My Size, Inc. - Quarter Report: 2009 September (Form 10-Q)

Form 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September 30, 2009


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 333-144472

Topspin Medical, Inc.

(Exact name of registrant as specified in its charter)


DELAWARE		51-0394637
(State or other jurisdiction of incorporation or		(IRS Employer Identification No.)
organization)

65 Rothschild Blvd.
Tel Aviv, Israel		N/A
(Address of registrant’s principal executive offices)		(Zip Code)

972-3-5257368
(Telephone number, including area code)

N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

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


Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). þ Yes o No

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of November 15, 2009, was 761,470,882.

TOPSPIN MEDICAL, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2009

TABLE OF CONTENTS — NEED TO UPDATE


	Page

PART I. FINANCIAL INFORMATION		3

ITEM 1. FINANCIAL STATEMENTS		3

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		25

ITEM 4T. CONTROLS AND PROCEDURES		30

PART II. OTHER INFORMATION		31

ITEM 5. OTHER INFORMATION		31

ITEM 6. EXHIBITS		31

SIGNATURES		32

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the fiscal quarter ending September 30, 2009 contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Those statements are therefore entitled to the protection of the safe harbor provisions of these laws. These forward-looking statements, which are usually accompanied by words such as “may,” “might,” “will,” “should,” “could,” “intends,” “estimates,” “predicts,” “potential,” “continue,” “believes,” “anticipates,” “plans,” “expects” and similar expressions, involve risks and uncertainties, and relate to, without limitation, statements about our market opportunities, our strategy, our competition, our projected revenue and expense levels and the adequacy of our available cash resources. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or forecasted in, or implied by, such forward-looking statements.

Although we believe that the expectations reflected in these forward-looking statements are based upon reasonable assumptions, no assurance can be given that such expectations will be attained or that any deviations will not be material. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q for the quarter ending September 30, 2009 may not occur and our actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We disclaim any obligation or undertaking to disseminate any updates or revision to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

- 2 -

PART I. FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS

TOPSPIN MEDICAL, INC.
(A Development Stage Company)

CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2009

- 3 -

TOPSPIN MEDICAL, INC.
(A Development Stage Company)

CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2009

INDEX


	Page

Consolidated Balance Sheets		5

Consolidated Statements of Operations		6

Statements of Changes in Shareholders’ Deficiency		7 – 10

Consolidated Statements of Cash Flows		11 – 13

Notes to Consolidated Financial Statements		13 – 24

- 4 -

Topspin Medical, Inc.
(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS


	December 31,			September 30,
	2008			2009
	Audited			Unaudited
	NIS in thousands
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		3,385			1,704
Other receivables and prepaid expenses		385			239
Restricted deposits		562			75
Prepaid lease payments		49			14


		4,381			2,032


PROPERTY AND EQUIPMENT, NET		10			10


		4,391			2,042


LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
CURRENT LIABILITIES:
Trade payables		455			353
Other accounts payables and accrued expenses		2,821			1,690
Liability in respect of warrants		250			—
Liabilities in respect of options to employees and consultants		10			1
Accrued severance pay liability		270			—
Tax provision		—			1,328


		3,806			3,372


LONG TERM LIABILITIES

Tax provision		1,344			—
Liabilities in respect of options to employees and consultants		38			3


		1,382			3


CONTINGENT LIABILITIES, COMMITMENTS AND CHARGES

SHAREHOLDERS’ DEFICIENCY:
Common shares of $0.001 par value:
Authorized 1,000,000,000 shares as of September 30, 2009 and December 31, 2008; Issued and outstanding 761,470,882 and 636,870,882 shares as of September 30, 2009 and December 31, 2008, respectively		2,457			2,975
Additional paid in capital		177,187			177,936
Accumulated deficit during the development stage		(180,441	)		(182,244	)


		(797	)		(1,333	)


		4,391			2,042

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


November 15, 2009

the Date of approval of	Ehud Gilboa	Eldad Yehiely
financial statements	Chairman of Board of Directors	Finance Manager

- 5 -

Topspin Medical, Inc.
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS


													Period from
													inception
													(September 20,
	Nine months ended						Three months ended						1999) through
	September 30,						September 30,						September 30,
	2009			2008			2009			2008			2009
	Unaudited
	NIS in thousands

Research and development expenses		—			14,213			—			3,318			135,023


Less — participation by the office of the Chief Scientist		—			—			—			—			(17,980	)


Research and development expenses, net		—			14,213			—			3,318			117,043

Sales and marketing expenses		—			562			—			5			3,662

General and administrative expenses		2,061			6,398			211			2,913			58,260


Operating loss		(2,061	)		(21,173	)		(211	)		(6,236	)		(178,965	)

Financing income (expense), net		258			4,807			91			(13,359	)		6,244


Loss before taxes on income		(1,803	)		(16,366	)		(120	)		(19,595	)		(172,721	)

Taxes on income		—			5,375			—			5,375			1,344


Net loss		(1,803	)		(21,741	)		(120	)		(24,970	)		(174,065	)


Basic and diluted loss per Common share		(0.002	)		(0.11	)		(0.0002	)		(0.12	)


Weighted average number of Common shares outstanding used in basic and diluted net loss per share calculation		744,318,501			207,759,583			761,470,882			207,759,583

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

- 6 -

Topspin Medical, Inc.
(A Development Stage Company)

STATEMENTS OF CHANGES IN SHAREHOLDERS DEFICIENCY


																						Non-			Deficit
																						recourse			accumulated			Total
	Number of outstanding shares								Share capital								Additional		Receivables			receivables			during the			shareholders’
			Preferred								Preferred						paid-in		for shares			for shares			development			Equity
	Common		A		B		C		Common		A		B		C		capital		issued			issued			stage			(Deficiency)

Balance as of September 20, 1999		—		—		—		—		—		—		—		—		—		—			—			—			—

Issuance of common shares		625,000		—		—		—		3		—		—		—		—		—			—			—			3
Issuance of Preferred A shares net of issuance expenses of NIS 20		—		375,001		—		—		—		2		—		—		3,134		—			—			—			3,136
Net loss		—		—		—		—		—		—		—		—		—		—			—			(380	)		(380	)


Balance as of December 31, 1999		625,000		375,001		—		—		3		2		—		—		3,134		—			—			(380	)		2,759

Issuance of Preferred B shares net of issuance expenses of NIS 61		—		—		208,329		—		—		—		1		—		10,183		—			—			—			10,184
Net loss		—		—		—		—		—		—		—		—		—		—			—			(3,880	)		(3,880	)


Balance as of December 31, 2000		625,000		375,001		208,329		—		3		2		1		—		13,317		—			—			(4,260	)		9,063

Net loss		—		—		—		—		—		—		—		—		—		—			—			(7,254	)		(7,254	)


Balance as of December 31, 2001		625,000		375,001		208,329		—		3		2		1		—		13,317		—			—			(11,514	)		1,809

