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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 September 30, 2021

 

For the three months ended September 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 November 11, 2021, the registrant had 914,387,625 ordinary shares outstanding.

 

 

 

 

 

 

TODOS MEDICAL LTD.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 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 – SEPTEMBER 30, 2021 AND DECEMBER 31, 2020 F-3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2021 AND SEPTEMBER 30, 2020 F-4
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY – SEPTEMBER 30, 2021 AND SEPTEMBER 30, 2020 F-5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - NINE MONTHS ENDED SEPTEMBER 30, 2021 AND SEPTEMBER 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 13
ITEM 4. CONTROLS AND PROCEDURES 14
PART II OTHER INFORMATION 15
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 1A. RISK FACTORS 15
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4. MINE SAFETY DISCLOSURES 15
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS 16
SIGNATURES 17

 

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 SEPTEMBER 30, 2021

 

F-1
Table of Contents

 

TODOS MEDICAL LTD.

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 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-28

 

F-2
Table of Contents

 

TODOS MEDICAL LTD.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

  

As of

September 30,

   As of December 31, 
   2021   2020 
   Unaudited     
ASSETS          
Current assets:          
Cash and cash equivalents  $166   $935 
Trade receivables   2,072    378 
Inventories   1,904    536 
Other current assets   129    601 
Total current assets   4,271    2,450 
           
Non-current assets:          
Investment in affiliated companies accounted for under equity method       745 
Investment in other company   

495

    224 
Property and equipment, net   2,591    1,999 
Right of use asset arising from operating lease   182    - 
Prepaid expenses   361    591 
Goodwill   7,761    - 
Intangible assets   1,500    - 
Total non-current assets   12,890    3,559 
           
Total assets  $17,161   $6,009 
           
LIABILITIES AND SHAREHOLDERS’ DEFICIT          
Current liabilities:          
Receivables financing facility, net  $-   $1,306 
Loans   3,205    1,672 
Accounts payable   1,169    1,640 
Deferred revenues   13    844 
Other current liabilities   3,450    2,316 
Liability for minimum royalties   355    291 
Total current liabilities   8,192    8,069 
           
Non-current liabilities:          
Convertible bridge loans, net   17,017    5,965 
Derivative warrants liability, net   2    301 
Fair value of bifurcated convertible feature of convertible bridge loans   1,873    2,500 
Operating lease liability   86      
Deferred taxes   315    - 
Liability for minimum royalties   175    185 
Total non-current liabilities   19,468    8,951 
           
Shareholders’ deficit:          
Ordinary Shares of NIS 0.01 par value each:          
Authorized: 5,000,000,000 and 1,000,000,000 shares at September 30, 2021 and December 31, 2020, respectively; Issued and outstanding: 874,813,050 shares and 376,335,802 shares at September 30, 2021 and December 31, 2020, respectively   2,593    1,059 
Additional paid-in capital   58,735    35,211 
Accumulated deficit   (71,827)   (47,281)
Total shareholders’ deficit   (10,499)   (11,011)
           
Total liabilities and shareholders’ deficit  $17,161   $6,009 

 

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

 

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TODOS MEDICAL LTD.

 

CONDENSED STATEMENTS OF OPERATIONS

 

                 
   Nine months period ended   Three months period ended 
   September 30,   September 30, 
   2021   2020   2021   2020 
   Unaudited   Unaudited 
                 
Revenues  $7,773   $1,316   $1,010   $1,284 
Cost of revenues   (5,191)   (894)   (1,043)   (883)
Gross profit (loss)   2,582    422    (33)   401 
                     
Research and development expenses   (685)   (9,655)   (166)   (9,086)
Sales and marketing expenses   (2,387)   (2,187)   (429)   (757)
General and administrative expenses   (5,198)   (1,729)   (1,869)   (804)
                     
Operating loss   (5,688)   (13,149)   (2,497)   (10,246)
                     
Financing expenses, net   (17,360)   (11,375)   (6,875)   (7,055)
Share in losses of affiliated companies accounted for
under equity method, net
   (1,499)   (734)   (1,007)   (734)
                     
Net loss  $(24,547)  $(25,258)  $(10,379)  $(18,035)
                     
Basic and diluted net loss per share  $(0.04)  $(0.12)  $(0.01)  $(0.07)
                     
