Notes to Unaudited Financial Statements

September 30, 2017 (Unaudited)

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

A. Nature of operations

Techcare Corp. (“ Techcare ”, the “ Registrant ” or the “ Company ”), formally known as BreedIT Corp. (“ BreedIt ”), 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. The merger was structured as a reverse merger.

On August 23, 2017, the Company entered into a binding memorandum of understanding (the “ MOU ”) with Naturalicious Holdings B.V., a Dutch corporation (including its subsidiaries, “ Natur ”), pursuant to which the Company will acquire certain assets, operations and activities of Natur, in consideration for which the Company will issue a number of shares of common stock, par value $0.0001 per share representing fifty percent (50%) of the Company’s issued and outstanding common stock, on a fully diluted basis. The parties have agreed to use commercially reasonable efforts to negotiate and execute a definitive agreement within thirty (30) days of the execution of the MOU and subsequent closing of the aforesaid transactions (the “ Closing ”). In connection with the transaction, the parties shall enter into a separate stockholders’ agreement pursuant to which the board of directors of the Company (the “ Board ”), following the closing, will be comprised of six (6) directors, three (3) of whom shall be nominated for election by the controlling stockholders of Natur and three (3) of whom shall be nominated for election by the Company’s current controlling stockholders. The MOU may be terminated by either party in the event definitive agreements are not executed by the parties within eighty (80) days of the execution of the MOU.

Also, on August 23, 2017, the Company announced the appointment of Mr. Shlomi Arbel as the Company’s Chief Executive Officer, effective as of that date. Mr. Arbel, a member of the management team of the Company and Novomic, succedes Mr. Zvi Yemini who remained the chairman of the Board.

Going Concern

During the nine months period ended September 30, 2017, the Company had a comprehensive loss of approximately $3.5 million (out of which $2.2 million is related to stock-based compensation). As of September 30, 2017, the Company had accumulated losses of approximately $7.2 million (out of which $2.9 million is related to stock-based compensation). Based on the projected cash flows and Company’s cash balances as of September 30, 2017, Company’s management is of the opinion that without further fund raising 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 the products, 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, curtail or cease operations. These 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.

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 U.S. generally accepted accounting principles (“ 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 the nine and the three months ended September 30, 2017 are not necessarily indicative of the results to be expected for the year or for other interim periods or for future years. The consolidated balance sheet as of December 31, 2016 is derived from audited financial statements as of that date; however, it does not include all of the information and footnotes required by 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, 2016, which was filed with the SEC on May 10, 2017.

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.

NOTE 2: RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In March 2016, the FASB issued an ASU No. 2016-09, which simplifies certain aspects of the accounting for share-based payments, including accounting for income taxes, classification of awards as either equity or liabilities, classification on the statement of cash flows as well as allowing an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur. The ASU is effective for annual reporting periods (including interim periods within those annual reporting periods) beginning after December 15, 2016 and all amendments of the ASU that apply must be adopted in the same period. The adoption by the Company of ASU No. 2016-09 on January 1, 2017, did not have any effect on the Company’s consolidated financial statements.

NOTE 3: RESTATEMENT

The Company restated its September 30, 2016 statement of operations, comprehensive loss and cash flows in order to correct the following errors:

1) Reclassification of certain property, plant and equipment items that was previously expensed.
2) Measurement of stock-based compensation modification for the Company’s 2015 stock grants.
3) The accounting treatment of the reverse merger (including the effect on earnings per share).

Statement of operations and comprehensive loss for the nine months period ended September 30, 2016:

Statement of operations and comprehensive loss for the three months period ended September 30, 2016:

Statements of cash flows for the nine months ended September 30, 2016:

NOTE 4: STOCKHOLDERS’ EQUITY

Share capital

During the nine months ended September 30, 2017 the Company entered into several agreements, under which the Company raised an aggregate amount of $878,250. In October 2017, the Company entered into an Advance Investment Agreement for a bridge investment in the aggregate amount of US$250,000 – See note 10.

Stock-Based Compensation

Stock based awards are accounted for using the fair value method in accordance with ASC 718, Shared Based Payment. The Company’s primary type of stock based compensation consists of stock options to directors, employees, officers, consultants, and advisors. The Company uses the Black-Scholes option pricing model in valuing options.