Issuance of Preferred C shares net of issuance expenses of NIS 2,200		—		—		—		87,386,858		—		—		—		410		47,578		(630	)		—			—			47,358
Beneficial conversion feature related to Preferred A and Preferred B shares		—		—		—		—		—		—		—		—		13,320		—			—			(13,320	)		—
Issuance of Common shares to the Chief Executive Officer		6,957,841		—		—		—		56		—		—		—		413		—			(469	)		—			—
Deferred shares based compensation related to issuance of shares to the Chief Executive Officer		—		—		—		—		—		—		—		—		2,822		—			—			—			2,822
Shares based compensation related to options granted to consultants		—		—		—		—		—		—		—		—		1,286		—			—			—			1,286
Accrued interest and exchange rate differences on a loan to the Chief Executive Officer		—		—		—		—		—		—		—		—		4		—			(4	)		—			—
Net loss		—		—		—		—		—		—		—		—		—		—			—			(15,414	)		(15,414	)


Balance as of December 31, 2002		7,582,841		375,001		208,329		87,386,858		59		2		1		410		78,740		(630	)		(473	)		(40,248	)		37,861

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

- 7 -

Topspin Medical, Inc.
(A Development Stage Company)

STATEMENTS OF CHANGES IN SHAREHOLDERS DEFICIENCY


																							Non-			Deficit
																							recourse			accumulated			Total
	Number of outstanding shares								Share capital								Additional			Receivables			receivables			during the			shareholders’
			Preferred								Preferred						paid-in			for shares			for shares			development			equity
	Common		A		B		C		Common		A		B		C		capital			issued			issued			stage			(Deficiency)
	NIS in thousands

Balance as of December 31, 2002		7,582,841		375,001		208,329		87,386,858		59		2		1		410		78,740			(630	)		(473	)		(40,248	)		37,861

Receivables in respect of Preferred C shares issued		—		—		—		—		—		—		—		—		25,828			630			—			—			26,458
Amortization of deferred shares based compensation		—		—		—		—		—		—		—		—		736			—			—			—			736
Deferred shares based compensation related to issuance of shares to the Chief Executive Officer		3,077,506		—		—		—		—		—		—		—		1,778			—			—			—			1,778
Shares based compensation related to options granted to consultants		—		—		—		—		—		—		—		—		19			—			—			—			19
Accrued interest and exchange rate differences on a loan to the Chief Executive Officer		—		—		—		—		—		—		—		—		(14	)		—			14			—			—
Net loss		—		—		—		—		—		—		—		—		—			—			—			(27,693	)		(27,693	)


Balance as of December 31, 2003		10,660,347		375,001		208,329		87,386,858		59		2		1		410		107,087			—			(459	)		(67,941	)		39,159

Exercise of options		418,746		—		—		—		2		—		—		—		62			—			—			—			64
Amortization of deferred shares based compensation		—		—		—		—		—		—		—		—		677			—			—			—			677
Deferred shares based compensation related to issuance of shares to the Chief Executive Officer		630,793		—		—		—		—		—		—		—		615			—			—			—			615
Shares based compensation related to options granted to consultants		—		—		—		—		—		—		—		—		261			—			—			—			261
Accrued interest and exchange rate differences on a loan to the Chief Executive Officer		—		—		—		—		—		—		—		—		16			—			(16	)		—			—
Net loss		—		—		—		—		—		—		—		—		—			—			—			(20,433	)		(20,433	)


Balance as of December 31, 2004		11,709,886		375,001		208,329		87,386,858		61		2		1		410		108,718			—			(475	)		(88,374	)		20,343

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

- 8 -

Topspin Medical, Inc.
(A Development Stage Company)

STATEMENTS OF CHANGES IN SHAREHOLDERS DEFICIENCY


																											Non-			Deficit
																											recourse			accumulated			Total
	Number of outstanding shares											Share capital											Additional				receivables			during the			shareholders’
			Preferred											Preferred									paid-in				for shares			development			equity
	Common		A			B			C			Common		A			B			C			capital				issued			stage			(deficiency)
	NIS in thousands

Balance as of December 31, 2004		11,709,886		375,001			208,329			87,386,858			61		2			1			410			108,718				(475	)		(88,374	)		20,343

Conversion of Preferred A, B and C into Common shares		104,378,107		(375,001	)		(208,329	)		(87,386,858	)		477		(2	)		(1	)		(410	)		(64	)			—			—			—
Exercise of options		3,553,507		—			—			—			16		—			—			—			—		(*)		—			—			16
Issuance of Common shares net of issuance expenses of NIS 3,292		38,000,000		—			—			—			171		—			—			—			28,920				—			—			29,091
Issuance of options net of issuance expenses of NIS 378		—		—			—			—			—		—			—			—			3,339				—			—			3,339
Deferred shares based compensation related to issuance of shares to the Chief Executive Officer		630,793		—			—			—			—		—			—			—			(627	)			—			—			(627	)
Grant to the Chief Executive Officer		—		—			—			—			—		—			—			—			—				74			—			74
Amortization of deferred shares based compensation		—		—			—			—			—		—			—			—			486				—			—			486
Shares based compensation related to options granted to consultants		—		—			—			—			—		—			—			—			66				—			—			66
Accrued interest and exchange rate differences on a loan to the Chief Executive Officer		—		—			—			—			—		—			—			—			58				(58	)		—			—
Net loss		—		—			—			—			—		—			—			—			—				—			(14,325	)		(14,325	)


Balance as of December 31, 2005		158,272,293		—			—			—			725		—			—			—			140,896				(459	)		(102,699	)		38,463
Cumulative effect of the adoption of ASC 718 (formerly SFAS 123(R))																															(238	)		(238	)
Change of deferred shares compensation into liability as a result from accounting change		—		—			—			—			—		—			—			—			(6,768	)			—			—			(6,768	)
Exercise of options		634,374		—			—			—			3		—			—			—			38				—			—			41
Conversion of liability into equity in respect of exercise of options		—		—			—			—			—		—			—			—			451										451
Grant to the Chief Executive Officer		630,794		—			—			—			—		—			—			—			—				208			—			208
Accrued interest and exchange rate differences on a loan to the Chief Executive Officer		—		—			—			—			—		—			—			—			(14	)			14			—			—
Net loss		—		—			—			—			—		—			—			—			—				—			(38,565	)		(38,565	)


Balance as of December 31, 2006		159,537,461		—			—			—			728		—			—			—			134,603				(237	)		(141,502	)		(6,408	)


(*)		Less than NIS 1.

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

- 9 -

Topspin Medical, Inc.
(A Development Stage Company)

STATEMENTS OF CHANGES IN SHAREHOLDERS DEFICIENCY


								Non-			Deficit
	Common							recourse			accumulated
	Number of					Additional		receivables			during the			Total
	outstanding		Share			paid-in		for shares			development			shareholders’
	shares		capital			capital		issued			stage			deficiency

Balance as of December 31, 2006		159,537,461		728			134,603		(237	)		(141,502	)		(6,408	)

Exercise of employee’s options		2,270,935		9			66		—			—			75
Classification of liability into equity in respect of exercise of options		—		—			1,665		—			—			1,665
Repayment of non-recourse loan and classification of liability into equity		—		—			9,220		237			—			9,457
Issuance of Common shares and warrants (series 3), net of issuance expenses of NIS 1,013		24,398,402		100			18,236		—			—			18,336
Net loss							—		—			(24,168	)		(24,168	)


Balance as of December 31, 2007		186,206,798		837			163,790		—			(165,670	)		(1,043	)

Cumulative effect of the adoption of ASC 825 (formerly SFAS 159)		—		—			—		—			5,379			5,379
Exercise of options		641,562		2			20		—			—			22
Exercise of warrants (series 1)		22,522		(*	)		20		—			—			20
Classification of liability into equity in respect of exercise of options		—		—			125		—			—			125
Settlement with convertible bonds holders		450,000,000		1,618			13,232		—			—			14,850
Net loss		—		—			—		—			(20,150	)		(20,150	)


Balance as of December 31, 2008		636,870,882		2,457			177,187		—			(180,441	)		(797	)

Exercise of options		4,600,000		19			—		—			—			19
Issuance of Common shares and warrants (series 3)		120,000,000		499			401		—			—			900
Classification of liability into equity in respect of exercise of options		—		—			161		—			—			161
Stock-based compensation expense							187								187
Net loss		—		—			—		—			(1,803	)		(1,803	)


Balance as of September 30, 2009 (unaudited)		761,470,882		2,975			177,936		—			(182,244	)		(1,333	)


(*)		Less than 1 NIS.

