CITRINE GLOBAL, CORP. - Annual Report: 2017 (Form 10-K)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2017

or

For the transition period from ________________ to ________________

Commission file number 000-55680

TECHCARE CORP.
(Exact Name of Registrant As Specified In Its Charter)

Registrant’s Telephone Number, Including Area Code: +(972) 3 750-3060 or (646) 380-6645

Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $0.0001

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.[  ] Yes [X] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [  ] Yes [X] No

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. [X] Yes [  ] 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).[X] Yes [  ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).[  ] Yes [X] No

On June 30, 2017, the aggregate market value of the common stock held by non-affiliates of the registrant was approximately $4.4 million based on the closing price of $0.5 per share of the Registrant’s common stock on June 30, 2017.

The registrant had 28,160,982 shares of common stock outstanding as of April 2, 2018.

EXPLANATORY NOTE

On March 27, 2018, management and the Board of Directors of TechCare Corp. concluded that our previously issued condensed consolidated financial statements as of March 31, 2017, June 30, 2017 and September 30, 2017 and for each of the three-month and year-to-date periods then ended (collectively, the “Non-Reliance Periods”) should not be relied upon because of misstatements described below. Accordingly, they concluded that the unaudited condensed consolidated financial statements for those periods should be restated, which we refer to herein as the Restatement.

This Annual Report on Form 10-K for the year ended December 31, 2017 includes restated unaudited condensed financial information for the first three quarterly periods in 2017. Our unaudited condensed consolidated financial information for: (i) the three months ended March 31, 2017 included in this Annual Report on Form 10-K have been restated from the unaudited consolidated financial statements included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (as filed with the Securities and Exchange Commission on June 13, 2017); (ii) the three and six months ended June 30, 2017 included in this Annual Report on Form 10-K have been restated from the unaudited consolidated financial statements included in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 (as filed with the Securities and Exchange Commission on August 7, 2017); and (iii) the three and nine months ended September 30, 2017 included in this Annual Report on Form 10-K have been restated from the unaudited consolidated financial statements included in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 (as filed with the Securities and Exchange Commission on November 9, 2017).

Restatement Background

During the year-end financial statement close, management identified a misstatement in these periods related to the Company’s stock compensation expense recorded in 2017. The misstatement stemmed from an erroneous recording of additional stock compensation expense of $943,901 during the three months ended March 31, 2017 related to certain fully vested awards that were granted in December 31, 2016 and were properly fully expensed in 2016. The Restatement also corrects certain other errors such as: (i) Measurement of advances to suppliers that were previously expensed that impacted the quarters ended June 30, 2017 and September 30, 2017, and (ii) errors in the classification of certain expenses within the consolidated statements of operations and comprehensive loss in order to reflect the correct nature of the expense.

See Note 16 to our financial statements included in this annual report for the impact of each of the periods. The Restatement does not impact 2016 or any quarterly or year-to-date periods therein.

TABLE OF CONTENTS

Cautionary Statement regarding Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). These forward-looking statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other comparable terminology. These forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks set out in the section hereof entitled “Risk Factors” and the risks set out below, any of which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Forward-looking statements are made based on management’s beliefs, estimates and opinions on the date the forward-looking statements are made, and we undertake no obligation to update forward-looking statements should these beliefs, estimates, and opinions or other circumstances change. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these forward-looking statements to actual results.

Our financial statements are stated in United States dollars (“US$”) and are prepared in accordance with United States generally accepted accounting principles (“GAAP”). In this Annual Report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common stock” refer to the shares of our common stock. As used in this Annual Report, the terms “we,” “us,” “our,” “TechCare,” the “Company” and the “Registrant” mean TechCare Corp. and its subsidiaries unless the context clearly requires otherwise.

PART I

ITEM 1. BUSINESS

Corporate Background

We are a technology company engaged in the design, development and commercialization of a platform utilizing proprietary vaporization technology to commercialize health, wellness and beauty treatments, or the Platform.

Our product offerings include Novokid, an innovative home use device for the elimination of lice and eggs while employing a natural, plant based compound, pesticides and silicone free and Shine, a revolutionary home use device for hair and scalp cleansing and rejuvenation.

As of the date hereof, we have limited operations and no revenues from our business operations. There is substantial doubt that we can continue as a going concern and an on-going business for the next twelve months without the success of our business operations which foresees the generation of the revenues during 2018.

We project that we will need to raise up to $1,000,000 during the next 12 months in order to successfully implement our business plan and to become profitable, of which there can be no assurance. Failure to obtain this necessary capital at acceptable terms, if at all, when needed, may force us to delay, limit, or terminate our products development efforts and secure regulatory approvals and would adversely impact our planned research and development efforts in connection with the Company’s future products, which may make it more difficult for us to attain profitability.

On February 8, 2016, we signed a Merger Agreement, or the Merger Agreement, with Novomic Ltd., or Novomic, a private company organized under the laws of the State of Israel and a Shareholders’ Agreement with the Novomic’s shareholders, or the Shareholders’ Agreement. The Merger Agreement was by and between the Company, on the one hand, and Novomic together with YMY Industry Ltd., or YMY, and Microdel Ltd. or Microdel, the latter two of which are hereinafter referred to as the “Novomic Founders,” on the other hand. On August 9, 2016, we consummated the merger under the Merger Agreement and Novomic became a wholly-owned subsidiary of the Company.

Upon closing of the merger, the former Novomic shareholders owned approximately 73.52% of our capital stock and TechCare stockholders retained approximately 26.48% of the combined company, on a fully diluted basis. Accordingly, while TechCare was the legal acquirer, Novomic was treated as the acquiring company in the merger for accounting purposes, and the merger was accounted for as a reverse merger as described in note 3 to our financial statements for the year ended December 31, 2017, which are included within Item 8 in this annual report.

As a result, the financial statements of the Company prior to the merger date are the historical financial statements of Novomic, whereas the financial statements of the Company after the merger date reflect the results of the operations of Novomic and Techcare on a combined basis.

In connection with the closing of the Merger Agreement, the Company (i) changed its name from BreedIT Corp. to TechCare Corp.; (ii) the 149,219,173 outstanding shares of the Registrant’s common Stock were subject to a reverse split on a one-for-thirty (1:30) basis, resulting in 4,973,972 outstanding shares of common stock; and (iii) authorized ten million (10,000,000) shares of preferred stock, par value $0.0001, which may be issued in one or more classes or series, having such designations, preferences, privileges and rights as our board of directors may determine.

Novomic was incorporated as a private limited liability Company in Israel in 2009. Since inception, Novomic has been a technology company engaged in the design, development and commercialization of the Platform utilizing its proprietary device that vaporizes liquids from a contained capsule into a treatment area.

Our Treatment Solutions

Novokid – Natural, Plant-based and Effective Lice Treatment

Parents and children exposed to head lice are now forced to use standard over-the-counter, or OTC, treatments that are toxic, often ineffective, time consuming and expensive. According to the Journal of Medical Entomology, 98% of lice have developed resistance to existing treatments in the US and they have now referred to as “super-lice”. Most current treatments contain pesticides, alcohol or silicone, which are all associated with a wide variety of hazardous side effects.

Novokid is a non-pesticide, natural, plant-based and eco-friendly solution that eliminates lice and super lice by a 10 minute dry treatment. This compares with current treatments that required 20-40 minutes of shampooing and daily combing. Our treatment is fast, dry, clean, and easily administered at home or on the go. Novokid can also be used as a maintenance and preventative treatment if used regularly.

Shine – Natural Haircare rejuvenation

Shine uses cold vaporization and a proprietary formulation to clean, treat and improve the appearance of the hair and scalp. In addition to removing the residue of products, the treatments will balance the hair’s pH levels, add body and shine, define curls, and strengthen and protect hair from further damage. Like our solution for lice, users simply put a Shine capsule in the compressor, place the attached cap on their head and sit for a 10-minute treatment. There is no need to rinse or shampoo following the treatment.

The global hair care market is estimated to be in excess of $80 billion per annum and we are looking to establish a presence in the home treatment niche. To that end, we are in the process of expanding the Shine treatment product line to include formulations for the needs of specific hair types, such as dry, curly, colored, and over-processed hair.

Recent Developments and Plans

Our current and future products are all based on the Platform which was developed over a period of seven years. During the past 18 months, we have achieved the following:

During the next 12-18 months, we plan to focus our efforts on the following:

We may be required to obtain additional regulatory approvals for our head lice treatment platform and any future products. If unable to receive regulatory approval or commercialize our product candidates, our business will be adversely affected. CE approval, already obtained, is required for the marketing, distributing and sale of our products in the European Union, whereas FDA approval is required for such marketing, distributing and sale in the United States. In the event that our products are to be sold in certain territories requiring additional regulatory approvals, such approvals will need to be obtained by us or by our distributors.

