
    term
    
    
    intrinsicNumber
    
    
    price
    
    
    (in years)
    
    
    valueOptions outstanding
at January 1, 2009
    
    
    2,390,000
    
    
    NIS
    0.56Options exercised
    
    
    (500,000
    )
    
    NIS
    0.004Options forfeited
    
    
    (150,000
    )
    
    NIS
    0.56Options outstanding at
September 30, 2009
    
    
    1,740,000
    
    
    NIS
    0.56
    
    
    
    7.27
    
    
    
    Options vested and
expected to vest at
September 30, 2009
    
    
    1,740,000
    
    
    NIS
    0.56
    
    
    
    7.27
    
    
    
    Options exercisable
at September 30, 2009
    
    
    1,740,000
    
    
    NIS
    0.56
    
    
    
    7.27
    
    
    
    
 3.
    
    Compensation expenses (income) related to options granted to employees were
recorded to research and development expenses and general and administrative
expenses, as follows:
 Period fromInception(September 20,Nine months ended
    
    
    Three months ended
    
    
    1999) throughSeptember 30,
    
    
    September 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009Research and
development
expenses
    
    
    (8
    )
    
    
    (1,127
    )
    
    
    
    
    
    
    8
    
    
    
    526General and
administrative
expenses
    
    
    316
    
    
    
    (531
    )
    
    
    
    
    
    
    45
    
    
    
    10,199308
    
    
    
    (1,658
    )
    
    
    
    
    
    
    53
    
    
    
    10,725
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Topspin Medical, Inc.
(A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 5:- SHARES-BASED COMPENSATION (Cont.)
 c.
    
    Options to non-employees:
 1.
    
    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 (amounts in thousands NIS):
 Nine months ended September 30, 2009WeightedaverageWeighted
    
    
    remaining
    
    
    Aggregateaverage
    
    
    contractual
    
    
    Intrinsicexercise
    
    
    terms
    
    
    ValueNumber
    
    
    price
    
    
    (in years)
    
    
    PriceOptions outstanding at January 1, 2009
    
    
    1,378,510
    
    
    NIS
    0.71Options forfeited
    
    
    (812,500
    )
    
    NIS
    0.29Options outstanding, vested and
expected to vest at September 30,
2009
    
    
    566,010
    
    
    NIS
    1.3
    
    
    
    4.3
    
    
    
    Options exercisable at
September 30, 2009
    
    
    566,010
    
    
    NIS
    1.3
    
    
    
    4.3
    
    
    
    
 The Company accounted for its options to non-employees under the
fair value method in accordance of ASC 718 (formerly SFAS 123(R)) and ASC 505
(formerly EITF 96-18). The fair value for options granted to non-employees
was estimated based on binomial option pricing model and amounts to
approximately NIS 2 thousand.
 A summary of the activity under the performance share-based options granted
to non-employees is as follows:
 Nine months ended September 30, 2009WeightedaverageWeighted
    
    
    remainingAverage
    
    
    contractual
    
    
    AggregateExercise
    
    
    term
    
    
    intrinsicNumber
    
    
    Price
    
    
    (in years)
    
    
    valueOptions outstanding
at January 1, 2009
and September 30,
2009
    
    
    900,000
    
    
    NIS
    0.42
    
    
    
    6.95
    
    
    
    Options exercisable at
September 30, 2009
    
    
    300,000
    
    
    NIS
    0.42
    
    
    
    6.95
    
    
    
    
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##### Table of Contents



Topspin Medical, Inc.
(A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 5:- SHARES-BASED COMPENSATION (Cont.)
 2.
    
