Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary
Note Regarding Forward-Looking Statements
This
Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements include statements about our expectations,
beliefs or intentions regarding our product development efforts, business, financial condition, results of operations, strategies and
prospects. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q, including statements
regarding our future activities, events or developments, including such things as future revenues, capital raising and financing, product
development, clinical trials, regulatory approval, market acceptance, responses from competitors, capital expenditures (including the
amount and nature thereof), business strategy and measures to implement strategy, competitive strengths, goals, expansion and growth
of our business and operations, plans, references to future success, projected performance and trends, and other such matters, are forward-looking
statements. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,”
“plan,” “may,” “will,” “could,” “would,” “should” and other similar
words and phrases, are intended to identify forward-looking statements. The forward-looking statements made in this Quarterly Report
on Form 10-Q are based on certain historical trends, current conditions and expected future developments as well as other factors we
believe are appropriate in the circumstances. These statements relate only to events as of the date on which the statements are made
and we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events
or otherwise, except as required by law. All of the forward-looking statements made in this Quarterly Report on Form 10-Q are qualified
by these cautionary statements and there can be no assurance that the actual results anticipated by us will be realized or, even if substantially
realized, that they will have the expected consequences to or effects on us or our business or operations. Whether actual results will
conform to our expectations and predictions is subject to a number of risks and uncertainties that may cause actual results to differ
materially. Risks and uncertainties, the occurrence of which could adversely affect our business, include the risks identified under
the caption “Risk Factors” included in our annual report on Form 10-K for the year ended December 31, 2021. The following
discussion should be read in conjunction with the condensed consolidated financial statements and the notes thereto included in Item
1 of this Quarterly Report on Form 10-Q.
Overview
Incorporated
in Delaware in May 2010, we are a medical device company focused on the design, development and commercialization of non-invasive glucose
monitoring devices for use by people with diabetes and pre-diabetics. On July 15, 2010, we completed a reverse triangular merger with
Integrity Israel and Integrity Acquisition Corp. Ltd., an Israeli corporation and a wholly owned subsidiary of ours, pursuant to which
Integrity Acquisition Corp. Ltd. merged with and into Integrity Israel and all of the stockholders and option holders of Integrity Israel
became entitled to receive shares and options in us in exchange for their shares and options in Integrity Israel (the “Reorganization”).
Following the Reorganization, the former equity holders of Integrity Israel were entitled to the same proportional ownership in us as
they had in Integrity Israel prior to the Reorganization. As a result of the Reorganization, Integrity Israel became a wholly owned subsidiary
of ours. We operate primarily through Integrity Israel.
We
are a medical device company focused on the design, development and commercialization of non-invasive glucose monitoring devices for
use by people with diabetes. Integrity Israel was founded in 2001 with a mission to develop, produce and market non-invasive glucose
monitors for home use by diabetics. We have developed a non-invasive blood glucose monitor, GlucoTrack®, which is designed to help
people with diabetes obtain blood glucose level readings without the pain, inconvenience, cost and difficulty of conventional (invasive)
spot finger stick devices. Our first generation product, GlucoTrack® 1.0 utilizes a patented combination of ultrasound, electromagnetic
and thermal technologies to obtain blood glucose measurements in less than one minute via a small sensor that is clipped onto one’s
earlobe and connected to a small, handheld control and display unit, all without drawing blood. Our next generation product, GlucoTrack®
2.0 which is currently under development, utilizes substantially identical underlying sensor technology, and is expected to be a completely
wireless sensor to be clipped on the earlobe. GlucoTrack eliminates the handheld unit and will transmit results directly to a user’s
smartphone.
Talent
development, recruiting and organizational health have been a critical focus of the Company. A number of high-quality individuals have
joined the Company, each of whom bring extensive experience in their respective fields. Paul, V. Goode PhD, who has a decorated career
developing innovative medical technologies, including at DexCom and MiniMed and was a member of the Board of Directors of the Company,
was appointed as President and Chief Operating Officer. In addition, James P. Thrower PhD, a seasoned executive formerly of Sterling
Medical Devices, Mindray DS USA and DexCom, Inc. joined as Vice President of Engineering. Luis J. Malavé, formerly of Insulet
Corp, Medtronic and MiniMed has joined as an independent board member. Several highly talented and accomplished executives joined the
Company as senior advisors to the Board. These include Yair Briman, the former CEO of Philips Healthcare Informatics, Daniel McCaffrey
MBA MA, a world-renowned behavioral scientist and digital health expert currently VP of Digital Health and Software at OMRON Healthcare,
Inc. and formerly at Samsung Health and Dexcom, Inc., Dr. Alexander Raykhman PhD, a measurement and artificial intelligence expert and
Dr. David C. Klonoff, world renowned endocrinologist and diabetes technology thought leader. We intend to continue to invest in our talent
and to expand and strengthen all areas within the Company.
