TODOS MEDICAL LTD. The following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report on Form 10-K. This discussion and other parts of this annual report on Form 10-K contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under "Risk Factors" and elsewhere in this annual report on Form 10-K. We report financial information under US GAAP and our financial statements were prepared in accordance with generally accepted accounting principles inthe United States . OverviewTodos Medical Ltd. , is a medical diagnostics company engaged in the development and commercialization of blood tests for the detection of immune-related diseases, beginning with cancer, and the provider of turnkey COVID-19 automated testing solutions for laboratories, including the distribution of testing supplies. Our core proprietary diagnostics technology centers on testing blood cells using an FTIR spectrometer to turn biological information into data, and then using our patented Total Biochemical Infrared Analysis (TBIA) deep learning data analytics platform to mine the data in order to develop algorithms that are indicative of the presence of cancer, and the tissue of origin in the body where the cancer is located. Our ultimate vision is to develop a single, simple and cost-effective blood test that can identify any cancer at its earliest stages of formation, and then use emerging methods such as liquid biopsy to monitor patient responses to treatment. The TBIA detection method is based on cancer's influence on the immune system that triggers biochemical changes in peripheral blood. The primary advantages of the TBIA platform are the high accuracy (sensitivity and specificity) and low COGS due to the biological information being captured using spectroscopy versus biological antibody capture methods that require the manufacture of multiple antibodies to capture a biological signature. TBIA is based upon technology originally invented by the researchers at BGU and Soroka, whose intellectual property has been licensed to us. We have received a CE Mark in theEuropean Union authorizing the commercial use of the TBIA platform in the diagnosis of breast cancer and colon cancer. We have been issued patents inthe United States ,Europe and other international jurisdictions covering the use of TBIA to detect solid tumors. Our academic partners at BGU have also published research suggesting FTIR has the potential to be used to identify the presence of viral and bacterial infections, and the Company is currently evaluating how best to pursue its technology in these areas in light of increased commercial interest for viral detection methods in light of the outbreak of novel Coronavirus (SARS-CoV-2, or COVID-19) worldwide. Because of the novelty and highly disruptive nature of TBIA analysis using FTIR to diagnose disease, we believe the best path forward to bring Todos' core technology to market inthe United States is to demonstrate comparability with blood tests that are built on technology platforms that are in widespread use. Due to the relative scarcity of commercial blood tests in areas such as cancer and Alzheimer's disease, we have pursued a strategy of acquiring proprietary blood tests in those therapeutic indications in order to gain a foothold in the marketplace and fine tune our FTIR platform while fully commercializing these more advanced tests inthe United States . Toward that end, we chose to expand into Alzheimer's disease because we view Alzheimer's as cancer of neuronal cells that are incapable of completing cell division due to their post-mitotic nature. Through an acquisition in 2019, we acquired exclusive worldwide rights to the Alzheimer's blood test called the Lymphocyte Proliferation Test (LymPro Test™). Taken together with our core TBIA FTIR-based platform, we believe Todos is positioned to become the worldwide leader in the field of immune-based diagnostics. The Company formed the subsidiaryTodos Medical Singapore Ltd. for the purpose of advancing clinical trials of the Company's core technology for breast cancer inSoutheast Asia . Additionally, in 2020 our Board of Directors and shareholders approved our planned acquisition ofProvista Laboratories . We expect to close on this acquisition in the second quarter of 2021. TheProvista acquisition will enable us to gain exclusive worldwide rights to the commercial-stage breast cancer test Videssa ™, further broadening our position in cancer blood testing and creating additional opportunities for our TBIA FTIR-based platform. In view of our status as a leader in the field of immune-based diagnostics, we made the strategic corporate decision to enter the field of COVID-19 testing services in the first half of 2020. Similar, to our strategy in cancer and Alzheimer's where we felt more traditional, advanced technologies would serve as the basis for market entry before bringing our proprietary FTIR-based