MYSZ 10-Q Quarterly Report Sept. 30, 2010 | Alphaminr
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MYSZ 10-Q Quarter ended Sept. 30, 2010

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10-Q 1 c08548e10vq.htm FORM 10-Q Form 10-Q
Table of Contents

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)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). þ Yes o No
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. o Yes o No
The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of November 9, 2010, was 761,470,882 .

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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for the fiscal quarter ending September 30, 2010 contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Those statements are therefore entitled to the protection of the safe harbor provisions of these laws. These forward-looking statements, which are usually accompanied by words such as “may,” “might,” “will,” “should,” “could,” “intends,” “estimates,” “predicts,” “potential,” “continue,” “believes,” “anticipates,” “plans,” “expects” and similar expressions, involve risks and uncertainties, and relate to, without limitation, statements about our market opportunities, our strategy, our competition, our projected revenue and expense levels and the adequacy of our available cash resources. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or forecasted in, or implied by, such forward-looking statements.
Although we believe that the expectations reflected in these forward-looking statements are based upon reasonable assumptions, no assurance can be given that such expectations will be attained or that any deviations will not be material. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q for the quarter ending September 30, 2010 may not occur and our actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We disclaim any obligation or undertaking to disseminate any updates or revision to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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

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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 2010
Unaudited
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
1,002 58
Accounts receivable and prepaid expenses
242 44
Restricted deposits
59 7
1,303 109
PROPERTY AND EQUIPMENT, NET
9 5
1,312 114
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
CURRENT LIABILITIES:
Trade payables
140 80
Other payables and accrued expenses
1,011 692
Loan from a related party
— 1,102
Liabilities in respect of options to employees and consultants
3 3
Tax provision
1,334 1,295
2,488 3,172
SHAREHOLDERS’ 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 2,975
Additional paid-in capital
177,966 177,963
Accumulated deficit
(182,117 ) (183,996 )
(1,176 ) (3,058 )
1,312 114
The accompanying notes are an integral part of the interim consolidated financial statements.
November 14, 2010
Date of approval of the Zvi Linkovski Uri Ben-Or
financial statements Chairman of the Board CFO

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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
NIS in thousands (except share and per share data)
Year ended Nine months ended Three months ended
December 31, September 30, September 30,
2009 2009 2010 2009 2010
Unaudited
General and administrative expenses
1,930 2,061 1,997 211 522
Financial income, net
254 258 118 91 102
Net loss
1,676 1,803 1,879 120 420
Basic and diluted loss per Common share
0.002 0.002 0.002 0.0002 0.0006
Weighted 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
The accompanying notes are an integral part of the interim consolidated financial statements.

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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIENCY
NIS in thousands (except share data)
Common shares
Number of Additional Total
Outstanding Share paid-in Accumulated shareholders’
Shares capital capital deficit deficiency
Balance as of January 1, 2009
636,870,882 2,457 177,187 (180,441 ) (797 )
Exercise of options
4,600,000 19 — — 19
Issuance of Common shares and warrants (series 3)
120,000,000 499 401 — 900
Classification of liability into equity in respect of exercise of options
— — 161 — 161
Stock-based compensation expense
— — 217 — 217
Net 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 )
The accompanying notes are an integral part of the interim consolidated financial statements.

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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NIS in thousands
Year ended Nine months ended
December 31, September 30,
2009 2009 2010
Unaudited
Cash 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 52
Purchase of property and equipment
(6 ) (6 ) —
Net cash provided by (used in) investing activities
497 481 52
Cash 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
— — 1,102
Net cash provided by financing activities
919 919 1,102
Increase (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 1,002
Cash and cash equivalents at the end of the period
1,002 1,704 58
The accompanying notes are an integral part of the interim consolidated financial statements.

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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NIS in thousands
Year ended Nine months ended
December 31, September 30,
2009 2009 2010
Unaudited
(a) Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation
7 6 4
Change 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
192 181 198
Decrease 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 —
The accompanying notes are an integral part of the interim consolidated financial statements.

