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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021

 

For the three months ended June 30, 2021

 

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 000-56026

 

TODOS MEDICAL LTD.

(Exact name of registrant as specified in its charter)

 

Israel   Not Applicable

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

121 Derech Menachem Begin, 30th Floor, Tel Aviv, 6701203 Israel

(Address of principal executive offices and Zip Code)

 

+972 (52) 642-0126

(Registrant’s telephone number, including area code)

(I.R.S. Employer Identification No.)

 

Securities registered pursuant to Section 12(b) of the Act:

None

 

Securities registered pursuant to Section 12(g) of the Act: None

 

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. 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 (§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.) 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
       
Non-accelerated filer Smaller reporting company
       
    Emerging growth company

 

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

 

As of September 8, 2021, the registrant had 793,252,325 ordinary shares outstanding.

 

 

 

 

 

 

TODOS MEDICAL LTD.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2021

TABLE OF CONTENTS

 

  Page No.
GENERAL AND WHERE YOU CAN FIND MORE INFORMATION 3
PART I FINANCIAL INFORMATION F-1
ITEM 1. FINANCIAL STATEMENTS (unaudited) F-1
CONDENSED CONSOLIDATED BALANCE SHEETS – JUNE 30, 2021 AND DECEMBER 31, 2020 F-3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – SIX AND THREE MONTHS ENDED JUNE 30, 2021 AND JUNE 30, 2020 F-4
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY – JUNE 30, 2021 AND JUNE 30, 2020 F-5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - SIX MONTHS ENDED JUNE 30, 2021 AND JUNE 30, 2020 F-7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS F-9
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 4
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15
ITEM 4. CONTROLS AND PROCEDURES 16
PART II OTHER INFORMATION 16
ITEM 1. LEGAL PROCEEDINGS 16
ITEM 1A. RISK FACTORS 16
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4. MINE SAFETY DISCLOSURES 16
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS 17
SIGNATURES 18

 

2
Table of Contents 

 

General and Where You Can Find Other Information

 

Unless otherwise indicated, all references to the “Company,” “we,” “our,” “Todos” and “Todos Medical” refer to Todos Medical Limited and its subsidiaries, Todos Medical USA, a Nevada corporation, Todos Medical Singapore Pte. Ltd., a Singaporean corporation, and to Corona Diagnostics, LLC, a Nevada limited liability company and a subsidiary of Todos Medical USA and Breakthrough Diagnostics Inc., a Nevada corporation. References to “revenues” refer to net revenues. References to “U.S. dollars,” “dollars,” “U.S. $” and “$” are to the lawful currency of the United States of America, and references to “NIS” are to new Israeli shekels. All references to “shares” in this quarterly report on Form 10-Q refer to the pre-reverse split ordinary shares of Todos Medical Ltd., par value NIS 0.01 per share. As is discussed elsewhere in this quarterly report on Form 10-Q, on July 26, 2021, Todos’ shareholders approved a reverse split of its shares based upon a ratio to be determined by Todos’ management.

 

3
Table of Contents 

 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

TODOS MEDICAL LTD.

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF JUNE 30, 2021

 

F-1
Table of Contents

 

TODOS MEDICAL LTD.

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2021

 

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

  Page
Condensed Consolidated Balance Sheets F-3
Condensed Consolidated Statements of Operations F-4
Condensed Consolidated Statements of Changes in Shareholders’ Deficit F-5 - F-6
Condensed Consolidated Statements of Cash Flows F-7 - F-8
Notes to Condensed Consolidated Financial Statements F-9 - F-24

 

 

 

F-2
Table of Contents

 

TODOS MEDICAL LTD.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands except share and per share amounts)

 

   June 30, 2021   December 31, 2020 
   As of    As of  
   June 30, 2021   December 31, 2020 
   Unaudited     
ASSETS          
Current assets:          
Cash and cash equivalents  $308   $935 
Trade receivables   1,792    378 
Inventories   1,704    536 
Other current assets   123    601 
Total current assets   3,927    2,450 
           
Non-current assets:          
Investment in affiliated companies accounted for under equity method, net   658    745 
Investment in other company   455    224 
Property and equipment, net   2,596    1,999 
Prepaid expenses   361    591 
Goodwill   7,761    - 
Intangible assets   1,500    - 
Total non-current assets   13,331    3,559 
           
Total assets  $17,258   $6,009 
           
LIABILITIES AND SHAREHOLDERS’ DEFICIT          
Current liabilities:          
Receivables financing facility, net  $-   $1,306 
Loans, net   2,756    1,672 
Accounts payable   1,087    1,640 
Deferred revenues   13    844 
Other current liabilities   3,941    2,316 
Liability for minimum royalties   296    291 
Total current liabilities   8,093    8,069 
           
Non-current liabilities:          
Convertible bridge loans, net  15,560   5,965 
Derivative warrants liability, net   7    301 
Fair value of bifurcated convertible feature of convertible bridge loans   2,077    2,500 
Deferred taxes   315    - 
Liability for minimum royalties   205    185 
Total non-current liabilities   18,164    8,951 
           
Shareholders’ deficit:          
Ordinary Shares of NIS 0.01 par value each:          
Authorized: 1,000,000,000 shares at June 30, 2021 and December 31, 2020; Issued and outstanding: 607,760,492 shares and 376,335,802 shares at June 30, 2021 and December 31, 2020, respectively   1,765    1,059 
Ordinary Shares of NIS 0.01 par value each: Authorized: 1,000,000,000 shares at June 30, 2021 and December 31, 2020; Issued and outstanding: 607,760,492 shares and 376,335,802 shares at June 30, 2021 and December 31, 2020, respectively   1,765    1,059 
Additional paid-in capital   50,684    35,211 
Accumulated deficit   (61,448)   (47,281)
Total shareholders’ deficit   (8,999)   (11,011)
           
Total liabilities and shareholders’ deficit  $17,258   $6,009 

 

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

 

F-3
Table of Contents

 

TODOS MEDICAL LTD.

 

CONDENSED STATEMENTS OF OPERATIONS

(U.S. dollars in thousands except share and per share amounts)

 

   2021   2020   2021   2020 
  

Six months period ended

June 30,

  

Three months period ended

June 30,

 
   2021   2020   2021   2020 
   Unaudited   Unaudited 
         
Revenues  $6,763   $32   $1,732   $32 
Cost of revenues   (4,148)   (11)   (913)   (11)
Gross profit   2,615    21    819    21 
                     
Research and development expenses   (643)   (569)   (239)   (465)
Sales and marketing expenses   (1,958)   (1,430)   (599)   (680)
General and administrative expenses   (3,204)   (925)   (1,643)   (595)
                     
Operating loss   (3,190)   (2,903)   (1,662)   (1,719)
                     
Financing income (expenses), net   (10,485)   (4,320   5,171    (866)
Share in losses of affiliated companies accounted for
under equity method, net
   (492)   -    (119)   - 
                     
Net income (loss)   $(14,167)  $(7,223)  $3,390   $(2,585)
                     
Basic and diluted net income (loss) per share  $(0.02)  $(0.04)  $0.01  $(0.01)
Weighted average number of ordinary shares outstanding attributable to ordinary shareholders used in computation of basic and diluted net income (loss) per share   585,225,006    164,423,927    575,898,572    189,945,607 

 

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

 

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TODOS MEDICAL LTD.

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT

(U.S. dollars in thousands except share and per share amounts)

 

   Shares   Amount   Additional paid-in capital   Accumulated deficit   Total Shareholders’ deficit 
   Ordinary shares   Additional paid-in   Accumulated   Total Shareholders’ 
   Shares   Amount   capital   deficit   deficit 
                     
Balance as of December 31, 2019   103,573,795   $280   $10,979   $(17,508)  $(6,249)
Changes during the three months period ended March 31, 2020:                         
Issuance of ordinary shares for call option to acquire potential acquiree   17,091,096    49    951    -    1,000 
Partial conversion of convertible bridge loans into ordinary shares   27,336,061    78    1,508    -    1,586 
Classification of derivative warrants liability into equity as result of partial conversion of convertible bridge loans into ordinary shares   -    -    333    -    333 
Issuance of ordinary shares and stock warrants upon modification of terms relating to convertible bridge loans transactions   350,000    1    376    -    377 
Commitment to issue units consisting of ordinary shares and stock warrants   -    -    30    -    30 
Issuance of stock warrants as part of convertible bridge loan received   -    -    466    -    466 
Issuance of ordinary shares to service providers   5,718,588    17    815    -    832 
Net loss for the period   -    -    -    (4,638)   (4,638)
Balance as of March 31, 2020 (unaudited)   154,069,540   425   15,458   (22,146)  (6,263)
Changes during the three months period ended June 30, 2020:                         
Issuance of ordinary shares for call option to acquire potential acquiree   13,008,976    37    963    -    1,000 
Partial conversion of convertible bridge loans into ordinary shares   13,015,711    36    866    -    902 
Classification of derivative warrants liability into equity as result of partial conversion of convertible bridge loans into ordinary shares   -    -    193    -    193 
Issuance of stock warrants as part of convertible bridge loan received   -    -    126    -    126 
Issuance of ordinary shares as partial settlement of financial liability   13,750,000    39    910    -    949 
Issuance of ordinary shares and stock warrants upon modification of terms relating to convertible bridge loans transactions   720,000    2    39    -    41 
Issuance of ordinary shares to service providers   7,309,915    21    966    -    987 
Net loss for the period   -    -    -    (2,585)   (2,585)
Balance as of June 30, 2020 (unaudited)   201,874,142   $560   $19,521   $(24,731)  $(4,650)

 

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

 

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TODOS MEDICAL LTD.

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT

(U.S. dollars in thousands except share and per share amounts)

 

   Ordinary shares   Additional paid-in   Accumulated   Total Shareholders’ 
   Shares   Amount   capital   deficit   deficit 
                     
Balance as of December 31, 2020   376,335,802   $1,059   $35,211   $(47,281)  $(11,011)
Changes during the three months period ended March 31, 2021:                         
Issuance of ordinary shares as settlement of previous commitments   2,500,000    8    (8)   -    - 
Partial conversion of convertible bridge loans into ordinary shares   134,358,817    409    6,461    -    6,870 
Issuance of ordinary shares upon modification of terms relating to convertible straight loan transaction   2,000,000    6    82    -    88 
Issuance of stock warrants as part of convertible bridge loan received   -    -    792    -    792 
Issuance of ordinary shares in exchange for equity line received   5,229,809    16    239    -    255 
Issuance of ordinary shares as collateral for loan repayment   20,000,000    61    809    -    870 
Issuance of ordinary shares or commitment for issuance of fixed number of ordinary shares to service providers   11,921,053    36    30    -    66 
Stock-based compensation to employees and directors   -    -    169    -    169 
Net loss for the period   -    -    -    (17,557)   (17,557)
Balance as of March 31, 2021 (unaudited)   552,345,481   1,595   43,785   (64,838)  (19,458)
Changes during the three months period ended June 30, 2021:                         

Partial conversion of convertible bridge loans into ordinary shares

   55,415,011   170   1,606    -   1,776 
Issuance of stock warrants as part of convertible bridge loan received   -    -    3,430    -    3,430 
Stock-based compensation to service providers   -    -    21    -    21 
Commitment to issue shares in acquisition of subsidiary   -    -    1,699    -    1,699 
Stock-based compensation to employees and directors   -    -    143    -    143 
Net income for the period   -    -    -    3,390    3,390 
Balance as of June 30, 2021 (unaudited)   607,760,492   $1,765   $50,684   $(61,448)  $(8,999)

 

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

 

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TODOS MEDICAL LTD.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

 

   2021   2020 
  

Six months period ended

June 30,

 
   2021   2020 
Cash flows from operating activities:          
Net loss  $(14,167)  $(7,223)
Adjustments required to reconcile net loss to net cash used in operating activities:          
Depreciation   356    13 
Liability for minimum royalties   24    19 
Stock-based compensation   399    1,818 
Expiration of call options to acquire potential acquiree   -    2,000 
Share in losses of affiliated company   492    - 
Modification of terms relating to straight loan transaction   88    - 
Modification of terms relating to convertible bridge loans transactions   -    3,839 
Exchange differences relating to loans from shareholders   -    83 
Issuance of shares as a settlement in excess of the carrying amount of financial liabilities   -    499 
Amortization of discounts and accrued interest on convertible bridge loans   13,648    (2,503)
Amortization of discounts and accrued interest on straight loans   653    80 
Change in fair value of derivative warrants liability and fair value of warrants expired   (294)   - 
Change in fair value of liability related to conversion feature of convertible bridge loans   (4,307)   (120)
Increase in trade receivables   (1,168)   - 
Increase in inventories   (1,348)   (164)
Decrease (increase) in other current assets   712    (45)
Increase (decrease) in accounts payables   (481)   131 
Decrease in deferred revenues   (857)   - 
Increase in other current liabilities   260    78 
Net cash used in operating activities   (5,990)   (1,495)
           
Cash flows from investing activities:          
Purchase of property and equipment   (770)   (25)
Restricted cash   -    5 
Cash used in purchased of subsidiary   (1,176)   - 
Investment in other companies   (635)   (4)
Net cash used in investing activities   (2,581)   (24)
           
Cash flows from financing activities:          
Proceeds from straight loans, net   1,850    147 
Repayment of Receivables financing facility   (1,249)   - 
Repayment of straight loans   (1,058)   - 
Repayment of convertible bridge loans   (2,166)   - 
Proceeds from issuance of units consisting of convertible bridge loans, stock warrants and shares, net   10,312    1,562 
Proceeds from issuance of units consisting of ordinary shares and stock warrants   -    30 
Proceeds from issuance of ordinary shares through equity line   255    - 
Net cash provided by financing activities   7,944    1,739 
           
Change in cash, cash equivalents   (627)   220 
Cash, cash equivalents at beginning of period   935    12 
Cash, cash equivalents at end of period  $308  $232

 

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

 

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TODOS MEDICAL LTD.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.)

(U.S. dollars in thousands)

 

  

Six months period ended

June 30,

 
   2021   2020 
         
Supplemental disclosure of non-cash activities:          
           
Issuance of warrants as part of bridge loan transactions   3,430    633 
Partial conversion of convertible bridge loans and liability related to conversion feature of convertible bridge loans into ordinary shares   (8,646)   (2,488)
Issuance of stock warrants as part of convertible bridge loan received   (870)   - 
Issuance of ordinary shares upon modification of terms relating to convertible straight loan transaction   792    - 
Issuance of shares as settlement of financial liabilities   -    (450)
Classification of warrants from liability into equity upon partial conversion of convertible bridge loans into ordinary shares   -    (526)
Conversion of loan from shareholder into ordinary shares   -    39 
           
Cash used in purchased of subsidiary:          
           
Working capital (excluding cash and cash equivalents)   

(18

)     
Fixed assets   

183

      

Long term assets

   

3

      
Net assets acquired   

168

      
Goodwill acquired   

7,761

      
Intangible assets acquired   

1,500

      
Second cash instalment payable   

(1,250

)     
Consideration in convertible promissory note   

(4,989

)     
Consideration in Shares   

(1,699

)     
Deferred tax liability   

(315

)     
Net cash used in purchase of subsidiary    

1,176

      

 

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

 

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TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 1 - GENERAL

 

A. Operations

 

Todos Medical Ltd. (the “Company” or “Todos”) was incorporated under the laws of the State of Israel and commenced its operations on April 22, 2010. The Company engineers life-saving diagnostic solutions for the early detection of a variety of cancers. The Company’s patented Todos Biochemical Infrared Analyses (TBIA) is a proprietary cancer-screening technology using peripheral blood analysis that deploys deep examination into cancer’s influence on the immune system, looking for biochemical changes in blood mononuclear cells and plasma. Todos’ two internally developed cancer-screening tests, TMB-1 and TMB-2, have received a CE mark in Europe.

 

Todos is also developing blood tests for the early detection of neurodegenerative disorders, such as Alzheimer’s disease. The Lymphocyte Proliferation Test (LymPro Test™) is a diagnostic blood test that determines the ability of peripheral blood lymphocytes (PBLs) and monocytes to withstand an exogenous mitogenic stimulation that induces them to enter the cell cycle. LymPro is unique in the use of peripheral blood lymphocytes as a surrogate for neuronal cell function, suggesting a common relationship between PBLs and neurons in the brain.

 

Additionally, commencing 2020, the Company through its U.S. subsidiary (Corona Diagnostics, LLC) has entered into several distribution agreements with other companies to distribute certain novel coronavirus (COVID-19) test kits. The agreements cover multiple international suppliers of PCR testing kits and related materials and supplies, as well as antibody testing kits from multiple third-party manufacturers after completing validation of said testing kits and supplies in certified laboratory in the United States.

 

In December 2020, the Company announced the commercial launch of its proprietary 3CL protease inhibitor dietary supplement Tollovid™. Tollovid, a mix of botanical extracts, is being targeted to support healthy immune function against circulating coronaviruses. Tollovid was granted a Certificate of Free Sale by the US Food and Drug Administration (FDA) in August 2020, allowing its commercial sale anywhere in the United States. In May 2021, the FDA granted the Company a new Certificate of Free Sale for a second dosing regimen for Tollovid™ as a dietary supplement, under which the Company is authorized to market Tollovid with a dosing regimen of 60 pills over a five-day period, equivalent to 12 pills per day.

 

For the period of six months ended June 30, 2021, all of the revenue resulted from sales of COVID-19 related products. Through June 30, 2021, the Company has not yet generated any revenue from its developed cancer-screening tests TMB-1 and TMB-2, LymPro Test™, or its dietary supplement, Tollovid™.

 

B. Share Purchase Agreement

 

On April 19, 2021, the Company entered into Share Purchase Agreement (“SPA”) Provista Diagnostics, Inc. (the “Agreement to Purchase”) with Strategic Investment Holdings, LLC, Ascenda BioSciences LLC (“SIH”, “Ascenda” and together referring as “Sellers”, respectively) and Provista Diagnostics, Inc. (“Provista”). Ascenda was the sole owner of the outstanding securities of Provista and SIH is the sole owner of all the outstanding securities of Ascenda. Provista is a medical diagnostics company based in Alpharetta, Georgia that owns the intellectual property rights to the proprietary breast cancer blood test, Videssa®, and has a diagnostic testing laboratory currently performing COVID-19 PCR testing, primarily for the medical and entertainment industries.

 

Subject to the terms and conditions of the SPA, the Company shall purchase from the Sellers 3,599 shares of Preferred Stock and 1,581 shares of Ordinary Stock (collectively the “Provista Shares”) representing 100% of Provista’ s securities outstanding, for an aggregate purchase price of $7,500 subject to the following terms:

 

  1. On or before April 19, 2021, (the “First Closing Date”), the Company shall deliver to Sellers a non-refundable deposit of $1,250 (the “Cash Deposit”). The Cash Deposit was delivered at April 21, 2021.
     
  2. On or before the First Closing Date, the Company shall deliver to Sellers or Sellers’ designees such number of non-refundable shares of its ordinary stock, par value NIS 0.01, (the “Todos Deposit Shares”) with a fair market value of $1,500, as defined in the SPA.
     
  3. On or before July 1, 2021 (the “Second Closing Date”), the Company shall deliver to the Sellers a second payment of $1,250 (the “Second Cash Payment”).
     
  4. The Company shall have the option of extending the payment of the Second Cash Payment until July 15, 2021, by paying the Sellers an additional amount of $250 (the “Extension Payment”) on or before the Second Closing Date. If the Extension Payment is received by Sellers on or before the Second Closing Date, then the Company shall deliver the Convertible Note on the Second Closing Date and the Second Cash Payment on or before July 15, 2021. In the event the Company completes the Second Cash Payment, the aforesaid Extension Payment shall be credited towards the Second Cash Payment.

 

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TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

  5. On or before the Second Closing Date, the Company shall deliver to Sellers or their designees the Convertible Note in the principal amount of $3,500, payable by the Company to the Sellers (the “Note”). At any time or times on or after the issuance sate of the Note, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount into fully paid and nonassessable shares of common stock over a period commencing October 20, 2021 through April 8, 2025 (the “Maturity Date”), at the conversion price equal to the lesser of (i) $0.05 or (ii) the volume weighted average price of the last 20 trading days for the common shares prior to the conversion date (the “Fair Market Value”).
     
    In the event the Sellers deliver a conversion notice to the Company at a per share price less than $0.05, the Company shall have the right to immediately notify the Sellers of its intention to pay the conversion amount in cash within 3 business days of receipt of the conversion notice (i.e. before Sellers would take possession of shares converted under the conversion notice). If, at any time between October 20, 2021 and April 20, 2022, the average of the lowest bid and closing sale price is below $0.05, the Company has the option to buy out all or any portion of the Note (the “Buyback Option”). In the event the Company exercises the Buyback Option for an amount equal to or greater than $1,170 (the “Buyback Amount”), the Sellers shall not submit any conversions below $0.05 for 90-days period from receipt of the Buyback Amount (the “90-Days Period”). The Company may exercise a second Buyback Option at the end of the 90-Days Period under the same terms. The Company must provide 30-days’ notice to the Sellers prior to exercising any Buyback Option or notify the Sellers of its intention to pay the Buyback Amount upon receipt of a conversion notice below $0.05 and pay the Buyback Amount within 3 business days of receipt of such notice.
     
    In the event that the Company uplists its shares of common stock to a national securities exchange, the Note shall automatically be exchanged into preferred stock (the “Series B Preferred Stock”) with a conversion price equal to the lesser of (i) $0.05, (ii) the opening price on the day of the uplisting provides there is no transaction associated with the uplisting or (iii) the deal price of an uplisting transaction (the “Mandatory Conversion”).
     
    If, at any time while this Note is outstanding, (i) the Company effects a Fundamental Transaction, as defined in the SPA, then, upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of common stock (the “Alternate Consideration”).
     
  6. The Company’s obligation to deliver the Second Cash Payment and the Convertible Note to the Seller at the Second Closing shall be secured by the Provista Shares to be held and released in accordance with the Escrow Agreement and all of Provista’ s assets (the “Assets”) pursuant to the terms of the Security Agreement.
     
  7. At the First Closing, the Sellers shall hold full right, title, and interest in and to the Cash Deposit, and the Todos Deposit Shares paid to the Sellers or their designees and/or assignees on the First Closing Date free and clear of all rights, liens and encumbrances, without limitation. Additionally, should the Company fail to deliver the Second Cash Payment and/or the Convertible Note by the Second Closing Date, the Escrow Agent shall return the Provista Shares to the Sellers, and the Sellers shall become the sole owners. The Company further agrees and understands that in the event that the Company fails to deliver the Second Cash Payment and/or the Convertible Note to the Sellers at the Second Closing, the Cash Deposit and the Todos Deposit Shares shall be the property of the Sellers, and the Sellers shall retain and hold full right, title, and interest in and be the sole owners of the Cash Deposit, the Todos Deposit Shares and 100% of the Provista Shares. In such an event, the Company will have absolutely no rights, claims or interest of any type in connection with the Provista Shares, Cash Deposit or Todos Deposit Shares or this transaction, regardless of any alleged conduct by Seller or anyone else. Further, in such event the Company irrevocably will be deemed to have canceled this Agreement and relinquished all rights in and to the Provista Shares, Cash Deposit and Todos Deposit Shares.

 

The consummation of the transactions contemplated by the SPA have been taken place as of April 19, 2021.

 

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TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

C. Purchase price allocation

 

    1. Non-refundable shares of its ordinary stock - As agreed in the SPA, the Company committed to issue non-refundable 29,296,875 ordinary stock, par value NIS 0.01. The fair value of the non-refundable shares was estimated as of the Closing Date based on the Company’s share price as quoted in the OTC as of the Closing Date at $1,699.
       
    2. The fair value of the convertible note was estimated by third party appraiser as weighted average of the two possible scenarios of the total loan amount conversion as of April 19, 2021, 90% probability for the Mandatory Conversion and 10% probability for the Optional / Maturity Conversion.

 

The Optional / Maturity Conversion (scenario 1) was estimated by the appraiser using the Monte Carlo Simulation Model based on the following parameters:

   April 19, 2021 
Risk-free interest rate   0.54%
Expected term (years)   3.94 
Volatility   164.02%
Share price   0.058 
Conversion price   * 
Fair value  $5,101 

 

    The lower of (i) 0.05 (ii) the volume weighted average price (VWAP) of the last 20 trading days for the Ordinary Stock as reported in the OTC market prior to the conversion.

 

The Mandatory Conversion (scenario 2) was estimated by the appraiser using the Monte Carlo Simulation Model based on the following parameters:

 

   April 19, 2021 
Risk-free interest rate   0.54%
Expected term (years)   0.04 
Volatility   112.1%
Share price   0.058 
Conversion price   * 
Fair value  $4,976 

 

    The lower of (i) 0.05 (ii) the volume weighted average price (VWAP) of the last 20 trading days for the Ordinary Stock as reported in the OTC market prior to the conversion.

 

The fair value of the convertible component was estimated by the third-party appraiser after giving effect to the weighted average of the two possible scenarios as of issuance dates was $4,989.

 

The following table summarizes the total purchase price and purchase price allocation:

 

   U.S. dollars in thousands 
     
Cash payment   2,500 
Consideration in Shares   1,699 
Fair value of convertible promissory note   4,989 
Total purchase price   9,188 
      
Cash and cash equivalents   73 
Trade receivables   66 
Property and equipment, net   183 
Security deposit   3 
Technology intangible asset   1,500 
Total identifiable assets   1,825 
      
Accounts payable   (82)
Deferred tax liability   (315)
Due to related party   (1)
Total liability assumed   (398)
      
Total goodwill   7,761 

 

Unaudited pro forma results of operations for the six months ended June 30, 2021 and for the year ended December 31, 2020 are included below as if the acquisition of the Provista’s business occurred on January 1, 2020. This summary of the unaudited pro forma results of operations is not necessarily indicative of what the Company’s results of operations would have been had the Provista Business been acquired at the beginning of 2020, nor does it purport to represent results of operations for any future periods.

SCHEDULE OF UNAUDITED PRO FORMA RESULTS OF OPERATION

   2021   2020 
   Six months ended June 30,   Year ended December 31, 
   2021   2020 
   (unaudited, except per share amounts) 
Revenues  $6,896   $5,164 
Net loss   (14,172)   (17,603)
Basic and diluted net loss per share   (0.02)   (0.04)

 

 

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TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

D. Foreign operations
       
  1. Todos Medical (Singapore) Pte Ltd
       
    On January 27, 2016, the Company incorporated a wholly owned subsidiary in Singapore under the name of Todos Medical (Singapore) Pte Ltd. (“Todos Singapore”) for the purpose of purpose of advancing clinical trials of the Company’s core technology for breast cancer in Southeast Asia. As of June 30, 2021, Todos Singapore has not yet commenced its business operations.
       
  2. Todos Medical USA
       
    In January 2020, the Company incorporated a U.S. subsidiary named Todos Medical USA (“Todos U.S.”) for the purpose of conducting business as medical importer and distributor focused on the distribution of the Company’s testing products and services to customers in the North America and Latin America.
       
  3. Corona Diagnostics, LLC
     
    In April 2020, the Company incorporated a U.S. subsidiary named Corona Diagnostics, LLC (“Corona Diagnostics”) for the purpose of marketing COVID-19 related products in the United States to validate potential products the Company is contemplating distributing and creating marketing materials for the testing products based upon those validations.
     
  4. Breakthrough Diagnostics, Inc.
     
    On February 27, 2019, the Company entered into Shares Purchase and Assignment of License Agreement with Amarantus Bioscience Holdings, Inc. (“Amarantus”), under which the Company purchased 19.99% of the issued and outstanding common stock of Breakthrough Diagnostics, Inc. (“Breakthrough”) for entering into the field of early detection of Alzheimer’s disease. On July 28, 2020, the Company entered into Amendment No. 1 to the Shares Purchase and Assignment of License Agreement with Amarantus, pursuant to which the Company completed the purchasing of the remaining 80.01% of the issued and outstanding common stock of Breakthrough for consideration that was based on the Company’s shares.
     
  5. Other entities
     
    A. In June 2020, the Company entered into an agreement with NLC Pharma Ltd., under which Antigen COVID Test Killer was formed for the purpose of developing the diagnostic candidate Antigen Killer and product commercialization through the Company’s sales channels.
       
    B. In August 2020, the Company entered into an agreement with Care GB Plus Ltd, under which Bio Imagery Ltd. (“Bio Imagery”) has been incorporated for the purpose of developing, marketing and commercializing the Products and all the Intellectual Property of the Company (“Todos Cancer Assets”) and to develop new Intellectual Property, products and services, and pursue the business based on the Todos Cancer Assets and on new intellectual property that will be developed by Bio Imagery. As of June 30, 2021, Bio Imagery has not yet commenced its business operations.
       
    The Company and its entities herein considered as the “Group”.
       
  6. Provista Diagnostics, Inc
       
   

See note 1B and 1C above.

 

The Company and its entities herein considered as the “Group”. 

 

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TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

NOTE 1 - GENERAL

 

E. Going concern uncertainty

 

The Company has devoted substantially all of its efforts to research and development of its cancer and other disease diagnostics products and raising capital to fund this development, along with its dietary supplement distribution. The development and commercialization of the Company’s products are expected to require substantial further expenditures. To date, the Company has not yet generated sufficient revenues from operations to support its activities, and therefore it is dependent upon external sources for financing its operations. Since inception through June 30, 2021, the Company has incurred accumulated losses of $61,448. As of June 30, 2021, the Company’s current liabilities exceed its current assets by $4,166, and there is a shareholders’ deficit of $8,999. The Company has generated negative operating cash flow for all periods. Management has considered the significance of such condition in relation to the Company’s ability to meet its current obligations and to achieve its business targets and determined that these conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company plans to finance its operations through the sale of equity and to the extent available, short term and long-term loans (including through issuance of convertible loans together with other financial instruments) and also through revenues from sales of corona testing related products. There can be no assurance that the Company will succeed in obtaining the necessary financing or generating revenues from product sales to continue its operations as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

During the year ended December 31, 2020, the Company raised net amounts of $10,685 through receivables financing facility, straight loans, private placement transactions (including equity line), and convertible bridge loans transactions. During the period of six months ended June 30, 2021, the Company raised net amounts of $10,312, through straight loans, convertible bridge loans transactions and private placement transaction.

 

F. Risk factors

 

As described in the above paragraph, the Company has a limited operating history and faces a number of risks and uncertainties, including risks and uncertainties regarding to potential dispute which related to commercial terms in connection with unpaid invoices (related to sales, net yet recognized as revenue) with one of its significant clients

 

G. COVID-19

 

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. The outbreak has reached all of the regions in which the Company does business, and governmental authorities around the world have implemented numerous measures attempting to contain and mitigate the effects of the virus, including travel bans and restrictions, border closings, quarantines, shutdowns, limitations or closures of non-essential businesses, and social distancing requirements.

 

The global spread of COVID-19 and actions taken in response have caused and may continue to cause disruptions and/or delays in our supply chain and shipments and caused significant economic and business disruption to the Company’s customers and vendors.

 

The COVID-19 pandemic has created and may continue to create significant opportunity under the uncertainty in macroeconomic conditions, which may cause further demand for the Company’s core business related to PCR testing kits and related materials and supplies as already reflected by recognized revenues of $5,031 and $6,763 during the year ended December 31, 2020 and the period of six months ended June 30, 2021, respectively, substantially all of which was generated after July 2020. However, the Company may face uncertainties around its estimates of revenue collectability and accounts receivable credit losses and its expectation to receive funds from external sources for financing its operations. The Company expects uncertainties around its key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the COVID-19 pandemic. The Company estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in the Company’s consolidated financial statements.

 

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TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

 

A. Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the Securities and Exchange Commission (“SEC”) on April 21, 2021 (the “2020 Form 10-K”). The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the SEC related to interim financial statements. As permitted under those rules, certain information and footnote disclosures normally required or included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The financial information contained herein is unaudited; however, management believes all adjustments have been made that are considered necessary to present fairly the results of the Company’s financial position and operating results for the interim periods. All such adjustments are of a normal recurring nature.

 

The results for the six and three months ended June 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any other interim period or for any future period.

 

B. Use of estimates in the preparation of financial statements

 

The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates. As applicable to these financial statements, the most significant estimates and assumptions include (i) identification of and measurement of financial instruments in funding transactions; (ii) initial measurement of investment in affiliated companies and subsequent equity method implications; (iii) determination whether an acquired company or formed entities represents a ‘business’; (iv) determination whether acquired or formed entities are considered Variable Interest Entities (VIE) and if so, whether the Group is its Primary Beneficiary (PB) and (v) measurement of the fair value of equity awards.

 

C. Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries and when applicable its majority owned entities that were determined to be VIE and that the Group was determined as their Primary Beneficiary (PB). Intercompany transactions and balances have been eliminated upon consolidation.

 

D. Cash and cash equivalents

 

Cash equivalents are short-term highly liquid investments which include short term bank deposits (up to three months from date of deposit), that are not restricted as to withdrawals or use that are readily convertible to cash with maturities of three months or less as of the date acquired.

 

E. Goodwill and intangible assets

 

1.Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired in business combinations accounted for in accordance with the “purchase method” and is allocated to reporting units at acquisition.  Goodwill is not amortized but rather tested for impairment at least annually in accordance with the provisions of ASC Topic 350, “Intangibles - Goodwill and Other”.  The Company performs its goodwill annual impairment test for the reporting units at December 31 of each year, or more often if indicators of impairment are present.
   
2.Intangible assets with finite lives are amortized using the straight-line basis over their useful lives, to reflect the pattern in which the economic benefits of the intangible assets are consumed or otherwise used up. 

 

F. Basic and diluted net loss per ordinary share

 

The Company computes net loss per share in accordance with ASC 260, “Earning per Share”, which requires presentation of both basic and diluted loss per share on the face of the statement of operations.

 

Basic net loss per ordinary share is computed by dividing the net loss for the period applicable to ordinary shareholders, by the weighted average number of ordinary shares outstanding during the period. Diluted loss per share gives effect to all potentially dilutive common shares outstanding during the year using the treasury stock method with respect to stock options and certain stock warrants (accounted for as derivative liability) and using the if-converted method with respect to convertible bridge loans and certain stock warrants. In computing diluted loss per share, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants.

 

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TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

The net loss and the weighted average number of shares used in computing basic and diluted net loss per share for the period of six month ended June 30, 2021 and 2020, is as follows:

   2021   2020 
   Six month period ended 
   2021   2020 
         
Numerator:          
Net loss attributable to common shareholders  $14,167   $7,223 
Revaluation of liability related to warrants to purchase shares of common stock   -    - 
           
Net loss attributable to common shareholders  $14,167   $7,223 
           
Denominator:          
Shares of common stock used in computing basic net loss per share   585,225,006    164,423,927 
Incremental shares from assumed exercise of warrants to purchase shares of common stock   -    - 
           
Shares of common stock used in computing diluted net loss per share   585,225,006    164,423,927 
           
Net loss per share of common stock, basic and diluted  $0.02   $0.04 

 

During the period of six months ended June 30, 2021 and 2020 the total weighted average number of potentially dilutive ordinary shares related to outstanding stock options, stock warrants and convertible bridge loans excluded from the calculation of the diluted loss per share was 323,874,156 and 9,808,979, respectively.

 

G. Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) which changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans, and other instruments, entities will be required to use a new forward-looking “expected loss” model that generall4y will result in the earlier recognition of allowances for losses. The guidance also requires increased disclosures. For the Company, the amendments in the update were originally effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In November 2019, the FASB issued ASU No. 2019-10, which delayed the effective date of ASU 2016-13 for smaller reporting companies (as defined by the U.S. Securities and Exchange Commission) and other non-SEC reporting entities to fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. Early adoption is permitted.

 

The Company is currently assessing the impact the guidance will have on its consolidated financial statements.

 

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TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

NOTE 3 - SIGNIFICANT TRANSACTIONS

 

A. Secured Convertible Equipment Loan Agreement

 

On December 31, 2020 (the “Effective Date”), the Company entered into Secured Convertible Equipment Loan Agreement with a private lender (the “Lender”), under which at the Effective Date and for the purpose for purchasing two Liquid Handler Machines (the “Collateral”) to be placed in the laboratory of a Company’s client, the Company will receive from the Lender a net cash amount of $450 which is including an original issue discount at the rate of 40% valued at $300, representing a face value of $750 for the loan (the “Aggregate Loan Principal Amount”). In addition, the Company incurred incremental and direct costs of $54.

 

In addition, under the terms of the Secured Convertible Equipment Loan Agreement, the Lender will be entitled to receive a royalty at a rate of 12.5% of all amounts resulting from any diagnostic tests performed by the two liquid handler machines. During the initial payback period and up until the earlier of either (a) April 30, 2021, or (b) the aggregate loan amount is paid in full, all royalty payments made to Lender will be counted towards their loan balance. Thereafter, the royalties continue so long as the machines are in use.

 

The Aggregate Loan Principal Amount was received in January 2021.

 

The Company has determined that its obligation for future royalties under the Secured Convertible Equipment Loan Agreement represent contingent interest feature. However, it was determined that such feature is not required to be bifurcated and accounted for as derivatives, as they are eligible for the scope exception prescribed under ASC Topic 815-10-15-59 (d) with respect to certain contracts that are not traded on an exchange, as the underlying is an entity specific performance measure. Accordingly, the obligation for future royalties was accounted for in accordance with the provisions of ASC Topic 450, Contingencies.

 

As the secured loan upon its original term does not include conversion feature (such feature will only become applicable as a penalty, upon the Company’s failure to repay the Aggregate Loan Principal Amount by the Maturity Date), the liability was accounted for using the effective interest method over the term of the loans until their stated Maturity Date.

 

As of June 30, 2021, the Aggregate Loan Principal Amount is amounting to $750, which representing discount amortization expenses of $354, was recorded as part of “Finance Expenses” line in operations in the accompanying consolidated statement of operations for the period of six and three months ended June 30, 2021. As of June 30, 2021, the Aggregate Loan Principal Amount is presented as part of the Loan, net account on the balance sheet.

 

B. Securities Purchase Agreement

 

On January 22, 2021, the Company entered into a Securities Purchase Agreement with Yozma Global Genomic Fund 1 (“Yozma”) pursuant to which Yozma purchased from Todos a convertible note in the original principal amount of up to $4,857. The original principal amount has been originally issued with 30% discount of aggregated amount of $1,457, bearing per annum interest at a flat rate of 4% (the “Interest”) until it becomes due and payable, whether upon the maturity date, which is January 22, 2022, acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof) (the “Maturity Date”). In addition, the outstanding principal amount to be converted, redeemed or otherwise with respect to which this determination is being made and the accrued and unpaid Interest with respect to such outstanding principal amount shall be converted into shares of the Company at conversion price of $0.07161 (the “Conversion Price”). Subsequent to the effective date of the registration statement registering for resale the Conversions Shares and the Warrant Shares pursuant to the Purchase Agreement, if the closing sale price of the Common Stock averages less than the then Conversion Price over a period of 10 consecutive trading days, the Conversion Price shall reset to such average price. If the 10-day volume weighted average price of the Common Stock continues to be less than the Conversion Price, then the Conversion Price should reset to such 10-day average price with a maximum of a 20% discount from the initial Conversion Price.

 

At the Company’s option and upon 30 days’ notice to Yozma, 33% of the outstanding Principal and accrued and unpaid Interest of the Note (the “Repayment Amount”) may be redeemed at any time at an amount equal to 115% of the Repayment Amount. The foregoing notwithstanding, Yozma may convert any or all of the Note into shares of Common Stock at any time. Through June 30, 2021, the Company has not redeemed any of the outstanding principal amount and accrued interest, and Yozma has not converted any portion of the Note into shares.

 

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TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

NOTE 3 - SIGNIFICANT TRANSACTIONS (Cont.)

 

B. Securities Purchase Agreement

 

At any time after Yozma becoming aware of an Event of Default as defined in the Securities Purchase Agreement, Yozma may require the Company to redeem (an “Event of Default Redemption”) all or any portion of the Note in cash by wire transfer of immediately available funds at a price equal to principal amount plus interest calculated from the Event of Default at the greater of the default interest at a rate of 18% per annum or the maximum rate permitted under applicable law (the “Event of Default Redemption Price”) together with liquidated damages of $250 plus an amount in cash equal to 1% of the Event of Default Redemption Price for each 30 day period during which redemptions fail to be made. No event of default has occurred through June 30, 2021.

 

In addition, the Company granted Yozma a warrant to purchase up to 16,956,929 ordinary shares for a period of 5 years with a fixed exercise price equal to $0.107415, subject to certain adjustments (the “Warrant”). If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the issuance of the Warrant Shares to Yozma, then the Warrant may also be exercised, in whole or in part, at such time by means of a net shares settlement. Moreover, Yozma is entitled to an option to require the Company to purchase the Warrant for cash in an amount equal to their Black-Scholes Option Pricing Model value (the Black-Scholes Model), upon occurrence of fundamental transactions, as defined in the warrant agreement, occur.

 

Upon initial recognition, the management by assistance of third-party appraiser allocated the net cash proceeds received based on the relative fair value of the Note and the detachable warrants in total amount of $2,539 and $861, respectively. The amount allocated to the warrants was classified as a component of permanent equity (as their terms permit the holders to receive a fixed number of shares of common stock upon exercise for a fixed exercise price), net of any related issuance costs and as upon fundamental transaction the warrants holder shall be entitled to receive from the Company the same type of form of consideration such as holders of common stock.

 

Furthermore, it was determined that the embedded conversion feature is required to be bifurcated from the host loan instrument. The embedded conversion feature was recognized in total amount of $2,116 upon initial recognition and in subsequent periods as derivative liability at fair value through profit and loss. The remaining amounted to $423 was allocated to the host loan instrument, which in subsequent periods it is accounted for using the effective interest method over the term of the loan, until its stated maturity.

 

The Company recorded an income of $1,829 and expense of $766 related to remeasurement of the embedded conversion feature of convertible bridge loan and the discount amortization of the host loan instrument, respectively, as part of the “Finance Expenses” line in operations in the accompanying consolidated statement of operations for the period of six months ended June 30, 2021.

 

In addition, on October 7, 2020, the Company entered into consulting agreement with Aslano Private Limited (“Aslano”) whereby Aslano will render non-exclusive advice and service to the Company concerning equity and/or debt financing with certain Potential Buyer or Investor or Financing Party as defined in the consulting agreement in exchange for success fee equal to 8% of the gross amount paid by the Potential Buyer or Investor or Financing Party. In consideration for Aslano’s non-exclusive services with respect to the aforesaid Securities Purchase Agreement, during the period of six months ended June 30, 2021, the Company incurred incremental and direct finder fee cost of $272 which was allocated to the identified components (i.e. convertible bridge loans, bifurcated embedded conversion feature and detachable Warrant) consistent with the allocation of the proceeds issuance expenses. Consequently, an amount of $34, $169 and $69 out of which was recorded as additional discount of the convertible bridge loans, immediate charge to finance expenses and as deduction of additional paid-in capital, respectively, at the outset of the transaction.

 

For more information in connection to additional funds raising and filing of registration statement on Form S-1 under the aforesaid Securities Purchase Agreement see also Note 3F(2).

 

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TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

NOTE 3 - SIGNIFICANT TRANSACTIONS (Cont.)

 

C. First Amendment to Secured Convertible Equipment Loan Agreement

 

In March 2021, the Company entered into First Amendment to Secured Convertible Equipment Loan Agreement (the “Amendment”) with one of its lenders, under which the parties agreed (i) on or before May 1, 2021, the Company shall repay to the lender the Aggregate Loan Principal Amount of $450 in cash, without interest, (ii) on or before May 1, 2021, the Company shall repay to the lender, or contribute to a charity designated by the lender, the original initial discount in the amount of $320, plus an additional $100 as compensation for the lender agreeing to postpone repayment of the Aggregate Principal Amount and (iii) upon the execution of the Amendment, the Company shall issue to the lender, or contribute to a charity designated by the lender, 2,000,000 restricted ordinary shares of the Company, nominal value NIS 0.0001 per share with fair value of $88, as additional compensation to the lender for its agreement to defer repayment of the Aggregate Loan Principal Amount.

 

The management has determined mainly based on the qualitative terms of the amendment that the terms of the amended instruments considered as substantially different. Consequently, the original convertible bridge loans were derecognized, the new loans were initially recorded at fair value as current financial liability and the shares were initially recorded at fair value as an increase of additional paid-in capital. As of June 30, 2021 the loan was repaid in full.

 

D. Closing Agreement

 

On March 3, 2021, the Company and one of its lenders entered into a Closing Agreement (the “Closing Agreement”), under which the lender exercised its right to invest an additional $884 into the Company in the form of July 2020 Convertible Notes (the “Tranche 2 Securities”). In addition, the Company covenanted and agreed to file a registration agreement with respect to the Tranche 2 Securities on or before the earlier to occur of (i) the date that the Company files a registration statement with respect to any other securities of the Company or (ii) April 1, 2021 (such date, the “Tranche 2 Filing Date”) and cause a registration statement to be declared effective under the Securities Act with respect to the Tranche 2 Securities on or before May 1, 2020. The Company acknowledges that failure to timely comply with the foregoing obligations will subject the Company to substantial liability under the Registration Agreement, including without limitation liquidated damages in the amount of $250, along with an amount of cash accruing each month equal to the value of 1% of the value of the Tranche 2 Securities.

 

Upon initial recognition, it was determined that the embedded conversion feature is required to be bifurcated from the host loan instrument. The management by assistance of third-party appraiser measured the embedded conversion feature in total amount of $1,127 upon initial recognition and in subsequent periods as derivative liability at fair value through profit and loss. The excess of the fair value of identified instruments over net proceeds upon initial recognition amounted to $243 was recorded as part of the “Finance Expenses” line in operations in the accompanying consolidated statement of operations. In subsequent periods, the host loan instrument is accounted for using the effective interest method over the term of the loan, until its stated maturity.

 

The Company recorded expenses amounting to $102 related to the discount amortization of the host loan instrument and income of $34 related to remeasurement of the embedded conversion feature, which were recorded as part of the “Finance Expenses” line in operations in the accompanying consolidated statement of operations for the period of six months ended June 30, 2021.

 

E. Assignment of Receivable Agreement

 

During the period of six months ended June 30, 2021, Corona Diagnostics (the “Assignor”) entered into Assignment of Receivable Agreements with Ascendant Partners, LLC (the “Assignee”) under which the Assignor assigned to the Assignee all of its right, title and interest in portion of receivable related to invoices for certain purchase orders with a discount in a rate of 10%. The Assignor is obligated to repurchase the PO in the event that payment is not received by the Assignee within 60-days period from the singing of the Assignment of Receivable Agreements.

 

During the period of six months ended June 30, 2021, the Assignor received an amount of $1,467 under the Assignment of Receivable Agreements and repaid $1,017. In addition, the Company incurred finance expenses with respect to the applicable discount Interest under the Assignment of Receivable Agreements amounted to $50. As of June 30, 2021, an amount of $500 has not been repaid and it is presented as part of the loans, net account.

 

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TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

NOTE 3 - SIGNIFICANT TRANSACTIONS (Cont.)

 

F. Securities Purchase Agreement

 

  1. On April 9, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with a Family Office Investor (the “Family Office”) to which the Company has agreed to issue a promissory convertible note (the “Note”) to the Family Office in the principal amount of $4,286 for proceeds of $3,000 (the “Transaction”). The closing occurred on April 12, 2021. The Note has a maturity date of one year from the date of issuance and pays interest at a rate of 4% per annum. The Note is convertible into shares of Common Stock (the “Conversion Shares”) at a conversion price of $0.0599 (the “Conversion Price). In addition, the Family Office received a warrant (the “Warrant”) to purchase up to 16,000,000 shares of Common Stock (the “Warrant Shares”) of the Company with an exercise price equal to $0.107415 per share. The Warrant is exercisable for a 5-year period from the issuance date. Upon a listing of the Company’s common shares onto a national exchange, the Note will exchange into a class of Series A Preferred Shares in order to help improve the Company’s shareholder equity to meet the Nasdaq CM Initial Listing Standards.
     
   

The Family Office shall have the option, exercisable at the Family Office’s sole discretion, on the date that is ninety (90) days following the date of effectiveness of a registration statement filed by the Company, to purchase a Second Note and the Second Warrant, for a principal amount of $4,286 for a consideration of $3,000 and a Warrant to purchase up to 16,000,000 shares of Common Stock, with an exercise price equal to $0.107415 per share.

     
   

Upon initial recognition, the management by assistance of third-party appraiser allocated the net cash proceeds received based on the relative fair value of the Note and the detachable warrants in total amount of $1 and $508, respectively. The amount allocated to the warrants was classified as a component of permanent equity (as their terms permit the holders to receive a fixed number of shares of common stock upon exercise for a fixed exercise price), net of any related issuance costs and as upon fundamental transaction the warrants holder shall be entitled to receive from the Company the same type of form of consideration such as holders of common stock.

     
   

Furthermore, it was determined that the Convertible note is hybrid instrument embodies both an embedded derivative and a host contract and that the embedded conversion feature is required to be bifurcated from the host loan instrument using the with-and-without method. The embedded derivative was measured first at fair value, and the residual amount was allocated to the host contract. The embedded conversion feature was recognized in total amount of $3,007 upon initial recognition and in subsequent periods as derivative liability at fair value through profit and loss. The host loan instrument is accounted for, in subsequent periods, using the effective interest method over the term of the loan, until its stated maturity.

     
   

The Company recorded an income of $2,309 and expenses of $14 related to remeasurement of the embedded conversion feature of convertible bridge loan and the discount amortization of the host loan instrument, respectively, as part of the “Finance Expenses” line in operations in the accompanying consolidated statement of operations for the period of six months ended June 30, 2021.

     
  2. Further to the Securities Purchase Agreement described in Note 3B, on April 27, 2021, the Company entered into an additional Securities Purchase Agreement (the “SPA”) with Yozma to which the Company has agreed to issue a promissory convertible note (the “Note”) to Yozma in the principal amount of $4,714 for proceeds of $3,300 (the “Transaction”). The closing occurred on April 27, 2021. The Note has a maturity date of one year from the date of issuance and pays interest at a rate of 4% per annum. The Note is convertible into shares of Common Stock (the “Conversion Shares”) at a conversion price of $0.0599 (the “Conversion Price). In addition, Yozma received a warrant (the “Warrant”) to purchase up to 16,458,196 shares of Common Stock (the “Warrant Shares”) of the Company with an exercise price equal to $0.107415 per share. The Warrant is exercisable for a 5-year period from the issuance date. Upon a listing of the Company’s common shares onto a national exchange, the Note will exchange into a class of Series A Preferred Shares in order to help improve the Company’s shareholder equity to meet the Nasdaq CM Initial Listing Standards.
     
   

Upon initial recognition, the management by assistance of third-party appraiser allocated the net cash proceeds received based on the relative fair value of the Note and the detachable warrants in total amount of $378 and $2,922, respectively. The amount allocated to the warrants was classified as a component of permanent equity (as their terms permit the holders to receive a fixed number of shares of common stock upon exercise for a fixed exercise price), net of any related issuance costs and as upon fundamental transaction the warrants holder shall be entitled to receive from the Company the same type of form of consideration such as holders of common stock.

     
    The Company recorded expenses in the amount of $215 related to remeasurement of the host loan instrument as part of the “Finance Expenses” line in operations in the accompanying consolidated statement of operations for the period of six months ended June 30, 2021.

 

The Company has agreed to file a registration statement on Form S-1 with the Securities and Exchange Commission registering for resale the Conversion Shares and the Warrant Shares (the “Registration Statement) under the above two transactions. Subsequent to the effective date of such registration statement, if the closing sale price of the Common Stock averages less than the then Conversion Price over a period of 10 consecutive trading days, the Conversion Price shall reset to such average price. If the 10-days volume weighted average price of the Common Stock continues to be less than the Conversion Price then the Conversion Price should reset to such 10-day average price with a maximum of a 20% discount from the initial Conversion Price.

 

On May 13, 2021, the Company filed a registration statement on Form S-1 with respect to up to 240,591,462 ordinary shares to be issued pursuant to Securities Purchase Agreements with Family Office and Yozma (first and second Tranches), but such registration statement has not yet become effective. As the Company complied with the registration statement filing requirements, as of June 30, 2021, no accrual has been recorded for liquidated damages since the amount to be paid was not probable and reasonably estimate under ASC 450 “Contingencies”.

 

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TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

G. Compensation packages for officers and members of the Board of Directors and its committees

 

  1. On March 10, 2021, the Company’s Compensation Committee of the Board of Directors has approved compensation package for the Company’s Chief Executive Officer that include inter alia (i) based annual salary of $400; (ii) an immediate granting of 50% of salary in restricted shares for uncompensated efforts to date; (iii) up to 30% cash bonus based on predefined milestones or milestone bonuses in form of Restricted Stock Units ranging of 250,000 up to 2,000,000 common shares, and cash bonus range of $250 up to $1,500 which are based on cumulative volume of sales range from $25,000 up to $100,000 or milestone bonuses in form of Restricted Stock Units in value of $10,000 up to $50,000 which are based on market cap range of $1,000,000 up to $2,000,000 (“Milestone Bonus Fees”); (iv) 1.5% of gross margin for the calendar year 2020 based on Board approval of the Company’s 2020 Financial Statements (“One-Time Bonus”); (v) grant of 8,750,000 stock options to purchase the same number of shares, vesting quarterly over the course of five years and (vi) 50% of base cash bonus and grant of 20,000,000 restricted shares upon consummation of the Company’s planned public offering (“Uplist Fees”).
     
  2. On March 10, 2021, the Company’s Compensation Committee of the Board of Directors has approved compensation package for the Company’s Chief Financial Officer that include inter alia (i) based annual salary of $250; (ii) an immediate granting of 50% of salary in restricted shares for uncompensated efforts to date; (iii) up to 30% cash bonus predefined milestones or milestone bonuses in form of Restricted Stock Units range of 50,000 up to 200,000 and cash bonus range of $75 up to $300 which are based on cumulative volume of sales range of $25,000 up to $100,000 (“Milestone Bonus Fees”); (iv) 0.5% of gross margin for the calendar year 2020 based on Board approval of the Company’s 2020 Financial Statements (“One-Time Bonus”); (v) grant of 5,000,000 stock options to purchase the same number of shares, vesting quarterly over the course of five years and (vi) 50% of base cash bonus and grant of 10,000,000 restricted shares upon consummation of the Company’s planned public offering (“Uplist Fees”).
     
  3. On March 10, 2021, the Company’s Compensation Committee of the Board of Directors has approved compensation package for the Company’s members of the Board of Directors and its committees that include inter alia (i) each board member will receive $65 annual salary (to be paid quarterly after financing) and $150 in RSU vesting quarterly over three years; (ii) the Chairman of the board will receive $65 annual salary (to be paid quarterly after consummation of the Company’s planned public offering) and $150 in RSU annually; (iii) Lead Independent Director is entitled to receive additional 100% of annual board cash compensation and RSU; (iv) a grant of RSU of the Company upon consummation of the Company’s planned public offering in an amount equal to annual compensation of each director (“Uplist Fee”) and (iv) cash bonus of $71 to be paid for services of all board committees (“Bonus Fee”).

 

The above 2021 compensation package are subject to shareholder approval at the Company’s Annual General Meeting of Shareholders which had not been received through June 30, 2021 (see also note 8).

 

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TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

NOTE 4 - SHAREHOLDERS’ DEFICIT

 

A. Ordinary Shares:

 

The Ordinary Shares confer upon the holders thereof all rights accruing to a shareholder of the Company, as provided in these Articles, including, inter alia, the right to receive notices of, and to attend meetings of shareholders; for each share held, the right to one vote at all meetings of shareholders; and to share equally, on a per share basis, in such dividend and other distributions to shareholders of the Company as may be declared by the Board of Directors in accordance with these Articles and the Companies Law, and upon liquidation or dissolution of the Company, in the distribution of assets of the Company legally available for distribution to shareholders in accordance with the terms of applicable law and these Articles. All Ordinary Shares rank pari passu in all respects with each other.

 

B. Issuance of Ordinary Shares:

 

  1. In March 2020, the Company entered into subscription agreements with several investors under which the Company raised gross funds in total amount of $30 in exchange for the issuance of units consisting of 1,500,000 ordinary shares of the Company and 1,339,284 warrants to purchase the same number of ordinary shares of the Company at an exercise price of $0.10. These warrants may be eligible for exercise over a period of four years from the issuance date and are subject to standard anti-dilution provisions. In addition, the Company may be subject to liquidated damages upon failure to timely deliver shares upon exercise of the warrants. An amount of 1,000,000 and 500,000 ordinary shares of NIS 0.01 par value out of the above have been issued during the year ended December 31, 2020 and the period of three months ended March 31, 2021, respectively.
     
  2. On August 4, 2020, the Company entered into a Purchase Agreement (the “Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park has agreed to purchase from the Company, from time to time, up to $10,275 of its ordinary shares, par value NIS 0.01 per share (the “Ordinary Shares”), subject to certain limitations as set in the Purchase Agreement, during the Purchase Agreement term (the “Equity Line”).
     
    The Company does not have the right to commence any further sales to Lincoln Park under the Purchase Agreement until all of the conditions thereto that are set forth in the Purchase Agreement, all of which are outside of Lincoln Park’s control, have been satisfied, including, among other things, the Registration Statement being declared effective by the SEC (the date on which all such conditions are satisfied, the “Commencement Date”). From and after the Commencement Date, under the Purchase Agreement, on any business day selected by the Company on which the closing sale price of the Company’s Ordinary Shares exceeds $0.02, the Company may direct Lincoln Park to purchase up to 500,000 Ordinary Shares on the applicable purchase date (a “Regular Purchase”), which maximum number of shares may be increased to certain higher amounts up to a maximum of 1,000,000 Ordinary Shares, if the market price of our Ordinary Shares at the time of the Regular Purchase equals or exceeds $0.13 (such share and dollar amounts subject to proportionate adjustments for stock splits, recapitalizations and other similar transactions as set forth in the Purchase Agreement), provided that Lincoln Park’s purchase obligation under any single Regular Purchase shall not exceed $500. The purchase price of Ordinary Shares the Company may elect to sell to Lincoln Park under the Purchase Agreement in a Regular Purchase, if any, will be based on 95% of the lower of: (i) the lowest sale price on the purchase date for such Regular Purchase and (ii) the arithmetic average of the three lowest closing sale prices for an Ordinary Share during the 15 consecutive business days ending on the business day immediately preceding such purchase date for such Regular Purchase.
     
    In addition to regular purchases, the Company may also direct Lincoln Park to purchase other amounts of the Company’s Ordinary Shares in “accelerated purchases” and in “additional accelerated purchases” under the terms set forth in the Purchase Agreement.
     
    In connection with the Purchase Agreement, the Company issued 5,812,500 Ordinary shares to Lincoln Park as a commitment fee of $482 which is recorded as prepaid expenses which are amortized in accordance with the Equity Line utilization. During the year ended December 31, 2020 and the period of three months ended June 30, 2021, the Company recorded amortization expenses amounted to $110 and $12, respectively, as part of “Finance Expenses” line in operations in the accompanying consolidated statement of operations. As of June 31, 2021, the balance of those prepaid expenses was $361.
     
    During the year ended December 31, 2020 and the period of six months ended June 30, 2021, the Company sold 32,747,579 and 5,229,809 Ordinary Shares to Lincoln Park in an initial purchase out of the Investment Amount under the Purchase Agreement for a total purchase price of $2,339 and $255, respectively.

 

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TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

  3. During the period of six months ended June 30, 2021, Principal Amount and unpaid Interest in total amount of $9,445 have been converted into 189,773,828 ordinary shares. In addition, the Company issued 2,000,000 ordinary shares of NIS 0.01 par value as fulfillment of commitment related to loan received in 2020.
     
  4. During the period of six months ended June 30, 2021, one of the Company’s Secured Convertible Equipment Loan Agreement was entered into default scenario as result of lapse of the original maturity date, as defined. Consequently, 20,000,000 ordinary shares of NIS 0.01 par value of the Company were issued as collateral shares for purpose of repayment of the principal amount. The issued shares have been valued at $870 and was deducted from the fair value of the principal amount.
     
  5. During the period of six months ended June 30, 2021, the Company entered into several service agreements with certain service providers, whereby the Company issued 11,921,053 ordinary share of NIS 0.01 par value or the Company is committed to issue fixed number of ordinary shares in exchange for services that have been rendered. Consequently, the Company recorded related stock-based compensation expense of $44 and $44 as part of “Sales and Marketing Expenses” and “General and Administrative Expenses” lines in operations in the accompanying consolidated statement of operations, respectively.

 

NOTE 5 - STOCK OPTIONS

 

On January 11, 2016, the Company’s Board of Directors approved and adopted the Todos Medical Ltd. 2015 Israeli Share Option Plan (the “2015 Plan”), pursuant to which the Company’s Board of Directors may award stock options to purchase its ordinary shares to designated participants. Subject to the terms and conditions of the 2015 Plan, the Company’s Board of Directors has full authority in its discretion, from time to time and at any time, to determine (i) the designate participants; (ii) the terms and provisions of the respective Option Agreements, including, but not limited to, the number of Options to be granted to each Optionee, the number of Shares to be covered by each Option, provisions concerning the time and the extent to which the Options may be exercised and the nature and duration of restrictions as to the transferability or restrictions constituting substantial risk of forfeiture and to cancel or suspend awards, as necessary; (iii) determine the Fair Market Value of the Shares covered by each Option; (iv) make an election as to the type of Approved 102 Option under Israeli IRS law; (v) designate the type of Options; (vi) take any measures, and to take actions, as deemed necessary or advisable for the administration and implementation of the 2015 Plan; (vii) interpret the provisions of the 2015 Plan and to amend from time to time the terms of the 2015 Plan.

 

The 2015 Plan permits grant of up to 6,000,000 options to purchase ordinary shares subject to adjustments set in the 2015 Plan. As of June 30, 2021, there were 2,338,838 ordinary shares available for future issuance under the 2015 Plan.

 

The following table presents the Company’s stock option activity for employees and directors of the Company during the year ended December 31, 2020 and the period of six months ended June 30, 2021:

 

   Number of Options   Weighted Average Exercise Price 
Outstanding as of December 31, 2019   2,267,571    0.061 
Granted (A,B)   2,545,083    0.095 
Forfeited or expired   (1,129,836)   0.120 
Outstanding as of December 31, 2020   3,682,818    0.663 
Granted   -    - 
Forfeited or expired   (1,137,735)   0.003 
Outstanding as of June 30, 2021   2,545,083    0.095 
Exercisable as of June 30, 2021   381,762    0.095 

 

  A. On July 29, 2020 (the “Commitment Date”), the Company held its Annual General Meeting of Shareholders, at which the shareholders of the Company approved compensation packages for two officers that include inter alia the Company is obligated to grant of 2,545,083 stock options which are exercisable into the same number of shares of common stock at an exercise price of $0.095 per share and shall become vested quarterly over a 5-year period from its grant date. At the Commitment Date, the Company by assistance of third-party appraiser measured the fair value of the stock options in total amount of $206 by using Black-Scholes-Merton pricing model in which the assumptions that have been used are as follows: expected dividend yield of 0%; risk-free interest rate of 0.25%; expected volatility of 131.9%, and stock options exercise period based upon the stated terms.
     
    In addition, as one-time bonus as compensation for uncompensated efforts to the Commitment Date, the Company is obligated to grant fully vested shares equal to $275 based on the fair market value of the Company’s shares as of July 28, 2020. The Company recorded stock-based compensation expense of this amount as part of “General and Administrative Expenses” line in operations in the accompanying consolidated statement of operations during the year ended December 31, 2020.
     
    Moreover, upon consummation of the Company’s planned public offering, 30,000,000 restricted stock units’ bonuses will be granted to the aforesaid officers. At the Commitment Date, December 31, 2020 and June 30, 2021, the likelihood that the Performance Milestone for consummation of the Company’s planned public offering was not considered as probable. Thus, during the year ended December 31, 2020 and the period of six months ended June 30, 2021, stock-based compensation expense has not been recorded with respect to the Performance Milestone.
     
    During the year ended December 31, 2020 and the period of six months ended June 30, 2021, the Company recorded stock-based compensation expense amounting to $331 and $42, respectively, as part of “General and Administrative Expenses” line in operations in the accompanying consolidated statement of operations.
     
  B. On July 29, 2020 (the “Commitment Date”), the Company held its Annual General Meeting of Shareholders, at which the shareholders of the Company approved compensation packages for all its members of the Board of Directors that include inter alia grant of restricted stock units equal to aggregate amount of $900 that shall become vested quarterly over a 3-year period from its grant date (except the restricted stock of the board chairman who will be vested quarterly over a 1-year period).
     
    During the year ended December 31, 2020 and the period of six months ended June 30, 2021, the Company recorded stock-based compensation expense amounting to $349 and $269, respectively, as part of “General and Administrative Expenses” line in operations in the accompanying consolidated statement of operations.

 

As of June 30, 2021, the aggregate intrinsic value for the stock options outstanding and exercisable according to $0.035 price per share is $0 and $0, respectively, with a weighted average remaining contractual life of 4.08 years.

 

Stock-based compensation expenses incurred for employees (and directors) and non-employees for the period of six months ended June 30, 2021, amounted to $399.

 

NOTE 6 - FINANCING EXPENSES, NET

 

       
  

Six months period ended

June 30,

 
   2021   2020 
         
Modification of terms relating to straight loan transaction  $88   $- 
Modification of terms relating to convertible bridge loans transactions   -    3,839 
Exchange differences relating to loans from shareholders   -    83 
Issuance of shares as a settlement in excess of the carrying amount of financial liabilities   -    499 
Amortization of discounts and accrued interest on convertible bridge loans   13,648    (2,503)
Amortization of discounts and accrued interest on straight loans   653    80 
Change in fair value of derivative warrants liability and fair value of warrants expired   (294)   - 
Change in fair value of liability related to conversion feature of convertible bridge loans   (4,307)   (120)
Issuance of shares as call options to acquire potential acquire   -    2,000 
Settlement in cash of prepayment obligation related to convertible bridge loan   182    - 
Interest and related royalties under receivables financing facility   311    - 
Amortization of prepaid expenses related to commitment shares in connection with receivables financing facility and equity line   293    - 
Exchange rate differences and other finance expenses   (89)   442 
Financing (income) expenses, net  $10,485   $4,320 

 

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TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

NOTE 7 – SEGMENT REPORTING

 

A.General information

 

Commencing 2020, the operations of the Company are conducted through three different core activities: Breast Cancer Test (TM-B1, TM-B2), Alzheimer and COVID-19 testing (commencing the fourth quarter of 2020), each of which are operating segments. These activities also represent the reportable segments of the Group.

 

The reportable segments are viewed and evaluated separately by Company management, since the marketing strategies, processes and expected long term financial performances of the segments are different.

 

B.Information about reported segment profit or loss and assets

 

   Breast       COVID-19     
   Cancer Test   Alzheimer   Testing   Total 
Six months ended June 30, 2021                    
Revenues   -                  -    6,763    6,763 
Operating loss   (2,977)   -    (213)   (3,190)
Unallocated amounts:                    
Financing expenses, net                  (10,485)
Share in losses of affiliated companies accounted for under equity method, net                  (492)
Net loss                  (14,167)
Total Assets   11,029    -    6,229    17,258 
Other significant items:                    
Total expenditures for assets of reportable segment   -    -    770    770 
Total depreciation for reportable segment   (15)   -    (341)   (356)

 

The evaluation of performance is based on the operating income of each of the three reportable segments.

 

Accounting policies of the segments are the same as those described in the accounting policies applied in the consolidated financial statements.

 

Due to the reportable segments’ nature, there have been no inter-segment sales or transfers during the reported periods.

 

Financing expenses, net and the share of the Company in losses of affiliated companies were not allocated to the reportable segments, since these items are carried and evaluated on the enterprise level.

 

Management has determined that none of the equity method investees is eligible to be considered as reportable segment as they do not meet the criteria in ASC Topic 280-10-50 (or they did not commence their operations)..

 

C.Revenues by geographic region are as follows:

 

  

Six months
period ended

June 30,

  

Three months
period ended

June 30,

  

Year ended
December 31,

 
   2021   2021   2020 
   Unaudited 
             
Israel  $-   $-    - 
United States   6,763    1,732              - 
    6,763    1,732    - 

 

D.Property and equipment, net, by geographic areas:

  

As of
June 30,

   As of
December 31,
 
   2021   2020 
Israel  $47   $61 
United States   2,549    1,938 
   $2,596   $1,999 

 

E.Major customers

 

During the year ended December 31, 2020, the Company had one costumer which represents 56.64% of the Company’s total sales. During the Six months ended June 30, 2021, the Company had one costumer which represents 63.43% of the Company’s total sales with which Company’s contractual agreement to supply Covid-19 testing kits to a significant customer expired.

 

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NOTE 8 - SUBSEQUENT EVENTS

 

The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the consolidated financial statements were available to be issued (September 23, 2021). Based upon this review, the Company did not identify any other subsequent events that would have required adjustment or disclosure in the financial statements, except as disclosed below.

 

On July 7, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an institutional investor (the “Purchaser”) pursuant to which the Company has agreed to issue a promissory convertible note (the “Note”) to the Purchaser in the principal amount of $1,535,714 for proceeds of $1,075,000 (the “Transaction”). The closing occurred on July 7, 2021 (the “Closing Date”). The Note has a maturity date of one year from the date of issuance and pays interest at a rate of 4% per annum. The Note is convertible into shares of Common Stock (the “Conversion Shares”) at a conversion price of $0.0599 (the “Conversion Price). In addition, the Purchaser received a warrant (the “Warrant”) to purchase up to 3,440,000 shares of Common Stock (the “Warrant Shares”) of the Company with an exercise price equal to $0.107415 per share. The Warrant is exercisable for 5 years from the date of issuance. From the Closing Date until 180 days thereafter, the Company shall be restricted from issuing or entering into any agreement to issue any shares of Common Stock, except under certain circumstances. This provision shall no longer be in effect if the closing sale price of the Common Stock exceeds $0.10. The Company intends to use the net proceeds for general corporate purposes.

 

The Company has agreed to file a registration statement with the Securities and Exchange Commission registering for resale of the Conversion Shares and the Warrant Shares (the “Registration Statement). Subsequent to the effective date of such registration statement, if the closing sale price of the Common Stock averages less than the then Conversion Price over a period of ten (10) consecutive trading days, the Conversion Price shall reset to such average price. If the 10-day volume weighted average price of the Common Stock continues to be less than the Conversion Price then the Conversion Price should reset to such 10-day average price with a maximum of a 20% discount from the initial Conversion Price.

 

On July 26, 2021 the Annual General Meeting of the Company approved:

 

  1. The resolution to amend the Company’s Articles of Association: (a) to authorize the creation of 50,000 redeemable Preferred shares of the Company; (b) to authorize the creation of five thousand redeemable Preferred B Shares of the Company; (c) to increase the Company’s authorized share capital to permit the issuance of a total of up to 5,000,000,000 ordinary shares of the Company; and (d) to allow the Company to fulfill relevant provisions of U.S. law in lieu of Israeli law requirements regarding External Directors, if and to the extent allowed to do so under Israeli corporate law and regulation was approved by the stockholders by the votes set forth in the table below
  2. The Compensation packages for officers and members of the Board of Directors and its committees as detailed in note 3G above.
  3. The nomination of additional two external directors to the board of directors of the Company for a period ending on July 26, 2024.
  4. The extension for an additional year the authority granted to the Company’s Board of Directors to effect a reverse split of the Company’s ordinary shares (as per resolution of the Company’s Shareholders’ Meeting of May 11, 2020), such that the authority so granted shall extend until July 26, 2022, and to expand such authority to include a reverse split of the Company’s entire share capital share at a ratio within the range from 1-for-2 up to 1-for 500, provided that the Company shall not effect reverse share splits that, in the aggregate, exceed 1-for-500.

 

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

 

The following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this quarterly report on Form 10-Q. This discussion and other parts of this quarterly report on Form 10-Q contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this quarterly report on Form 10-Q. We report financial information under US GAAP and our financial statements were prepared in accordance with generally accepted accounting principles in the United States.

 

Overview

 

Todos Medical Ltd. is a developer and distributor of medical diagnostics addressing cancers, Alzheimer’s Disease and viruses, as well as a provider of Covid-19 testing supplies and automation solutions, and a developer and distributor of immune support products and antivirals that target the inhibition of 3CL protease for the treatment of Covid-19.

 

Diagnostics

 

Our medical diagnostics business is primarily engaged in the development and commercialization of blood tests for the early detection of primary breast cancer and recurrences, the diagnosis and management of SARS-COV-2 infections and immunity in response to vaccinations and natural or breakthrough infections, and the early detection of Alzheimer’s Disease.

 

Videssa Breast

 

Current methods of breast cancer detection have known limitations, particularly in women with abnormal imaging findings. Our proprietary breast cancer test, Videssa Breast, is the first blood test of its kind to detect the presence or absence of breast cancer in women with abnormal or difficult-to interpret imaging findings. Videssa Breast provides biochemical evidence to complement the anatomical view of imaging for improved breast cancer detection. The test was developed to provide physicians with actionable information regarding breast cancer risk in women following an inconclusive mammogram result (BI-RADS III or IV), which primarily occurs in women with dense breasts. The data provided from the test, which has demonstrated specificity of ~99% in both women over and under 50 years of age, arms physicians with a powerful tool to help guide decisions of whether to continue to monitor a low-risk patient intermittently, or whether to advance an at-risk patient immediately into a more expensive and invasive diagnostic assessment that likely includes a breast biopsy. With Videssa as the proprietary centerpiece of our cancer diagnostic strategy, we will be looking to offer highly advanced, comprehensive cancer testing solutions to OB-GYNs, general practitioners and other stakeholders in the medical community who will ultimately be managing patients likely to be strong candidates for Videssa. This test is not only important for ruling out cancer in false positive mammograms, but for monitoring the appearance of cancer and the need for imaging on younger women that are at risk and are not offered mammograms. This test could potentially represent a new standard of care in certain areas for breast cancer screening, a marketplace that remains dramatically undeserved both domestically in the US as well as internationally, and for which we believe Todos Medical is well positioned to disrupt.

 

LymPro Test™

 

The Lymphocyte Proliferation (LymPro) Test™ measures markers of immune cells present in the blood as a surrogate for loss of nerve cell function and the toxic accumulation of beta-amyloid plaques in the brain, which is a hallmark of Alzheimer’s disease. Based on differences observed in the response of cells from patients with Alzheimer’s disease as compared with age-matched controls and patients with other dementias, it appears that the test has high potential as an adjunctive diagnostic for Alzheimer’s disease. LymPro exploits the fact that abnormalities in replication (or the cell cycle) seem to extend to immune cells in the blood. The test specifically measures the alterations in cell cycle activity in blood lymphocytes (a type of immune cell) as a biomarker of neuronal damage, for the early identification and screening of Alzheimer’s. Areas for deployment include initial IUO testing followed by full diagnostic testing for patients with MCI and dementia for differential diagnosis.

 

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Provista Diagnostics Laboratory

 

Our Provista Diagnostics Laboratory serves as a hub for our diagnostic development programs, including our flagship Videssa blood test, as well as support for our automation solutions customers. We have focused our COVID-19 diagnostic testing efforts at Provista to prioritize delivering diagnostic services, including PCR and neutralizing antibody testing, becoming a direct provider to healthcare professionals. We have partnered with Fosun Pharma to offer the first neutralizing antibody test, cPass™ SARS-CoV-2 Neutralizing Antibody Detection Kit, which has received Emergency Use Authorization (“EUA”) from the US FDA for the detection of SARS-CoV-2 receptor binding domain (“RBD” or “neutralizing”) antibodies. We believe this test can serve as a key marker for physicians, businesses and schools to access Covid-19 immunity risk among their populations. This expansion into testing services allows us to diversify our business into higher margin revenue in the COVID-19 space, as well as help us to expand our business development opportunities with the labs we work with by providing reference lab testing services as we increase Provista’s automated testing capabilities. The Company intends to build Provista into a highly automated lab capable of running multiple platforms in parallel in order to offer clients comprehensive testing solutions that meet their needs, especially in cancer, infectious disease, immune monitoring and Alzheimer’s disease. Todos intends to focus on ways of leveraging its existing testing business and its client base to deliver actionable high value testing that will improve outcomes while lowering cost of care. We believe that our establishment of a strong commercial infrastructure is the key to unlocking the value of our intellectual property portfolio.

 

TBIA Platform

 

From a research and development perspective, our proprietary diagnostics technology centers on testing blood cells using an FTIR spectrometer to turn biological information into data, and then using our patented Total Biochemical Infrared Analysis (TBIA) deep learning data analytics platform to mine the data in order to develop algorithms that are indicative of the presence of cancer, and the tissue of origin in the body where the cancer is located. The TBIA detection method is based on cancer’s influence on the immune system that triggers biochemical changes in peripheral blood. The primary advantages of the TBIA platform are the high accuracy (sensitivity and specificity) and low-cost structure due to the biological information being captured using spectroscopy versus biological antibody capture methods that require the manufacture of multiple antibodies to capture a biological signature. TBIA is based upon technology originally invented by the researchers at Ben Gurion University (“BGU”) and Soroka, whose intellectual property has been licensed to us. We have received a CE Mark in the European Union authorizing the commercial use of the TBIA platform in the diagnosis of breast cancer and colon cancer.

 

Because of the novelty and highly disruptive nature of TBIA analysis using FTIR to diagnose disease, we believe the best path forward to bring Todos’ core technology to market in the United States is to demonstrate comparability with blood tests that are built on technology platforms that are in widespread use. Due to the relative scarcity of commercial blood tests in areas such as cancer and Alzheimer’s disease, we have pursued a strategy of acquiring proprietary blood tests in those therapeutic indications in order to gain a foothold in the marketplace and fine tune our FTIR platform while fully commercializing these more advanced tests in the United States. We believe Todos is positioned to become the worldwide leader in the field of immune-based diagnostics.

 

Covid-19 Automated Testing Solutions and Distribution

 

We provide advanced technologies addressing bottlenecks, whether they be scientific, technical or logistical, to enable laboratories to rapidly expand testing capacity while reducing operational costs. To forward this business, we entered into distribution agreements with multiple companies to gain rights to rapid IgM/IgG COVID-19 antibody test kits, RNA extraction machines, RNA extraction reagents, qPCR reagents, digital PCR reagents and automated liquid handler machines, in order to offer a comprehensive suite of solutions to laboratories worldwide. We began marketing a turnkey automation services solution to laboratories seeking to expand their COVID-19 testing capabilities and started generating revenue from the distribution of products to support laboratory COVID testing through the automated machinery we provided.

 

Immune Support Products and 3CL Protease Inhibiting Antivirals

 

The Company entered into a joint venture with Israeli-based biotech company, NLC Pharma, to advance a theragnostic program targeting the 3CL protease, a key enzyme required for coronaviruses to replicate and infect other cells. We have funded the development of a novel enzymatic 3CL protease diagnostic test that determines whether a coronavirus is actively replicating vs. inactively being cleared from the body by the immune system, as well as 3CL protease inhibitors that aim to slow the replication of the virus in order to be able to further support the body’s ability to be able to overcome a potential coronavirus exposure or infection. Furthermore, the partnership is in the development phase of our own antiviral, Tollovir™, a potent 3CL protease inhibitor for the treatment of hospitalized COVID-19 patients, which is currently undergoing a Phase 2 clinical trial in Israel with plans to expand the clinical development program to India. Lastly, the Company’s 3CL protease inhibitor botanical product, Tollovid, is a dietary supplement that helps to support and maintain healthy immune function. This technology will potentially have a significant impact for the development of virus targeting therapeutic development strategies, as well as clearance for return to life activities post-infection.

 

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We believe that as we continue to grow our automation services business, we are creating a natural distribution base for the Videssa test, as well as for the eventual commercialization of our proprietary TBIA platform tests and diagnostics developed with NLC Pharma. We intend to seek out additional opportunities to leverage our expanding base of laboratory partners in the coming years.

 

Operating Results

 

Revenues

 

During the six and three months ended June 30, 2021, we have generated revenues of $6,763,000 and $1,732,000, respectively, through our U.S. subsidiary, Corona Diagnostics, LLC.

 

Operating Expenses

 

Our current operating expenses consist of four components - cost of revenues, research and development expenses, marketing expenses and general and administrative expenses.

 

Cost of revenues

 

Our cost of revenues consists primarily of materials, depreciation and other related cost of revenues expenses.

 

The following table discloses the breakdown of cost of revenues:

 

   Six Months Ended
June 30,
   Three Months Ended
June 30,
 
U.S. dollars  2021   2020   2021   2020 
Salaries and related expenses  $65,000   $11,000   $65,000   $11,000 
Materials and other costs   3,773,000    -    687,000    - 
Depreciation   310,000    -    161,000    - 
Total  $4,148,000   $11,000   $913,000   $11,000 

 

Research and Development Expenses

 

Our research and development expenses consist primarily of salaries and related personnel expenses, subcontracted work and consulting, liabilities for royalties and other related research and development expenses.

 

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The following table discloses the breakdown of research and development expenses:

 

   Six Months Ended
June 30,
   Three Months Ended
June 30,
 
U.S. dollars  2021   2020   2021   2020 
Stock-based compensation  $-   $97,000   $-   $61,000 
Professional fees   125,000    398,000    25,000    398,000 
Laboratory and materials   501,000    61,228    207,000   - 
Depreciation   15,000    13,187    7,000    7,000 
Insurance and other expenses   2,000    -    -    - 
Total  $643,000   $569,000   $239,000  $465,000 

 

We expect that our research and development expenses will materially increase as we plan to rapidly recruit more employees in order to accelerate our research and development efforts.

 

Sales and Marketing expenses

 

Sales and marketing expenses consist primarily of salaries and share-based compensation expense.

 

The following table discloses the breakdown of sales and marketing expenses:

 

   Six Months Ended
June 30,
   Three Months Ended
June 30,
 
U.S. dollars  2021   2020   2021   2020 
Salaries and related expenses  $253,000   $22,000   $252,000   $22,000 
Share Based Compensation   45,000    1,408,000    -    658,000 
Professional Fees   1,660,598    -    347,000    - 
Total  $1,958,000   $1,430,000   $599,000   $680,000 

 

General and administrative

 

General and administrative expenses consist primarily of salaries, share-based compensation expense, professional service fees (for accounting, legal, bookkeeping, intellectual property and facilities), directors fee and insurance and other general and administrative expenses.

 

The following table discloses the breakdown of general and administrative expenses:

 

   Six Months Ended
June 30,
   Three Months Ended
June 30,
 
U.S. dollars  2021   2020   2021   2020 
Salaries and related expenses  $84,000   $79,000   $44,000   $42,000 
Share-based compensation   365,000    313,000    164,000    268,000 
Professional fees   2,114,000    485,000    1,125,000    262,000 
Insurance and other expenses   641,000    48,000    312,000    23,000 
Total  $3,204,000   $925,000   $1,643,000   $595,000 

 

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Table of Contents 

 

Comparison of the Three and Six Months Ended June 30, 2021 and June 30, 2020:

 

Results of Operations

 

Revenues. Our revenues for the three months ended June 30, 2021, were $1,732,000, compared to $32,000 during the three months ended June 30, 2020.

 

Our revenues for the six months ended June 30, 2021 were $6,763,000, compared to $32,000 during the six months ended June 30, 2020.

 

The increase in our revenues is a result of the sales of our COVID-19 testing products through our U.S. subsidiary, Corona Diagnostics, LLC. Revenues for the six and three months ended June 30, 2021 include $4,290,000 of revenues to our significant customer with which Company’s contractual agreement to supply Covid-19 testing kits to a significant customer expired – see Recent Development below