TBIA platform forward, we decided to enter the COVID-19 space by gaining rights to existing technologies developed by other companies. The Company believes that by identifying key areas of inefficiency in the COVID-19 testing space, and addressing those bottlenecks, whether they be scientific, technical or logistical, we can capture market share in a new and rapidly growing medical testing industry. To forward this business, we entered into distribution agreements with multiple companies to gain rights to rapid IgM/IgG COVID-19 antibody test kits, RNA extraction machines, RNA extraction reagents, qPCR reagents and digital PCR reagents so as to be able to offer a comprehensive suite of solutions to laboratories worldwide. We began marketing a turnkey automation services solution to laboratories seeking to expand their COVID-19 testing capabilities and began generating revenue from the distribution of products to support laboratory COVID testing through automated machinery we provided. We intend to continue the expansion of this business, including the utilization of our automation services for other diagnostic testing where we can distribute additional supplies and leverage the use of our equipment. 32 Table of Contents
Additionally, the Company has entered into a joint venture with NLC Pharma to bring to market a unique development-stage viral protease-based saliva point of care cell phone enabled diagnostic device that allows for the rapid detection of the presence of SARS-CoV-2 full length RNA in saliva which has the unique benefit of also indicating when viral replication has slowed or ceased. This technology will potentially have a significant impact for the development of virus targeting therapeutic development strategies, as well as clearance for return to life activities post-infection. We believe this strategy has the potential to help accelerate our commercial distribution channels as we begin to commercialize our core technology, and the technologies we have acquired are currently acquiring via theProvista . We also secured the rights to distribute AditxtScore™ for COVID-19 to monitor immunity against SARS-CoV-2. Blood samples will be collected by Todos and/or its network of partners and sent to Aditxt's CLIA accredited AditxtScore™Center for processing. We believe that as we continue to grow our automation services business, we are creating a natural distribution base forProvista's Videssa should we complete that acquisition, as well as for the eventual commercialization of our proprietary TBIA platform tests and diagnostics developed with NCL Pharma. We intend to seek out additional opportunities to leverage our expanding base of laboratory partners in the coming years. Operating Results Revenues
During the year ended
Operating Expenses
Our current operating expenses consist of four components - cost of revenues, research and development expenses, marketing expenses and general and administrative expenses.
Cost of revenues
Our cost of revenues consists primarily of materials, depreciation and other related cost of revenues expenses.
The following table discloses the breakdown of cost of revenues (in 2019, we had
no revenues):
Year ended December 31
2020 2019
Materials and other costs $ 3,749,901 $ -
Depreciation 68,340 -
Total $ 3,818,241 $ -
Research and Development Expenses
Our research and development expenses consist primarily of salaries and related
personnel expenses, subcontracted work and consulting, liabilities for royalties
and other related research and development expenses.
The following table discloses the breakdown of research and development
expenses:
Year ended December 31
2020 2019
Salaries and related expenses $ 27,270 $291,606
Stock-based compensation 60,449 230,908
Professional fees 47,000 65,506
IPR&D acquired as part of asset acquisition 8,157,000
-
Laboratory and materials 1,535,073 35,472
Patent expenses - 51,491
Rent and maintenance 6,221 32,895
Depreciation 28,121 29,643
Insurance and other expenses 2,569 18,178
Total $ 9,863,703 $ 755,699
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Table of Contents
We expect that our research and development expenses will materially increase as
we plan to rapidly recruit more employees in order to accelerate our research
and development efforts.
Marketing expenses
Marketing expenses consist primarily of salaries and share-based compensation expense.
The following table discloses the breakdown of marketing expenses:
Year ended December 31
2020 2019
Stock Based Compensation $ 1,517,240 $ 420,000
Professional Fees 1,540,854 246,872
Total $ 3,058,094 $ 666,872
General and administrative
General and administrative expenses consist primarily of salaries, share-based
compensation expense, professional service fees (for accounting, legal,
bookkeeping, intellectual property and facilities), directors fee and insurance
and other general and administrative expenses.