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

- 10 -

Topspin Medical, Inc.
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS


							Period from
							inception
							(September 20,
	Nine months ended						1999) through
	September 30						September 30,
	2009			2008			2009
	Unaudited						Unaudited
	NIS in thousands

Cash flows from operating activities:

Net loss		(1,803	)		(21,741	)		(174,065	)
Adjustments to reconcile net loss to net cash used in operating activities (a)		(1,278	)		(1,216	)		15,143


Net cash used in operating activities:		(3,081	)		(22,957	)		(158,922	)


Cash flow from investing activities:

Change in restricted deposit, net		487			—			(19	)
Restricted cash in respect of settlement agreement		—			(12,500	)		1,298
Purchase of fixed assets		(6	)		(263	)		(9,074	)
Proceeds from sale of fixed assets		—			—			467
Loan to the Chief Executive Officer		—			—			(231	)


Net cash provided by (used in) investing activities:		481			(12,763	)		(7559	)


Cash flows from financing activities:

Exercise of shares options and warrants		19			42			257
Proceeds from issuance of shares and warrants (series 3), net of issuance expenses		900			—			138,805
Settlement with convertible bonds holders		—			—			(12,513	)
Proceeds from issuance convertible debentures and warrants (series 2), net of issuance expenses		—			—			41,636


Net cash provided by financing activities:		919			42			168,185


Increase (decrease) in cash and cash equivalents		(1,681	)		(35,678	)		1,704
Cash and cash equivalents at the beginning of the period		3,385			40,978			—


Cash and cash equivalents at the end of the period		1,704			5,300			1,704

The accompanying notes are an integral part of the financial statements.

- 11 -

Topspin Medical, Inc.
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS


							Period from
							inception
							(September 20,
	Nine months ended						1999) through
	September 30						September 30,
	2009			2008			2009
	Unaudited						Unaudited
	NIS in thousands

(a) Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		6			1,213			7,462
Impairment of property and equipment		—			1,269			1,270
Capital loss (gain)		—			(1	)		(31	)
Interest and exchange rate differences on loan to the Chief Executive Officer		—			—			(35	)
Non-cash bonus to the Chief Executive Officer		—			—			789
Interest on restricted deposit		—			(10	)		(1,354	)
Change in fair value of liability in respect of warrants (series 2)		(250	)		(725	)		(7,744	)
Change in fair value of conversion feature		—			—			(2,746	)
Change in fair value of convertible bonds		—			(3,799	)		(3,786	)
Change in fair value of embedded derivative		(500	)		325			(846	)
Amortization of deferred issuance expenses and debentures discount		—			—			6,228
Amortization of deferred shares based compensation related to employees		—			—			6,487
Stock-based compensation expense		187						187
Change in fair value and amortization of shares options classified as a liability		117			(2,046	)		4,616
Amortization of deferred shares based compensation related to consultants		—			—			1,632
Accrued severance pay, net		(270	)		(54	)		—
Decrease (increase) in other accounts receivable and prepaid expenses (including prepaid lease payments)		181			1,448			(253	)
Increase (decrease) in trade payables		(102	)		(1,557	)		249
Increase (decrease) in other accounts payable and tax provision		(647	)		2,721			3,018


Total adjustments		(1,278	)		(1,216	)		15,143


(b) Supplemental disclosure of cash flow activities:
Cash paid during the period for:

Taxes paid due to non-deductible expenses		—			46			787

Interest paid		—			—			3,951



(c) Supplemental disclosure of non cash flows activities:

Accrued issuance expenses		—			—			2,868

Classification of liabilities into equity		161			125			11,622

The accompanying notes are an integral part of the financial statements.

- 12 -

Topspin Medical, Inc.
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:- GENERAL

TopSpin Medical, Inc. (“the Company”) and its subsidiary, TopSpin Medical (Israel) Ltd. (“the Subsidiary” or “TopSpin”) were engaged in research and development of a medical MRI technology. On October 2008 the Company suspended its activities as described in note 1c below.

The Company was incorporated and commenced operation in September 1999 as a private company registered in Delaware, U.S. On September 1, 2005, the Company issued securities to the public in Israel and became publicly traded in the Tel Aviv Shares Exchange (“TASE”). In 2007 the Company registered some of its securities with the U.S. Securities and Exchange Commission (“SEC”). The Company’s shares are traded only in Israel in NIS.

Since its inception, the Company has devoted substantially most of its efforts to business planning, research and development, marketing, recruiting management and technical staff, acquiring assets and raising capital. Accordingly, the Company is considered to be in the development stage, as defined in ASC 915 “Accounting and reporting by development Stage Enterprises” (formerly SFAS No. 7).

In October 2008, the Company terminated the employment of all of its subsidiary’s employees (excluding two employees from the finance department) and suspended its operational activities.

The Company and its Subsidiary have not generated any revenues and have not achieved profitable operations or positive cash flows from operations. The Company has an accumulated deficit of NIS 182,244,000 as of September 30, 2009, and it incurred a net loss of NIS 1,803,000 and negative cash flow from operating activities in the amount of NIS 3,081 thousands for the nine months ended September 30, 2009.

There is uncertainty about the Company’s ability to generate revenues or raise sufficient funds in the near term, if any. These factors, among other factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company is operating to get the necessary funds. In addition, the Company filed an application to receive OCS grants in a total amount of NIS 3,200,000 in consideration of expenses recorded in the year 2008. There is an uncertainty regarding the amount and the time the aforementioned amount will be received.

On June 2, 2009, the Company entered into an acquisition and investment agreement with Anavid Insulation Products Kiryat Anavim ACS Ltd. (“Anavid”), Kiryat Anavim Holdings and Development ACS Ltd. (“Holdings and Development”) and Kiryat Anavim Silicone Ltd. (“the acquiree”) according to which the Company will acquire all of Anavid’s holdings in the Company, representing 89% of Ordinary share capital and 100% of the Company’s Management shares.

The parties agreed that the transactions contemplated by the agreement would be consummated by August 15, 2009, subject to an extension of 60 days at the request of either party. The Company requested such an extension, pursuant to which the closing date would be moved to October 15, 2009. Because the agreement was not consummated by October 15, 2009, the parties agreed to defer the signing to October 21, 2009.

On October 26, 2009, Anavid informed the Company that the agreement was cancelled and that the failure to complete the acquisition transaction by the last agreed upon date constitutes a fundamental breach of the agreement. Following consultation with its legal advisors, the Company rejects Anavid’s claim of fundamental breach and maintains its position that the termination of the agreement was in accordance with the terms of the agreement.