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TOPSPIN MEDICAL, INC. AND ITS SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NIS in thousands (except share and per share data)
NOTE 1:- GENERAL
a. TopSpin Medical, Inc. (“the Company”) and its subsidiary, TopSpin Medical (Israel) Ltd. (“the subsidiary”) (collectively “the Group”) were engaged in research and development of a medical MRI technology.
In October 2008, the Company suspended its activities as described below.
The Company was incorporated and commenced operation in September 1999 as a private company registered in Delaware, U.S. On September 1, 2005, the Company issued securities to the public in Israel and became publicly traded on the Tel Aviv Stock Exchange (“TASE”). In 2007, the Company listed some of its securities with the U.S. Securities and Exchange Commission (“SEC”). The Company’s shares are traded only in Israel in NIS.
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.
On January 24, 2010, the Company decided to discontinue the development of its intellectual property due to management’s assessment from December 2009 that the Company will not be able to finalize the development of its intellectual property or sell products based on such intellectual property.
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.
There is uncertainty about the Company’s ability to generate revenues or raise sufficient funds in the near term, if any. These factors, among other factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
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.

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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.)
In addition, the Company, Medgenesis and the Shareholder signed an understanding agreement according to which they would assist the Company to acquire a commercial and industrial bio-tech activity.
On April 29, 2010, the investment agreement described above was cancelled and replaced by a loan agreement. See below in e.
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.
The loan bears interest at an annual rate of 4%. The loan shall be paid with the accrued interest thereon upon the occurrence of certain events as defined in the loan agreement.
In the event that the loan, including interest, are not repaid on the maturity date (as defined in the agreement), then the interest, on the outstanding loan shall be at a rate of 12% per year, for the actual number of days elapsed from the maturity date until the Lender receives payment of the full loan and related interest.
Pursuant to the loan and escrow agreement, the Company undertook, among other things, to file a petition seeking relief under Chapter 11 of Title 11 of the United States Code, pursuant to which the Company will apply to the U.S. bankruptcy court for the District of Delaware to authorize approval of transactions and all other actions required according to a plan to be prepared by the Company and approved by the lender in writing prior to any filing (the “Plan”). Further, the Company covenanted not to engage in certain conduct while funds loaned under the agreement are outstanding, including: (i) hiring employees; (ii) applying for any credit or loan from a banking institution; (iii) amending any of the Company’s organizational documents; and (iv) acting in any manner that would result in a material adverse effect on the Company or in non-compliance with the Plan.
On June 28, 2010 the Company received a letter from its lender requesting full payment of the loan since as of June 29, 2010 the Company has not yet filed Chapter 11. On June 29, 2010 the lender withdrew the remaining amount from the escrow account.
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.
As part of the restructuring plan, the Company requested the Bankruptcy Court to approve an increase in its registered capital, approve a reverse split of the Company’s reorganized Common Stock and approve converting the Medgenesis loan into Company’s common stock (under terms that have not yet been authorized by the Bankruptcy Court or the Company’s shareholders).

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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.)
On August 30, 2010, the United Stated Bankruptcy Court — District of Delaware approved the Chapter 11 settlement sought by the Company (“the first proposed settlement”). The first proposed settlement consists of capital consolidation at a ratio of 1:500 without derogating from the rights arising from holding the Company’s shares or stock options. The first proposed settlement also prescribes that following the capital consolidation, 2,806,524 of the Company’s shares will be allocated to Medgenesis against the waiver of the first loan which as of the date of the approval of the first proposed settlement amounted to approximately $ 284 thousand. According to the first proposed settlement, after said share allocation, Medgenesis would hold 55.94% of the Company’s issued and outstanding share capital and the Shareholder would hold 71.7% of the issued and outstanding share capital.
On October 4, 2010, the Company’s Audit Committee and Board of Directors approved an amended Chapter 11 settlement (“the settlement”) according to which:
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.
According to the settlement, after the share allocation, Megenesis would hold 86.92% of the Company’s issued and outstanding share capital and the Shareholder would hold 88.68% of the issued and outstanding share capital, under final chaining.
Subsequent to the reporting date, on October 22, 2010, the Bankruptcy Court entered the Order Granting Motion Of Debtor And Debtor-In-Possession For Authority To Incur Unsecured Debt Under Loan Agreement And For Approval Of Loan Agreement, pursuant to which the Bankruptcy Court authorized the Company to incur up to an additional $200,000.00 in loans from Medgenesis.
On October 26, 2010, the Bankruptcy Court entered the Order Approving Revised Disclosure Statement, pursuant to which the Bankruptcy Court approved the Company’s revised disclosure statement relating to its Plan and authorized the Company to solicit votes on the Plan. The Bankruptcy Court has scheduled December 20, 2010 for a hearing to consider confirmation of the Plan.
On November 4, 2010, the Company announced that a meeting of shareholders will be held on December 10, 2010 to approve the settlement.
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.
As of September 30, 2010, the Company’s outstanding debt to Medgenesis approximates $ 300 thousand (for both loans) after an amount of approximately $ 89 thousand held by the trustee had been recovered to Medgenesis on June 29, 2010.