Sales and Marketing

While the vaporizer for both Novokid and Shine is designated to be a one-time purchase, the head cap and capsules, will be sold separately based on the razor/razor-blade business model. Based on our estimates, which we believe are both reasonable and conservative, our target customers are expected to purchase between 12-16 capsule units per year. Therefore, we estimate that the majority of our revenues will be generated in the future based on capsules sales for both Novokid and Shine products.

The Company plans to focus its initial sales and marketing efforts on the European Union, where CE approval was obtained in Q3 2017, and once FDA approval for the Novokid product is received also the United States.

In order to achieve our intended global footprint and market presence, we plan to base our primary distribution method on the distribution model, in which the distributor will sell our products under our name and branding. In specific instances, we will consider implementing the OEM model, in which the distributor will sell our products under a co-branding arrangement. We believe that these models will reduce our marketing costs while starting to generate revenues to support our research and development efforts for utilizing our technological platform to expand our product line.

The Company also plans to market and advertise its products through implementing an omni-channel strategy, both through online and retail sales outlets, which we believe will present a huge opportunity for generating sales and market acceptance.

Production

We manufacture our products through third party manufacturers in Israel and China. The Novokid vaporizer is manufactured in China by a local manufacturer which also handles assembly, integration and quality assurance for the vaporizer and manufactures the cap and the ancillary components of the Novokid Kit. The Novokid treatment capsules are manufactured and filled in Israel by third party contractors.

Research and Development

We incurred approximately $1.3 million on research and development during the past two years. During this period, the Company completed the development of both the Novokid and Shine products, which included finalization of commercial design of the compressor, capsules and head cap and optimizing the products efficiency.

We plan to build upon the research and development achievements we had with the completion of the Novokid product for head lice treatment as the basis to expand our variety of treatments and solutions, which will also be based on the developed Platform and the knowledge we gained during the past two years.

Intellectual Property

Due to the importance of patents, we have has devoted significant efforts and resources and will continue to invest resources in strengthening our patent portfolio. Below is the list of patents we have registered to date:

* Under approval process.

We plan to expand our existing patents to encompass additional applications.

Competition

Novokid

In the key markets, in which we plan to compete, our competition will range from prescription and OTC treatments, many of which are well-established and accepted in the market, to simple home remedies, which include occlusive agents, such as “petrolatum shampoo,” mayonnaise, butter or margarine, herbal oils, and olive oil, applied to suffocate the lice. These home remedies, while widely used, have not been evaluated for effectiveness in randomized controlled trials. To date, only anecdotal information is available concerning effectiveness.

At present, there are four to five products and many low-cost generics and store brand equivalents that dominate the lice treatment market. However, the active ingredients in these pharmacological therapies are mostly based on chemical insecticides. A major problem that chemical-based solution are now facing (mainly pyrethroids) is that a growing amount of head lice have developed gene mutation that made them resisted to pyrethroids (those lice are being referred in the common population as “Super Lice”). Pyrethroids are the family of insecticides used to kill lice in common over-the-counter treatment products.

During our research we found that no product on the market today provides a complete solution comparable to our treatment, which we believe will place us in position to succeed in the head lice treatment market. Our treatment is designed to create an isolate, controlled environment around the head lice-infested area, in-which a vapor concentration of acetic acid is created, which will be fatal for lice and their eggs, but harmless to the skin and hair of the patient.

Shine

In the key markets, in which we plan to compete, our competition will range from other beauty and hair care related devices and other dry cosmetic products. Our market research has indicated that we present a unique and innovative alternative to such treatments presenting an efficient, easy to use, cost effective treatment.

Seasonality

It is unlikely that all head lice infestations can be prevented, because children come into head-to-head contact with each other frequently, most often in school or in other environments where children are together. As a result, head-lice incidence peaks during the school year and during the summer camps. Therefore, we expect strong demand for our product throughout the year with minor or no seasonality fluctuations.

Social and Economic Factors

Schools in the United States, Canada, and Australia commonly exclude infested students, and prevent return of those students until all lice, eggs, and nits are removed. This could have major social implications on both the children and the parents that are required on a day’s notice to cease their day-to-day activities and focus on their child’s head lice problem. To save time and for better results, we believe that people will readily accept and use the latest technology and cost efficient product represented by our treatment.

Israel, our home base country, had a corporate tax rate of 24% in 2017 and has signed tax treaties with many countries to reduce export and import tariffs. We believe that this export friendly policy of Israel will help our business because we will be manufacturing the capsules, which are the main component of the products in Israel, for export to the United States, Canada and countries of European Union with the collective market we estimate to have hundreds of millions of persons, mostly children, infected with head lice on an annual basis.

Government Regulation

Our head lice treatment is subject to regulation by and approval from CE and the FDA. European Union regulations specify that treatments for human diseases be classified either as a medicinal product or a medical device. Pediculosis (head lice) treatments fall into both categories. The European Union defines three different classes of pediculosis treatments:

1. Those that act via pharmacologically active ingredients (such as insecticides like pyrethrum extract, organophosphates or carbamates). These are classified as medicinal products. Such treatments have to overcome possibilities of resistance and toxicity (for example, the phasing out of lindane in Europe over toxological and environmental concerns).

2. A more recent class of treatments are those that act via a physical mechanism, as opposed to a chemical one. These are classified as medical devices and include silicone oil-based treatments such as dimeticones. By contrast to the former class of treatments, these are non-toxic to humans and are not likely to suffer from problems of resistance.

3. The third class of treatments are those which are based on essential oils and herbal extracts. Efficacy claims for such treatments have been advanced under both chemical and physical headings: they are mostly registered as medical devices.

During Q3 2017, we have obtained a CE approval for our Novokid solution, classified as a Class I medical device.

FDA approved treatments for head lice include both OTC products and prescription drugs, such as Nix and Rid, in the form of shampoos, creams and lotions. However, many head lice products are not for use in children under the age of two. Although OTC drugs are available for treatment of head lice, health care professionals often prescribe drugs recently approved by the FDA, such as Ulesfia (approved in 2009), Natroba (approved in 2011) or Sklice (approved in 2012) for the treatment of head lice.

With respect to obtaining an FDA approval, we have entered into an OEM Agreement, according to which the OEM distributor will manufacture, distribute and sell the Company’s Novokid head lice treatment products, in the United States, Canada, Brazil, Argentina, Costa Rica and Colombia, all on an exclusive basis. Under such OEM Agreement the OEM distributer will be responsible for obtaining and maintaining the FDA approval and shall bear all costs related to such approval. We expect that the FDA approval process should take approximately 12 months.

Employees

We currently engage 11 employees and service providers working in various fields of management, research and development, product management, marketing and regulatory advice.

We are subject to Israeli labor laws and regulations with respect to our employees located in Israel. These laws and regulations principally concern matters such as pensions, paid annual vacation, paid sick days, length of the workday and work week, minimum wages, overtime pay, insurance for work-related accidents, severance pay and other conditions of employment. Our employees are not represented by a labor union. We consider our relationship with our employees to be good. To date, we have not experienced any work stoppages.

ITEM 1A. RISK FACTORS

Risks Associated With Our Business

We and our independent registered public accounting firm have expressed substantial doubt as to our ability to continue as a going concern.

Our 2017 financial statements have been prepared assuming that we will continue as a going concern and do not include any adjustments that might result if we cease to continue as a going concern. To date we have not generated any significant revenues and have funded our operations through various forms of capital raising. Further, based on our financial results for the year ended December 31, 2017, our independent registered public accounting firm also expressed substantial doubt as to our ability to continue as a going concern.

Notwithstanding our belief that we likely will be able to raise equity capital at terms acceptable to the Company, there can be no assurance that we will have adequate capital resources or be able to continue to raise equity or debt capital to fund planned operations or that any additional funds will be available to us when needed or at all, or, if available, will be available on favorable terms or in amounts required by us. If we are unable to obtain adequate capital resources to fund operations, we may be required to delay, scale back or eliminate some or all of our plans of operations, which may have a material adverse effect on our business, results of operations and ability to operate as a going concern.

Our limited operating history does not afford investors a sufficient history on which to base an investment decision.