- 13 -

Topspin Medical, Inc.
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On the date of closing, the Company would have acquired from Anavid 1,610,000 of the Company’s Management shares of NIS 1 par value each and 89 shares of NIS 1 par value each of the Company, representing 89% of the Company’s issued Ordinary share capital and approximately 65.93% of Ordinary shares on a fully diluted basis in consideration for payment of $10,000.

In addition, on the closing date, the acquiree would have allocated an option for the purchase of up to 35 Ordinary shares, representing at June 2, 2009 about 25.93% of the Company’s Ordinary share capital on a fully diluted basis. The option would have been exercisable on the 3^rd anniversary of the execution date, or sooner in the event of the Company’s offering of shares, the Company’s merger with a third party or the sale of its assets. At any time after the closing date, the Company would have had the right to acquire all or part of the acquiree’s shares or convertible securities for the purchase of its shares which would have been held by Holdings and Development in exchange for the payment of consideration in the amount of $625,000 in the first year after execution. The consideration payable would have increased at the beginning of each following year by $250,000 but would not have exceeded $1,875,000.

If the agreement had been consummated, the Company would have paid an amount equal to approximately NIS 40,000 (approximately $10,000) and also would have deposited an amount of NIS 810,000 to be used by the acquiree to repay additional amounts that had been paid by Anavid to related parties and third parties on behalf of the Company. The Company also would have undertaken to guarantee that the acquiree transfer to Anavid an amount of NIS 1,000,000 to repay liabilities to third parties and to repay a bank loan of the acquiree in a total of approximately NIS 1,000,000.

The acquiree also would have undertaken to pay future royalties based on the following mechanism: for a 5-year period starting from January 1, 2010, royalties of 2%-4%; and starting from January 1, 2015, royalties of 2% up to an overall amount of $ 90,000. Based on a valuation undertaken by the parties, the fair value of the future payments was estimated at approximately NIS 260,000. The royalties were to have been paid as a percentage of total income as defined in the agreement.

The Company would have guaranteed the acquiree’s liability to repay loans in connection with related parties and the financing of a machine. In connection with these loans, the Company would have provided a bank guarantee of NIS 100,000 and a liability deed of NIS 750,000 to be realized if the Company did not meet its loan obligations. In such event, the Company would have been able to convert the bank guarantee for its shares. The acquiree had committed to continue employing several Kibbutz employees for a period of 3 years, as detailed in the agreement, and to relocate the plant within three years of the closing date.

For a period of one year, the Company’s shareholders would have continue to guarantee the acquiree’s payments for the machine after which period the Company would have acted to have the guarantee removed, provided that the outstanding liability for the machine did not exceed NIS 671,000, less payments made up to the closing date. The amount of the guarantee and liability deed would have been reduced when the loan liability was settled.

The Company also would have undertaken to indemnify the acquiree’s former shareholders in connection with any loss incurred due to non payment to the lessor or non removal of guarantees. Upon closing, two new agreements regarding rent and services would have become effective as well as a verbal agreement with shareholders regarding consulting fees.

On July 15, 2009 the Board of Directors decided to obtain the approval of the shareholders of the Company to increase the registered capital of the Company by 500,000,000 shares of common shares and to amend the corporation’s certificate of incorporation that the total number of authorized shares of common shares shall be increased by 500,000,000 shares.

A Shareholders meeting was set for September 3, 2009. Since a sufficient quorum was not present at the shareholders’ meeting, the number of authorized shares of the Company was not increased, As of September 30, 2009 the increase in the Company’s number of authorized shares has not been approved.

- 14 -

Topspin Medical, Inc.
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited interim consolidated financial statements have been prepared as of September 30, 2009 and for the three-month and nine-month periods then ended, in accordance with United States generally accepted accounting principles relating to the preparation of financial statements for interim periods. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ended December 31, 2009.

The significant accounting policies followed in the preparation of these financial statements are consistent to those applied in the preparation of the latest annual financial statements

Impact of recently issued accounting standards:

In June 2009, the Financial Accounting Standards Board (FASB) Accounting Standards Codification™ (Codification) became the single source of authoritative US GAAP. The Codification did not create any new GAAP standards but incorporated existing accounting and reporting standards into a new topical structure with a new referencing system to identify authoritative accounting standards, replacing the prior references to Statement of Financial Accounting Standards (SFAS), Emerging Issues Task Force (EITF), FASB Staff Position (FSP), etc. Authoritative standards included in the Codification are designated by their Accounting Standards Codification (ASC) topical reference, and new standards will be designated as Accounting Standards Updates (ASU), with a year and assigned sequence number. Beginning with this interim report for the third quarter of 2009, references to prior standards have been updated to reflect the new referencing system.

In June 2009, the FASB concurrently issued amendments to ASC 860, Transfers and Servicing (formerly SFAS No. 166), and ASC 810, Consolidation (formerly SFAS No. 167), that change the way entities account for securitizations and other transfers of financial instruments. In addition to increased disclosure, these amendments eliminate the concept of qualifying special purpose entities and change the test for consolidation of variable interest entities. These amendments will be effective for us as of January 1, 2010. The Company has evaluated these amendments and believes they will have no impact on its financial condition or results of operations.

NOTE 3:- CONTINGENT LIABILITIES, COMMITMENTS AND CHARGES

Commitments to pay royalties to the Office of the Chief Scientist:

The Subsidiary had obtained from the Chief Scientist of the State of Israel grants for participation in research and development and, in return, the Subsidiary is obligated to pay royalties amounting to 3% of the sales in the first three years from the beginning of the repayment and 3.5% of the sales from the fourth year up to the amount of the grant. The grant is linked to the exchange rate of the dollar and bears interest of LIBOR per annum. Through September 30, 2009, total grants obtained amounts to NIS 17,980.

The Company filed an application to receive OCS grants in a total amount of NIS 3,200,000 in consideration of expenses recorded in the year 2008. There is an uncertainty regarding the amount and the time the aforementioned amount will be received.

TopSpin leases motor vehicles under operating lease arrangements for 36 months. The monthly lease payments are approximately NIS 3,000. As of September 30, 2009 the Company’s car lease deposits amounted to NIS 8,000 covering rental payments for the last three months in respect of these contracts.

- 15 -

Topspin Medical, Inc.
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4:- SHAREHOLDERS’ EQUITY

Composition of share capital:

The Company’s authorized common shares consist of 1,000,000,000 shares with a par value of $0.001 per share. All shares have equal voting rights and are entitled to one non-cumulative vote per share in all matters to be voted upon by shareholders. The shares have no preemptive, subscription, conversion or redemption rights and may be issued only as fully paid and non-assessable shares. Holders of the common shares are entitled to equal ratable rights to dividends and distributions with respect to the common shares, as may be declared by the Board of Directors out of funds legally available. The common shares are registered and publicly traded on the Tel-Aviv Shares Exchange.

Share capital:

In September 1999, the Company issued 625,000 Ordinary shares at a price of $0.001 per share.

In October 1999, the Company issued 375,001 Preferred A shares in consideration for NIS 3,136 thousand (net of issuance expenses of NIS 20 thousand) at a price of $2 per share.

