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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 o
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED September 30, 2010.
 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 o
 o o
 761,470,882




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##### 



TOPSPIN MEDICAL, INC.
 FORM 10-Q
 FOR THE QUARTER ENDED SEPTEMBER 30, 2010
 PagePART I. FINANCIAL INFORMATION
    
    
    3ITEM 1. FINANCIAL STATEMENTS
    
    
    3ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    16ITEM 4T. CONTROLS AND PROCEDURES
    
    
    19PART II. OTHER INFORMATION
    
    
    20ITEM 6. EXHIBITS
    
    
    20SIGNATURES
    
    
    21Exhibit 10.1Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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FORWARD-LOOKING STATEMENTS




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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, 2010




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TOPSPIN MEDICAL, INC.
 (A Development Stage Company)
 CONSOLIDATED FINANCIAL STATEMENTS
 AS OF SEPTEMBER 30, 2010
 INDEX
 PageConsolidated Balance Sheets
    
    
    5Consolidated Statements of Operations
    
    
    6Statements of Changes in Shareholders Deficiency
    
    
    7Consolidated Statements of Cash Flows
    
    
    8  9Notes to Consolidated Financial Statements
    
    
    10  15




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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
 
 CONSOLIDATED BALANCE SHEETS  NIS in thousands (except share and per share data)
 December 31,
    
    
    September 30,2009
    
    
    2010UnauditedASSETSCURRENT ASSETS:Cash and cash equivalents
    
    
    1,002
    
    
    
    58Accounts receivable and prepaid expenses
    
    
    242
    
    
    
    44Restricted deposits
    
    
    59
    
    
    
    71,303
    
    
    
    109PROPERTY AND EQUIPMENT, NET
    
    
    9
    
    
    
    51,312
    
    
    
    114LIABILITIES AND SHAREHOLDERS DEFICIENCYCURRENT LIABILITIES:Trade payables
    
    
    140
    
    
    
    80Other payables and accrued expenses
    
    
    1,011
    
    
    
    692Loan from a related party
    
    
    
    
    
    
    1,102Liabilities in respect of options to employees and consultants
    
    
    3
    
    
    
    3Tax provision
    
    
    1,334
    
    
    
    1,2952,488
    
    
    
    3,172SHAREHOLDERS DEFICIENCY:Share capital -Common shares of $0.001 par value -Authorized: 1,000,000,000 shares at December 31, 2009
and September 30, 2010; Issued and outstanding: 761,470,882 shares at December 31, 2009 and September
30, 2010
    
    
    2,975
    
    
    
    2,975Additional paid-in capital
    
    
    177,966
    
    
    
    177,963Accumulated deficit
    
    
    (182,117
    )
    
    
    (183,996
    )(1,176
    )
    
    
    (3,058
    )1,312
    
    
    
    114
  November 14, 2010Date of approval of the
    
    Zvi Linkovski
    
    Uri Ben-Orfinancial statements
    
    Chairman of the Board
    
    CFO
  5




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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF OPERATIONS  NIS in thousands (except share and per share data)
 Year ended
    
    
    Nine months ended
    
    
    Three months endedDecember 31,
    
    
    September 30,
    
    
    September 30,2009
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010UnauditedGeneral and administrative expenses
    
    
    1,930
    
    
    
    2,061
    
    
    
    1,997
    
    
    
    211
    
    
    
    522Financial income, net
    
    
    254
    
    
    
    258
    
    
    
    118
    
    
    
    91
    
    
    
    102Net loss
    
    
    1,676
    
    
    
    1,803
    
    
    
    1,879
    
    
    
    120
    
    
    
    420Basic and diluted loss per Common
share
    
    
    0.002
    
    
    
    0.002
    
    
    
    0.002
    
    
    
    0.0002
    
    
    
    0.0006Weighted average number of Common
shares outstanding used in basic
and diluted net loss per share
calculation
    
    
    748,641,841
    
    
    
    744,318,501
    
    
    
    761,470,882
    
    
    
    761,470,882
    
    
    