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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.
On March 11, 2010 a legal quorum of 33% of the shareholders was not present in the general shareholders’ meeting and so the meeting was postponed to March 18, 2010.
On March 18, 2010 a legal quorum as detailed above was not present in the general shareholders’ meeting. Consequently, on March 18, 2010, due to lack of resources, the Company’s Board of Directors terminated the employment of the Company’s remaining finance department employees.
On April 28, 2010, the Company’s Board of Directors cancelled rescinded the termination of one finance employee of the Company and appointed her as controller and secretary of the Company. On September 12, 2010, the Company’s controller ceased her employment with the Company. On September 20, 2010, a CFO was appointed for the Company.
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.
On July 18, the Company received notification from TASE that TASE board of directors has decided to remove the Company’s shares to the preservation list beginning July 19, 2010.
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.

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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:
In January 2010, FASB issued ASU 2010-06 amending ASC 820, “Fair Value Measurements and Disclosures” to require a number of additional disclosure regarding fair value measurements, including the amount of transfers between Levels 1 and 2 of the fair value hierarchy. In addition, the amendments clarify certain existing disclosure requirements related to the level at which fair value disclosure should be disaggregated and the requirement to provide disclosures about the valuation techniques and inputs used in determining the fair value of assets or liabilities as classified as Levels 2 or 3. ASU 2010-06 was effective for fiscal years and interim periods ended after December 15, 2010. The adoption of the updated guidance did not have a material impact on the Company’s consolidated results of operations or financial condition.
NOTE 3:- UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ended December 31, 2010.
NOTE 4:- CONTINGENT LIABILITIES, COMMITMENTS AND CHARGES
a. Commitments to pay royalties to the Chief Scientist:
The subsidiary had obtained from the Office of the Chief Scientist of the State of Israel (“OCS”) 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, 2010, total grants obtained amount to approximately NIS 17,985.
The Company demands to receive from the OCS grants on behalf of expenses recorded in the year 2008 the amount of approximately NIS 3,200. As there is uncertainty regarding the receipt of the aforementioned amount, the Company did not record an asset in its financial statements. Since the beginning of 2009, the Company did not receive any grants from the OCS. The Company assumes the probability of receiving these grants is low.