Recently,
the Company performed a top-down analysis of the GlucoTrack 1.0 model to identify areas of potential enhancement, as it relates to the
platform, integrations, sensor technologies, accuracy as well as manufacturing costs. The result of this comprehensive review is an accelerated
development plan for GlucoTrack 2.0. GlucoTrack 2.0 will be a completely wireless and rechargeable earclip to be paired with a smartphone,
with more capabilities and features, increased accuracy, significantly greater margins for the Company and lower cost to the end-user
as compared to GlucoTrack 1.0.
As
previously reported, the Company made significant progress towards receiving insurance reimbursement in the Netherlands. With the new
accelerated development plan for GlucoTrack 2.0, and all of the expected advantages over GlucoTrack 1.0, it became clear to the Company
that introducing GlucoTrack 2.0 rather than the GlucoTrack 1.0 would serve the diabetes market and the Company more effectively. We are
currently working with our European partners on the roadmap for distribution of GlucoTrack 2.0 when completed and ready to market.
In addition to the European markets, the Company is now focused on the U.S. market as well, including building
out its U.S. go-to-market strategy and planning the required FDA clinical trials and field testing to support its entrance into the market.
The Company is currently in the process of identifying clinical sites in the U.S., interviewing Contract Research Organizations (CRO’s),
and forming its Scientific and Medical Advisory Boards. We intend to build out a team to support the U.S. activities while continuing
our technology development in our R&D facility located in Israel.
Recent Events
On
June 22, 2021, Luis J. Malavé has been appointed to the Company’s Board of Directors. Mr. Malavé brings more than
30 years of leadership experience in the MedTech industry, primarily in diabetes management, spanning all company stages, from private
startups to large-cap publicly listed companies. He has extensive expertise in product development, operations, marketing, strategic
partnerships, and US FDA regulatory strategy.
Since
October 2017, Mr. Malavé has served as President of EOFLOW CO. Ltd., a company listed on the Korea Stock Exchange that has developed
a wearable disposable insulin pump. From October 2014 to June 2016, he was COO of Mikroscan Technologies. Prior to that, Mr. Malavé
was the President and CEO of Palyon Medical, maker of an implantable drug-delivery system that spun out from German medical-technology
giant Fresenius SE. Prior to Palyon, he spent nearly a decade at insulin pump maker Insulet Corp., including as its Senior Vice President
of Research, Development and Engineering, and as Chief Operating Officer. He also held various senior positions at Medtronic and MiniMed,
overseeing product development of various diabetes management devices. Mr. Malavé earned his Bachelor’s degree in Mathematics
and Computer Science from the University of Minnesota, a Master’s degree in Software Engineering from the University of St. Thomas,
and an MBA from the University of Maryland.
On
October 19, 2021, Paul V. Goode was appointed as President and Chief Operating Officer of the Company, effective November 1, 2021 (“Effective
Date”). He has served as a member of Integrity’s Board of Directors since December 17, 2020. Concurrent with his new appointment,
Mr. Goode will be stepping down from the Board. In this role, Goode will lead the company’s operations, overseeing strategy, design,
manufacturing, business and product development and begin to build the U.S. infrastructure in preparation for the U.S. clinical trials
of GlucoTrack. He will devote such time as necessary to perform his duties but shall be able to pursue other professional opportunities
at the same time. His base salary shall be $175,000 per year, and he shall be entitled to a cash bonus of up to 20% of his annual base
salary as determined by the Company’s Compensation Committee and shall be granted options to purchase up to One and half Percent
(1.5%) of the fully diluted common stock, par value $0.001 per share, of the Company (“Common Stock”) as of the Effective
Date, with a per share exercise price equal to the greater of (A) $5.20 per share or (B) the closing price of a share of Common Stock
on the Effective Date, as reported by Bloomberg L.P., which shall vest in equal monthly installments over a three year period following
the Effective Date. The bonus and equity incentives shall be subject to clawback rights if there is a misstatement of financials which
changes any metrics upon which a bonus or incentives are based and the clawback will be pro rata based upon the changes in the financials
with respect to the effect on any underlying metrics.
In
connection with our application to list our shares of common stock on Nasdaq Capital Market (“NASDAQ”), on August 13,
2021, we effected a reverse split of our common stock in a ratio of 1 for 13 (the “Reverse Share Split”).
On
September 27, 2021, our shelf registration statement on Form S-3 (file no. 333-259664) was declared effective by the SEC. The shelf registration
statement permits us to register up to $100,000,000 of certain equity and debt securities of the Company via prospectus supplement.
On
December 8, 2021, we announced that our shares of common stock were approved for listing on the NASDAQ. Trading on NASDAQ commenced on
December 10, 2021 under its existing trading symbol, IGAP.