The Company’s wholly-owned subsidiary, was a private limited liability company incorporated under the laws of the State of Israel in 2009, and has not generated any significant revenues to date. There can be no assurance at this time that we will be able to operate profitably or that we will have adequate working capital to meet our obligations as they become due. Investors must consider the risks and difficulties frequently encountered by early stage companies, particularly in rapidly evolving markets. Such risks include the following:

We cannot be certain that our business strategy will be successful or that we will successfully address these risks. In the event that we do not successfully address these risks, our business, prospects, financial condition, and results of operations could be materially and adversely affected.

We face many of the risks and difficulties frequently encountered by relatively new companies with respect to our operations including our ability to raise sufficient capital to fund our operations.

We will require substantial additional funding to successfully launch and commercially exploit our head lice treatment platform and develop new products and potentially significant additional costs if there are any unanticipated delays. We project that we will need to raise approximately $1,000,000 during the next 12 months in order to successfully implement our business plan and become profitable, of which there can be no assurance. Failure to obtain this necessary capital at acceptable terms, if at all, when needed may force us to delay, limit, or terminate our product development efforts and secure regulatory approvals and would adversely impact our planned research and development efforts in connection with our future products, which may make it more difficult for us to attain profitability.

We cannot be sure that any additional funding, if needed, will be available on terms favorable to us or at all. Furthermore, any additional equity or equity-related financing may be dilutive to our stockholders, new equity securities may have rights, preferences or privileges senior to those of existing holders of our shares of common stock, and debt or equity financing, if available, may subject us to restrictive covenants and significant interest costs. If we obtain funding through a strategic collaboration or licensing arrangement, we may be required to relinquish our rights to our product or marketing territories. If we are unable to obtain the financing necessary to support our operations, we may be required to defer, reduce or eliminate certain planned expenditures or significantly curtail our operations.

Our revenues will be dependent upon acceptance of our treatment Platform by the market. The failure of such acceptance will cause us to curtail or cease operations.

Uncertainty exists as to whether our treatment Platform, including our head lice treatment solution, will be accepted by the market. A number of factors may limit the market acceptance of our treatment Platform, including the availability of alternative treatments and the price of our product relative to alternative products. There is a risk that potential customers as well as physicians will be encouraged to continue to use other products or methods instead of ours. Notwithstanding the fact that our treatment Platform is new in the market, customers may elect to use other treatments because of the historic acceptance of such treatments and the fact that they have been in the market for an extensive time. While we intend to continue to build and gather data to demonstrate the benefit of our Platform, this data gathering may not be conclusive or may be viewed as insufficient by potential users.

If our treatment Platform is not accepted by the market we will continue to incur operating losses until such time as sales of our products reaches a mature level and we are able to generate sufficient revenues from these sales to meet our operating expenses. There can be no assurance that consumers will accept our unique products and treatment platforms. In the event that we are not able to market and significantly generate market acceptance, our financial condition and results of operations will be materially and adversely affected.

Defects or malfunctions in our products could hurt our reputation, sales and profitability.

Our business and the level of customer acceptance of our products depend upon the effective and reliable operation of our head lice treatment platform, including its three components: vaporizer, head cap and capsules. If any component of our platform contains undetected defects or errors when first introduced or as new versions are released, our reputation could suffer and our potential revenues could decline or be delayed while such defects are remedied.

There can be no assurance that, despite our testing, errors will not be found in our treatment Platform, products or new releases, resulting in loss of future revenues or delay in market acceptance, diversion of development resources, damage to our reputation, among other adverse effects, any of which would have a material adverse effect upon our business, operating results and financial condition.

If we are unable to protect our intellectual property, our business will be negatively affected.

The market for medical treatment devices, including head lice treatment, may be subject to litigation regarding patent and other intellectual property rights. It is possible that our device may not withstand challenges made by others or that our patents protect our rights adequately. Our success depends in large part on our ability to secure and maintain effective patent protection for our products and treatment in the United States and internationally. We have acquired patents that have been granted as well as patents pending and expect to continue to file patent applications for various aspects of our device technology. However, we face the risks that we may fail to secure necessary patents on our patents pending prior to or after obtaining regulatory clearances, thereby permitting competitors to market competing products, and our already-granted patents may be re-examined, invalidated or not extended. If we are unable to protect our intellectual property adequately, our business and commercial prospects will suffer.

We may be accused of infringing intellectual property rights of third parties.

Other parties may claim that our products infringes on their proprietary rights. We may be subject to claims and legal proceedings regarding alleged infringement by us of the intellectual property rights of third parties. Such claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources, legal fees, injunctions or the payment of damages. In the event that our patents do not fully protect us, we may need to obtain licenses from third parties who allege that we have infringed their rights, but such licenses may not be available on terms acceptable to us or at all. In addition, we may not be able to obtain or utilize on terms that are favorable to us, or at all, licenses or other rights with respect to intellectual property we do not own.

We operate in a highly competitive industry and must compete against many large companies that could adversely affect our ability to succeed.

The medical device and cosmetic industries, which include the head lice treatment segment, are intensely competitive. If we are unable to compete effectively with existing solutions, new treatment methods and new technologies, we may be unable to successfully commercialize our products and, as a result, we may be unable to generate sufficient revenues to sustain our operations.

In addition, there are numerous established companies that offer head lice treatment and products including entities that manufacture and sell OTC remedies and physician prescribed products as well as established home remedies. Many if not all of these competitors have far greater financial and other resources and far longer operating histories than we do. We are a new entry into this competitive market and may struggle to differentiate ourselves as a viable competitor whose head lice treatment provides more value and efficacy than the competition.

Our business plan depends upon entering into agreements with third-party manufacturers and distributors.

We depend on third-party manufacturers and subcontractors to manufacture and assemble our products, which require a significant degree of technical expertise to produce. If our third-party manufacturers and subcontractors fail to manufacture and assemble our products based on our specification, or if the third-party manufacturers and subcontractors use defective materials or workmanship in the manufacturing process, the reliability and performance of our products will be compromised, which could materially harm our business.

In addition, we have entered into and plan on entering into and may be expected to become dependent on our distribution and collaborative arrangements with third parties for a substantial portion of our revenues, and our commercialization activities. We will be dependent upon the success of these third-party arrangements and to the extent that we are unable to establish these arrangements on a timely basis, or we fail to select satisfactory parties with whom we collaborate, we may experience significant delays which would likely increase our costs and materially adversely affect our business and our ability to sell our product.

We may be subject to product liability claims, product actions, including product recalls, and other field or regulatory actions that could be expensive, divert management’s attention and harm our business.

Our business exposes us to potential liability risks, product actions and other field or regulatory actions that are inherent in the manufacturing, marketing and sale of consumer products. We may be held liable if our products cause injury or are found otherwise unsuitable or defective during usage. If any of our products are defective, whether due to design or manufacturing defects, improper use of the product, or other reasons, we may voluntarily or involuntarily undertake an action to remove, repair, or replace the product at our expense. In some circumstances we may be required to notify regulatory authorities of an action pursuant to a product failure.

We anticipate that as part of our ordinary course of business we may be subject to product liability claims alleging defects in the design, manufacture or labeling of our products. A product liability claim, regardless of its merit or eventual outcome, could result in significant legal defense costs and high punitive damage payments. Although we maintain product liability insurance, the coverage may not be adequate to cover future claims. Additionally, we may be unable to maintain our existing product liability insurance in the future at satisfactory rates or adequate amounts.

Our Bylaws provide for indemnification of our directors and officers and the purchase of directors and officers insurance at our expense. This will limit the potential liability of our directors and officers at a major cost to us and hurt the interests of our stockholders.

The Company’s Bylaws include provisions that eliminate the personal liability of the directors and officers of the Company for monetary damages to the fullest extent possible under the laws of the State of Delaware or other applicable law. These provisions eliminate the liability of directors and officers to the Company and its stockholders for monetary damages arising out of any violation of a director or officer of his fiduciary duty of due care. Under Delaware law, however, such provisions do not eliminate the personal liability of a director or officer for (i) breach of the director’s or officer’s duty of loyalty, (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violation of law, (iii) payment of dividends or repurchases of stock other than from lawfully available funds, or (iv) any transaction from which the director or officer derived an improper benefit. These provisions do not affect a director’s and officer’s liabilities under the federal securities laws or the recovery of damages by third parties.

Reporting requirements under the Securities Exchange Act of 1934 and compliance with the Sarbanes-Oxley Act Of 2002, including establishing and maintaining acceptable internal control over financial reporting, are costly and may increase substantially in the future.

The rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) require a public company to prepare and file periodic reports under the Exchange Act, which require that the Company engage legal, accounting, auditing and other professional services. The engagement of such services is costly. Additionally, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires, among other things, that we design, implement and maintain adequate internal controls and procedures over financial reporting. The costs of complying with the Sarbanes-Oxley Act and the limited technically qualified personnel we have may make it difficult for us to design, implement and maintain adequate internal control over financial reporting. In the event that we fail to maintain an effective system of internal controls or discover material weaknesses in our internal controls, we may not be able to produce reliable financial reports or report fraud, which may harm our overall financial condition and result in loss of investor confidence and a decline in our share price.

We continue to evaluate the impact of internal control over financial reporting and disclosure controls and procedures. As of December 31, 2017, the ineffectiveness of the Company’s internal control over financial reporting was due to the following material weaknesses: (i) inadequate segregation of duties consistent with control objectives; and (ii) ineffective controls over period end financial reporting and disclosure processes.

We are working with our legal counsel and financial advisors to identify those areas in which changes should be made to our financial and management control systems to manage our growth and our obligations as a public company. These areas include corporate governance, corporate control, disclosure controls and procedures and financial reporting and accounting systems. We will continue to make, changes in these and other areas in order to remediate these weaknesses. We estimate that the aggregated cost of implementing financial and management control systems could be material. In addition, if and when we retain additional directors or additional members of senior management, we may incur additional expenses related to director compensation or premiums for directors’ and officers’ liability insurance, the costs of which we cannot estimate at this time. We may also incur additional expenses associated with investor relations and similar functions, the cost of which we also cannot estimate at this time. However, these additional expenses individually, or in the aggregate, may also be material.

The increased costs associated with operating as a public company may decrease our operating performance, and may cause us to increase the prices of our product to offset the effect of such increased costs. Additionally, if these requirements divert our management’s attention from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations.

The commercialization of our Platform and products is dependent upon regulatory approvals.

We will be required to obtain additional regulatory approvals for our Platform and its future products. If we are unable to receive regulatory approvals, we may not be able to commercialize our products and our business will be adversely affected. CE approval, which we have obtained in 2017, is required for the marketing, distributing and sale of our products in the European Union, whereas FDA approval is required for marketing, distributing and sale in the United States. In the event the products are to be sold in certain territories requiring additional regulatory approvals, we will need to obtain such approvals prior to the commercialization of our product in such territories.

We will need to increase the size of our organization, and may experience difficulties in managing growth.

At present, we are a small company. We expect to experience a period of expansion in headcount, infrastructure and overhead and anticipate that further expansion will be required to address potential growth and market opportunities. Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate new managers. Our future financial performance and our ability to compete effectively will depend, in part, on our ability to manage any future growth effectively.

Risks Related to Our Common Stock

Our common stock may suffer from reduced liquidity or illiquidity.

Our common stock are currently subject to quotation on the OTCQB market. There is currently no active trading market in our common stock on the OTCQB market and there can be no assurance that any active trading market will commence or be sustained.

Shares issuable upon the exercise of warrants or options may substantially increase the number of shares available for sale in the public market and depress the price of our stock.

As of March 15, 2018, we had outstanding options and warrants to purchase up to 4,419,220 shares of common stock for an average exercise price of $0.1354. To the extent any of our outstanding warrants are exercised or any additional warrants or options are granted and subsequently exercised, there will be further dilution to stockholders and investors. Until the options and warrants expire, the respective holders will have an opportunity to profit from any increase in the market price of our shares without assuming the risks of ownership. Holders of options and warrants may convert or exercise these securities at a time when we could obtain additional capital on terms more favorable than those provided by the options or warrants. The exercise of the options and warrants will dilute the voting interest of the owners of presently outstanding shares by adding a substantial number of additional shares of our common stock.

We are subject to compliance with securities laws, which exposes us to potential liabilities, including potential rescission rights.

We have offered and sold our common stock to investors pursuant to certain exemptions from the registration requirements of the Act, as well as those of various state securities laws. The basis for relying on such exemptions is factual; that is, the applicability of such exemptions depends upon our conduct and that of those persons contacting prospective investors and making the offering. We have relied upon the operative facts as the basis for such exemptions, including information provided by investors themselves.

If any prior offering did not qualify for such exemption, an investor would have the right to rescind its purchase of the securities if it so desired. It is possible that if an investor should seek rescission, such investor would succeed. A similar situation prevails under state law in those states where the securities may be offered without registration in reliance on the partial preemption from the registration or qualification provisions of such state statutes. If investors were successful in seeking rescission, we would face severe financial demands that could adversely affect our business and operations. Additionally, if we did not in fact qualify for the exemptions upon which we have relied, we may become subject to significant fines and penalties imposed by the SEC and state securities agencies.

We have never paid cash dividends and do not anticipate doing so in the foreseeable future.

We have never declared or paid cash dividends on our shares of common stock. We currently plan to retain any earnings to finance the growth of our business rather than to pay cash dividends. Payments of any cash dividends in the future will depend on our financial condition, results of operations and capital requirements, as well as other factors deemed relevant by our board of directors.

Our Common Stock is subject to the “Penny Stock” rules of the SEC and the trading market in our stock is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment.

The SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require that a broker or dealer approve a person’s account for transactions in penny stocks, and the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person, and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the suitability determination and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock. Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Financial Industry Regulatory Authority, Inc. (“FINRA”) sales practice requirements may limit a stockholder’s ability to buy and sell our common stock.

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our Common Stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

Our stock is thinly traded, sale of your holding may take a considerable amount of time.

The shares of our Common Stock are thinly-traded on the OTCQB Market, meaning that the number of persons interested in purchasing our Common Stock at or near bid prices at any given time may be relatively small or non-existent. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our Common Stock will develop or be sustained, or that current trading levels will be sustained. Due to these conditions, we can give you no assurance that you will be able to sell your shares at or near bid prices or at all if you need money or otherwise desire to liquidate your shares.

Shares eligible for future sale may adversely affect the market.

From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act, subject to certain limitations. In general, pursuant to Rule 144, non-affiliate stockholders may sell freely after six months subject only to the current public information requirement. Affiliates may sell after six months subject to the Rule 144 volume, manner of sale (for equity securities), and current public information and notice requirements. Any substantial sales of our common stock pursuant to Rule 144 may have a material adverse effect on the market price of our common stock.

If we fail to maintain effective internal control over financial reporting, the price of our common stock may be adversely affected.

Our internal control over financial reporting have material weaknesses and conditions that require correction or remediation, the disclosure of which may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal control over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations. In addition, management’s assessment of internal control over financial reporting identified material weaknesses and conditions that need to be addressed in our internal control over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management’s assessment of our internal control over financial reporting may have an adverse impact on the price of our common stock.

Our share price could be volatile and our trading volume may fluctuate substantially.

The price of our common stock has been and may in the future continue to be extremely volatile, with the sale price fluctuating from a low of $0.02 to a high of $1.50 during the period commencing as of January 1, 2017. Many factors could have a significant impact on the future price of our common stock, including:

Our annual and quarterly results may fluctuate greatly, which may cause substantial fluctuations in our common stock price.

Our annual and quarterly operating results may in the future fluctuate significantly depending on factors including the timing of purchase orders, new product releases by us and other companies, gain or loss of significant customers, price discounting of our product, the timing of expenditures, product delivery requirements and economic conditions. Revenues related to our product are required to be recognized upon satisfaction of all applicable revenue recognition criteria. The recognition of revenues from our product is dependent on a number of factors, including, but not limited to, the terms of any license agreement.

Any unfavorable change in these or other factors could have a material adverse effect on our operating results for a particular quarter or year, which may cause downward pressure on our common stock price. We expect quarterly and annual fluctuations to continue for the foreseeable future.

Delaware law contains provisions that could discourage, delay or prevent a change in control of our company, prevent attempts to replace or remove current management and reduce the market price of our common stock.

Provisions in our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition involving us that our stockholders may consider favorable. For example, our certificate of incorporation authorizes our board of directors to issue up to ten million shares of “blank check” preferred stock. As a result, without further stockholder approval, the board of directors has the authority to attach special rights, including voting and dividend rights, to this preferred stock. With these rights, preferred stockholders could make it more difficult for a third party to acquire us.

We are also subject to the anti-takeover provisions of the Delaware General Corporation Law (“DGCL”). Under these provisions, if anyone becomes an “interested stockholder,” we may not enter into a “business combination” with that person for three years without special approval, which could discourage a third party from making a takeover offer and could delay or prevent a change in control of us. An “interested stockholder” is, generally, a stockholder who owns 15% or more of our outstanding voting stock or an affiliate of ours who has owned 15% or more of our outstanding voting stock during the past three years, subject to certain exceptions as described in the DGCL.

Risks Related to our Operations in Israel

We conduct our operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel and the region.