The following table discloses the breakdown of general and administrative
expenses:
Year ended December 31
2020 2019
Salaries and related expenses $ 166,741 $ 325,879
Stock-based compensation 1,113,488 602,541
Communication and investor relations 44,624 106,886
Professional fees 1,331,707 943,175
Insurance and other expenses 72,000 114,164
Total $ 2,728,560 $2,092,645
Comparison of the year ended
Results of Operations Research and Development Expenses. Our research and development expenses for the year endedDecember 31, 2020 were$9,863,703 compared to$755,699 for the year endedDecember 31, 2019 , representing a net increase of$9,108,004 , or 1,205%. The increase is primarily due to an increase in professional fees and other research and development costs in connection with providing Covid testing services, offset by a decrease in salaries and related expenses and stock-based compensation used for continued development of our products. Marketing Expenses. Our marketing expenses increased from$666,872 in 2019 to$3,058,094 in 2020, providing an increase of$2,728,560 or 359%. This increase was principally due to increase in stock-based compensation and marketing efforts related to our anticipated uplisting. General and Administrative Expenses. Our general and administrative expenses for the year endedDecember 31, 2020 were$2,756,681 , compared to$2,092,645 for the year endedDecember 31, 2019 , providing an increase of$635,915 or 30%. The increase is primarily due to the increase in stock-based compensation and professional services which consists mainly of legal and other fees relating our anticipated uplisting.
Finance (Income) Expenses, Net. Our net finance expenses for the year endedDecember 31, 2020 was$14,312,413 compared to net finance expenses of$5,333,875 for the year endedDecember 31, 2019 , providing an increase of$8,978,538 or 168%. The increase is primarily due to change in fair value of warrants liability, loss from extinguishment of loans from shareholders and amortization of discounts and accrued interest on convertible bridge loans. Share in losses of affiliated company is accounted for under the equity method. Our share in losses of affiliated company accounted for under the equity method decreased from$2,965,801 in 2019 to$1,199,619 in 2020, providing a decrease of$1,766,182 or 60%. This decrease was principally due to impairment of investment in affiliated company and expiration of right to obtain control over affiliated company. Net Loss. Our net loss for the year endedDecember 31, 2020 was$29,772,633 , compared to$11,814,515 for the year endedDecember 31, 2019 , providing an increase of$17,958,118 or 152%. The increase is primarily due to the changes as mentioned above. 34 Table of Contents
We prepare our financial statements in accordance with US GAAP. At the time of the preparation of the financial statements, our management is required to use estimates, evaluations, and assumptions which affect the application of the accounting policy and the amounts reported for assets, obligations and expenses. Any estimates and assumptions are continually reviewed. The changes to the accounting estimates are credited during the period in which the change to
the estimate is made. Subject to certain conditions set forth in the JOBS Act, as an "emerging growth company," we elected to rely on other exemptions, including without limitation, (i) providing an auditor's attestation report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (auditor discussion and analysis). These exemptions will apply until on or before the last day of the 2021 fiscal year (the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act). Going Concern Uncertainty Until 2020, we devoted substantially all of our efforts to research and development and raising capital. In 2020, we raised significant capital, but we also generated revenues for the first time as a result of our activities related to Covid-19. There is no certainty as to the continuance of our revenues related to Covid-19. The development and commercialization of our other products, which are necessary for our long term financial health, are expected to require substantial further expenditures. We remain dependent upon external sources for financing our operations. Since inception, we have incurred substantial accumulated losses, negative working capital, and negative operating cash flow, and have a significant shareholders' deficit. These factors raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. We plan to finance our operations through the sale of equity and, to the extent available, short term and long-term loans. There can be no assurance that we will succeed in obtaining the necessary financing to continue our operations. 35 Table of Contents
Liquidity and Capital Resources
Overview To date, we have funded our operations primarily with convertible bridge loans, grants from the IIA, and issuing Ordinary Shares and stock warrants (including warrants' exercise).