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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:
At the beginning of May 2010, the Company signed a short-term lease agreement with a new lessor for a period of three months.
On June 13, 2010, the Company cancelled for no consideration the abovementioned short-term lease agreement and entered into another short-term lease agreement, renewable on a monthly basis.
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.
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 June 30, 2010, the increase in the Company’s number of authorized shares has not been approved.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist you in understanding our financial condition and plan of operations. You should read the following discussion along with our financial statements and related notes included in this Quarterly Report on Form 10-Q.
Overview
We were incorporated in Delaware on September 20, 1999. We have conducted all of our business operations through our wholly-owned Israeli subsidiary, TopSpin Medical (Israel) Ltd. (TopSpin Israel). TopSpin Israel was incorporated on October 5, 1999 and prior to our suspension of our activities due to financial considerations in October 2008, we were engaged through TopSpin Israel in the design, research, development and manufacture of imaging devices that utilize MRI technology by means of miniature probes for various body organs. We first began researching and developing this technology for use in diagnosis and therapy guidance of cardiology applications. In 2006, we began to develop our technology for the detection of prostate cancer in a way which could potentially aid urologists in guiding prostate biopsies, staging of prostate cancer and guiding local treatment such as cryo- and brachy-therapy.
On July 13, 2008, we reached an agreement (the “Settlement Agreement”) with the Ziv Haft Trust Company Ltd., the Co-Trustee of the Series A Debentures (the “Series A Bonds”). All of the conditions to the effectiveness of the Settlement Agreement were satisfied on September 25, 2008. On October 12, 2008, pursuant to the Settlement Agreement, we issued 450,000,000 shares of our common stock to the holders of the Series A Bonds (the “Bondholders”). On October 26, 2008, in further compliance with the Settlement Agreement, we paid NIS 12.5 million in cash with respect to each 1 NIS of the Series A Bonds (the “Cash Payment”). Following the Cash Payment on October 26, 2008, our Series A Bonds were cancelled.
As a result of the combination of the substantial outlay of cash in connection with the settlement and because the grants due to us for the year 2008 from the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade and Labor (“OCS”), an Israeli governmental agency, were not received in the expected timeframe, we decided to terminate the employment of all of TopSpin Israel’s employees (excluding the finance department) and suspend our operational activities as of October 27, 2008. In connection with this decision, the Board decided to continue to seek financing opportunities in order to resume the Company’s operations.
On January 27, 2010, the Company entered into an investment agreement (the “Investment Agreement”) with Medgenesis Partners Ltd., a private company organized under the laws of Israel and controlled by Ascher Shmulewits (“Medgenesis” and the “Stockholder”, respectively). Under the terms of the Investment Agreement, the Company agreed to issue Medgenesis 211,672,857 shares of common stock of the Company, (ii) a warrant to purchase 122,935,610 shares of Common Stock in exchange for payment by Medgenesis in the amount of $211,673 and cancellation and reissuance on a later date of a certain warrant issued by the Company to the Stockholder pursuant to a certain agreement, dated February 2, 2009, filed with the Securities and Exchange Commission on February 5, 2009. On February 1, 2010 the Investor transferred $53,804 of the investment amount detailed above.
On April 29, 2010, we entered into a loan agreement (the “Loan Agreement”) with Medgenesis, pursuant to which Medgenesis agreed to loan the Company a total of $353,804 (the “Funds”), consisting of (i) $53,804 already paid to the Company on February 1, 2010, pursuant to the Investment Agreement and (ii) an additional $300,000 to be placed in an escrow account and to be disbursed pursuant to an Escrow Instruction Letter (the “Letter”), dated as of April 29, 2010, between the Company, Medgenesis and the escrow agent. The Loan Agreement and the Letter provide that the Company may use the Funds for payment of legal fees, including fees associated with retaining its current counsel for bankruptcy counseling, and for payment of all other outstanding obligations as may be required by the Plan (as defined below). The Loan Agreement also provides for the termination of the Investment Agreement and all obligations of the parties there-under.
Pursuant to the Loan Agreement, the Company undertook to file a petition seeking relief under Chapter 11 of Title 11 of the United States Code, by which the Company will apply to the U.S. bankruptcy court for the District of Delaware to authorize approval of transactions and all other actions required according to a plan to be prepared by the Company and approved by Medgenesis in writing prior to any filing (the “Plan”). Further, the Company covenanted not to engage in certain conduct while Funds loaned under the Loan Agreement are outstanding, including (i) hiring employees; (ii) applying for any credit or loan from a banking institution; (iii) amending any of the Company’s organizational documents; and (iv) acting in any manner that would result in a material adverse effect on the Company or in non-compliance with the Plan. As of September 30, 2010, the outstanding loan balance, including unpaid interest at a rate of 4.0%, was $301,326.
On July 12, 2010, in accordance with the Loan Agreement, the Company filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) (Case No. 10-12213 (CSS)). The Company is managing its properties and operating its business as a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court.