    761,470,882
   6




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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
 
 STATEMENTS OF CHANGES IN SHAREHOLDERS DEFICIENCY  NIS in thousands (except share data)
 Common sharesNumber of
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    TotalOutstanding
    
    
    Share
    
    
    paid-in
    
    
    Accumulated
    
    
    shareholdersShares
    
    
    capital
    
    
    capital
    
    
    deficit
    
    
    deficiencyBalance as of January 1, 2009
    
    
    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
    
    
    
    
    
    
    
    
    
    
    217
    
    
    
    
    
    
    
    217Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,676
    )
    
    
    (1,676
    )Balance as of December 31, 2009
    
    
    761,470,882
    
    
    
    2,975
    
    
    
    177,966
    
    
    
    (182,117
    )
    
    
    (1,176
    )Reversal of stock-based
compensation expense
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,879
    )
    
    
    (1,879
    )Balance as of September 30,
2010 (unaudited)
    
    
    761,470,882
    
    
    
    2,975
    
    
    
    177,963
    
    
    
    (183,996
    )
    
    
    (3,058
    )
   7




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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS  NIS in thousands
 Year ended
    
    
    Nine months endedDecember 31,
    
    
    September 30,2009
    
    
    2009
    
    
    2010UnauditedCash flows from operating activities:Net loss
    
    
    (1,676
    )
    
    
    (1,803
    )
    
    
    (1,879
    )Adjustments to reconcile net loss to net cash used in
operating activities (a)
    
    
    (2,123
    )
    
    
    (1,278
    )
    
    
    (219
    )Net cash used in operating activities
    
    
    (3,799
    )
    
    
    (3,081
    )
    
    
    (2,098
    )Cash flow from investing activities:Change in restricted deposits, net
    
    
    503
    
    
    
    487
    
    
    
    52Purchase of property and equipment
    
    
    (6
    )
    
    
    (6
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    497
    
    
    
    481
    
    
    
    52Cash flows from financing activities:Exercise of stock options and warrants
    
    
    19
    
    
    
    19
    
    
    
    Proceeds from issuance of shares and warrants (series
3), net of issuance expenses
    
    
    900
    
    
    
    900
    
    
    
    Loan from a related party
    
    
    
    
    
    
    
    
    
    
    1,102Net cash provided by financing activities
    
    
    919
    
    
    
    919
    
    
    
    1,102Increase (decrease) in cash and cash equivalents
    
    
    (2,383
    )
    
    
    (1,681
    )
    
    
    (944
    )Cash and cash equivalents at the beginning of the period
    
    
    3,385
    
    
    
    3,385
    
    
    
    1,002Cash and cash equivalents at the end of the period
    
    
    1,002
    
    
    
    1,704
    
    
    
    58
   8




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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
 CONSOLIDATED STATEMENTS OF CASH FLOWS  NIS in thousands
 Year ended
    
    
    Nine months endedDecember 31,
    
    
    September 30,2009
    
    
    2009
    
    
    2010Unaudited(a) Adjustments to reconcile net loss to net cash used
in operating activities:Depreciation
    
    
    7
    
    
    
    6
    
    
    
    4Change in fair value of liability in respect of
warrants (series 2)
    
    
    (250
    )
    
    
    (250
    )
    
    
    Change in fair value of embedded derivative
    
    
    (500
    )
    
    
    (500
    )
    
    
    (Reversal of) stock-based compensation
    
    
    217
    
    
    
    187
    
    
    
    (3
    )Change in fair value and amortization of stock
options classified as a liability
    
    
    115
    
    
    
    117
    
    
    
    Accrued severance pay, net
    
    
    (270
    )
    
    
    (270
    )
    
    
    Decrease in accounts receivable and prepaid expenses
    
    
    192
    
    
    
    181
    
    
    
    198Decrease in trade payables
    
    
    (315
    )
    
    
    (102
    )
    
    
    (60
    )Decrease in tax provision, other payables and
accrued expenses
    
    
    (1,319
    )
    
    
    (647
    )
    
    
    (358
    )Total adjustments
    
    
    (2,123
    )
    
    
    (1,278
    )
    
    
    (219
    )(b) Supplemental disclosure of cash flow activities:Classification of liabilities into equity
    
    
    161
    
    
    
    161
    
    
    
    
   9




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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
 
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS  NIS in thousands (except share and per share data)
 NOTE 1:- GENERAL
 a.
    
