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
We
were incorporated in Delaware in May 2010. 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 innovative technologies for use by people with
diabetes and prediabetes. Our first product focus is GlucoTrack®, a non-invasive blood glucose monitor designed to help people with
diabetes obtain spot blood glucose level readings without the pain, inconvenience, cost and difficulty of conventional (invasive) spot
finger stick devices. Our first-generation device, GlucoTrack® 1.0 utilized a patented combination of ultrasound, electromagnetic
and thermal technologies to obtain blood glucose measurements in approximately 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. GlucoTrack® 1.0, which received CE
Mark approval, underwent a limited release beta test in Europe and the Middle East. The Company is now focused on the development of
its next generation non-invasive glucose monitor, GlucoTrack® 2.0. In addition, following the recent acquisition of certain related
IP, the Company has commenced an R&D program to develop a long-term implantable glucose management technology to address the growing
Type 1 and insulin dependent Type 2 diabetes market.
GlucoTrack®
2.0 utilizes a different and significantly simplified and less costly sensor technology than our 1.0 technology. We are designing a form
factor that will shed the wired handheld unit from the GlucoTrack 1.0 design to be a completely wireless clip with Bluetooth connectivity
for pairing directly with the user’s own mobile device (smartphone and/or tablet). The device will be pocket-sized and rechargeable,
facilitating easy and convenient portability. Eliminating the cabled main unit hardware is also expected to significantly lower our manufacturing
costs. This will enable an attractive end-user price point while maintaining healthy margins for the company. In addition, we believe
that the new sensor technology will lead to a substantially faster measurement than our 1.0 version.
In
Q2 of this year, the Company completed lab testing of its 2.0 clinical prototype system. This process included testing of multiple iterations
of electronics, ear clip, and mobile app with cloud-based software. In addition, human factors testing of the mobile app has been completed
through simulated use in focus groups and by conducting a rigorous external design review for system architecture, stability, and cybersecurity.
The completion of bench testing and analyses of the clinical prototype system was followed by simulated use testing. During this in-house
testing of multiple iterations, the Company achieved better than expected accuracy and performance. Initial data collected indicates
that the Gen 2 system may achieve an accuracy comparable to invasive Continuous Glucose Monitors (CGM’s) currently available in
the market when conducting the upcoming first in-human clinical study. Further to that, the testing validated a dramatically faster speed
of measurement is possible, which will significantly improve the patient use experience. The in-house testing also exposed some clip-based
human factors considerations that appear to impact consistent device performance. Further improvements are being investigated to improve
device performance consistency prior to launching the first-in-human clinical study, which is expected to be conducted at the Rabin
Medical Center in Israel. The initial results from this study will drive a follow-up multi-center study in the United States, led by
Dr. Klonoff, Chair of the Company’s Scientific Advisory Board and Medical Director of the Diabetes Research Institute of Mills-Peninsula
Medical Center. The U.S. study is intended to be a precursor to the eventual pivotal trial for FDA clearance.
We
are also developing a wireless mobile platform that will support capturing anonymized data that can leverage novel machine learning
(AI) and data analytic techniques to facilitate device iterations and glucose sensing accuracy improvements. In addition, mobile
device pairing to this platform will facilitate data transfer to electronic medical records (EMRs) used by managing physicians to
effectively treat their patients. Moreover, this data can provide a potential revenue stream for valuable T2DM and pre-T2DM
de-identified patient data that can be used by third-party organizations such as pharma, insurance, and others.
While
historically the Company has operated out of its Israel location, the Company has transitioned all operations and development to the
United States as of the end of Q3. Remaining activities in Israel include accounting and as-needed contract resources to support the
first-in-human clinical trial.
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, has been appointed as President and Chief Executive 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. Mark Tapsak PhD, a medical research scientist, joined as Vice President of Sensor Technology, bringing over 25 years of
experience in the diabetes industry, including previous senior roles at DexCom and Medtronic, Inc. 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.
Recent
Events
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 stepped down from the Board. As of the filing of this Quarterly Report, Mr. Goode has
been appointed Chief Executive Officer.
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, Erez Ben-Zvi, VP of Product in Israel, resigned from the Company,
effective June 12, 2022.
On
October 10, 2022, the Company announced that it has acquired certain IP related to a long-term implantable continuous glucose monitor
and that it intends to develop the technology to address the growing Type 1 and insulin dependent Type 2 diabetes market.
On
October 14, 2022, the Company announced the hiring of Dr. Mark Tapsak as Vice President of Sensor Technology.
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 and nine months period
ended September 30, 2022 compared with the same period ended September 30, 2021. The discussion should be read in conjunction with the
financial statements and related notes included elsewhere in this report.
Three
Months ended September 30, 2022 compared to Three Months ended September 30, 2021
Research
and development expenses
Research
and development expenses were $434 thousand for the three-month period ended September 30, 2022, as compared to $447 thousand for the
prior-year period. The Decrease is immaterial.
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
and validating 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 September 30, 2022, as compared to $113 thousand for the prior-year period.
The decrease is primarily attributable to the Company’s decision to reduce/stop its marketing
expenses until the completion of the development of the GlucoTrack® 2.0.
Marketing
expenses during the three-month period ended September 30, 2021, consisted in primarily of professional services, salaries, travel expenses
and other related expenses.
General
and administrative expenses
General
and administrative expenses were $495 thousand for the three-month period ended September 30, 2022, as compared to $207 thousand for
the prior-year period. The increase is primarily attributable to the additional expenses that the company accrued due to its listing
on the Nasdaq Capital Market (“NASDAQ”).
General
and administrative expenses consist primarily of professional services, salaries, insurance, 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
income, net
Financing
income, net was approximately $2 thousand for the three-month period ended September 30, 2022, as compared to financing income of $9
thousand for the prior-year period. The decrease in the financing income is mainly attributed to
the decrease in interest income resulting from the reduction in the company’s cash balance over the year.
Net
Loss
Net
loss was $928 thousand for the three-month period ended September 30, 2022, as compared to $804 thousand for the prior-year period. The
increase in net loss is attributable primarily to the increase in our operating expenses, as described above.
Nine
Months ended September 30, 2022 compared to Nine Months ended September 30, 2021
Research
and development expenses
Research
and development expenses were $1,363 thousand for the nine-month period ended September 30, 2022, as compared to $1,077 thousand for
the prior-year period. The increase is primarily attributable to developing and validating our next generation product line.
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
and validating 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 nine-month period ended September 30, 2022, as compared to $136 thousand for the prior-year 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 consisted primarily of professional services, salaries, travel expenses and other related expenses.
General
and administrative expenses
General
and administrative expenses were $1,782 thousand for the nine-month period ended September 30, 2022, as compared to $1,323 thousand for
the prior-year period. The increase is primarily attributable to hiring of new and augmented personnel to move forward our business agenda,
and to additional expenses that the company accrued due to its listing on the Nasdaq Capital
Market (“NASDAQ”).
General
and administrative expenses consist primarily of professional services, salaries, insurance, 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
income (expenses), net
Financing
income (expenses), net was approximately $(2) thousand for the nine-month period ended September 30, 2022, as compared to financing income
of $21 thousand for the prior-year period. The decrease in the financing income is attributed to
the decrease in interest income resulting from the reduction in the company’s cash balance over the year.
Net
Loss
Net
loss was $3,148 thousand for the nine-month period ended September 30, 2022, as compared to $2,561 thousand for the prior-year period.
The increase in net loss is attributable primarily to the increase in our operating expenses, as described above.
Going
Concern Uncertainty
As
of September 30, 2022, cash on hand was approximately $3.2 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 Nine-Month Periods Ended September 30, 2022 and September 30, 2021
Net
cash used in operating activities was $2,789 thousand and $2,796 thousand for the nine-month periods ended September 30, 2022 and 2021,
respectively. Net cash used in operating activities primarily reflects the net loss for those periods of $3,148 thousand and $2,561 thousand,
respectively.
Net
Cash Used (provided) in Investing Activities for the Nine-Month Periods Ended September 30, 2022 and September 30, 2021
Net
cash used (provided) in investing activities was $4 and $(3) thousand for the nine-month periods ended September 30, 2022 and 2021, respectively,
and was used (provided) mostly to purchase and sale of equipment.
Off-Balance
Sheet Arrangements
As
of September 30, 2022, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.