In May 2000, the Company issued 208,329 Preferred B shares in consideration for NIS 10,184 thousand (net of issuance expenses of NIS 61 thousand) at a price of $12 per share.

In December 2002, the Company issued 87,386,858 Preferred C shares in consideration for a total amount of NIS 73,816 thousand (net of issuance expenses of NIS 2,200 thousand) at a price of $0.1886 per share.

The consideration for the issued shares was paid at the closing day (NIS 47,358 thousand) and the remaining of the consideration was paid during 2003, after the Company achieved the development milestone, as detailed in the agreement (commencement of clinical trials of its products on humans).

Preferred C shares conferred, among others, preference rights in respect of distribution of the Company’s earnings and distribution of the Company’s assets upon liquidation. Preferred A and B shares conferred, among others, preference rights in respect of distribution of the Company’s assets upon liquidation, after such distribution is made to holders of Preferred C shares and Ordinary shares conferred voting rights and rights in distribution of the Company’s assets upon liquidation, after such distribution is made to holders of Preferred shares.

- 16 -

Topspin Medical, Inc.
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4:- SHAREHOLDERS’ EQUITY (Cont.)

All classes of shares, as above, conferred equal voting rights in the Company’s general meetings on the basis of conversion into the underlying Ordinary shares.

Preferred A, B and C shares were convertible into Ordinary shares according to conversion rates of 15.5885, 53.4998 and 1 per Ordinary share, respectively.

On August 22, 2005, the Company effected a consolidation and distribution of its share capital in such a manner that 375,001 Preferred A shares of $0.001 were converted into 5,845,692 Ordinary shares, 208,329 Preferred B shares were converted into 11,145,557 Ordinary shares and 87,386,858 Preferred C shares were converted into 87,386,858 Ordinary shares.

According to an agreement signed in December 2002, the Company issued to the Chief Executive Officer (CEO) 11,927,727 Ordinary shares in consideration for $100, subject to repurchase right according to certain vesting terms. The subsidiary, TopSpin, gave the CEO a loan to finance the purchase of the Company’s shares. The loan is denominated in U.S dollars and bears interest at the rate of 5%. As a security to ensure the repayment of the loan, the CEO pledged these shares for the benefit of the Company. The pledged shares and the related balance of the loan were deducted from the shareholders’ equity.

The agreement determines that in case of lack of ability to repay the loan, the loan may be repaid only out of the return on the pledged shares. The CEO has also undertaken that if the first of the events detailed in the agreement occurs (such as the Company becomes an issuer, as defined by the Sarbanes-Oxley Act of 2002), he will repay the outstanding loan amount, if he is required to do so by TopSpin.

In August 2005, the Company and the CEO signed an agreement that modifies the employment conditions of the CEO and revises the terms of the loan and the pledge. The first half of the $100 loan that the CEO received in order to purchase Company’s shares, including the accrued interest thereon, will become a grant at the end of the second anniversary of the IPO, and the other half at the end of the third anniversary of the IPO, provided that the CEO continues to be employed in TopSpin or is a consultant in TopSpin or in any of its related companies at such time. Accordingly, for the period from inception, amounts of NIS 523 thousand became a grant and were recorded as expenses.

Upon closing of the agreement 7/12 (seven twelfths) of the shares were immediately vested. The other portions of the shares are subject to the Company’s right of repurchase according to the following terms:

The Company’s right of repurchase shall lapse on a monthly basis over four years period commencing on the date of execution of the original agreement.

The Company’s right of repurchase shall lapse, with respect to 1/6 (one sixth) of the shares in the event that the Company achieves a milestone as defined in the agreement. This milestone has been achieved in September 2003.

Through December 31, 2005, the Company accounted for these shares as a variable plan and re-measured compensation at the period such shares were vested. As of January 1, 2006 the fair value of the vested shares was classified as a liability.

- 17 -

Topspin Medical, Inc.
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4:- SHAREHOLDERS’ EQUITY (Cont.)

In August 2005, according to the modifications in the employment agreement and the loan agreement the security for the loan was replaced such that the CEO’s shares in a private company which holds 475,000 of the Company’s shares were pledged till the loan is fully paid.

On March 4, 2007 the General Meeting of the Company approved to cancel the pledge on the above mentioned shares and to repay the outstanding loan with the grant.

Consequently, the liability related to this loan in the amount of NIS 9,220 thousand was classified as equity.

Compensation expenses (income) related to the CEO in the amount of NIS 8,866 thousand were recognized from inception.

In December 2002, the Company granted fully vested options to holders of Ordinary shares, for their services, which are exercisable into 1,805,138 Ordinary shares of the Company at $0.001 per share. The options were exercised in September 2005 in consideration for NIS 7 thousand.

In December 2002, the Company granted fully vested options to Hemisphere Capital Corp., for their services, which are exercisable into 1,590,668 Preferred C shares of the Company at $0.1886 per share. In September 2005, all the options were cash-less exercised into 170,247 Ordinary shares.

On August 23, 2005, the Company increased its authorized share capital to 500 million Ordinary shares of $0.001 par value each.

On August 25, 2005, the Company published a prospectus for the issuance of securities to the public in Israel. The securities were issued in 38 thousand units (“the units”) and the price per unit, as determined in a tender, was NIS 0.95 per unit. Each unit consisted of 1,000 Ordinary shares at NIS 0.95 per share and 600 options at no consideration.

As such, the Company has 22,800,000 registered options (series 1) which are exercisable into 22,800,000 Ordinary shares of $0.001 par value with an exercise price of NIS 1.1 per share, linked to the changes in the dollar/NIS exchange rate from August 25, 2005. The options were exercisable up to February 28, 2008. On February 28, 2008, 22,522 options (Series 1) have been exercised and the rest have been forfeited.

Net proceeds total approximately NIS 32,430 thousand (net of issuance expenses of NIS 3,670 thousand). The net proceeds were allocated to the shares and options based on their relative market value.

On April 19, 2007, the Company filed a registration statement pursuant to the United States Securities Act of 1933 (“the registration statement” and “Securities Act” respectively) with the U.S. Securities and Exchange Commission (“SEC”) regarding the sale of Ordinary shares and warrants (series 3) and the shares resulting from the exercise of the warrants (series 3). On June 4, 2007, the registration statement became effective.

In the context of the registration statement, the Company is entitled to offer up to 53,000,000 Ordinary shares and 26,500,000 warrants (series 3), offered in 26,500,000 Units (each consisting of 2 Ordinary shares and 1 warrant (series 3)), for a period of one year from the date the registration statement became effective.

- 18 -

Topspin Medical, Inc.
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4:- SHAREHOLDERS’ EQUITY (Cont.)

On June 6, 2007, the Company issued 24,398,402 Ordinary shares which are listed for trade on the TASE together with 12,199,201 warrants (series 3) that are listed for trade on the TASE since September 17, 2007. The securities were issued in consideration for NIS 1.586 in cash per Unit. The total net proceeds from the issuance amounted to approximately NIS 18,336 thousand (net of issuance expenses of NIS 1,013 thousand).

The shares issued represented 15.20% of the Company’s issued and outstanding share capital and voting rights prior to issuing the Ordinary shares.

Each warrant (series 3) was exercisable into one Ordinary share of the Company until June 30, 2009, in consideration for a cash payment of NIS 0.84. On June 30, 2009, no warrants (series 3) have been exercised and all have been forfeited.

