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Sept. 24, 2021, 6:02 a.m. EDT

10-Q: TODOS MEDICAL LTD.

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(EDGAR Online via COMTEX) -- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Overview

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

Diagnostics

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

Videssa Breast

Current methods of breast cancer detection have known limitations, particularly in women with abnormal imaging findings. Our proprietary breast cancer test, Videssa Breast, is the first blood test of its kind to detect the presence or absence of breast cancer in women with abnormal or difficult-to interpret imaging findings. Videssa Breast provides biochemical evidence to complement the anatomical view of imaging for improved breast cancer detection. The test was developed to provide physicians with actionable information regarding breast cancer risk in women following an inconclusive mammogram result (BI-RADS III or

LymPro Test(TM)

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

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Provista Diagnostics Laboratory

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

TBIA Platform

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

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

Covid-19 Automated Testing Solutions and Distribution

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

Immune Support Products and 3CL Protease Inhibiting Antivirals

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

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

Operating Results

Revenues

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

Operating Expenses

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

Cost of revenues

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

The following table discloses the breakdown of cost of revenues:







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


Research and Development Expenses

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

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







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


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

Sales and Marketing expenses

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

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







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


General and administrative

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

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







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


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

Results of Operations

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

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

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

Cost of revenues. Our cost of revenues for the three months ended June 30, 2021, were $913,000, compared to $11,000 during the three months ended June 30, 2020, and $4,148,000 during the six months ended June 30, 2021, compared to $11,000 during the six months ended June 30, 2020. The increase in our cost of revenues is related to the sales of our COVID-19 testing products.

Research and Development Expenses. Our research and development expenses for the three months ended June 30, 2021, were $239,000 compared to $465,000 for the three months ended June 30, 2020, representing a net decrease of $226,000, or 49%, and $643,000 for the six months ended June 30, 2021, compared to $569,000 during the six months ended June 30, 2020, an increase of $74,000, or 13%. The increase in the six months ended June 30, 2021 is primarily due to an increase in Laboratory and materials and other research and development costs in connection with providing Covid testing services mainly through our wholly-owned subsidiary Corona Diagnostics, LLC and our new acquired subsidiary, Provista Diagnostics Inc, offset by a decrease in professional fees and stock-based compensation used for continued development of our products.

Sales and Marketing Expenses. Our sales and marketing expenses decreased from $680,000 in the three months ended June 30, 2020, to $599,000 in the three months ended June 30, 2021, providing a decrease of $81,000 or 13%, and increased from $1,430,000 in the six months ended June 30, 2020 to $1,958,000 in the six months ended June 30, 2021, providing an increase of $528,000 or 37%. This increase was principally due to increases in marketing and public relations efforts and costs associated with the sales of our Covid products offset by a decrease in stock-based compensation.

General and Administrative Expenses. Our general and administrative expenses for the three months ended June 30, 2021, were $1,643,000, compared to $595,000 for the three months ended June 30, 2020, providing an increase of $1,048,000 or 176%, and $3,204,000 for the six months ended June 30, 2021, compared to $925,000 for the six months ended June 30, 2020, providing an increase of $2,279,000 or 246%. The increase is primarily due to the increase in stock-based compensation and professional services which consists mainly of legal fees, directors fees and other professional services.

Finance (Income) Expenses, Net. Our net finance income for the three months ended June 30, 2021 was ($5,171,000) compared to net finance expenses of $866,000 for the three months ended June 30, 2020, providing an increase of $6,037,000 or 697%, and $10,485,000 for the six months ended June 30, 2021, compared to net finance expenses of $4,320,000 for the six months ended June 30, 2020, providing an increase of $6,165,000 or 143%. 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. It should be noted that during the second quarter of 2021, most of the Company's convertible bridge loans were repaid at a cost of $2,166,000.

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 amounted to $119,000 in the three months and $492,000 in the six months ended June 30, 2021.

Net Income or Loss. Our net income for the three months ended June 30, 2021 was $3,390,000, compared to net loss of $2,585,000 for the three months ended June 30, 2020, providing an increase of $5,975,000 or 231%. Our net loss for the six months ended June 30, 2021 was $14,167,000, compared with a net loss of $7,223,000 for the six months ended June 30, 2020, an increase in net loss of $6,944,000 or 96%. The increase is primarily due to the changes as mentioned above.

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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, revenues 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,

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.

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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:

Sep 24, 2021

COMTEX_393931074/2041/2021-09-24T06:01:53

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