During March 2017, the Company granted to certain employees options to purchase 723,027 of the Company’s common stock and to non-employees options to purchase 2,000,952 of the Company’s common stock for an exercise price of $0.0001. Out of all the option grants, 1,298,737 options were granted to related parties.

During September 2017, the Company granted to its CEO options to purchase 266,369 of the Company’s common stock for an exercise price of $0.0001 per share.

A summary of the stock option activity for the nine-month period ended September 30, 2017:

The options granted during the nine months period ended in September 30, 2017 were fully vested on the grant date and exercisable for 2.5-5 years. The following assumptions were applied in determining the options’ fair value on their grant date:

The Company based the risk-free interest rate on the U.S. Treasury yield curve. The expected term in years represents the period of time that the awards granted are expected to be outstanding. The assumption for dividend yield is zero because the Company has not historically paid dividends nor does it expect to do so in the foreseeable future. The volatility was based on the historical stock volatility of several peer companies, as the Company has limited trading history to use the volatility of its own common stock. Stock-based compensation expense included in the Company’s statements of operations were allocated as follows:

NOTE 5: OEM DISTRIBUTION AGREEMENT

On June 23, 2017, the Company entered into an OEM agreement (the “ OEM Agreement ”) with a medical device and wellness applications company based in the United States (the “ OEM Distributor”), according to which the OEM Distributor will manufacture, distribute and sell the Company’s Novokid head lice treatment products in the United States, Canada, Brazil, Argentina, Costa Rica and Colombia, all on an exclusive basis, pursuant to and in accordance with the terms and conditions set forth in the OEM Agreement, including minimum royalties commitments. The OEM Distributor will be solely responsible for obtaining and maintain the approval from the US Food and Drug Administration (the “ FDA ”) and shall bear all costs related to such approval.

As part of the OEM Agreement, the OEM Distributor paid a royalty advance of $10,000 and also an amount of $140,000 which is held in an escrow account, until the Company completes certain milestones, as described in the OEM Agreement.

NOTE 5: OEM DISTRIBUTION AGREEMENT (continued)

Also, as part of the OEM Agreement, the Company granted the OEM Distributor an option to purchase up to 9.09% of the Company’s common stock for a total consideration of up to $900,000, exercisable until January 15, 2018. The fair value of the option as of September 30, 2017 amounted to $182,720. The key assumptions used in the options’ valuation was as follows:

NOTE 6: 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, respectively.

b. Carryforward Tax Losses

As of September 30, 2017 and December 31, 2016, the subsidiary had net operating carry forward tax losses of approximately $1.7 million and $0.9 million, respectively. 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 September 30, 2017 and December 31, 2016.

c. Corporate tax rates

The corporate tax rate in Israel was 26.5% in 2015 and 25% in 2016. The regular corporate tax rate starting January 1, 2017 is 24% and starting January 1, 2018 will be 23%. The corporate tax rate in the U.S is approximately 35%.

NOTE 7: LOSS PER SHARE

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

For purposes of the calculation of the diluted loss per share, the Company adjusts the weighted average number of common stock using the treasury stock method assuming conversion of all of the dilutive potential stock. The potential stock are taken into account only if their effect is dilutive (increases loss per share).

NOTE 8: FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of the Company’s financial instruments, including cash equivalents, current assets, accounts payable and accrued liabilities and notes payables 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:

NOTE 9: RELATED PARTY TRANSACTIONS

For the issuance of shares of common stock to the Company’s Chairman of the Board’s affiliated entity, other related parties and option grants to the Company’s directors, refer to note 4.

On February 22, 2017, the Company signed an amendment to the original service agreement with Zvi Yemini, the Company’s chairman of the Board, through his affiliated entity, YMY. According to the amendment, Mr.Yemini’s monthly payment was increased to 45,000 NIS (approximately $12 thousand) starting February 2017.

On October 17, 2017, the Company entered into an Advance Investment Agreement with YMY and with Traistman Radziejewski Fundacja Ltd., a company affiliated to Oren Traistman, a member of the Board. For further details, please refer to note 10 below.