    TopSpin Medical, Inc. (the Company) and its subsidiary, TopSpin Medical
(Israel) Ltd. (the subsidiary) (collectively the Group) were engaged in research
and development of a medical MRI technology.
   b.
    
    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.
  c.
    
    The Group has not generated any revenues and has not achieved profitable
operations or positive cash flows from operations. The Company has an accumulated
deficit of NIS 183,996 as of September 30, 2010, and it incurred a net loss of
NIS 1,879 and negative cash flows from operating activities in the amount of
NIS 2,098 for the period ended September 30, 2010.
  d.
    
    On January 27, 2010, the Company entered into an investment agreement
(the Agreement) with Medgenesis Partners Ltd. (Medgenesis), a private company
incorporated under the laws of Israel and controlled by Mr. Ascher Shmuelevich (the
Investor and the Shareholder, respectively). Under the terms of the Agreement,
the Company will issue to the Investor: (i) 211,672,857 Common shares of the
Company, par value $ 0.001; (ii) a warrant to purchase 122,935,610 Common shares
(the Investment Warrant); and (iii) a warrant to purchase 58,064,516 Common shares
(the Substituted Warrant, and together with the shares and the Investment Warrant,
the Securities) in exchange for payment by the Investor of the amount of $ 212
thousand and the cancellation of a certain warrant issued by the Company to the
Shareholder pursuant to a certain agreement, dated February 2, 2009, filed with the
Securities and Exchange Commission on February 5, 2009 (the Cancelled Warrant)
(collectively, the Transaction). The Common shares and the Investment Warrant will
constitute 33.25% of the Companys fully diluted equity. In total, the investor will
hold privately and through Medgenesis 43.4% of the Companys fully diluted equity.
All the Securities issued in connection with the Agreement will be subject to
certain transfer restrictions in compliance with U.S. and Israeli securities laws.
  10




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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS  NIS in thousands (except share and per share data)
 NOTE 1:- GENERAL (Cont.)
   e.
    
    On April 29, the Companys Board of Directors entered into a loan and
escrow agreement with Medgenesis Partners Ltd., a company controlled by Asher
Shmuelevich (the Lender and the Shareholder, respectively). Pursuant to the loan
agreement, the Lender lend the Company approximately $ 354 thousand. An amount of
$ 54 thousand was paid to the Company on February 1, 2010, and pursuant to the
Investment Agreement (see d above), was used for on-going expenses of the Company.
The remaining amount of $ 300 thousand was placed in escrow. This amount was used
for Chapter 11 proceedings in the U.S. (as described below) and for payments as
determined by the Lender.
     f.
    
    On July 7, 2010 the Companys Board of Directors unanimously approved the
filing of Chapter 11. Subject to the approval of the Companys request the Company
will be able to increase its capital, change its capital structure and convert the
loan from Medgenesis. The request was filed in Delaware on July 12, 2010.
   11




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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS  NIS in thousands (except share and per share data)
 NOTE 1:- GENERAL (Cont.)
   1.
    
    A capital consolidation at a ratio of 1:500 will be carried out
in the context of the consolidation.
 2.
    
    The conversion of loans totaling $ 484 thousand which were
extended and/or will be extended to the Company by Medgenesis into 10,122,463
Companys shares.
     g.
    
    On September 26, 2010, the Company and Medgenesis signed another loan
agreement totaling up to $ 200 thousand. The purpose of the loan is to cover the
Companys current expenses, complete the Chapter 11 proceeding and settle some of
the unsecured creditors claims based on the settlement approved by the Court and
the relevant regulatory entities. The loan agreement is contingent on the Courts
approval of the Chapter 11 proceeding in Delaware (the second loan). As of
September 30, 2010, the Company had borrowed approximately NIS 50 (approximately
$ 14 thousand) under the second loan.
   12




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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS  NIS in thousands (except share and per share data)
 NOTE 1:- GENERAL (Cont.)
 h.
    