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On September 26, 2010, the Company and Medgenesis signed another loan agreement totaling up to $200,000. The purpose of the loan is to cover the Company’s 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 borrowed approximately NIS 50 (approximately $14,000) under the second loan.
On October 22, 2010, the Bankruptcy Court entered the Order Granting Motion Of Debtor And Debtor-In-Possession For Authority To Incur Unsecured Debt Under Loan Agreement And For Approval Of Loan Agreement, pursuant to which the Bankruptcy Court authorized the Company to incur up to an additional $200,000.00 under the second loan.
On October 26, 2010, the Bankruptcy Court entered the Order Approving Revised Disclosure Statement, pursuant to which the Bankruptcy Court approved the Company’s revised disclosure statement relating to its Plan and authorized the Company to solicit votes on the Plan. The Bankruptcy Court has scheduled December 20, 2010 for a hearing to consider confirmation of the Plan.
Liquidity and Capital Resources
Since our inception, we have financed our operations principally through private and public sales of equity securities, issuance of convertible notes and receipt of grants from the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade and Labor, an Israeli governmental agency. On February 1, 2009, we issued (i) 120,000,000 shares of common stock, par value $0.001, and (ii) options to purchase up to an additional 58,064,516 shares of our common stock at an exercise price of 0.01 NIS per share, exercisable immediately and expiring four years following the date of issuance. In consideration of this issuance, we received NIS 900,000 (approximately $215,000).
As of September 30, 2010, we held approximately NIS 58,000 (approximately $16,000) in cash and cash equivalents.
The Company and its Subsidiary have not generated any revenues and have not achieved profitable operations or positive cash flows from operations. The Company has an accumulated deficit of NIS 183,996,000 (approximately $50,203,000) as of September 30, 2010, and it incurred a net loss of NIS 420,000 (approximately $111,000) and negative cash flow from operating activities in the amount of NIS 2,098,000 (approximately $553,000) for the three month period ended September 30, 2010.
Based on the Company’s approved budget, which takes into account the expected expenses for operating the business as a debtor-in-possession, the Company believes that the remaining balance of Funds loaned to the Company pursuant to the Loan Agreement will be sufficient to support its activities for the twelve month period from the date of the financial statements included in this quarterly report on Form 10-Q. The Company’s liabilities include a tax provision in the amount of approximately NIS 1,295,000 (approximately $353,000). Based on its current financial condition, the Company will have to raise additional funds in order to redeem its long-term liabilities and to continue as a going concern. The current economic market environment is causing significant contraction in the credit and financing marketplace, and may make raising capital materially more difficult for the Company or may prevent the Company from raising the funds that it needs to continue its current operations and/or to pursue new opportunities.
Operating Activities
In the nine months ended on September 30, 2010, we used NIS 2,098,000 (approximately $553,000) and in the same period in 2009 we used NIS 3,081,000 (approximately $772,000). Cash used in operating activities in 2010 is primarily attributable to professional fees incurred in connection with the negotiation of the Loan Agreement and the filing of our Chapter 11 petition in Bankruptcy Court. Cash used in operating activities in the same period in 2009 is attributed mainly to fees incurred in connection with the KAST acquisition, which was not subsequently consummated.
Financing Activities
In November 2006, we raised net proceeds of NIS 40,635,000 (approximately $11,878,000) through the sale of Series A Convertible Bonds and Series 2 Warrants in a private placement. In June 2007, we raised net proceeds of NIS 18,336,000 (approximately $5,360,000) through the sale of Common Stock and Series 3 Warrants. In February 2009, we raised net proceeds of NIS 900,000 (approximately $215,000) through a private placement of our common stock and options to purchase shares of our common stock with an investor.
On April 29, 2010, we entered into the Loan Agreement, as described above under the heading “Overview”, pursuant to which Medgenesis agreed to loan the Company a total of $353,804 for payment of legal fees, including fees associated with retaining its current counsel for bankruptcy counseling, and for payment of all other outstanding obligations as may be required by the Plan (as defined below). As of September 30, 2010, the remaining open loan amount, including unpaid interest at a rate of 4.0%, was $301,326. In the nine months ended September 30, 2009,NIS 919,000 (approximately 230,000$) was provided from financing activities.