Series 2 expired on May 31, 2009. As a result, the entire liability in the amount of NIS 250 thousand on account of series 2 was written off against finance expenses.

On October 12, 2008 the Company issued 450,000,000 shares of common shares due to the settlement with convertible bonds holders

On February 2, 2009 the Company entered into a private placement agreement with an investor. According to the agreement the Company issued 120,000,000 common shares of $0.001 par value and 58,064,516 warrants exercisable into common shares of the Company for total consideration of NIS 900,000. Each warrant is exercisable into one common share for the exercise price of NIS 0.01 for a period of 4 years following the issuance date. According to the Binomial model, with 92.96% volatility and 3.39% risk-free interest rate, the fair value of the warrants amounted to approximately NIS 401,000.

NOTE 5:- SHARES-BASED COMPENSATION

On February 26, 2009 the Board of Directors approved an increase of an additional 25,000,000 shares of Common Shares (20,872,261 of them available for grant) to be granted under the 2003 Israeli Shares Option Plan.

Issuance of options to employees, directors and consultants:

On May 6, 2009 the Board of Directors of the Company approved the designation of a new Finance Manager to the Company. As part of the employment agreement of the new Finance Manager the Company granted 1,500,000 options which are exercisable into 1,500,000 Common shares of $0.001 par value each, of which 750,000 will be exercisable at an exercise price of NIS 0.011 per share and the balance of 750,000 options at an exercise price of NIS 0.022 per share. 25% of the options will vest after one year and the rest will vest in a straight line over 12 quarters. According to the Binomial model, with 113.67% volatility and 4.5% average risk-free interest rate, the compensation resulted from the grant amounted to approximately NIS 10,000.

- 19 -

Topspin Medical, Inc.
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5:- SHARES-BASED COMPENSATION (Cont.)

On June 23, 2009 the Audit Committee of the Company granted 24,500,000 options which are exercisable to purchase 24,500,000 Common shares of $0.001 par value each at an exercise price of NIS 0.0143 per share. Fifty percent of the options will vest within less than 6 months of the grant date and the rest will vest in a straight line over 8 quarters. According to the Binomial model, with 136.4% volatility and 4.5% average risk-free interest rate, the compensation resulted from the grant amounted to approximately NIS 493,000.

On September 22, 2009, one of the directors resigned and the options granted to him in the amount of 5,500,000 were forfeited.

Options to employees:

A summary of the Company’s share option activities for options granted to employees under the plans excluding performance base options is as follows:


	Nine months ended September 30, 2009
						Weighted
						average
				Weighted		remaining
				average		contractual		Aggregate
				exercise		term		intrinsic
	Number			Price ()**		(in years)		value
Options outstanding at January 1, 2009		7,213,251		NIS	0.050
Options granted (*)		26,000,000		NIS	0.014
Options exercised		(4,100,000	)	NIS	0.004
Options forfeited		(8,380,438	)	NIS	0.346


Options outstanding at September 30, 2009		20,732,813		NIS	0.016		9.67		237.7


Options vested and expected to vest at September 30, 2009		20,732,813		NIS	0.016		9.67		237.7


Options exercisable at September 30, 2009		232,813		NIS	0.158		5.73		1.11


(*)		Options granted to directors of the Company are pending the approval of the Tel Aviv Shares Exchange (“TASE”) and the Securities Exchange Committee (“SEC”) The aggregate intrinsic value in the tables above represents the total intrinsic value (the difference between the Company’s closing shares price on the last trading day of September 2009 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2009. This amount changes based on the fair market value of the Company’s shares. Total intrinsic value of options exercised by employees for the nine months ended September 30, 2009 was zero.

(**)		Exercise prices for options granted before 2009 were nominated in US dollar, while exercise prices for options granted in 2009 were nominated in NIS.

The fair value for these options was estimated using the Binomial model option-pricing model.

- 20 -

Topspin Medical, Inc.
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5:- SHARES-BASED COMPENSATION (Cont.)

A summary of the activity under the performance share based options granted to employees as follows:


	Nine months ended September 30, 2009
						Weighted
						average
				Weighted		remaining
				average		contractual		Aggregate
				exercise		term		intrinsic
	Number			price		(in years)		value
Options outstanding at January 1, 2009		2,390,000		NIS	0.56
Options exercised		(500,000	)	NIS	0.004
Options forfeited		(150,000	)	NIS	0.56


Options outstanding at September 30, 2009		1,740,000		NIS	0.56		7.27		—

Options vested and expected to vest at September 30, 2009		1,740,000		NIS	0.56		7.27		—

Options exercisable at September 30, 2009		1,740,000		NIS	0.56		7.27		—

Compensation expenses (income) related to options granted to employees were recorded to research and development expenses and general and administrative expenses, as follows:


											Period from
											Inception
											(September 20,
	Nine months ended						Three months ended				1999) through
	September 30,						September 30,				September 30,
	2009			2008			2009		2008		2009
Research and development expenses		(8	)		(1,127	)		—		8		526
General and administrative expenses		316			(531	)		—		45		10,199


		308			(1,658	)		—		53		10,725

- 21 -

Topspin Medical, Inc.
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5:- SHARES-BASED COMPENSATION (Cont.)

Options to non-employees:

A summary of the Company’s share option activities for options granted to non-employees under the plans excluding performance base options is as follows (amounts in thousands NIS):

Nine months ended September 30, 2009

Weighted

average

Weighted

remaining

Aggregate

average

contractual

Intrinsic

exercise

terms

Value

Number

price

(in years)

Price

Options outstanding at January 1, 2009

1,378,510

NIS

0.71

Options forfeited

(812,500

)

NIS

0.29

Options outstanding, vested and expected to vest at September 30, 2009

566,010

NIS

1.3

4.3

—

Options exercisable at September 30, 2009

566,010

NIS

1.3

4.3

—

The Company accounted for its options to non-employees under the fair value method in accordance of ASC 718 (formerly SFAS 123(R)) and ASC 505 (formerly EITF 96-18). The fair value for options granted to non-employees was estimated based on binomial option pricing model and amounts to approximately NIS 2 thousand.

A summary of the activity under the performance share-based options granted to non-employees is as follows:

Nine months ended September 30, 2009

Weighted

average

Weighted

remaining

Average

contractual

Aggregate

Exercise

term

intrinsic

Number

Price

(in years)

value

Options outstanding at January 1, 2009 and September 30, 2009

900,000

NIS

0.42

6.95

—

Options exercisable at September 30, 2009

300,000

NIS

0.42

6.95

—

- 22 -

Topspin Medical, Inc.
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5:- SHARES-BASED COMPENSATION (Cont.)

The Company’s outstanding options to non-employees (including options under performance) as of September 30, 2009, have been separated into ranges of exercise prices as follows:


					Weighed
					average
	Options for				remaining
Exercise price	Ordinary		Options		contractual
per share	shares		exercisable		term (in years)
NIS 45.1		14,010		14,010		3.0
NIS 0.19		552,000		552,000		4.33
NIS 0.42		900,000		300,000		6.95


		1,466,010		866,010

Compensation expenses (income) related to options granted to non-employees were recorded to research and development expenses and general and administrative expenses, as follows:


											Period from
											inception
											(September 20,
	Nine months ended						Three months ended				1999) through
	September 30,						September 30,				September 30,
	2009			2008			2009		2008		2009
Research and development expenses		(1	)		(326	)		—		16		166
General and administrative expenses		(2	)		(187	)		—		9		1,305


		(3	)		(513	)		—		25		1,471

NOTE 6:- RELATED PARTY

On April 19, 2009 the Company’s Board of Directors nominated Mr. Ehud Gilboa, the chairman of the Company’s and the subsidiary’s (together the “Group”) Board of Directors, to serve as a temporary Chief Executive Officer (“CEO”) of the Group and entered into a Consulting Agreement to that end.