We are incorporated under the laws of the State of Israel, our principal offices are located in central Israel and some of our officers, employees and directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business. Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel and its trading partners could adversely affect our operations and results of operations and could make it more difficult for us to raise capital. During the summer of 2014, Israel was engaged in an armed conflict with Hamas in Gaza, which involved missile strikes against civilian targets in various parts of Israel and negatively affected business conditions in Israel. In addition, recent political uprisings and conflicts in various countries in the Middle East, including Egypt and Syria, are affecting the political stability of those countries. It is not clear how this instability will develop and how it will affect the political and security situation in the Middle East. This instability has raised concerns regarding security in the region and the potential for armed conflict. In addition, it is widely believed that Iran, which has previously threatened to attack Israel, has been stepping up its efforts to achieve nuclear capability. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions and could harm our results of operations. Parties with whom we do business have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements.

Our commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle East. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, there is no assurance that this government coverage will be maintained, or if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions and could harm our results of operations.

Our sales may be adversely affected by boycotts of Israel.

Several countries, principally in the Middle East, restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies whether as a result of hostilities in the region or otherwise. In addition, there have been increased efforts by activists to cause companies and consumers to boycott Israeli goods based on Israeli government policies. Such actions, particularly if they become more widespread, may adversely impact our ability to sell our products.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

Our corporate address is located at 1140 Avenue of the Americas, New York, NY 10036. Our headquarters and facilities, which we lease from an unaffiliated third party at a monthly rental of approximately $1,600 are located at 23 Hamelacha Street, Park Afek, Rosh Ha’ain, Israel. The offices consist of approximately 1,300 square feet and are sufficient for our use for the foreseeable future. The lease for our headquarters will expire in 2019, unless we extend it for an extension period through 2024 or terminate it with two months prior notice period.

ITEM 3. LEGAL PROCEEDINGS

We know of no material, active or pending legal proceedings against our Company, nor of any proceedings that a governmental authority is contemplating against us. We know of no material proceedings to which any of our directors, officers, affiliates, owner of record or beneficially of more than 5 percent of our voting securities or security holders is an adverse party or has a material interest adverse to our interest.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTER

Market Information

Our common stock is traded on the over-the-counter market and quoted on the OTCQB under the symbol TECR. The high and the low bid prices for our shares of common stock are based on inter-dealer prices, without retail mark-up, markdown, or commission, and may not represent actual transactions. The table below sets forth the range of high and low bid information for our shares of common stock as quoted on the OTCQB for each of the quarters during the fiscal year ended December 31, 2016 and 2017. This information has been adjusted to reflect the 30-for-1 reverse stock split that was effective October 21, 2016.

Holders of our Common Stock

As of April 2, 2018, we had 96 registered stockholders holding 28,160,982 shares of common stock.

Dividends

Since our inception, we have not declared nor paid any cash dividends on our capital stock and we do not anticipate paying any cash dividends in the foreseeable future. Our current policy is to retain any earnings in order to finance our operations. Our Board of directors will determine future declarations and payments of dividends, if any, in light of the then-current conditions it deems relevant and in accordance with applicable corporate law.

Securities Authorized for Issuance under Equity Compensation Plans

The following table provides certain aggregate information with respect to our shares of common stock ordinary that may be issued under our equity compensation plans in effect as of December 31, 2017.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our results of operations and financial condition. You should read this analysis in conjunction with our audited consolidated financial statements and related notes. This discussion and analysis contains statements of a forward-looking nature relating to future events or our future financial performance. These statements are only predictions, and actual events or results may differ materially. In evaluating such statements, you should carefully consider the various factors identified in this annual report, which could cause actual results to differ materially from those expressed in, or implied by, any forward-looking statements, including those set forth in “Risk Factors” in this annual report. See “Cautionary Note Regarding Forward-Looking Statements.”

Overview and Recent Developments

We are a company with limited operations and no revenues from our business operations. There is substantial doubt that we can continue as a going concern for the next twelve months without the success of our new business operations. We anticipate that we will start generating revenues from the sale of our head lice treatment platform during the first quarter of 2018. Before we enter the U.S. market, we will need to secure approval from the FDA which should take approximately 12 months.

We will require substantial additional funding to successfully launch and commercially exploit our head lice treatment platform. We also must fund the estimated $1,000,000 in manufacturing and marketing costs. We project that we will need to raise approximately $1,000,000 during the next 12 months in order to successfully implement our business plan and to become profitable, of which there can be no assurance. Failure to obtain this necessary capital at acceptable terms, if at all, when needed, may force us to delay, limit, or terminate our product development efforts and secure regulatory approvals and would adversely impact our planned research and development efforts in connection with the Company’s future products, which may make it more difficult for us to attain profitability.

Components of Our Statements of Operations

Research and Development Expenses

The Company incurred expenses of approximately $1.3 million on research and development during the past two years. During this period, the Company completed the lice product development, which included finalization of commercial design of the vaporizer, capsules and head cap and optimizing the product efficiency.

The Company plans to expand into a variety of treatments and solutions, which will also be based on the developed platform and the knowledge the Company gained principally during the past three years.

Marketing, General and Administrative Expenses

The Company plans to focus its initial sales and marketing efforts on the European Union, , where CE approval was obtained in Q3 2017, and once FDA approval for the Novokid product is received also the European Union.

In order to achieve our intended global footprint and market presence, we plan to base our primary distribution method on the distribution model, in which the distributor will sell our products under our name and branding. In specific instances, we will consider implementing the OEM model, in which the distributor will sell our products under a co-branding arrangement. We believe that these models will reduce our marketing costs while starting to generate revenues to support our research and development efforts for utilizing our technological platform to expand our product line.

The Company also plans to market and advertise its products through implementing an omni-channel strategy, both through online and retail sales outlets, which we believe will present a huge opportunity for generating sales and market acceptance.

General and Administrative Expenses

Our general and Administrative Expenses consist of mainly stock based compensation expenses, salary and related expenses and certain other expenses.

Results of Operations

Year ended December 31, 2017 as compared to the year ended December 31, 2016

During the twelve months ended December 31, 2017 and 2016, we generated no revenues.

Our research and development expenses decreased to approximately $0.3 million (comprised of ongoing research and development expenses of approximately $0.2 million and additional sum of approximately $0.1 million in stock based compensation) during the twelve months ended December 31, 2017, compared to approximately $1 million (comprised of ongoing research and development expenses of approximately $0.8 million and additional sum of approximately $0.2 million in stock based compensation) during the prior year, a decrease of approximately $0.7 million or 72%. The decrease is mainly due to completion of research and development activities related to Novokid, offset by ongoing research and development expenses related to Shine.

During the year ended on December 31, 2017, we recorded approximately $0.1 million fair value option expenses, related to the OEM Agreement with the OEM distributor in June 2017.

Our marketing, general and administrative expenses during the year ended December 31, 2017, were approximately $2.5 million compared to approximately $0.8 million during the prior year. The increase is mainly due to stock based compensation expenses.

During the twelve months ended December 31, 2017, we incurred financial income of approximately $19 thousands, as compared to financial expenses or approximately $26 thousands during the prior year. The decrease in financial expenses is mainly due to financing income related to our financial instruments.

As a result of the above, we incurred a net loss of approximately $2.9 million during the twelve months ended December 31, 2017 as compared to a net loss of approximately $1.9 million in 2016.

Year ended December 31, 2016 as compared to the year ended December 31, 2015

During the twelve months ended December 31, 2016 and 2015, we generated no revenues.

Our research and development expenses increased to approximately $1 million during the twelve months ended December 31, 2016 compared to approximately $0.4 million during the prior year, an increase of approximately $0.6 million or 151% due to the further expansion of our research and development of our future products.

Our marketing, general and administrative expenses during the twelve months ended December 31, 2016 were approximately $0.8 million as compared to approximately $0.3 million during the twelve months ended December 31, 2015. The significant increase was due to reverse-merger related expenses, which were expensed as incurred as well as other miscellaneous costs incurred as part of expanding the operations of the Company.

During the twelve months ended December 31, 2016 and 2015, we incurred financial expenses of approximately $26 thousands and $42 thousands, respectively, due mainly to expenses related to our financial instruments.

As a result of the above, we incurred a net loss of approximately $1.9 million during the twelve months ended December 31, 2016, as compared to a net loss of approximately $0.8 million in 2015.