    On February 2, 2010, the Company called for a general shareholders
meeting to be held on March 11, 2010. The meetings purpose is to approve the above
mentioned private placement which would provide the Investor with 25% of the
Companys voting rights. Should the conditions for the grant to the Investor not
exist, the Company would be able to approve a private placement of up to 58,804,000
shares under certain Israeli rules. The private placement would provide the Investor
25% of the voting rights in return for paying for the placement.
    i.
    
    On February 4, 2010, the Tel Aviv Stock Exchange (TASE) notified the
Company that it does not comply with the preservation regulations due to having
equity lower than NIS 2,000 in the last four reporting quarters. The Company was
given an extension until June 30, 2010 to increase its equity. If the required
increase in equity does not occur until that date, the TASE board of directors will
discuss transferring the Companys shares to the preservation list.
  j.
    
    On March 2, 2010, the Board of Directors approved to grant Mr. Zvi
Linkovski, director in the Company, 10 million options which are exercisable into 10
million Common shares of $ 0.001 par value each which make up 1.19% of the Companys
fully diluted equity. The options exercise price is NIS 0.0143. 50% of the options
would vest on February 16, 2011 and after then, every quarter 6.25% of the options
would vest. The grant is conditional on enlarging the option pool as part of
increasing the Companys issued stock, changing the Companys status from a shell
company (as defined in the Securities Exchange Act of 1934) into an active one. As
of the date of the financial statements, the option pool and the Companys status
were not enlarged.
  13




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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS  NIS in thousands (except share and per share data)
 NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
 a.
    
    The significant accounting policies applied in the annual financial
statements of the Company as of December 31, 2009, are applied consistently in these
consolidated financial statements.
 b.
    
    Impact of newly issued accounting pronouncements:
  NOTE 3:- UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 4:- CONTINGENT LIABILITIES, COMMITMENTS AND CHARGES
 a.
    
    Commitments to pay royalties to the Chief Scientist:
    14




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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS  NIS in thousands (except share and per share data)
 NOTE 4:- CONTINGENT LIABILITIES, COMMITMENTS AND CHARGES (Cont.)
 b.
    
    Commitments:
   c.
    
    The subsidiary pledged a bank deposit which is used as a bank guarantee
amounting to NIS 7 to secure its payments in accordance with the credit limits given
to it by the credit card companies.
 NOTE 5:- SHAREHOLDERS DEFICIENCY
 a.
    
    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 a 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. 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.
 b.
    
    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 Common shares and to amend the Corporations certificate of
incorporation whereby the total number of authorized Common shares shall be
increased by 500,000,000 shares.
   15




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
  Overview
         16




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Liquidity and Capital Resources
     Operating Activities
  Financing Activities
    17




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Investing Activities
  Results of Operations
 For the three and nine months ended September 30, 2010 and 2009
 Revenues
  Research and Development Expense
  Selling and Marketing Expense
  General and Administrative Expense
  Financing Income
  Taxes on Income
  Critical Accounting Policies
    18




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Off-Balance Sheet Arrangements
 Commitments to Pay Royalties to the Chief Scientist
   Office Lease Commitments
  
 ITEM 4T. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
    19




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PART II. OTHER INFORMATION
 
 ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description10.1
    
    
    Employment Agreement, dated September 26, 2010, between TopSpin Medical, Inc. and Uri Ben-Or.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
  20




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SIGNATURES
  Date: November 15, 2010
    TOPSPIN MEDICAL, INC.By:
    /s/
 Uri Ben-OrName:  Uri Ben-Or
Title:  Principal Financial Officer  21




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EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    
    Employment Agreement, dated September 26, 2010, between TopSpin Medical, Inc. and Uri Ben-Or.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
  22