Business context and reporting period
Topspin Medical, Inc. filed this unaudited Form 10-Q for the quarter ended March 31, 2012. The request identifies My Size, Inc., but the filing names Topspin Medical, Inc.; verify the issuer and filing match. Topspin’s former MRI business had been suspended since 2008. Following its December 2011 acquisition of Metamorefix, the company’s focus was development of tissue-regeneration products. Metamorefix is treated as the accounting acquirer, so prior-period comparisons reflect its results and may not be directly comparable.
Key financial metrics
Unless noted otherwise, figures are in NIS thousands.
| Metric | Q1 2012 / March 31, 2012 | Comparable period / prior year-end |
|---|---|---|
| Revenue | None | None reported |
| Operating expenses | 1,475 | 519 in Q1 2011 |
| Net loss | 1,429 (approximately $385,000) | 489 in Q1 2011 |
| Operating cash flow | $(938) | $(817) in Q1 2011 |
| Cash and equivalents | 90 | 929 at December 31, 2011 |
| Total assets | 637 | 1,565 at December 31, 2011 |
| Total liabilities | 3,246 | 3,110 at December 31, 2011 |
| Shareholders’ deficiency | $(2,609) | $(1,545) at December 31, 2011 |
Research and development expense was 297, down about 25% from 398, attributed to lower subcontractor costs after preclinical and clinical work. General and administrative expense rose to 1,178 from 121, primarily reflecting service-provider fees, management and director fees, and share-based compensation. No profit or operating margin was reported. Current assets were 420 versus current liabilities of 3,061, implying a working-capital deficit of 2,641. The filing does not clearly identify a conventional borrowing balance; liabilities include payables, accruals, a tax provision, and an options-and-warrants liability.
Material changes and unusual items
- Cash fell by 839 during the quarter. Financing activities provided 104 and investing activities used 5; operating activities used 938.
- In March, the company issued 1,271,597 shares in a financing round totaling 1,234, of which 1,130 had been received before year-end, and issued 186,902 shares to settle 165 of debt. The cash-flow statement reports 104 of Q1 share-issuance proceeds.
- Share-based compensation of 96 was recorded in Q1. Shareholders approved options for five directors; the filing reports an estimated aggregate fair value of 332 to be recognized over vesting, but says the options had not yet been issued as of the financial-statement date.
- The company reported an accumulated deficit of 11,588 since inception and stated it had never generated revenue or positive operating cash flow.
Outlook, risks and contingencies
Management said available cash was insufficient to fund operations at current levels for the next 12 months and described efforts to raise capital and find additional business activities. The filing states that, as of the financial-statement date, the company had no cash or other financial resources to finance its activities and had ceased payments to employees and suppliers; this should be read alongside the reported March 31 cash balance of 90. The company disclosed substantial doubt about its ability to continue as a going concern. No quantified revenue or earnings guidance was provided. Management expected expenses to rise with clinical trials required for FDA approval.
- The company was negotiating to acquire at least 55% of First Care Products; completion and favorable terms were uncertain.
- The Tel Aviv Stock Exchange gave the company until June 30, 2012 to meet a 15% minimum public-float requirement or face transfer to the maintenance list.
- Potential royalties to Israel’s Office of the Chief Scientist were approximately 446 plus interest, payable only if qualifying product sales or related revenues occur. Neither Topspin nor Metamorefix was then eligible for further grants.
- Management cited financing-market conditions and the risk that needed capital might not be raised.
- The statements show financial income of 46 for Q1 2012, while MD&A describes net financial expense of 46; the filing’s presentation is inconsistent.
Investor facts to verify
- Confirm that this Topspin Medical 10-Q is the intended filing, given the My Size, Inc. request metadata.
- Verify near-term funding, payment status for employees and suppliers, and the company’s going-concern assumptions.
- Reconcile the reported cash balance with the statement that the company had no financial resources.
- Reconcile the financial income/expense description and confirm the share-financing proceeds and debt-settlement details.
- Check the status of the First Care negotiations, the public-float deadline, and any subsequent financing or option issuances.