On May 5, 2009 the Board of Directors amended the agreement to reflect that Mr. Ehud Gilboa will provide consulting services only, and that he will not act as the Group’s temporary CEO.

In consideration for the services he provides, Mr. Gilboa is entitled to a monthly fee of NIS 34,000 plus value added tax (approximately $9,000.), and the Company will pay up to 50% of all fixed and variable maintenance costs of the cellular phone used by the Consultant retroactively from January 1, 2009.

- 23 -

Topspin Medical, Inc.
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7: SUBSEQUENT EVENTS

In July 2009, the Israeli Parliament (the Knesset) passed the Economic Efficiency Law 2009 (Amended Legislation for Implementing the Economic Plan for 2009 and 2010) which prescribes, among other things, an additional gradual reduction in Israeli corporate tax rate starting from 2011 to the following tax rates: 2011 — 24%, 2012 — 23%, 2013 — 22%, 2014 — 21%, 2015 — 20%, 2016 and thereafter — 18%.

The Company estimates that the Economic Efficiency Law is not expected to effect the Company’s consolidated financial statements.

On November 15, 2009, the chairman of the board of directors, Mr. Ehud-Moshe Gilboa, notified the board regarding his resignation from his duties as chairman of the board and as a board member effective immediately after the filing of this Quarterly Report on Form 10-Q for the three months ended September 30, 2009.

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to assist you in understanding our financial condition and plan of operations. You should read the following discussion along with our financial statements and related notes included in this Quarterly Report on Form 10-Q.

Overview

We were incorporated in Delaware on September 20, 1999. We have conducted all of our business operations through our wholly-owned Israeli subsidiary, TopSpin Medical (Israel) Ltd. (TopSpin Israel). TopSpin Israel was incorporated on October 5, 1999 and prior to our suspension of our activities due to financial considerations in October 2008, we were engaged through TopSpin Israel in the design, research, development and manufacture of imaging devices that utilize MRI technology by means of miniature probes for various body organs. We first began researching and developing this technology for use in diagnosis and therapy guidance of cardiology applications. In 2006, we began to develop our technology for the detection of prostate cancer in a way which could potentially aid urologists in guiding prostate biopsies, staging of prostate cancer and guiding local treatment such as cryo- and brachy-therapy.

On July 13, 2008, we reached an agreement (the “Settlement Agreement”) with the Ziv Haft Trust Company Ltd., the Co-Trustee of the Series A Debentures (the “Series A Bonds”). All of the conditions to the effectiveness of the Settlement Agreement were satisfied on September 25, 2008. On October 12, 2008, pursuant to the Settlement Agreement, we issued 450,000,000 shares of our common stock to the holders of the Series A Bonds (the “Bondholders”). On October 26, 2008, in further compliance with the Settlement Agreement, we paid NIS 12.5 million in cash with respect to each 1 NIS of the Series A Bonds (the “Cash Payment”). Following the Cash Payment on October 26, 2008, our Series A Bonds were cancelled.

As a result of the combination of the substantial outlay of cash in connection with the settlement and because the grants due to us for the year 2008 from the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade and Labor (“OCS”), an Israeli governmental agency, were not received in the expected timeframe, we decided to terminate the employment of all of TopSpin Israel’s employees (excluding the finance department) and suspend our operational activities as of October 27, 2008. In connection with this decision, the Board decided to continue to seek financing opportunities in order to resume the Company’s operations.

On June 2, 2009, the Company entered into a share purchase and investment agreement (the “Purchase Agreement”) with Kiryat Anavim — Silicon Technologies, Ltd. (“KAST”), an Israeli company and certain of its affiliates, pursuant to which the Company will acquire a controlling interest in KAST, as more fully described in our report on Form 8-K, filed on June 8, 2009 (the “June 8 Report”). The June 8 Report is incorporated by reference in response to this Item 2 as if fully set forth herein.

As described in our current report on Form 8-K, filed on October 29, 2009, the Purchase Agreement was terminated effective October 26, 2009. As a result of such termination, all of the Company’s obligations thereunder (with the exception of certain obligations with respect to confidentiality and non-disclosure) are terminated.

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Liquidity and Capital Resources

Since our inception, we have financed our operations principally through private and public sales of equity securities, issuance of convertible notes and receipt of grants from the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade and Labor, an Israeli governmental agency. On February 1, 2009, we issued (i) 120,000,000 shares of common stock, par value $0.001, and (ii) options to purchase up to an additional 58,064,516 shares of our common stock at an exercise price of 0.01 NIS per share, exercisable immediately and expiring four years following the date of issuance. In consideration of this issuance, we received NIS 900,000 (approximately $215,000).

As of September 30, 2009, we held approximately NIS 1,704,000 (approximately $453,000) in cash and cash equivalents.

The Company and its Subsidiary have not generated any revenues and have not achieved profitable operations or positive cash flows from operations. The Company has an accumulated deficit of NIS 182,244,000 as of September 30, 2009, and it incurred a net loss of NIS 120,000 (approximately $31,000) and negative cash flow from operating activities in the amount of NIS 637,000 (approximately $166,000) for the three month period ended September 30, 2009.

Based on the Company’s approved budget, which takes into account the expected expenses for operating the Company in its current condition, the Company believes it will need to raise additional funds to support its activities for the twelve month period from the date of the financial statements included in this quarterly report on Form 10-Q. The Company’s liabilities include a tax provision in the amount of approximately NIS 1,328,000 ($353,000). Based on its current financial condition, the Company will have to raise additional funds in order to redeem its long-term liabilities and to continue as a going concern. The current economic market environment is causing significant contraction in the credit and financing marketplace, and may make raising capital materially more difficult for the Company or may prevent the Company from raising the funds that it needs to continue its current operations and/or to pursue new opportunities.

The company is pursuing fundraising opportunities as well as new business opportunities and is currently negotiating with several potential investors.

Operating Activities

We used NIS 637,000 (approximately $166,000) of cash in operating activities in the three months ended on September 30, 2009. In the same period in 2008, we used NIS 7,061,000 (approximately $1,969,000). In the nine months ended on September 30, 2009, we used 3,081,000 NIS (approximately $772,000) and in the same period in 2008 we used 22,957,000 NIS ($6,711,000). The decrease in net cash used in operating activities in 2009 is primarily attributable to our Board of Directors’ decision to suspend the Company’s operational activities as of October 2008, but is offset by transactional expenses associated with our terminated acquisition of KAST, including certain audit and legal fees incidental to the acquisition.