    The Companys outstanding options to non-employees (including
options under performance) as of September 30, 2009, have been separated into
ranges of exercise prices as follows:
 WeighedaverageOptions for
    
    
    
    
    
    
    remainingExercise price
    
    Ordinary
    
    
    Options
    
    
    contractualper share
    
    shares
    
    
    exercisable
    
    
    term (in years)NIS 45.1
    
    
    14,010
    
    
    
    14,010
    
    
    
    3.0NIS 0.19
    
    
    552,000
    
    
    
    552,000
    
    
    
    4.33NIS 0.42
    
    
    900,000
    
    
    
    300,000
    
    
    
    6.951,466,010
    
    
    
    866,010
 Compensation expenses (income) related to options granted to non-employees
were recorded to research and development expenses and general and
administrative expenses, as follows:
 Period frominception(September 20,Nine months ended
    
    
    Three months ended
    
    
    1999) throughSeptember 30,
    
    
    September 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009Research and
development
expenses
    
    
    (1
    )
    
    
    (326
    )
    
    
    
    
    
    
    16
    
    
    
    166General and
administrative
expenses
    
    
    (2
    )
    
    
    (187
    )
    
    
    
    
    
    
    9
    
    
    
    1,305(3
    )
    
    
    (513
    )
    
    
    
    
    
    
    25
    
    
    
    1,471
 NOTE 6:- RELATED PARTY
 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
Directors, to serve as a temporary Chief Executive Officer (CEO) of the Group and
entered into a Consulting Agreement to that end.
 On May 5, 2009 the Board of Directors amended the agreement to reflect that Mr. Ehud
Gilboa will provide consulting services only, and that he will not act as the Groups
temporary CEO.
 In consideration for the services he provides, Mr. Gilboa is entitled to a monthly fee
of NIS 34,000 plus value added tax (approximately $9,000.), 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
 NOTE 7: SUBSEQUENT EVENTS
 a.
    
    In July 2009, the Israeli Parliament (the Knesset) passed the Economic Efficiency
Law 2009 (Amended Legislation for Implementing the Economic Plan for 2009 and 2010) which
prescribes, among other things, an additional gradual reduction in Israeli corporate tax
rate starting from 2011 to the following tax rates: 2011  24%, 2012  23%, 2013  22%,
2014  21%, 2015  20%, 2016 and thereafter  18%.
 The Company estimates that the Economic Efficiency Law is not expected to effect the
Companys consolidated financial statements.
 b.
    
    On November 15, 2009, the chairman of the board of directors, Mr.
Ehud-Moshe Gilboa, notified the board regarding his
resignation from his duties as chairman of the board and as a board
member effective immediately after the filing of this Quarterly
Report on Form 10-Q for the three months ended
September 30, 2009.
 
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ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  Overview
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Liquidity and Capital Resources
   ,
   Operating Activities
  Financing Activities
   - 26 -




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##### Table of Contents



Investing Activities
    Results of Operations
 For the three and nine months ended September 30, 2009 and 2008
 Revenues
  Research and Development Expense
  Selling and Marketing Expense
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##### Table of Contents



General and Administrative Expense
  Financing Income
  Taxes on Income
  Critical Accounting Policies
    - 28 -




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##### Table of Contents



Off-Balance Sheet Arrangements
 Commitments to Pay Royalties to the Chief Scientist
   Office Lease Commitments
   - 29 -




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##### Table of Contents



ITEM 4T. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
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PART II. OTHER INFORMATION
 
 ITEM 5. OTHER INFORMATION
   
 ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description31.1
    
    
    Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)31.2
    
    
    Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)32.1
    
    
    Certification of Chief Executive Officer and Chief Financial Officer Pursuant
to 18 U.S.C. Section 1350 Certifications as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
 
 *
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SIGNATURES
  Date:  November 15, 2009
    TOPSPIN MEDICAL, INC.By:
    /s/ Ehud-Moshe GilboaChairman of the Board of DirectorsDate:  November 15, 2009
    By:
    /s/ Eldad YehielyFinance Manager  - 32 -




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EXHIBIT INDEX
 ExhibitNumber
    
    Description31.1
    
    
    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
 
 *
    
    Incorporated by reference.  - 33 -