The table below presents our cash flows:
STATEMENTS OF CASH FLOWSU.S. dollars in thousands Year ended December 31 2020 2019 Cash flows from operating activities: Net loss$ (29,773 ) $ (11,815 ) Adjustments required to reconcile net loss to net cash used in operating activities: Depreciation 96
30
Liability for minimum royalties 53
50
Interest and royalty expenses related to receivables financing facility 1,006
-
Stock-based compensation 2,612
1,254
Impairment of investment in affiliated company 2,718
1,345
Revaluation of investment in affiliated company to fair value (1,623 )
-
Impairment of intangible IPR&D, net of taxes 8,157
-
Expiration of call options to acquire potential acquiree 3,000
-
Share in losses of affiliated company 105
448
Expiration of right to obtain control over affiliated company -
1,173
Modification of terms relating to loans from shareholders -
1,423
Modification of convertible bridge loans transactions (3,375 )
-
Issuance of ordinary shares and stock warrants upon modification of terms relating to convertible bridge loans transactions
55 -
Exchange differences relating to loans from shareholders 40
48
Change in fair value of convertible bridge loans 8,973
2,322
Amortization of discounts and accrued interest on convertible bridge loans 1,655
-
Amortization of discounts and accrued interest on straight loans 1,170
959
Direct and incremental issuance costs allocated to First Warrant related to convertible bridge loans transactions paid with Warrants
- 11
Issuance of shares as a settlement in excess of the carrying amount of financial liabilities
487 -
Change in fair value of derivative warrants liability and fair value of warrants expired 927
500
Change in fair value of liability related to conversion feature of convertible bridge loans (568 )
-
Increase in trade receivables (537 ) Increase in inventories (378 ) Decrease (increase) in other current assets (385 )
24
Increase in accounts payables 1,405 364
Increase in deferred revenues 844 -Increase in other current liabilities 778
588
Net cash used in operating activities (2,558 )
(1,276 )
Cash flows from investing activities: Loans granted to affiliated company - (448 ) Purchase of property and equipment (2,030 ) (1 ) Purchase of intangible IPR&D (450 )
-
Investment in affiliated companies (911 )
-
Investment in other company (225 )
-
Net cash used in investing activities (3,616 )
(449 )
Cash flows from financing activities: Proceeds from Receivables financing facility 2,617
-
Repayment of Receivables financing facility (2,317 )
-
Proceeds from issuance of units consisting of straight loans and stock warrants 2,035
1,374
Proceeds from issuance of units consisting of convertible bridge loans, stock warrants and shares, net 2,390
-
Proceeds from issuance of units consisting of ordinary shares and stock warrants 30
295
Proceeds from issuance of ordinary shares through equity line 2,339
-
Proceeds from exercise of stock warrants into ordinary shares on cash basis -
-
Net cash provided by financing activities 7,092
1,669
Change in cash, cash equivalents and restricted cash 918 (56 ) Cash, cash equivalents and restricted cash at beginning of year 17
73
Cash, cash equivalents and restricted cash at end of year $ 935 $ 17 36 Table of Contents Operating Activities
Net cash used in operating activities for the year endedDecember 31, 2020 was$2,558,000 compared to$1,276,239 in the year endedDecember 31, 2019 . The increase in the cash flow used in operating activities in 2020 compared to 2019 is primarily due to increase from operating loss less stock-based compensation, impairment of investment in affiliated company, Impairment of intangible IPR&D, net of taxes, expiration of call options to acquire potential acquiree, change in fair value of convertible bridge loans, amortization of discounts and accrued interest on convertible bridge loans and change in fair value of derivative warrants liability and fair value of warrants expired less revaluation of investment in affiliated company and modification of convertible bridge loans transactions. Investing Activities Net cash used in investing activities for the for the year endedDecember 31, 2020 was$3,616,000 , compared to net cash used in the year endedDecember 31, 2019 of$448,694 . The primary reason for the increase in investing activities was due to purchase on laboratory equipment by ourU.S. subsidiary,Corona Diagnostics, LLC and due to loans granted by us to our joint venture,Breakthrough Diagnostics, Inc. , for operating its ongoing activities. Financing Activities Net cash provided by financing activities for the year endedDecember 31, 2020 was$7,092,000 , compared to net cash provided by financing activities for the year endedDecember 31, 2019 of$1,669,470 . This increase is primarily due to a cash received from Proceeds from Receivables financing facility, proceeds from issuance of units consisting of straight loans and stock warrants, Proceeds from issuance of units consisting of convertible bridge loans, stock warrants and shares, net and proceeds from issuance of ordinary shares through equity line offset by repayment of Receivables financing facility. Current Outlook We cannot assure that our cancer detection kits will be commercialized, work as indicated, or that they will receive regulatory approval and that we will earn revenues sufficient to support our operations or that we will ever be profitable. Furthermore, since we have no committed source of financing, we cannot assure that we will be able to raise money as and when we need it to continue our operations. If we cannot raise funds as and when we need them, we may be required to curtail, or even to cease, our operations. We have limited experience with IVD. As such, these budget estimates may not be accurate. In addition, the actual work to be performed is not known at this time, other than a broad outline, as is normal with any scientific work. As further work is performed, additional work may become necessary or change in plans or workload may occur. Such changes may have an adverse impact on our estimated budget. Such changes may also have an adverse impact on our projected timeline of drug development.