Financing Activities

In November 2006, we raised net proceeds of 40,635,000 NIS (approximately $11,878,000) through the sale of Series A Convertible Bonds and Series 2 Warrants in a private placement. In June 2007, we raised net proceeds of 18,336,000 NIS (approximately $5,360,000) through the sale of Common Stock and Series 3 Warrants. In February 2009, we raised net proceeds of 900,000 NIS (approximately $215,000) through a private placement of our common stock and options to purchase shares of our common stock with an investor. We did not raise any proceeds in connection with the issuance of equity securities for the three months ended on September 30, 2009.

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No cash was provided from financing activities in the three months ended September 30, 2009 or during the comparable period in 2008.

In the nine months ended September 30, 2009, 919,000 NIS ($230,000) was provided from financing activities compared to 42,000 NIS ($12,300) in the same period in 2008.

Investing Activities

We invested a substantial portion of our available cash funds in NIS-denominated bank deposits. In the three month period ended September 30, 2009, we did not release any restricted deposits, compared to NIS 12,520,000 (approximately $3,659,000) invested in the same period in 2008. The amount invested was with respect to reserves set aside for the payment of the Cash Payment pursuant to the Settlement Agreement as discussed above.

In the nine months ended September 30, 2009, we released restricted deposits of 481,000 NIS ($121,000).

In the same period in 2008 we used 12,763,000 NIS ($3,731,000) in investing activities most of it as a reserve set aside for payment to the settlement agreement.

Results of Operations

For the three and nine months ended September 30, 2009 and 2008

Revenues

We have not recorded any revenues from operations since the time of our inception in September 1999. We have financed our operations principally through private and public sales of equity securities, issuance of convertible notes and the receipt of grants from the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade and Labor, an Israeli governmental agency. We used the funds generated by these activities to support research and development, administrative, and other expenses associated with developing, testing and marketing our proposed products. As discussed above under the heading “Liquidity and Capital Resources”, our reduced cash status caused us to suspend our operational activities as of October 2008.

Research and Development Expense

Research and Development (R&D) expenses in 2008 consist of the costs associated with the development of our imaging devices, reduced by the value of the grant received from the Office of the Chief Scientist and income from experimental sales. Following our Board’s decision to suspend non-administrative operations, in the three and nine months ended on September 30, 2009, we did not incur any R&D expense. In the same periods in 2008, we incurred 3,318,000 NIS and 14,213,000 NIS, respectively (approximately $905,000 and $4,155,000, respectively) of R&D expenses.

Selling and Marketing Expense

Selling and Marketing expenses in 2008 included expenses incurred in connection with marketing our imaging devices. Following our Board’s decision in April 2008 to shift the Company’s focus to the Urology Product, which was not yet in the marketing phase, in the three and nine months ended on September 30, 2009, we did not incur any Selling and Marketing expenses, as compared with NIS 5,000 and NIS 562,000, respectively (approximately $1,400 and $164,000, respectively) of Selling and Marketing expense incurred during the same periods in 2008.

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General and Administrative Expense

General and Administrative (G&A) expenses include salaries of all employees other than research and development employees and sales and marketing employees and other general expenses incurred by us that are not related to research and development or sales and marketing activities. G&A expenses for the three and nine months ended on September 30, 2009 decreased to 211,000 NIS and 2,061,000 NIS, respectively (approximately $62,000 and $517,000, respectively) from NIS 2,913,000 and NIS 6,398,000, respectively (approximately $830,000 and $1,870,000, respectively) spent in the same periods in 2008. This decrease was mainly due to the Company’s Board of Directors’ decision in October 2008 to suspend its activities.

Financing Income

Financing income and/or expenses includes revaluations of certain balance sheet accounts that are linked to the U.S. Dollar exchange rate. Finance income, net for the three and nine months ended on September 30, 2009 decreased to NIS 91,000 and NIS 258,000, respectively (approximately $24,000 and $65,000, respectively) from NIS (13,359,000) and NIS 4,807,000, respectively (approximately $3,755,000 and $1,406,000, respectively) gained (lost) in the same periods in 2008. In the same periods in 2008, finance income was mainly affected by the change in fair value of debentures and warrants offset by interest due on debentures.

Taxes on Income

In connection with the implementation of the Settlement Agreement, the Company recorded in December 2008, NIS 1,344,000 (approximately $353,000) which was revalued in September 2009 to NIS 1,328,000 (approximately $353,000) of provisional liabilities representing an estimate of potential tax liability that we may incur in connection with the conversion of the Series A Bonds.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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In June 2009, the FASB concurrently issued amendments to ASC 860, Transfers and Servicing (formerly SFAS No. 166), and ASC 810, Consolidation (formerly SFAS No. 167), that change the way entities account for securitizations and other transfers of financial instruments. In addition to increased disclosure, these amendments eliminate the concept of qualifying special purpose entities and change the test for consolidation of variable interest entities. These amendments will be effective for us as of January 1, 2010. We have evaluated these amendments and believe they will have no impact on our financial condition or results of operations.

Off-Balance Sheet Arrangements

Commitments to Pay Royalties to the Chief Scientist

TopSpin Israel obtains grants from the OCS for participation in research and development and, in return, is obligated to pay royalties amounting to 3% of sales during the first three years from the start date of the repayments and 3.5% of sales from the fourth year until the full repayment of the grants. The grants are linked to the exchange rate of the dollar and bear interest of LIBOR per annum. As of September 30, 2009, the total amount of the obligation equals approximately NIS 16,035,000 (approximately $4,267,000).

Office Lease Commitments

The company leases approximately 30 square meters of office space in Tel Aviv. The monthly rental fees are 4,200 NIS (approximately $1,200), plus the applicable value-added tax. The lease agreement between the Company and DDG, the Landlord, is in effect until May 2010.

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ITEM 4T. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of September 30, 2009, our management, including our Finance manager and the Chairman of the Board of Directors, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on such evaluation, our management concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Management’s assessment of the effectiveness of internal control over financial reporting is expressed at the level of reasonable assurance because a control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met.

There have not been any changes in our internal control over financial reporting during the three month period ended on September 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 5. OTHER INFORMATION

In addition, on November 15, 2009, the Board appointed Mr. Zvi Lindowski, 58, to serve as a director on the Company’s Board of Directors. Sine 2001, Mr. Lindowski has served as the Chief Executive Officer of Tapuz, an Israeli company that provides consulting services to KUOHWA, a large Taiwanese textile company. Prior to joining Tapuz, Mr. Lindowski was the founder and chief executive officer of Billy Boy Textiles, an Israeli company that manufactured and sold its own clothing line as well as being an approved manufacturer for Nike, Adidas and other leading fashion labels. Mr. Lindowski serves as director on the Board of Directors of Rabintex Industries, Mandarin, Israel; and Kolin, Israel. Each of Mandarin, Israel and Kolin, Israel are affiliates of KUOHWA formed for the purpose of coordinating KUOHWA’s business in Israel.

ITEM 6. EXHIBITS


Exhibit
Number		Description

	31.1	Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)

	31.2	Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)

	32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Certifications as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Incorporated by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Date: November 15, 2009	TOPSPIN MEDICAL, INC.

	By:	/s/ Ehud-Moshe Gilboa
		Chairman of the Board of Directors

Date: November 15, 2009	By:	/s/ Eldad Yehiely
		Finance Manager

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EXHIBIT INDEX


Exhibit
Number		Description

	31.1	Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)

	31.2	Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)

	32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Certifications as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


*		Incorporated by reference.

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My Size, Inc. - Quarter Report: 2009 September (Form 10-Q)

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