On
March 14, 2022, we changed our name to GlucoTrack, Inc. with Nasdaq and our trading symbol to GCTK.
On
March 22, 2022, Shalom Shushan, Chief Technology Officer, provided notice of his resignation from the Company, effective May 22, 2022,
for personal reasons. In connection with the Company’s previously announced plans to migrate certain aspects of product development
to the United States, James P. Thrower PhD, Vice President of Engineering, will be assuming Mr. Shushan’s responsibilities.
In
connection with the Company’s previously announced plans to migrate certain aspects of the product development of GT 2.0 to the
United States, as well as in preparation for U.S. clinical trials, on May 15, 2022 Erez Ben-Zvi, VP of Product in Israel, provided notice
of his resignation from the Company, to be effective June 26, 2022.
The
summary of our significant accounting policies is included under Item 7 – Management’s Discussion and Analysis of Financial
Condition and Results of Operations of our fiscal 2021 Form 10-K. An accounting policy is deemed to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates
reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements.
There have been no material changes to the critical accounting policies and estimates as filed in such report.
Critical
Accounting Policies
This
Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss our financial statements, which have
been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events,
and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our
assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant
at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions,
estimates and judgments to ensure that our financial statements are presented fairly and in accordance with U.S. GAAP. However, because
future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates,
and such differences could be material. As applicable to the consolidated financial statements included elsewhere in this report, the most significant estimates
and assumptions relate to the going concern assumptions.
Results
of Operations
The
following discussion of our operating results explains material changes in our results of operations for the three-month period ended
March 31, 2022 compared with the same period ended March 31, 2021. The discussion should be read in conjunction with the financial statements
and related notes included elsewhere in this report.
Three
Months ended March 31, 2022 compared to Three Months ended March 31, 2021
Revenues
During
the three-month period ended March 31, 2022 and 2021, we had no revenues.
Research
and development expenses
Research
and development expenses were $460 thousand for the three-month period ended March 31, 2022, as compared to $309 thousand for the comparative
period. The increase is primarily attributable to hiring of new and augmented personnel to move forward our business agenda.
Research
and development expenses consist primarily of salaries and other personnel-related expenses, materials, clinical trials and other expenses.
We expect research and development expenses to increase in 2022 and beyond, primarily due to hiring additional personnel and developing
our next generation product line, however, we may adjust or allocate the level of our research and development expenses based on available
financial resources and based on our commercial needs, including the FDA registration process, specific requirements from customers,
development of new GlucoTrack® models and others.
Marketing expenses
Marketing
expenses were $0 thousand for the three-month period ended March 31, 2022, as compared to $23 thousand for the comparative
period. The decrease is primarily attributable to the Company’s decision to reduce/stop its
Selling and marketing expenses until the completion of the development of the GlucoTrack® 2.0.
Marketing expenses during the
three-month period ended March 31, 2021, consisted in primarily of professional services, salaries, travel expenses and other related
expenses.
General and administrative expenses
General and administrative expenses
were $633 thousand for the three-month period ended March 31, 2022, as compared to $564 thousand for the comparative period.
The increase is primarily attributable to hiring of new and augmented personnel to move forward our business agenda.
General
and administrative expenses consist primarily of professional services, salaries, travel expenses and other related expenses for executive,
finance and administrative personnel, including stock-based compensation expenses. Other general and administrative costs and expenses
include facility-related costs not otherwise included in research and development costs and expenses, and professional fees for legal
and accounting services.
Financing
expenses, net
Financing expenses, net were
approximately $0 thousand for the three-month period ended March 31, 2022, as compared to $8 thousand for the comparative
period. The change is immaterial.
Net Loss
Net loss was $1,093 thousand
for the three-month period ended March 31, 2022, as compared to $904 thousand for the comparative period. The Increase in net
loss is attributable primarily to hiring of new and augmented personnel to move forward our business agenda.
Going
Concern Uncertainty
As
of March 31, 2022, cash on hand was approximately $4.8 million. The development and commercialization of non-invasive glucose monitoring
devices for use by people, 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 and negative operating cash flow, and have a significant
accumulated 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 (including shelf registration statement on Form S-3 was declared effective on September 27, 2021 by the Securities and
Exchange Commission (SEC) which allows the Company to register up to $100,000 thousand of certain equity and/or debt securities of the
Company through prospectus supplement). There can be no assurance that we will succeed in obtaining the necessary financing to continue
our operations.
Net
Cash Used in Operating Activities for the Three-Month Periods Ended March 31, 2022 and March 31, 2021
Net
cash used in operating activities was $1,265 thousand and $933 thousand for the three-month periods ended March 31, 2022 and 2021, respectively.
Net cash used in operating activities primarily reflects the net loss for those periods of $1,093 thousand and $904 thousand, respectively.
Off-Balance
Sheet Arrangements
As
of March 31, 2022, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.