Filing summary: quarter ended September 30, 2011
Entity note: The supplied filing is for Topspin Medical, Inc. and its subsidiary, not My Size, Inc. It reports in NIS thousands unless otherwise stated. The interim financial statements are unaudited.
Business context and reporting period
Topspin had suspended operations in October 2008 and discontinued development of its intellectual property in 2010. It reported no operating revenue and was seeking new business activities and financing. The filing covers the three and nine months ended September 30, 2011, with comparisons to 2010.
Key financial metrics
| Metric | Q3 2011 | Nine months 2011 | Comparable 2010 |
|---|---|---|---|
| Revenue | None | None | None |
| General and administrative expense | 566 | 1,983 | 522 and 1,997, respectively |
| Net loss | (822) | (2,224) | (420) and (1,879), respectively |
| Loss per share | (NIS 0.07) | (NIS 0.22) | (NIS 0.26) and (NIS 1.23), respectively |
| Cash flow from operations | (8), per MD&A | (260) | (64) and (2,098), respectively |
At September 30, cash and cash equivalents were zero; current assets were 137 and current liabilities were 3,852, including trade payables of 1,415, other payables and accruals of 644, a 481 loan from an interested party, and a 1,312 tax provision. The balance sheet reported an investment in affiliate of 9,428, total assets of 9,565, and shareholders’ equity of 5,713. The filing reports an accumulated deficit of 186,656. No meaningful operating margins are available because the company had no revenue.
Material changes versus the prior comparable period
- Q3 net loss increased to 822 from 420; nine-month net loss increased to 2,224 from 1,879.
- Nine-month operating cash use declined to 260 from 2,098. The cash-flow statement shows a 1,964 adjustment to net loss; a note separately describes 1,964 as positive operating cash flow, which conflicts with the cash-flow statement and MD&A.
- In June, the company obtained a 19.56% interest in Metamorfix for no consideration and recorded it at an estimated fair value of 9,538, with an equal capital reserve. The balance-sheet carrying value at September 30 was 9,428. The company recognized a 110 loss from its subsidiary.
- In February, 10,122,463 shares were issued to Medgenesis in settlement of debt of $484, materially increasing shares outstanding; 11,645,405 shares were outstanding at September 30.
Outlook, risks, contingencies and unusual items
- Management said cash resources were insufficient for operations at current levels over the next 12 months. The filing states that substantial doubt exists about the company’s ability to continue as a going concern; it may be unable to raise funds or generate revenue.
- A NIS 1,000 credit line from controlling shareholder Ascher Smuelevitz was approved in August. Drawn amounts are CPI-linked, bear no interest, and are repayable upon a capital raise, change of control, or sufficient cash flow.
- After quarter-end, the company arranged a convertible loan totaling NIS 1,450 and had received NIS 1,200 by the financial-statement signing date. Terms include CPI linkage and 8% interest if the specified Metamorfix transaction is not completed by December 31, 2011.
- After quarter-end, options issued in exchange for debt waivers were expected to result in an additional 1,445 expense in Q4 2011. A proposed chairman-services arrangement remained subject to shareholder approval.
- The TASE had placed the shares on its maintenance list and notified the company that trading would move to the low-traded list in December 2011. Delisting was a risk if equity requirements were not met by the specified deadline.
- Metamorfix reported a nine-month loss of 1,428. Its anti-wrinkle clinical trial was ongoing; an interim review cited participant and physician satisfaction and no side effects, but follow-up was planned for one year.
- Management reported disclosure controls effective as of September 30, 2011. The filing’s cover page marked “No” for having filed all required reports during the preceding 12 months.
Important facts for investors to verify
- Confirm the registrant identity: this filing names Topspin Medical, Inc., despite the request metadata naming My Size, Inc.
- Reconcile the conflicting disclosure of 2011 operating cash flow: the statements and MD&A show cash use of 260 for nine months, while a note appears to call the 1,964 adjustment positive operating cash flow.
- Assess near-term liquidity, the zero cash balance, shareholder credit-line availability, and the terms and status of the post-quarter convertible loan.
- Review the Metamorfix valuation, ownership and transaction protections, subsequent fair-value adjustments, and clinical-trial progress.
- Monitor TASE listing status, the going-concern risk, and dilution or expenses associated with share and option issuances.