Liquidity and Capital Resources

Our balance sheet as of December 31, 2017, reflects total assets of approximately $0.9 million consisting mainly of cash and cash equivalents in the amount of approximately $0.6 million, other receivables of approximately $0.1 million and property and equipment net, of approximately $0.1 million. As of December 31, 2016, the balance sheet reflects total assets of approximately $0.4 million consisting mainly of cash and cash equivalents in the amount of approximately $0.3 million and property and equipment net, of approximately $0.1 million. The increase is related mainly to an increase of our cash and cash equivalents by approximately $0.3 million, and an increase in our other receivables balance by approximately $0.1 million.

As of December 31, 2017, we had total current liabilities of approximately $0.3 million consisting of accounts payable and accrued expenses of approximately $0.1 million, note payable of approximately $0.1 million and option liability of approximately $0.1 million. As of December 31, 2016, we had total current liabilities of approximately $0.3 million consisting of approximately $0.2 million in accounts payable and accrued expenses and $0.1 million in note payable.

As of December 31, 2017, we had positive working capital of approximately $0.4 million, compared to positive working capital of approximately $14 thousands at December 31, 2016. The working capital has been sufficient to sustain our operations to date, although there is substantial doubt about our ability to continue as going concern. Our total liabilities as of December 31, 2017 and 2016 were approximately $0.3 million.

During the twelve months ended December 31, 2017, we used approximately $1.5 million in our operating activities. This resulted mainly from an overall net loss of approximately $2.9 million, offset by stock-based compensation expenses of approximately $1.2 million, fair value option expenses of approximately $0.1 million and a decrease in accounts payable and accrued expenses of approximately $0.1 million.

During the twelve months ended December 31, 2016, we used approximately $1.3 million in our operating activities. This resulted from a net loss of approximately $1.9 million offset by stock-based compensation of approximately $0.4 million, depreciation expenses of approximately $15 thousands, a decrease in other receivables of approximately $60 thousands, an increase in accounts payable and accrued expenses of approximately $33 thousands and an increase in liabilities related to a severance pay fund of approximately $12 thousands.

During the twelve months ended December 31, 2017, our investing activities required approximately $18 thousands due to the purchase of property, plant and equipment, for a severance pay fund and investment in long-term deposit, as compared to approximately $57 thousands in the prior year.

During the twelve months ended December 31, 2017, our financing activities provided us with approximately $1.8 million through the issuance of common stock, as compared to approximately $1.3 million in the prior year, out of which approximately $0.2 million were in proceeds from the issuance of common stock and approximately $1.1 million were acquired through the reverse merger with Novomic.

While management of the Company believes that the Company will be successful in its current and planned operating activities, there can be no assurance that the Company will be successful in the achievement of sales of its products that will generate sufficient revenues to earn a profit and sustain the operations of the Company.

Our ability to create sufficient working capital to sustain us over the next twelve-month period, and beyond, is dependent on our ability to raise additional funds through the issuance of equity and debt instruments.

There can be no assurance that sufficient capital will be available to us. We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources.

As a result of the above, there is substantial doubt about our ability to continue as a going concern. Our financial statements contain additional note disclosures with respect to this matter, but no accounting adjustments that relate to this matter.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Recently issued accounting pronouncements

Recently issued accounting pronouncements are described in the notes to our financial statements for the years ended December 31, 2017 and 2016 which are included within Item 8 in this annual report.

Critical Accounting Policies

Our significant accounting policies are described in the notes to our financial statements for the years ended December 31, 2017 and 2016 and which included within Item 8 in this annual report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We have not entered into, and do not expect to enter into, financial instruments for trading or hedging purposes.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TECHCARE CORP.

CONSOLIDATED FINANCIAL STATEMENTS

INDEX

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of TechCare Corp.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of TechCare Corp. and its subsidiary as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2017, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt About the Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1a to the consolidated financial statements, the Company has suffered recurring losses from operations and has cash outflows from operating activities that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1a. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2017.

TechCare Corp.

Consolidated Balance Sheets

As of December 31, 2017, and 2016

Back to Table of Contents

The accompanying notes are an integral part of these consolidated financial statements.

TechCare Corp.

Consolidated Statements of Operations and Comprehensive Loss

For the Years December 31, 2017 and 2016

Back to Table of Contents

The accompanying notes are an integral part of these consolidated financial statements.

TechCare Corp.

Consolidated Statements of Stockholders’ Equity

Years ended December 31, 2017 and 2016

Back to Table of Contents

* Historical shareholders’ equity reflect the accounting acquirer’s share number and U.S. dollar amount adjusted for the conversion rate determined in the reverse merger.

All stock information in this report has been retrospectively adjusted to reflect the reverse stock split.

The accompanying notes are an integral part of these consolidated financial statements.

TechCare Corp.

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2017 and 2016

Back to Table of Contents

The accompanying notes are an integral part of these consolidated financial statements.

TechCare Corp.

Notes to consolidated financial statements

NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Nature of operations

TechCare Corp. (“Techcare” or the “Company”); formerly known as BreedIT Corp. (“BreedIt”), was incorporated under the laws of the State of Delaware on May 26, 2010. The Company’s common stock is traded in the United States on the OTCQB Market under the ticker symbol “TECR”.

On February 8, 2016, the Company signed a Merger Agreement (the “Merger Agreement” or the “Agreement”) with Novomic Ltd. (“Novomic”), a private company incorporated under the laws of the state of Israel. The closing of the merger took place on August 9, 2016 (“the Merger Date”) pursuant to which Novomic became a wholly-owned subsidiary of the Company. See note 3 for further details.

Novomic was incorporated as a private limited company in Israel in 2009. Since inception, Novomic has been a technology company engaged in the design, development, manufacturing and commercialization of a unique platform utilizing vaporization of natural, plant-based compounds to enable a wide variety therapeutic, wellness and beauty treatments. Novomic’s first products are Novokid - a device for the effective treatment of head lice; and Shine - a device for treatment and rejuvenation of the hair and scalp. Both devices include a vaporizer, capsules and cap, all proprietary and patented.

The Company operates in one operating segment and substantially all assets of the Company and subsidiary are located in Israel.

Going Concern

During the year ended December 31, 2017, the Company had a total comprehensive loss of $2.8 million. As of December 31, 2017, the Company had incurred accumulated losses of approximately $6.6 million. Based on the projected cash flows and Company’s cash balance as of December 31, 2017, the Company’s management is of the opinion that without further fund raising it will not have sufficient resources to enable it to continue advancing its activities including the development, manufacturing and marketing of its products for a period of at least 12 months from the date of issuance of these financial statements. As a result, there is substantial doubt about the Company’s ability to continue as a going concern.

Management’s plans include the continued commercialization of their products, continue taking cost reduction steps and securing sufficient financing through the sale of additional equity securities, debt or capital inflows from strategic partnerships. There are no assurances however, that the Company will be successful in obtaining the level of financing needed for its operations. If the Company is unsuccessful in commercializing its products and securing sufficient financing, it may need to reduce activities, curtail or cease operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

B. Summary of significant accounting policies

Basis of Presentation

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Techcare, and its subsidiary, Novomic. All intercompany balances and transactions have been eliminated in consolidation.

TechCare Corp.

Notes to consolidated financial statements (continued)

Contingent Liabilities

Management applies the guidance in ASC 450-20-25 when assessing losses resulting from contingencies. If the assessment of a contingency indicates that it is probable that a loss has been incurred and the amount of the liability can be estimated, then the Company would record an accrued expense in the Company’s financial statements. If the assessment indicates that a potential loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss, if determinable, is disclosed.

Loss contingencies considered to be remote by management are generally not disclosed unless material or they involve guarantees in which case the guarantee would be disclosed.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates using assumptions that affect the reported amounts of assets and liabilities and related disclosures at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates, and such differences may have a material impact on the Company’s financial statements. As applicable to these consolidated financial statements, the most significant estimate relates to the assumptions underlying of stock-based compensation.

Functional Currency and Foreign Currency Translation and Transactions.

The currency of the primary economic environment in which the operations of the Company and its subsidiary are conducted is the New Israeli Shekel (“NIS”).

The presentation currency of the financial statements is the US dollar. Assets and liabilities are translated at year-end exchange rates, while revenues and expenses are translated at actual exchange rates during the year. Differences resulting from translation are presented in equity, under accumulated other comprehensive income (loss).Gains and losses arising from foreign currency transactions of monetary balances denominated in non-functional currencies are reflected in financial income (expense), net in the consolidated statements of operations and comprehensive loss.