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Investing Activities
In the nine month period ended September 30, 2010, we released NIS 52,000 (approximately $14,000) of restricted deposits, compared to NIS 481,000 (approximately $121,000) released in the same period in 2009.
Results of Operations
For the three and nine months ended September 30, 2010 and 2009
Revenues
We have not recorded any revenues from operations since the time of our inception in September 1999. We have financed our operations principally through private and public sales of equity securities, issuance of convertible notes and the receipt of grants from the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade and Labor, an Israeli governmental agency. We used the funds generated by these activities to support research and development, administrative, and other expenses associated with developing, testing and marketing our proposed products. As discussed above under the heading “Liquidity and Capital Resources”, our reduced cash status caused us to suspend our operational activities as of October 2008.
Research and Development Expense
Since our Board’s decision to suspend non-administrative operations in October 2008, we have not incurred any R&D expense.
Selling and Marketing Expense
Following our Board’s decision in April 2008 to shift the Company’s focus to the Urology Product, which was not yet in the marketing phase, we did not incur any selling or marketing expenses during the three months ended September 30, 2010, or during the corresponding period in 2009.
General and Administrative Expense
General and Administrative (G&A) expenses include salaries of all employees other than research and development employees and sales and marketing employees and other general expenses incurred by us that are not related to research and development or sales and marketing activities. G&A expenses for the three and nine months ended on September 30, 2010 decreased to NIS 522,000 and NIS 1,997,000, respectively (approximately $75,000 and $469,000, respectively) from NIS 443,000 and NIS 2,293,000, respectively (approximately $120,000 and $575,000 respectively) spent in the same period in 2009. This decrease was mainly due to the Company’s Board of Directors’ decision in October 2008 to suspend its activities and decrease the number of employees.
Financing Income
Financing income and/or expenses includes revaluations of certain balance sheet accounts that are linked to the U.S. Dollar exchange rate. Finance expenses, net for the three and nine months ended on September 30, 2010 decreased to NIS 102,000 and NIS 118,000, respectively (approximately $ 27,000 and $31,000, respectively) from NIS 91,000 and NIS 258,000, respectively (approximately $24,000 and $65,000, respectively) gained in the same periods in 2009.
Taxes on Income
In connection with the implementation of the Settlement Agreement, the Company recorded in December 2008, NIS 1,344,000 (approximately $353,000) which was revalued in September 2009 to NIS 1,328,000 (approximately $353,000) of provisional liabilities representing an estimate of potential tax liability that we may incur in connection with the conversion of the Series A Bonds.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
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.

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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. We have evaluated these amendments and believe they will have no impact on our financial condition or results of operations.
Off-Balance Sheet Arrangements
Commitments to Pay Royalties to the Chief Scientist
TopSpin Israel obtains grants from the OCS for participation in research and development and, in return, is obligated to pay royalties amounting to 3% of sales during the first three years from the start date of the repayments and 3.5% of sales from the fourth year until the full repayment of the grants. The grants are linked to the exchange rate of the dollar and bear interest of LIBOR per annum. As of September 30, 2010, the total amount of the obligation equals approximately NIS 17,985,000 (approximately $4,907,000).
The Company filed an application to receive OCS grants in a total amount of NIS 3,200,000 (approximately $ 873,124) in consideration of expenses recorded in the year 2008. However, we believe that it is unlikely that we will receive such funds.
Office Lease Commitments
The company leased, until September 2010, approximately 5 square meters of office space in Kfar Shmaryhu. The monthly rental fees are 2,000 NIS (approximately $546), plus the applicable value-added tax. The lease agreement between the Company and Tapuz Clothing Industries Ltd, the Landlord, is perpetually renewed on a monthly basis. The lease agreement may be terminated by either side upon a 15 days’ notice period.
ITEM 4T. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Principal Executive Officer and Principal Financial Officer (or such persons acting in those capacities), as appropriate, to allow timely decisions regarding required disclosure.
As of September 30, 2010, our management, including our Principal Financial Officer and the Chairman of the Board of Directors, who acts as our Principal Executive Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures and concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
Changes in Internal Control Over Financial Reporting
There has been a change in our internal control over financial reporting during the three month period ended on September 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting: the lack of resources within our finance department has resulted in an inadequate allocation of responsibilities with respect to the financial statement closing process, which we believe constitutes a material weakness in our internal control over financial reporting.
This material weakness results in a reasonable possibility that a material misstatement of the Company’s financial statements will not be prevented or detected on a timely basis for reporting periods after September 30, 2010.

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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibit
Number Description
10.1
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

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 15, 2010 TOPSPIN MEDICAL, INC.
By: /s/  Uri Ben-Or
Name: Uri Ben-Or
Title: Principal Financial Officer

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EXHIBIT INDEX
Exhibit
Number Description
10.1
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

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