We are currently distributing COVID-19 testing kits as a means of funding our operations.
If we are unable to raise additional funds, we will need to do one or more of the following:
? delay, scale-back or eliminate some or all of our research and
product development programs;
? provide licenses to third parties to develop and commercialize
products or technologies that we would otherwise seek to develop and
commercialize ourselves;
? seek strategic alliances or business combinations;
? attempt to sell our Company;
? cease operations; or
? declare bankruptcy.
Any debt financing secured by us in the future could involve restrictive
covenants relating to our capital raising activities and other financial and
operational matters, which may make it more difficult for us to obtain
additional capital and to pursue business opportunities, including potential
acquisitions. We may not be able to secure additional debt or equity financing
in a timely manner, or at all, which could require us to scale back our business
plan and operations.
The above conditions raise substantial doubt about our ability to continue as a going concern. The financial statements included elsewhere herein were prepared under the assumption that we would continue our operations as a going concern. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. Without additional funds from debt or equity financing, sales of our intellectual property or technologies, or from a business combination or a similar transaction, we will soon exhaust our resources and will be unable to continue operations. If we cannot continue as a viable entity, our shareholders may lose some or all of their investment in us. Our management intends to attempt to secure additional required funding primarily through additional equity or debt financings. We may also seek to secure required funding through sales or out-licensing of intellectual property assets, seeking partnerships with other pharmaceutical companies or third parties to co-develop and fund research and development efforts, or similar transactions. However, there can be no assurance that we will be able to obtain required funding. If we are unsuccessful in securing funding from any of these sources, we will defer, reduce or eliminate certain planned expenditures in our research protocols. If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that could result in our shareholders losing some or all of their investment in
us. 37 Table of Contents
Off-Balance Sheet Arrangements
We currently do not have any off-balance sheet arrangements.
Contractual Obligations The following table summarizes our contractual obligations as ofDecember 31, 2020 : Payments due by period (US$) Less than 1 More than 5 Total year 1-3 years 3-5 years years Shareholders' loans (1) 310,477 310,477 - - - Convertible bridge loans, net 1,669,776 1,669,776 Royalties to BGU (2) 423,000 235,000 188,000 Total (3) 2,403,253 2,215,253 - - 188,000 (1) Between the years 2011 and 2014, we received loans from two shareholders. The loans were denominated in NIS, matured onDecember 31, 2019 and bore no interest. The loans were linked to the Israeli CPI as ofJanuary 1, 2015 . InMay 2020 , we repaid the loans by issuing 8,750,000 of our ordinary shares having a market value of$350,000 at issuance. (2) This balance was measured based on the future cash payments discounted using an interest rate of 21%, which represents, according to management's estimate, the applicable rate of risk for us. (3) This does not include the repayment of approximately$272,000 of grants we received from the IIA and interest thereon, which shall be repaid as royalties upon the commercialization of our products. 38 Table of Contents
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