Cash and Cash Equivalents

All highly liquid investments with original maturities of three months or less when acquired, that are not restricted as to withdrawal or use, are considered to be cash or cash equivalents.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined mainly using standard cost, which approximates actual cost. Inventory costs consist of materials, direct labor and overhead. Net realizable value is determined based on estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We assess periodically our inventories for obsolescence and excess balances, or when certain events or changes in circumstances occur that trigger such assessment. The net realizable value of the inventory based certain of factors including, but not limited to: forecasted selling prices and future demand for the products, technological changes, product end-of-life dates, alternative uses for the inventory, new products launches and other market conditions as applicable. If required, we reduce the carrying value of our inventories by an amount equal to the difference between its cost and the net realizable value. Once such inventory is written down, a new lower cost basis for that inventory is established. Our provisions for inventory write-downs for obsolescence and excess balances requires us to utilize significant judgment. Although we make every effort to ensure the accuracy of the net realizable value of our inventories, any significant unanticipated deteriorating factor could have a material impact on the carrying value of our inventories and reported operating results.

Property and Equipment

Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, or in the case of leasehold improvements, the shorter of the lease term (including any renewal periods, if appropriate) or the estimated useful life of the asset. Repairs and maintenance are charged to expense as incurred, while betterments and improvements that extend the useful life or add functionality to the assets are capitalized.

TechCare Corp.

Notes to consolidated financial statements (continued)

Depreciation lives are as follows:

Leasehold improvements are amortized by the straight line method over the term of the lease, which is shorter than the estimated useful life of the improvements.

Impairment of long-lived assets

Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In the event that the sum of the expected future undiscounted cash flows expected to be generated by the long-lived assets is less than the carrying amount of such assets, an impairment charge would be recognized and the assets would be written down to their estimated fair values. During the years ended 2017 and 2016, no impairment occurred.

Reverse Merger

The financial statements of the Company prior to the Merger Date are the historical financial statements of Novomic. The financial statements of the Company following the Merger Date reflect the results of the operations of Novomic and Techcare on a consolidated basis. See note 3 for further details.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A hierarchy has been established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that are developed using market data, such as publicly available information about actual events or transactions, and that reflect the assumptions that market participants would use when pricing the asset or liability. Unobservable inputs are inputs for which market data are not available and that are developed using the best information available about the assumptions that market participants would use when pricing the asset or liability. The fair value hierarchy categorizes into three levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. Level 2 inputs include inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Research and Development

Research and development expenses are expensed as incurred, and consist primarily of personnel, facilities, equipment and supplies for research and development activities.

Loss per Share

Loss per share is based on the loss that is attributed to the stockholders holding common stock divided by the weighted average number of common stock outstanding for the reported periods.

For purposes of the calculation of the diluted loss per share, the Company adjusts the loss that is attributed to the holders of the Company’s common stock, and the weighted average number of common stock assuming conversion of all of the dilutive potential stock using the treasury stock method.

The potential stock are taken into account only if their effect is dilutive (increases loss per share).

TechCare Corp.

Notes to consolidated financial statements (continued)

Stock-Based Compensation

The Company measures and recognizes compensation expense for its equity classified stock-based awards to employees, including stock-based option awards under its plan based on estimated fair values on the grant date. The Company calculates the fair value of stock-based option awards on the grant date using the Black-Scholes option pricing model. The option-pricing model requires a number of assumptions, of which the most significant are the stock price volatility and the expected option term. For the years ended December 31, 2017 and 2016, the volatility was based on the historical stock volatility of several peer companies as the Company has limited trading history to use the volatility of its own common stock. The expected option term is calculated using the simplified method, as the Company has no historical share option exercise experience which can provide a reasonable basis to estimate its expected option term. The interest rate for periods within the expected term of the award is based on the U.S. Treasury yield curve in effect at the time of the grant. The Company’s expected dividend rate is zero since the Company does not currently pay cash dividends on its stock and does not anticipate doing so in the foreseeable future. Each of the above factors require the Company to use judgment and make estimates in determining the percentages and time periods used for the calculation. If the Company were to use different percentages or time periods, the fair value of stock-based option awards could be materially different. The Company recognizes stock-based compensation cost for option awards based on the straight line method over the employee’s requisite service period.

The Company follows ASC Topic 505-50, Equity-Based Payments to Non-Employees, for stock options issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options issued as compensation for services provided to the Company are accounted for based upon the fair value of the options. The fair value of the options granted is measured on a final basis at the end of the related service period and is recognized over the related service period using the straight line method.

In March 2016, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) which simplifies certain aspects of the accounting for share-based payments, including, among other items, accounting for income taxes and allowing an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur, rather than to account for them based on an estimate of expected forfeitures. This ASU became effective for the Company on January 1, 2017. The adoption did not have any effect on the Company’s consolidated financial statements.

Income Taxes

The Company and its subsidiary are subject to income taxes in the jurisdictions in which they operate. The Company’s provision for income taxes is based on statutory income tax rates in the tax jurisdictions where it operates, permanent differences between financial reporting and tax reporting, and available credits and incentives.

Deferred taxes are determined utilizing the “asset and liability” method based on the estimated future tax effects of temporary differences between the carrying amount and tax bases of assets and liabilities under the applicable tax laws, and on effective tax rates in effect when the deferred taxes are expected to be settled or realized. Deferred taxes for each jurisdiction are presented as a noncurrent net asset or liability, net of any valuation allowances.

The Company may incur an additional tax liability in the event of intercompany dividend distributions by its subsidiary. Such additional tax liability in respect of this foreign subsidiary has not been provided for in these financial statements as it is the Company’s policy to permanently reinvest the subsidiary earnings and to consider distributing dividends only in connection with a specific tax opportunity that may arise.

Taxes that would apply in the event of disposal of investments in a foreign subsidiary have not been taken into account in computing the deferred taxes, as it is the Company’s intention to hold, and not to realize, this investments.

Valuation Allowances

Valuation allowances are provided unless it is more likely than not that all or a portion of the deferred tax asset will be realized. In the determination of the appropriate valuation allowances, the Company considers future reversals of existing taxable temporary differences, the most recent projections of future business results, prior earnings history, carryback and carry forward and prudent tax strategies that may enhance the likelihood of realization of a deferred tax asset. Assessments for the realization of deferred tax assets made at a given balance sheet date are subject to change in the future, particularly if earnings of a subsidiary are significantly higher or lower than expected, or if the Company takes operational or tax positions that could impact the future taxable earnings of a subsidiary. Given the Company and subsidiary losses, a full valuation allowance has been provided with respect to its deferred tax assets.

TechCare Corp.

Notes to consolidated financial statements (continued)

Comprehensive Income (loss)

The Company complies with ASC 220, Comprehensive Income, which establishes rules for the reporting and display of comprehensive income (loss) and its components. The Company reports the financial impact of translating its foreign subsidiary financial statements from functional currency to reporting currency as a component of other comprehensive income (loss).

NOTE 2: RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In May 2014, and in following related amendments, the FASB issued a new comprehensive revenue recognition guidance on revenue from contracts with customers (hereinafter –“the Standard”) that will supersede the current revenue recognition guidance. The Standard provides a unified model to determine when and how revenue is recognized. The core principle of the Standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. This Standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized in retained earnings as of the date of adoption. Since the Company has no revenue, the Standard does not impact the Company’s consolidated financial statements.

In January 2016, the FASB issued an ASU which changes to the current measurement model primarily affects all equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting), financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. Under the new ASU equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) with readily determinable fair values will generally be measured at fair value through earnings. Equity investments that do not have readily determinable fair values may be measured at fair value or at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The new guidance is effective for fiscal year beginning after December 15, 2017, including interim periods within those fiscal years. The new guidance requires adoption on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption with other amendments related specifically to equity securities without readily determinable fair values applied prospectively The Company does not expect the adoption of this guidance to have an effect on its consolidated financial statements.

In February 2016, the FASB issued a new ASU which revises lease accounting guidance. Under the new guidance, lessees will be required to recognize a right-of-use asset and a lease liability for all leases, other than leases that meet the definition of a short-term lease. The liability and the right-of-use asset arising from the lease will be measured as the present value of the lease payments. In addition, this guidance requires disclosure of key information about leasing arrangements to increase transparency and comparability among organizations. The new standard is effective for fiscal year beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition approach, with certain practical expedients. The Company is currently evaluating the impact of the adoption of the new lease accounting guidance on its consolidated financial statements.

In November 2016, the FASB issued an ASU which requires entities to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The ASU is effective for annual reporting periods (including interim periods within those annual reporting periods) beginning after December 15, 2017. Early adoption is permitted. The Company does not expect the adoption of this ASU will have a material impact on its consolidated financial statements.

TechCare Corp.