Weighted average number of ordinary shares outstanding attributable to ordinary shareholders used in computation of basic and diluted net loss per share   637,916,356    210,806,186    736,939,641    257,276,039 

 

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, 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)
Changes during the three months period ended September 30, 2020:                         
Partial conversion of convertible bridge loans into ordinary shares   14,017,973    41    1,413    -    1,454 
Issuance of stock warrants as part of convertible bridge loan received   -    -    582    -    582 
Issuance of ordinary shares as commitment shares in exchange for equity line granted   5,812,500    17    465    -    482 
Issuance of ordinary shares through equity line   14,437,500    43    1,253    -    1,296 
Issuance of ordinary shares as consideration to obtain control over affiliated company   67,599,796    193    5,891    -    6,084 
Issuance of ordinary shares for call option to acquire potential acquire   18,608,113    54    946    -    1,000 
Issuance of ordinary shares as commitment shares in exchange for receivables financing facility   3,500,000    10    305    -    315 
Issuance of ordinary shares and stock warrants upon modification of terms relating to convertible bridge loans transactions   9,333,333    27    1,191    -    1,218 
Issuance of units consisting of ordinary shares (or fixed number of shares to be issued) and warrants   1,000,000    3    (3)   -    - 
Classification of derivative warrants liability into equity as result of partial conversion of convertible bridge loans into ordinary shares   -    -    70    -    70 
Amount related to fixed number of ordinary shares to be issued as contingent consideration   -    -    1,300    -    1,300 
Share based compensation for employees & directors   -    -    460    -    460 
Share based compensation for service providers   -    -    57    -    57 
Net loss for the period   -    -    -    (18,035)   (18,035)
Balance as of September 30, 2020 (unaudited)   336,183,357   $948   $33,451   $(42,766)  $(8,367)

 

 

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)
Changes during the three months period ended September 30, 2021:                         
Partial conversion of convertible bridge loans into ordinary shares   238,190,489    739    7,179    -    7,918 
Issuance of stock warrants as part of convertible bridge loan received   -    -    728    -    728 
Stock-based compensation to service providers   3,000,000    9    76    -    85 
Issuance of shares in acquisition of subsidiary   25,862,069    80    (80)   -    - 
Stock-based compensation to employees and directors   -    -    148    -    148 
Net loss for the period   -    -    -    (10,379)   (10,379)
Balance as of September 30, 2021 (unaudited)   874,813,050   $2,593   $58,735   $(71,827)  $(10,499)

 

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)

 

           
  

Nine months period ended

September 30,

 
   2021   2020 
   Unaudited   Unaudited 
Cash flows from operating activities:          
           
Net loss  $(24,547)  $(25,258)
Adjustments required to reconcile net loss to net cash used in operating activities:          
Depreciation   556    38 
Liability for minimum royalties   53    29 
Stock-based compensation   633    2,334 
Expiration of call options to acquire potential acquiree   -    3,000 
Impairment of intangible IPR&D, net of taxes   -    8,157 
Impairment of investment in affiliated company   -    2,823 
Revaluation of investment in affiliated company to fair value   -    (1,623)
Share in losses of affiliated company   1,499    - 
Modification of terms relating to straight loan transaction   88    - 
Modification of terms relating to convertible bridge loans transactions   -    (3,495)
Exchange differences relating to loans from shareholders   -    40 
Issuance of shares as a settlement in excess of the carrying amount of financial liabilities   -    499 
Issuance of ordinary shares and stock warrants upon modification of terms relating to convertible bridge loans transactions   -    415 
Amortization of discounts and accrued interest on convertible bridge loans   18,080    8,393 
Amortization of discounts and accrued interest on straight loans   2,290    - 
Change in fair value of derivative warrants liability and fair value of warrants expired   (299)   - 
Change in fair value of liability related to conversion feature of convertible bridge loans   (3,777)   - 
Increase in trade receivables   (1,629)   (206)
Increase in inventories   (806)   (440)
Decrease (increase) in other current assets   704    48 
Increase (decrease) in accounts payables   (961)   203 
Decrease in deferred revenues   (857)   - 
Increase (decrease) in other current liabilities   (326)   1,376 
Net cash used in operating activities   (9,299)   (3,667)
           
Cash flows from investing activities:          
           
Purchase of property and equipment   (965)   (346)
Restricted cash   -    5 
Purchase of intangible IPR&D   -    (450)
Cash used in purchased of subsidiary consolidated for the first time   (1,176)   - 
Investment in other companies   (1,024)   (560)
Net cash used in investing activities   (3,165)   (1,351)
           
Cash flows from financing activities:          
           
Proceeds from straight loans, net   2,496    812 
Repayment of Receivables financing facility   (1,249)   - 
Repayment of straight loans   (1,329)   - 
Repayment of convertible bridge loans   (2,165)   - 
Proceeds from issuance of units consisting of convertible bridge loans, stock warrants and shares, net   13,687    3,087 
Proceeds from issuance of units consisting of ordinary shares and stock warrants   -    30 
Proceeds from issuance of ordinary shares through equity line   255    1,296 
Net cash provided by financing activities   11,695    5,225 
           
Change in cash, cash equivalents   (769)   207 
Cash, cash equivalents at beginning of period   935    12 
Cash, cash equivalents at end of period  $166  $219

 

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)

 

   Nine months period ended September 30, 
   2021   2020 
   Unaudited   Unaudited 
Supplemental disclosure of non-cash activities:        
Issuance of warrants as part of bridge loan transactions   4,157    948 
Partial conversion of convertible bridge loans and liability related to conversion feature of convertible bridge loans into ordinary shares   (16,493)   (3,943)
Issuance of stock warrants as part of convertible bridge loan received   (870)     
Issuance of shares upon acquisition of an IPR&D   -    6,084 
Issuance of shares for receiving an equity line   -    (315)
Issuance of shares or commitment to issue fixed number of shares for receiving convertible bridge loans   -    482 
Issuance of ordinary shares upon modification of terms relating to convertible straight loan transaction   792      
Issuance of shares as settlement of financial liabilities   -    (450)
Investment in affiliated company by issuance shares and commitment for issued shares as contingent consideration and commitment for funding   -    (2,615)
Classification of warrants from liability into equity upon partial conversion of convertible bridge loans into ordinary shares   -    (595)
Conversion of loan from shareholder into ordinary shares   -    40 
           
Cash used in purchased of subsidiary consolidated for the first time:          
           
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 installment 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 consolidated for the first time   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. Additionally, upon completion of the Share Purchase Agreement for the purchase of Provista Diagnostics, Inc. (see B below), the Company, through Provista Diagnostics, Inc. provide diagnostic testing laboratory currently performing COVID-19 PCR testing, primarily for the medical and entertainment industries.

 

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 nine months ended September 30, 2021, all of the revenue resulted from sales of COVID-19 related products and testing kits. Through September 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 a Share Purchase Agreement (“SPA”) 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. 25,862,069 ordinary shares were delivered in August 2021.
     
  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”). The second payment was made during July 2021.
     
  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)

 

NOTE 1 - GENERAL (Cont.)

 

  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)

 

NOTE 1 - GENERAL (Cont.)

 

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 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 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 
   Unaudited 
     
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 

 

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TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

NOTE 1 - GENERAL (Cont.)

 

Unaudited pro forma results of operations for the nine months ended September 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.

 

   Nine months ended September 30,   Year ended December 31, 
   2021   2020 
   (unaudited) 
Revenues  $7,866   $5,164 
Net loss   (24,552)   (17,603)
Basic and diluted net loss per share   (0.04)   (0.04)

 

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 advancing clinical trials of the Company’s core technology for breast cancer in Southeast Asia. As of September 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 purchase of the remaining 80.01% of the issued and outstanding common stock of Breakthrough for consideration that was based on the Company’s shares.

 

At the Closing Date, Breakthrough was determined to be excluding substantive process as required under the definition of business in accordance with the provisions of ASC Topic 805 “Business Combination”. In addition, it was determined that the License represents IPR&D with no alternative future use and therefore the entire purchase price allocated to the acquired IPR&D was charged to expense at the acquisition date as part of “Research and Development expenses” line in operations in the accompanying consolidated statement of operations for the year ended December 31, 2020. 

     
  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 September 30, 2021, Bio Imagery has not yet commenced its business operations and the Company wrote off its investment in the amount of $618.

 

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

 

  6. Provista Diagnostics, Inc
     
    See note 1B and 1C above

 

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TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

NOTE 1 - GENERAL (Cont.)

 

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 September 30, 2021, the Company has incurred accumulated losses of $71,827. As of September 30, 2021, the Company’s current liabilities exceed its current assets by $3,921, and there is a shareholders’ deficit of $10,499. 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 nine months ended September 30, 2021, the Company raised net amounts of $16,438, 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 $7,733 during the year ended December 31, 2020 and the period of nine months ended September 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 nine and three months ended September 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. 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.

 

E. 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)

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

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

 

   2021   2020 
  

Nine month period ended

September 30,

 
   2021   2020 
   Unaudited  

Unaudited

 
Numerator:          
Net loss attributable to common shareholders  $24,547   $25,258 
Revaluation of liability related to warrants to purchase shares of common
Stock
   -    - 
           
Net loss attributable to common shareholders  $24,547   $25,258 
           
Denominator:          
Shares of common stock used in computing basic net loss per share   637,916,356    210,806,186 
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   637,916,356    210,806,186 
           
Net loss per share of common stock, basic and diluted  $0.04   $0.12 

 

During the period of nine months ended September 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 452,109,492 and 48,642,797, respectively.

 

F. Leases

 

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our condensed consolidated balance sheets.

 

ROU assets represent Company’s right to use an underlying asset for the lease term and lease liabilities represent Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, the Company generally uses the incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

 

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 condensed 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.

 

The total discount amortization expenses of $2,414 and $2,207, were recorded as part of “Finance Expenses” line in operations in the accompanying consolidated statement of operations for the period of nine and three months ended September 30, 2021, respectively. During the three months ended September 30, 2021 the lender converted the entire loan amount into 81,736,111 ordinary shares of the Company with aggregated value of $750.

 

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 September 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 September 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 $423 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 $1,666 and expense of $742 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 nine months ended September 30, 2021. During the period of three months ended September 30, 2021, the Company recorded Finance Expenses of $164 and income of $58 related to remeasurement of the embedded conversion feature of convertible bridge loan and the discount amortization of the host loan instrument, respectively.

 

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 nine months ended September 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 subsequent to the balance sheet date.

 

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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 September 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, 2021. 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 interest expenses amounting to $2,750 related to valuation of the loan to fair value upon default event 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 nine months ended September 30, 2021. During the period of three months ended September 30, 2021, the Company recorded Finance Expenses of $2,647 related to valuation of the loan to fair value upon default event and $0 related to remeasurement of the embedded conversion feature.

 

E. Assignment of Receivable Agreement

 

During the period of nine months ended September 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 nine months ended September 30, 2021, the Assignor received an amount of $1,467 under the Assignment of Receivable Agreements and repaid $1,117. 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 September 30, 2021, an amount of $400 has not been repaid.

 

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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 $2,166 and expenses of $55 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 nine months ended September 30, 2021. During the period of three months ended September 30, 2021, the Company recorded Finance Expenses of $143 and income of $49 related to remeasurement of the embedded conversion feature of convertible bridge loan and the discount amortization of the host loan instrument, respectively.

 

  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.

 

F-19
Table of Contents

 

TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

NOTE 3 - SIGNIFICANT TRANSACTIONS (Cont.)

 

The Company recorded expenses in the amount of $753 and $538 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 nine months and three months ended September 30, 2021, respectively.

 

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 Agreement with Family Office and Yozma (first and second Tranches). As the Company complied with the registration statement filing requirements, as of September 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”.

 

  3. 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 $1,536 for proceeds of $1,075 (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.

 

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 $697 and $121, 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 $257 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 expense of $81 and an expense of $148 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 nine months ended September 30, 2021.

 

F-20
Table of Contents

 

TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

NOTE 3 - SIGNIFICANT TRANSACTIONS (Cont.)

 

  4. On September 15, 2021, the Company completed the conditions precedent required to enter into a Securities Purchase Agreement (the “SPA”) with an institutional investor (the “Purchaser”) pursuant to which the Company issued a promissory convertible note (the “Note”) to the Purchaser in the principal amount of $2,857 for proceeds of $2,000 (the “Transaction”). 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 11,924,636 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. The Company intends to use the net proceeds from this Note to initiate Phase 2/3 trials for Tollovir™ COVID-19 patients, initiate digital marketing for its dietary supplement Tollovid®, increase sales & marketing for Provista Diagnostics, and for general corporate purposes.

 

The Company has agreed to file a registration statement with the Securities and Exchange Commission registering for resale the Conversion Shares and the Warrant Shares (the “Registration Statement). Subsequent to the effective date of the 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.

 

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 $1,290 and $558, 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 $152 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 $3 and expenses of $45 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 nine months ended September 30, 2021.

 

G. Secured Promissory Note

 

On July 19, 2021, the Company entered into Secured Promissory Note (the “Note”) with a lender (the “Lender”), pursuant to which the Company has agreed to issue a Note to the Lender in the principal amount of $1,666 for proceeds of $1,000 (the “Transaction”). The Note has a maturity date of 180 days from the date of issuance.

 

H. Lease Agreement

 

The Company signed a lease agreement for office space in Georgia, US through June 30, 2023 with monthly payments of $104.42. A lease liability in the amount of 182.19 and right-of-use asset in the amount of $182.19 have been recognized in the balance sheet as at September 30, 2021 in respect of the lease.

 

F-21
Table of Contents

 

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. 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 nomination of additional two external directors to the board of directors of the Company for a period ending on July 26, 2024.
     
  3. 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.

 

C. 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.

 

F-22
Table of Contents

 

TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

NOTE 4 - SHAREHOLDERS’ DEFICIT (Cont.)

 

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 periods of three and nine months ended September 30, 2021, the Company recorded amortization expenses amounting to $0 and $12, respectively, as part of “Finance Expenses” line in operations in the accompanying consolidated statement of operations. As of September 30, 2021, the balance of those prepaid expenses was $361.

 

During the year ended December 31, 2020 and the period of nine months ended September 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.

 

  3. During the period of nine months ended September 30, 2021, Principal Amount and unpaid Interest in total amount of $4,423 have been converted into 427,964,317 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 nine months ended September 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 nine months ended September 30, 2021, the Company entered into several service agreements with certain service providers, whereby the Company issued 14,921,053 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 $31 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 September 30, 2021, there were 2,338,838 ordinary shares available for future issuance under the 2015 Plan.

 

F-23
Table of Contents

 

TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

NOTE 5 - STOCK OPTIONS (Cont.)

 

The following table presents the Company’s stock option activity for employees and directors of the Company during the periods of three and nine months ended September 30, 2021 and 2020:

   Number of Options   Weighted Average Exercise Price 
  

Unaudited

  

Unaudited

 
         
Outstanding as of July 1, 2021   2,545,083    0.095 
Granted   13,750,000    0.030 
Forfeited or expired   -       - 
Outstanding as of September 30, 2021   16,295,083    0.040 
Exercisable as of September 30, 2021   509,017    0.095 

 

Outstanding as of January 1, 2021   3,682,818    0.066 
Granted   13,750,000    0.030 
Forfeited or expired   (1,137,735)   0.003 
Outstanding as of September 30, 2021   16,295,083    0.040 

 

Outstanding as of July 1, 2020   2,267,571    0.061 
Granted   2,545,083    0.095 
Forfeited or expired   (1,129,836)   0.120 
Outstanding as of September 30, 2020   3,682,818    0.066 
Exercisable as of September 30, 2020   1,137,735    0.003 

 

Outstanding as of January 1, 2020   2,267,571    0.061 
Granted   2,545,083    0.095 
Forfeited or expired   (1,129,836)   0.120 
Outstanding as of September 30, 2020   3,682,818    0.066 

 

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 September 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 nine months ended September 30, 2021, stock-based compensation expense has not been recorded with respect to the Performance Milestone.

 

During the period of nine months ended September 30, 2021, the Company recorded stock-based compensation expense amounting to $59, 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 period of nine months ended September 30, 2021, the Company recorded stock-based compensation expense amounting to $350, respectively, as part of “General and Administrative Expenses” line in operations in the accompanying consolidated statement of operations.

 

C. 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”).

 

F-24
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TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

NOTE 5 - STOCK OPTIONS (Cont.)

 

  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”).

 

On July 26, 2021 the Annual General Meeting of the Company approved the Compensation packages for officers and members of the Board of Directors and its committees as detailed above.

 

As of September 30, 2021, the aggregate intrinsic value for the stock options outstanding and exercisable according to $0.04 price per share is $0, with a weighted average remaining contractual life of 4.7 years.

 

Stock-based compensation expenses incurred for employees (and directors) and non-employees for the period of nine months ended September 30, 2021, amounted to $558.

 

As of September 30, 2021, the aggregate accrual for officers and members of the board and its committees in connection with salary and other benefits, amounted to $1,515 and is included in Other Current liabilities in the balance sheet.

 

NOTE 6 - FINANCING EXPENSES, NET

   2021   2020   2021   2020 
  

Nine months period ended

September 30,

   Three months period ended
September 30,
 
   2021   2020   2021   2020 
   Unaudited   Unaudited   Unaudited   Unaudited 
                 
Modification of terms relating to straight loan transaction  $88   $-   $-   $- 
Modification of terms relating to convertible bridge loans transactions   -    (3,495)   -    (7,334)
Exchange differences relating to loans from shareholders   -    40    -    (43)
Issuance of ordinary shares and stock warrants upon modification of terms relating to convertible bridge loans transactions        415         415 
Issuance of shares as a settlement in excess of the carrying amount of financial liabilities   -    1,234    -    

734

 
Amortization of discounts and accrued interest on convertible bridge loans   18,080    8,393    4,432    10,896 
Amortization of discounts and accrued interest on straight loans   2,290    -    1,637    - 
Change in fair value of derivative warrants liability and fair value of warrants expired   (299)   -    (5)   - 
Change in fair value of liability related to conversion feature of convertible bridge loans   (3,777)   -    530    - 
Issuance of shares as call options to acquire potential acquire   -    3,000    -    1,000 
Settlement in cash of prepayment obligation related to convertible bridge loan   182         182     
Interest and related royalties under receivables financing facility   546    

633

    495    

633

 
Amortization of prepaid expenses related to commitment shares in connection with receivables financing facility and equity line   293    61    293    - 
Exchange rate differences and other finance expenses   250   1,094    (689)   754 
Financing (income) expenses, net  $17,360   $11,375   $6,875   $7,055 

 

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TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

NOTE 7 - TAXES ON INCOME

 

A. Deferred income taxes reflect the net tax effects of net operating loss and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows

 

    
  

As of

September 30,
 
Composition of deferred tax assets:  2021 
Net operating loss carry-forward  $3,880 

Deferred tax liability in respect of Share Purchase Agreement (see note 1B)

   (315)
Valuation allowance   (3,880)
Net deferred tax liabilities  $

(315

)

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and net operating losses are utilized. Based on consideration of these factors, the Company recorded a full valuation allowance as of September 30,2021 and December 31, 2020.

 

B. For the nine months ended September 30, 2021, the following table reconciles the statutory income tax rate to the effective income tax rate:
   

    
   Nine months ended September 30, 
   2021 
   Unaudited 
Tax rate   23%
      
Tax expense (benefit) at statutory rate  $(5,647)
Tax rate differential   (31)
Permanent differences with respect to stock-based compensation   130 
Permanent differences with respect to derivative warrants liabilities, bifurcated conversion feature and convertible loans   3,815 
Change in temporary differences   1,733 
Income tax expense (benefit)  $- 

 

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TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

NOTE 8 – 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 
  

Unaudited

 
Nine months ended September 30, 2021                
Revenues   -    -    7,773    7,773 
Operating loss   (4,685)   -    (996)   (5,681)
Unallocated amounts:                    
Financing expenses, net                  (17,368)
Share in losses of affiliated companies accounted for under equity method, net                      (1,499)
Net loss                  (24,547)
Total Assets   10,257    -    6,904    17,161 
Other significant items:                    
Total expenditures for assets of reportable segment   2    -    933    935 
Total depreciation for reportable segment   (22)   -    (504)   (526)

 

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:

 

  

Nine months

period ended

September 30,

   Three months
period ended
September 30,
   Nine

months

period ended

September 30,

   Three months period ended September 30, 
   2021   2021   2020   2020 
   Unaudited   Unaudited 
Israel  $ -   $ -  $ -   $  - 
United States   7,773    1,010    1,316    1,284 
Revenues   7,773    1,010    1,316    1,284 

 

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TODOS MEDICAL LTD.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(U.S. dollars in thousands)

 

NOTE 8 – SEGMENT REPORTING (Cont.)

 

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

 

   As of    As of  
   September 30, 2021   December 31, 2020 
   Unaudited     
Israel  $41   $61 
United States   2,550