10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the Quarterly Period Ended: June 30, 2019

or

 

[  ] 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: 000-55680

 

TECHCARE CORP.

(Exact Name Of Registrant As Specified In Its Charter)

 

Delaware   68-0080601
(State of Incorporation)   (I.R.S. Employer Identification No.)

 

1140 Avenue of the Americas, New York, NY   10036
(Address of Principal Executive Offices)   (ZIP Code)

 

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

 

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 [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). [X] Yes [  ] No

 

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 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 [X] Smaller reporting company [X]
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 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 [X]

 

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

 

Title of each class   Trading Symbol(s)   Name of exchange on which registered
Common stock, par value $0.0001 per share   TECR   OTCQB

 

On August 13, 2019, the registrant had 35,449,398 shares of common stock outstanding.

 

 

 

 
 

 

TABLE OF CONTENTS

 

Item   Description   Page
         
    PART I - FINANCIAL INFORMATION    
         
ITEM 1.   FINANCIAL STATEMENTS (UNAUDITED).    
    Condensed Consolidated Balance Sheets   3
    Condensed Consolidated Statements of Operations   4
    Condensed Consolidated Statements of Changes in Stockholders’ Equity   5-6
    Condensed Consolidated Statements of Cash Flows   7
    Notes to Unaudited Financial Statements   8
ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS.   14
ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.   19
ITEM 4.   CONTROLS AND PROCEDURES.   19
         
    PART II - OTHER INFORMATION    
ITEM 5. OTHER INFORMATION   20
ITEM 6.   EXHIBITS.   20
    SIGNATURES.   21

 

 2 
 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

TechCare Corp.

Condensed Consolidated Balance Sheets

As of June 30, 2019 and December 31, 2018

(Unaudited)

 

   June 30, 2019   December 31, 2018 
Assets        
Current assets:          
Cash and cash equivalents  $230,616   $474,715 
Inventory   204,247    248,912 
Accounts receivable   5,519    13,462 
Inventory subject to refund   2,126    44,529 
Other receivables   51,209    176,583 
Total current assets   493,717    958,201 
           
Non-current assets:          
Severance pay fund, net   4,659    - 
Long-term deposits   11,470    11,366 
Right of use asset, net   110,527    - 
Property and equipment, net   159,894    161,401 
Total non-current assets   286,550    172,767 
Total assets  $780,267   $1,130,968 
           
Liabilities and Stockholders’ Equity          
Current liabilities:          
Accounts payable and accrued expenses  $167,397   $231,311 
Note payable   80,026    80,026 
Current maturities of long-term lease liability   22,925    - 
Derivative liability   914    - 
Refund liability   4,999    73,464 
Total current liabilities   276,261    384,801 
           
Non-current liability:          
Lease liability   87,602    - 
Liability for severance pay, net   -    4,713 
Total liabilities   363,863    389,514 
           
Stockholders’ equity:          
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized; none issued and outstanding at June 30, 2019 and December 31, 2018, respectively   -    - 
Common stock, par value $0.0001 per share, 500,000,000 shares authorized; 35,449,398 and 33,212,036 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively   3,545    3,322 
Accumulated other comprehensive income   116,403    106,870 
Additional paid-in capital   9,931,209    9,329,419 
Stock to be issued   30,000    30,000 
Accumulated deficit   (9,664,753)   (8,728,157)
Total stockholders’ equity   416,404    741,454 
Total liabilities and stockholders’ equity  $780,267   $1,130,968 

 

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

 

 3 
 

 

TechCare Corp.

Condensed Consolidated Statements of Operations and Comprehensive loss

For the Six and Three Month Periods ended June 30, 2019 and 2018

(Unaudited)

 

   Six months ended   Three months ended 
   June 30,   June 30, 
   2019   2018   2019   2018 
                 
Revenues   85,197    98,442    27,026    71,720 
Cost of revenues   117,728    57,618    63,340    47,908 
Gross profit (loss)   (32,531)   40,824    (36,314)   23,812 
                     
Research and development expenses   80,032    47,916    39,225    16,821 
Marketing, general and administrative expenses   811,327    966,920    376,116    502,579 
Change in fair value of option liability   -    (132,470)   -    - 
Operating loss   923,890    841,542    451,655    495,588 
                     
Financial expenses (income), net   12,706    17,155    6,114    (426)
                     
Net loss  $936,596   $858,697    457,769    495,162 
                     
Net loss per common stock:                    
Basic  $(0.03)  $(0.03)   (0.01)   (0.02)
                     
Weighted average number of common stock outstanding:                    
Basic   34,270,715    31,273,013    35,095,609    31,384,440 
                     
Comprehensive loss:                    
Net loss   936,596    858,697    457,769    495,162 
Other comprehensive expense (income) attributable to foreign currency translation   (9,533)   1,698    (4,718)   10,490 
Comprehensive loss   927,063    860,396    453,051    805,652 

 

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

 

 4 
 

 

TechCare Corp.

Condensed Consolidated Statements of changes in Stockholders’ Equity

(Unaudited)

 

Consolidated statements of stockholders’ equity for six months ended June 30, 2019:

 

   Common Stock   Additional
Paid-in
   Stock To Be   Accumulated   Accumulated
Other Comprehensive
   Total Stockholders’ 
   Stock   Amount   Capital   Issued   Deficit   Income   Equity 
Balance at December 31, 2018   33,212,036    3,322    9,329,419    30,000    (8,728,157)   106,870    741,454 
Issuance of common stock    2,237,362    223    450,657    -    -    -    450,880 
Waiver of fee by related party   -    -    144,898    -    -    -    144,898 
Stock-based compensation   -    -    6,235    -    -    -    6,235 
Other comprehensive income   -    -    -    -    -    9,533    9,533 
Net loss for the period   -    -    -    -    (936,596)   -    (936,596)
Balance at June 30, 2019      35,449,398    3,545       9,931,209       30,000    (9,664,753)   116,403    416,404 

 

Consolidated statements of stockholders’ equity for six months ended June 30, 2018:

 

   Common Stock   Additional
Paid-in
   Stock To Be   Accumulated   Accumulated
Other Comprehensive
   Total Stockholders’ 
   Stock   Amount   Capital   Issued   Deficit   Income   Equity 
Balance at December 31, 2017   25,835,401    2,584    6,945,151    30,000    (6,571,083)   104,777    511,429 
Issuance of common stock and warrants, net   2,325,581    232    899,769    -    -    -    900,001 
Other comprehensive (expenses)   -    -    -    -    -    (1,699)   (1,699)
Stock-based compensation   -    -    18,543    -    -    -    18,543 
Funds Received for Shares   -    -    -    42,000    -    -    42,000 
Net loss for the period   -    -    -    -    (858,697)   -    (858,697)
Balance at June 30, 2018      28,160,982    2,816    7,863,463       72,000    (7,429,780)   103,078    611,577 

 

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

 

 5 
 

 

TechCare Corp.

Condensed Consolidated Statements of changes in Stockholders’ Equity

(Unaudited)

 

Consolidated statements of stockholders’ equity for three months ended June 30, 2019:

 

   Common Stock   Additional
Paid-in
   Stock To Be   Accumulated   Accumulated
Other Comprehensive
   Total Stockholders’ 
   Stock   Amount   Capital   Issued   Deficit   Income   Equity 
Balance at March 31, 2019   34,169,890   $3,417   $9,654,727    30,000    (9,206,984)  $111,685   $592,845 
Issuance of common stock   1,279,508    128    218,302    -    -    -    218,430 
Waiver of fee by related party   -    -    55,065    -    -    -    55,065 
Stock-based compensation   -    -    3,115    -    -    -    3,115 
Other comprehensive income   -    -    -    -    -    4,718    4,718 
Net loss for the period   -    -    -    -    (457,769)   -    (457,769)
Balance at June 30, 2019      35,449,398    3,545       9,931,209    30,000    (9,664,753)   116,403    416,404 

 

Consolidated statements of stockholders’ equity for three months ended June 30, 2018:

 

   Common Stock   Additional
Paid-in
   Stock To Be   Accumulated   Accumulated
Other Comprehensive
   Total Stockholders’ 
   Stock   Amount   Capital   Issued   Deficit   Income   Equity 
Balance at March 31, 2018   28,160,982   $2,816   $7,844,921    30,000   $(6,934,618)   113,568    1,056,687 
Funds Received for Shares   -    -    -    42,000    -    -    42,000 
Stock-based compensation   -    -    18,542    -    -    -    18,542 
Other comprehensive income (expenses)   -    -    -    -    -    (10,490)   (10,490)
Net loss for the period   -    -    -    -    495,162    -    495,162 
Balance at June 30, 2018   28,160,982    2,816    7,863,463    72,000    (7,429,780)   103,078    611,577 

 

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

 

 6 
 

 

TechCare Corp.

Condensed Consolidated Statements of Cash Flows

For the Six Month Periods ended June 30, 2019 and 2018

(Unaudited)

 

   Six months ended 
   June 30, 
   2019   2018 
Cash flows from operating activities:          
Net loss  $(936,596)  $(858,697)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   14,676    10,654 
Change in fair value of option liability   -    (132,470)
Right of use asset depreciation   5,561    - 
Finance expenses, net   487    - 
Inventory subject to refund   44,443    - 
Management fee waiver   144,898    - 
Stock-based compensation   6,235    18,543 
Changes in operating assets and liabilities:          
Derivative liability   (5,663)   - 
Lease liability   (6,047)   - 
Accounts receivables   9,015    (111,828)
Other receivables   132,137    (50,146)
Inventory   56,766    (99,496)
Accounts payable and accrued expenses   (74,766)   116,414 
Refund liability   (71,701)   58,643 
Severance payment, net   (9,471)   (898)
Net cash used in operating activities   (690,026)   (1,049,281)
           
Cash flow from investing activities:          
Purchase of fixed assets   (4,995)   (31,999)
Long-term deposit   603    - 
Net cash used in investing activities   (4,392)   (31,999)
           
Cash flow from financing activities:          
Proceeds from issuance of common stock and warrants, net   457,455    900,000 
Proceeds from stock to be issued   -    42,000 
Net cash provided by financing activities   457,455    942,000 
           
Effect of exchange rates on cash and cash equivalents   (7,136)   3,178 
Net decrease in cash and cash equivalents   (244,099)   (136,102)
           
Cash and cash equivalents - beginning of period   474,715    589,818 
Cash and cash equivalents - end of period  $230,616   $453,716 

 

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

 

 7 
 

 

TechCare Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

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

 

A. Nature of operations

 

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

 

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

 

Novomic was incorporated as a private company in Israel in 2009. Since inception, Novomic has been a technology company engaged in the design, development, and commercialization of a unique delivery platform utilizing vaporization of various natural compounds for multiple health, beauty and wellness applications. Novomic’s delivery platform is proprietary and patented.

 

Novomic’s first product is Novokid® - an innovative home use device which vaporizes a natural, plant-based, pesticides and silicone-free compound that effectively treats head lice and eggs. The Novokid® kit includes a vaporizer, treatment capsules and treatment cap alongside ancillary components. Novokid® is currently being sold in Israel and the Netherlands.

 

Novomic is currently working on the research and development of future product offerings for its delivery platform, including Shine, a revolutionary cosmetic device for the treatment and rejuvenation of the hair and scalp.

 

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

 

Going Concern

 

During the period ended June 30, 2019, the Company had a total comprehensive loss of $0.9 million and had incurred $0.69 million loss from operating cash flow. As of June 30, 2019, the Company incurred accumulated losses of approximately $9.6 million. Based on the projected cash flows and Company’s cash balance as of June 30, 2019, the Company’s management is of the opinion that without further fundraising it will not have sufficient resources to enable it to continue advancing its activities including the development, manufacturing, and marketing of its products for a period of at least 12 months from the date of issuance of these financial statements. As a result, there is substantial doubt about the Company’s ability to continue as a going concern.

 

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

 

 8 
 

 

TechCare Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.):

 

B. Summary of significant accounting policies

 

The accounting policies adopted are consistent with those of the previous financial year.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements and condensed footnotes have been prepared in accordance with the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by the accounting principles generally accepted in the United States of America (“U.S. GAAP”), for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for fair statement of results for the interim periods presented have been included. The results of operations for six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the period or for future years. The consolidated balance sheet as of December 31, 2018 is derived from audited financial statements as of that date; however, it does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on March 28, 2019.

 

Principles of Consolidation

 

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

 

Use of Estimates

 

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

 

Functional Currency and Foreign Currency Translation and Transactions.

 

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

 

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

 

Financial expenses (income), net in the consolidated statements of operations and comprehensive loss comprised mainly of exchange rate differentials.

 

 9 
 

 

TechCare Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.):

 

B. Summary of significant accounting policies (Cont.):

 

Impairment of long-lived assets

 

Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In the event that the sum of the expected future undiscounted cash flows expected to be generated by the long-lived assets is less than the carrying amount of such assets, an impairment charge would be recognized and the assets would be written down to their estimated fair values. During the periods ended June 30, 2019, and 2018, no impairment was recorded.

 

Fair Value Measurements

 

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

 

 10 
 

 

TechCare Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

NOTE 2: NEW ACCOUNTING PRONOUNCEMENTS

 

Accounting Pronouncements Adopted in Current Period

 

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-02 “Leases.” The guidance establishes a right-of-use (“ROU”) model that requires a lessee to recognize an ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The guidance became effective on January 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. The adoption of this standard did not have a material effect on the Company’s financial statements.

 

The Company adopted the new accounting standard Accounting Standards Codification 842 “Leases,” and all the related amendments, on January 1, 2019 and used the standard’s effective date as the Company’s date of initial application. Consequently, financial information was not updated and the disclosures required under the new standard are not provided for dates and periods before January 1, 2019. The new standard also provides practical expedients for an entity’s ongoing accounting. The adoption of this standard did not have a material effect on the Company’s financial statements. On January 1, 2019, the Company recognized ROU assets of approximately $113 thousand and lease liabilities of approximately $113 thousand for its operating leases of real estate and vehicles. The adoption of this standard did not have a material impact on the Company’s consolidated statements of income and consolidated statements of cash flows.

 

NOTE 3: INCOME TAXES

 

a. Basis of taxation

 

The Company and its subsidiary are taxed under the domestic tax laws of the jurisdiction of incorporation of each entity (United States and Israel).

 

b. Carryforward Tax Losses

 

Carryforward Tax Losses of the Company as of June 30, 2019, amounted to approximately $0.5 million. Carryforward Tax Losses of Novomic amounted to approximately $6.4 million. A full valuation allowance was created against these carry forward tax losses since the realization of any future benefit from these net operating losses cannot be sufficiently assured at June 30, 2019.

 

NOTE 4: LOSS PER SHARE

 

Loss per share is based on the loss that is attributed to the aggregate number of outstanding shares of common stock, divided by the weighted average number of common stock in issue during the period.

 

 11 
 

 

TechCare Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

NOTE 5: FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The carrying amount of the Company’s financial instruments, including cash equivalents, accounts receivable and other current assets, accounts payable and accrued liabilities and note payable approximate their fair value, due to their short term in nature and their carrying amounts approximates the amounts expected to be received or paid.

 

A hierarchy has been established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The Company accounts for option liability as Level 3 since its inputs are unobservable inputs for the liability.

 

The following table is a reconciliation of the change for the financial liability where fair value measurement is estimated utilizing Level 3 inputs:

 

   2019   2018 
   US dollar   US dollar 
Fair value as of January 1  $-    132,470 
Receipt of derivative liability   6,577    - 
Change in fair value recognized in statement of operations and comprehensive loss   (5,663)   (132,470)
Fair value as of June 30  $914    - 

 

NOTE 6: RELATED PARTY TRANSACTIONS

 

a. On May 31, 2015, the Company entered into a consulting agreement with Mr. Yossef De-Levy, a member of the Company’s Board. Pursuant to the consulting agreement, Mr. De-Levy receives a gross monthly amount of NIS 10,000 (approximately $2,900). The foregoing payment is in addition to, and independent of, the fee that Mr. De-Levy is entitled to receive for continued services as a member of the Board. In March 2019 and April 2019, the Company entered into amendments to the consulting agreement, pursuant to which the monthly retainer was waived commencing on November 15, 2018, through August 31, 2019. The Company recorded the expense against equity.
   
b. On December 31, 2015, the Company entered into a consulting agreement with Zvi Yemini, the Company’s Chairman of the Board and with his affiliated entity Y.M.Y Industry Ltd. (“YMY”). Pursuant to the consulting agreement, Mr. Yemini received a gross monthly amount of NIS 24,000 (approximately $6,200). The foregoing payment is in addition to, and independent of, the fee that Mr. Yemini is entitled to receive for continued services as a member of the Board. On February 22, 2017, the Company signed an amendment to the original agreement with Mr. Yemini and YMY. Pursuant to the amendment, Mr. Yemini’s monthly payment was increased to NIS 45,000 (approximately $13,000) starting February 2017. In March 2019 and April 2019, the Company entered into amendments to the consulting agreement, pursuant to which the monthly retainer was waived commencing on November 15, 2018, through August 31, 2019. The Company recorded the expense against equity.
   
c. On July 31, 2016, the Company entered into a consulting agreement with Mr. Oren Traistman, a member of the Board. Pursuant to the consulting agreement, Mr. Traistman receives a gross monthly amount of NIS 10,000 (approximately $2,900). In March 2019 and April 2019, the Company entered into an amendment to the consulting agreement, pursuant to which the monthly retainer was waived commencing on November 15, 2018 through August 31, 2019. The Company recorded the expense against equity.
   
d. On December 31, 2017, the Company entered into a consulting agreement with Mr. Ran Tuttnauer, a member of the advisory Board. Pursuant to the consulting agreement, Mr. Tuttnauer receives a gross monthly amount of $2,000. In March 2019 and April 2019, the Company entered into an amendment to the consulting agreement, pursuant to which the monthly retainer was waived commencing on November 15, 2018 through August 31, 2019. In April 2019 the consulting agreement was terminated, The Company recorded the expense against equity.

 

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TechCare Corp.

Notes to Condensed Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

NOTE 6: RELATED PARTY TRANSACTIONS (Cont.):

 

e. On April 28, 2019, the Company entered into a form of Securities Purchase Agreement (the “Securities Purchase Agreement”) with each of Y.M.Y. Industry Ltd., Traistman Radziejewski Fundacja Ltd. and Microdel Ltd. relating to an offering of an aggregate of 1,229,508 shares of the Company’s common stock at a purchase price of $0.183 per share for aggregate gross proceeds of approximately $225,000. In addition, the Company granted the investors an option, for a period of twelve months, to purchase up to an additional 375,001 shares of common stock at a price per share of $0.60, for additional aggregate consideration of $225,000. The closing of the offering took place on April 29, 2019. The option was classified as a derivative financial liability and are re-measured each reporting date, with changes in fair value recognized in finance expense (income), net, since the exercise price of the warrants is denominated in USD and the functional currency of the Company is the NIS.

 

NOTE 7: SUBSEQUENT EVENTS

 

On July 22, 2019, Mrs. Tali Dinar, the Chief Financial Officer of the Company, and the Company, jointly agreed to terminate her employment agreement. Mrs. Dinar will continue to provide her services to the Company as required under Israeli law until October 22, 2019, unless otherwise agreed to by Mrs. Dinar and the Company. Mrs. Dinar’s employment termination was not as a result of any disagreement or dispute with the Company but rather as a result of the current needs of the Company.

 

On August 13, 2019, Mr. Oren Traistman was appointed as the Chairman of the Board of the Company, by the existing Board. Mr. Zvi Yemini, the former Chairman, will continue to serve as a director and Chief Executive Officer of the Company.

 

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

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other Federal securities laws, and is subject to the safe-harbor created by such Act and laws. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms, or other variations thereon or comparable terminology. The statements herein and their implications are merely predictions and therefore inherently subject to known and unknown risks, uncertainties, assumptions and other factors that may cause actual results, performance levels of activity, or our achievements, or industry results to be materially different from those contemplated by the forward-looking statements. Such forward-looking statements appear in this Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and may appear elsewhere in this Quarterly Report on Form 10-Q and include, but are not limited to, statements regarding the following:

 

  the prospects of signing agreements with distributors in Europe and the timeline within which that may occur;
     
  our intention to expand our sales points in Israel;
     
  our plan to execute our strategy;
     
  our intention to sell our products in additional pharmacies and various online outlets and the timeline within which that may occur;
     
  our expectations regarding our short- and long-term capital requirements;
     
  our outlook for the coming months and future periods, including but not limited to our expectations regarding future revenue and expenses;
     
  our product development and distribution plans, including those for Novokid® and Shine;
     
  our marketing plans, including timing and regions for marketing our products;
     
  our ability and the effects, if any, of a manufacture cost reduction program;
     
  achieving regulatory approvals;
     
  the proposed joint venture of a Chinese entity in accordance with a joint venture agreement;
     
  our outlook for the coming months and future periods, including but not limited to our expectations regarding future revenue and expenses; and
     
  information with respect to any other plans and strategies for our business.

 

Our business and operations are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements contained in this report.

 

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In addition, historic results of scientific research, clinical and preclinical trials do not guarantee that the conclusions of future research or trials would not suggest different conclusions. Also, historic results referred to in this periodic report would be interpreted differently in light of additional research, clinical and preclinical trials results. Except as required by law, we undertake no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Further information on potential factors that could affect our business is described under the heading “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, or the 2018 Annual Report. Readers are also urged to carefully review and consider the various disclosures we have made in that report.

 

As used in this quarterly report, the terms “we”, “us”, “our”, the “Company” and “TechCare” mean TechCare Corp. and our wholly owned subsidiary, Novomic Ltd., unless otherwise indicated or as otherwise required by the context.

 

Overview and Recent Developments

 

We are a technology company engaged in the design, development and commercialization of a unique delivery platform utilizing vaporization of various natural compounds for multiple health, beauty and wellness applications. Our delivery platform is proprietary and patented.

 

Our current product offering includes Novokid® - an innovative home use device which vaporizes a natural, plant-based, pesticides, and silicone-free compound that effectively treats head lice and eggs. Following our soft launch of Novokid® in the Netherlands, we expanded our distribution network and launched Novokid in Israel during late May 2018 through Super Pharm, Israel’s largest and leading drugstore chain. The launch was accompanied by a radio and digital brand awareness and marketing campaign and supported by Meditrend, our Israeli distributor, specializing in health and wellness products while representing leading brands.

 

We intend to expand our sales points in Israel and began selling our products in additional pharmacies and various online outlets during 2019. As we remain focused on increasing our global footprint and expanding our distribution network, we showcased Novokid® and met potential distributors and partners at CPhI Worldwide, a renowned and leading pharma tradeshow held in Madrid during October 2018.

 

We believe that we will need to raise up to $2,000 thousand during the next 12 months in order to successfully implement our business plan, of which there can be no assurance. Failure to obtain the necessary capital at acceptable terms, if at all, when needed, may force us to delay, limit, or terminate our product development efforts and adversely effect our ability to secure regulatory approvals and would adversely impact our planned research and development efforts in connection with our future products, which may make it more difficult for us to attain profitability.

 

Our Treatment Solutions

 

Novokid® – Natural, Plant-based and Effective Lice Treatment

 

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

 

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

 

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Shine – Natural Haircare rejuvenation

 

Shine uses a patented vaporization process and formulation to clean, treat and improve the appearance of the hair and scalp. In addition to removing the residue, the treatments balance the hair’s pH levels, add body and shine, define curls, and strengthen and protect hair from further damage. We believe that the Shine treatment is user friendly, requiring the user to connect the Using Shine capsule to a designated tube, place the attached cap on their head and sit for a 10-minute treatment. There is no need to rinse or shampoo following the treatment. The treatment is expected to cleanse the scalp and leave the hair shiny and manageable.

 

Recent Developments and Plans

 

Our current and future products are all based on the vaporization platform, which was developed over a period of seven years. Since January 1, 2018, we have achieved the following:

 

launched Novokid® in Israel during late May 2018 through Super Pharm, Israel’s largest and leading drugstore chain, accompanied by a radio and digital brand awareness and marketing campaign;
   
expanded our sales points in Israel and penetrated to additional pharmacies;
   
contracted and setup production facilities in China and Israel through sub-contractors;
   
showcased Novokid® in CPhI Madrid, the world’s leading pharma tradeshow, held in Madrid, Spain, during October 2018;
   
entered into a joint venture agreement with a Chinese partner for the formation of a Chinese joint venture intended to focus on the development of comprehensive and broad range of health, wellness, beauty and home products for customers by utilizing our patented technology of vaporization of natural and plant-based compounds;
   
 launched Novokid® on Amazon.co.uk during August 2019;
   

obtained regulatory approval and registration of Shine, as a cosmetic product, in the United States. 

   
fine-tuned the Shine formulation for the base capsule product; and
   
kicked-off the development for new formulations to create additional capsule lines for the Shine product.

 

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

 

Novokid®:

 

  obtain FDA approval for Novokid, as a cosmetic product; and
     
  prepare and implement a manufacture cost reduction program, allowing us to reduce the manufacturing and procurement costs for our Novokid® product.

 

Shine:

 

  develop new capsules for personalized treatment, such as dry and curly hair.

 

Other:

 

  define the joint venture work plan relating to the Chinese joint venture;
     
  transitioning its focus to the sale of products online, as opposed to distribution arrangements; and
     
  explore new ventures to be aligned with the Company’s current business model and its operations.

 

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

 

In addition, in January 2019, we entered into a joint venture agreement with a Chinese partner for the formation of a Chinese joint venture intended to focus on the development of comprehensive and broad range of health, wellness, beauty and home products for customers by utilizing our patented technology of vaporization of natural and plant-based compounds. The joint venture intends to sell its products in the Greater China region, including mainland China, Hong Kong, Macao, and Taiwan, directly or through others. We are currently working with our Chinese Partner on the formation of the Chinese joint venture entity.

 

On March 13, 2019, we issued and sold to ICB Biotechnology Investments Ltd. (“ICB”) 957,854 shares of our common for a price per share of $0.261, for aggregate consideration of $250,000. In accordance with the terms of the subscription agreement, upon the formation of a joint venture with China-Israel Biological Technology Co. Ltd., (“CIBD”) the parent company of ICB, and the transfer of the relevant intellectual property rights to the joint venture, we will issue and sell to ICB an additional 957,854 Shares for an additional investment amount of $250,000 (the “Additional Investment”). In addition, subject to the consummation of the Additional Investment, we will grant ICB an option to purchase up to additional 833,333 shares of our common stock at a price per share of $0.60, for aggregate consideration of up to $1,000,000. To date, the Company has met all of the milestones required for the closing of the Additional Investment. Currently, the Company and ICB are in negotiations with respect to the Additional Investment and there is no guarantee that the Company will be able to close on the Additional Investment.

 

On April 28, 2019, we entered into a form of Securities Purchase Agreement (the “Securities Purchase Agreement”) with each of Y.M.Y. Industry Ltd., Traistman Radziejewski Fundacja Ltd. and Microdel Ltd. relating to an offering of an aggregate of 1,229,508 shares of our common stock at a purchase price of $0.183 per share for aggregate gross proceeds of approximately $225,000. In addition, we granted the investors an option, for a period of twelve months, to purchase up to an additional 375,001 shares of common stock at a price per share of $0.60, for additional aggregate consideration of $225,000. The closing of the offering took place on April 29, 2019. The option was classified as a derivative financial liability and are re-measured each reporting date, with changes in fair value recognized in finance expense (income), net, since the exercise price of the warrants is denominated in USD and the functional currency of the Company is the NIS.

 

Results of Operations during the three and six months ended June 30, 2019 as compared to the three and six months ended June 30, 2018

 

Revenues

 

During the three and six months ended June 30, 2019, we generated $27 and $85 thousand in revenues, compared to $71 and $98 thousand in revenues in the three and six months ended June 30, 2018. The decrease is mainly attributable to a decrease in the sales of for our product.

 

Gross Profit

 

Our gross profit (Loss) during the three and six months ended June 30, 2019, were ($36) and ($33) thousand, compared to $24 and $41 thousand in the three and six months ended June 30, 2018. The decrease is mainly attributable to decrease in the sales volume and decrease in inventory value.

 

Research and Development Expenses

 

Our research and development expenses during the three and six months ended June 30, 2019 were $39 thousand and $80 thousand and all expenses resulted from ongoing research and development expenses.

 

Our research and development expenses during the three and six months ended June 30, 2018 were $17 thousand and $48 thousand. The increase is mainly attributable to expenses related to the new expected Shine product.

 

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Marketing, General and Administrative Expenses

 

Our marketing, general and administrative expenses during the three and six months ended June 30, 2019 were $376 thousand and $811 thousand and were comprised mainly of $581 thousand in payroll and payments to consultants for the six months ended June 30, 2019. Our marketing, general and administrative expenses during the three and six months ended June 30, 2018 were $503 thousand and $967 thousand and were comprised mainly of $571 thousand in payroll and payments to consultants for the six months ended June 30, 2018. The decrease in our marketing, general and administrative expenses is mainly attributable to a decrease in marketing expenses, professional services and travel abroad expenses.

 

Net Loss

 

During the three and six months ended June 30, 2019 we incurred a net loss of $458 thousand and $937 thousand. During the three and six months ended June 30, 2018, we incurred a net loss of $495 thousand and $859 thousand. The increase in net loss is mainly attributable to a decrease in gross margins.

 

Liquidity and Capital Resources

 

Our balance sheet as of June 30, 2019 reflects total assets of $780 thousand, consisting mainly of cash and cash equivalents in the amount of approximately $231 thousand, inventory of approximately $204 thousand and property and equipment, net of approximately $160 thousand. As of December 31, 2018, our balance sheet reflects total assets of approximately $1,131 thousand consisting mainly of cash and cash equivalents in the amount of approximately $475 thousand, inventory in the amount of approximately $249 thousand, other receivables of approximately $177 thousand and property and equipment net, of approximately $161 thousand.

 

As of June 30, 2019, we had total current liabilities of approximately $276 thousand, consisting mainly of accounts payable and accrued expenses of approximately $167 thousand and a note payable of approximately $80 thousand. As of December 31, 2018, we had total current liabilities of approximately $385 thousand consisting mainly of accounts payable and accrued expenses of approximately $231 thousand and a note payable of approximately $80 thousand.

 

As of June 30, 2019, we had positive working capital of approximately $218 thousand, compared to positive working capital of approximately $573 thousand at December 31, 2018. The working capital has been sufficient to sustain our operations to date, although there is substantial doubt about our ability to continue as going concern. Our total liabilities as of June 30, 2019 were approximately $364 thousand, compared to approximately $390 thousand at December 31, 2018.

 

During the six months ended June 30, 2019, we used approximately $690 thousand of cash in our operating activities. This resulted mainly from an overall net loss of approximately $937 thousand, a decrease in other receivables of approximately $132 thousand and a decrease in inventory of approximately $57 thousand. During the six months ended June 30, 2018, we used approximately $1,049 thousand of cash in our operating activities. This resulted mainly from an overall net loss of approximately $859 thousand, an increase in accounts payable and accrued expenses of approximately $116 thousand and an increase in inventory of approximately $99 thousand.

 

During the six months ended June 30, 2019, we used approximately $4 thousand in our investing activities, as compared to approximately $32 thousand in the same period in the prior year.

 

During the six months ended June 30, 2019, our financing activities provided us with $457 thousand, as compared to $942 thousand in the same period in the prior year, through the issuance of common stock.

 

On March 13, 2019, we issued and sold to ICB 957,854 shares of our common stock at a price per share of $0.261, for aggregate consideration of $250 thousand. In addition, in April 2019, the Company entered into subscription agreements with several investors, consisting of our officers and directors, pursuant to which we issued 1,229,508 shares of common stock for aggregate consideration of $225 thousand. The Company recorded derivative liability in its books.

 

While management believes the Company will be successful in its current and planned operating activities, there can be no assurance that the Company will be successful in the achievement of sales of its products that will generate sufficient revenues to earn a profit and sustain the operations of the Company. Our ability to create sufficient working capital to sustain us over the next twelve-month period and beyond is dependent on our ability to raise additional funds through the issuance of equity or debt instrument. There can be no assurance that sufficient capital will be available to us. We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources.

 

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Going Concern Consideration

 

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

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Critical Accounting Policies

 

Please see Note 1B of Part I, Item I of this Quarterly Report on Form 10-Q for the summary of significant accounting policies. In addition, reference is made to Note 1B in the financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2018 (filed on March 28, 2019) with respect to our Critical Accounting Policies.

 

All other material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2018 are recorded in Note 1b of this quarterly report

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not Applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures.

 

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer (CEO) (who is the Company’s principal executive officer) and the Company’s Chief Financial Officer (CFO) (who is the Company’s principal financial officer) to allow for timely decisions regarding required disclosure. In designing and evaluating the Company’s disclosure controls and procedures, the Company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and the Company’s management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on our evaluation of the effectiveness of our disclosure controls and procedures as of June 30, 2019, our Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.

 

Management’s Remediation Plan

 

Since the time our initial material weaknesses were identified in early 2017 relating to (i) inadequate segregation of duties consistent with control objectives; and (ii) ineffective controls over period-end financial reporting and disclosure processes, we have initiated the following procedures during the year ended December 31, 2017:

 

  (i) Due to inadequate financial resources as of the end of the first quarter of 2017, we hired during the second quarter of 2017 a new outsourced finance team and replaced our CFO. We believe that this first step should assist in detecting errors that have occurred since the first quarter of 2017.
     
  (ii) We began implementing processes and controls to properly perform an effective period-end financial reporting process.

 

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We also plan to implement additional steps as follows: (i) appoint qualified personnel to address inadequate segregation of duties and ineffective controls over period-end financial reporting as well as continue implementing modifications to our operating procedures and financial controls to address such inadequacies; and (ii) adopt sufficient written policies and procedures for period-end financial reporting.

 

The remediation efforts, which are not completed as of June 30, 2019, are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

 

Changes in Internal Control over Financial Reporting

 

During the six months ended June 30, 2019, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 5. OTHER INFORMATION

 

On August 13, 2019, Mr. Oren Traistman was appointed as the Chairman of the Board of the Company, by the existing Board. Mr. Zvi Yemini, the former Chairman, will continue to serve as a director and Chief Executive Officer of the Company.

 

ITEM 6. EXHIBITS

 

(a) The following documents are filed as exhibits to this report on Form 10-Q or incorporated by reference herein. Any document incorporated by reference is identified by a parenthetical reference to the SEC filing that included such document.

 

Exhibit No.   Description
31.1*   Rule 13a-14(a) Certification of Chief Executive Officer.
31.2*   Rule 13a-14(a) Certification of Chief Financial Officer.
32.1**   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
32.2**   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
101.1*   The following materials from our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 formatted in XBRL (eXtensible Business Reporting Language): (i) the Interim Condensed Consolidated Balance Sheets, (ii) the Interim Condensed Consolidated Statements of Operations, (iii) the Interim Condensed Consolidated Statements of Comprehensive Loss, (iv) the Interim Condensed Statements of Changes in Equity, (v) the Interim Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to Interim Condensed Consolidated Financial Statements, tagged as blocks of text and in detail.

 

* Filed herewith

** Furnished herewith

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned.

 

  TechCare Corp.
   
  By: /s/ Zvi Yemini
    Zvi Yemini
    Chief Executive Officer
    (Principal Executive Officer)
     
  Date:  August 13, 2019
     
  By: /s/ Tali Dinar
    Tali Dinar
    Chief Financial Officer
    (Principal Financial and Principal Accounting Officer)
     
  Date:  August 13, 2019

 

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