Notes to consolidated financial statements (continued)

NOTE 3: REVERSE MERGER

On August 9, 2016 (the “merger date”), Techcare and Novomic completed a reverse merger. Pursuant to the merger, Techcare issued to Novomic’s shareholders approximately 622 common stock for each share held by Novomic’s shareholders. Upon issuance, Novomic became a wholly-owned subsidiary of Techcare.

Immediately prior to the merger date, Techcare’s stockholders approved the following: (i) a reverse split of Techcare’s common stock at a ratio of 1 for 30, (ii) the authorization of ten million (10,000,000) shares of preferred stock, par value $0.0001 (the “Preferred Stock”), which may be issued in one or more classes or series, having such designations, preferences, privileges and rights as the Board of Directors (the “Board”) may determine. After giving effect to the reverse split, the former holders of Novomic common stock held 73.52% of the Company’s common stock and the holders of Techcare common shares retained 26.48% of the Company’s common stock. The calculation of the common stock to be held after the merger by the Novomic shareholders and the Techcare stockholders gave effect to the assumed exercise of all outstanding in-the-money options of each entity.

While Techcare was the legal acquirer in the merger, Novomic was treated as the acquiring company in the merger for accounting purposes with the merger accounted for as a reverse merger. As a result, the financial statements of the Company prior to the merger date are the historical financial statements of Novomic. The financial statements of the Company after the merger date reflect the results of the operations of Novomic and Techcare on a combined basis. The net acquired assets of the Company as of the merger date was $1,144,930 and were comprised of tangible assets and liabilities. There were no fair value adjustments necessary to perform as the carrying values of the tangible assets and liabilities approximated fair value. Further, given the nature of the operations of TechCare prior to the merger, there were no intangible assets, including goodwill, established as a result of the merger.

At the completion of the merger, each outstanding option to purchase one share of Novomic ordinary shares was subject to conversion into approximately 622 options to purchase common stock of the Company at an exercise price equal to $0.0001 and in accordance with the original terms of the Novomic option.
Stock-based compensation expenses of $442 thousand were recognized on the merger date as a result of the abovementioned modification – see Note 8 for further details.

The converted stock options represent the fair value of such options attributable to services prior to the merger date using the stock price on the merger date as an input to the Black-Scholes valuation model to determine the fair value of the options.

The following assumptions were applied in determining the fair value of deemed (for accounting purposes only) conversion of Novomic equity awards for a weighted average grant date fair value that was between $0.36 and $0.69 per share:

TechCare Corp.

Notes to consolidated financial statements (continued)

NOTE 4: PROPERTY PLANT AND EQUIPMENT

Property, plant and equipment, consists of the following:

Depreciation expenses were approximately $21 thousand and $16 thousand in the years ended December 31, 2017 and 2016, respectively.

NOTE 5: ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

The carrying amount of accounts payable and accrued expenses approximates its fair value.

NOTE 6: NOTE PAYABLE

As of December 31, 2017 and December 31, 2016, a note payable in the aggregated amount of NIS 307,700 ($88,751 and $80,026 as of December 31, 2017 and 2016, respectively) was outstanding. The note payable has no stated maturity date and bears no interest but rather is payable immediately upon demand of the lender.

As of December 31, 2017, the carrying amount of the note payable approximates its fair value based on the fact that the note is payable on demand.

TechCare Corp.

Notes to consolidated financial statements (continued)

NOTE 7: LIABILITY FOR SEVERANCE PAY

Israeli labor laws generally require severance payments upon dismissal of an employee or upon termination of employment in certain other circumstances. The following principal plans relate to the Company’s employees in Israel:

Severance pay liability with respect to Israeli employees’ is calculated pursuant to Israeli Severance Pay Law based on the most recent salary of the employees multiplied by the number of years of employment as of the balance sheet date. The Company records an expense for the increase in its severance liability, net of earnings (losses) from the related severance pay fund. The liability is presented on the undiscounted basis as a long-term liability.

The Company’s liability for all of its Israeli employees is covered for by monthly deposits with severance pay funds. The value of the deposited funds is based on the cash surrender value of these policies and includes profits (or loss) accumulated through the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligations pursuant to Israeli Severance Pay Law or labor agreements. The amounts funded are presented separately in the balance sheet as a severance pay fund.

NOTE 8: STOCKHOLDERS’ EQUITY

Share capital

As discussed in note 3, the merger is accounted for as a reverse merger with Techcare as the legal acquirer and Novomic as the accounting acquirer. Under the reverse merger, the U.S. dollar amount for common stocks is based on the nominal value and the stocks issued by Techcare (reflecting the legal structure of Techcare as the legal acquirer) on the merger date plus subsequent common stocks issued by the Company. Historical stockholders’ equity reflects the accounting acquirer’s share number and U.S. dollar amount adjusted for the exchange ratio determined in the reverse merger.

The amounts in additional paid-in capital represent that of Novomic and include the fair value of common stocks deemed for accounting purposes to have been issued by Techcare on the merger date. The Novomic additional paid-in capital was also adjusted for the difference between the common stock issued as part of the merger and the historical Novomic common shares including the elimination of Novomic’s treasury stock.

Common stock confers upon their holders the right to receive notice to participate and vote in general meetings of the Company, and the right to receive dividends if declared. Also, upon completion of the merger, the Company’s stockholders approved the authorization of ten million (10,000,000) shares of preferred stock, which may be issued in one or more classes or series, having such designations, preferences, privileges and rights as the Board may determine. No preferred stock was issued during the years ended December 31, 2017 and 2016.

On October 21, 2016, the Company effected a 1 for 30 reverse stock split. All stock information in this report has been retrospectively adjusted to reflect the reverse stock split.

During the year ended December 31, 2017 the Company entered into several agreements, under which the Company raised an aggregate amount of $1,778,250. In January 2018 the Company received additional $900,000 on account of additional investment agreements- See note 15.

TechCare Corp.

Notes to consolidated financial statements (continued)

Stock granted to Non-employees:

During the year ended December 31, 2017, the Company issued the following shares of common stock in relation to services:

All expenses related to stock issued to non-employees included in the Company’s statements of operations and comprehensive loss in marketing, general and administrative.

TechCare Corp.

Notes to consolidated financial statements (continued)

Stock-Based Compensation to employees and directors

Stock based awards are accounted for using the fair value method in accordance with ASC 718, Shared Based Payment. The Company’s primary type of stock-based compensation consists of stock options to directors, employees and officers. The Company uses Black-Scholes option pricing model in valuing options.

During March 2017, the Company granted to certain employees options to purchase 869,596 of the Company’s common stock for an exercise price of $0.0001. During September 2017, the Company granted to its CEO options to purchase 266,369 of the Company’s common stock for an exercise price of $0.0001 per share. The options granted in 2017 were fully vested on the date of the grant and exercisable into the Company’s common stock at a 1:1 ratio for 2.5 years from the date of the grant.

The following assumptions were applied in determining the options’ fair value on their grant date:

The Company based the risk-free interest rate on the U.S. Treasury yield curve. The expected term in years represents the period of time that the awards granted are expected to be outstanding. The assumption for dividend yield is zero because the Company has not historically paid dividends nor does it expect to do so in the foreseeable future. The volatility was based on the historical stock volatility of several peer companies, as the Company has limited trading history to use the volatility of its own common stock.

A summary of the stock option activity (including reflecting historical Novomic share option awards and a conversion rate of 1 Ordinary Share of Novomic into approximately 622 common stock of the Company upon the merger date, as well as the change in the exercise price) for the years ended December 31, 2017 and 2016:

Stock-based compensation expenses related to employee awards, included in the Company’s statements of operations and comprehensive loss, were allocated as follows:

TechCare Corp.

Notes to consolidated financial statements (continued)

Stock-Based Compensation to non-employees – Options and Warrants

The Company follows ASC Topic 505-50, Equity-Based Payments to Non-Employees, for stock options issued to consultants and other non-employees. These stock options issued as compensation for services provided to the Company are accounted for based upon the fair value of the options. The fair value of the options granted is measured on a final basis at the end of the related service period and is recognized over the related service period using the straight line method.

During January 2017, as part of the consulting agreement mentioned in note 8h, the Company granted to a non-employee warrants exercisable to purchase 100,000 of the Company’s common stock at an exercise price of $1.50 per warrant exercisable for a period of 24 months commencing on the date of the agreement, fully vested on the date of the grant.

During March 2017, the Company granted to non-employees options to purchase 521,065 of the Company’s common stock for an exercise price of $0.0001. The options granted were fully vested on the date of the grant and exercisable into the Company’s common stock at a 1:1 ratio for 5 years from the date of the grant.

The following assumptions were applied in determining the options’ fair value on their grant date: