Glucotrack, Inc. 10-Q

Item 1. Financial Statements. US dollars (except share data) September 30, 2020 December 31, 2019 (Unaudited) Current Assets Cash and cash equivalents 10,706,646 418,621 Accounts receivable, net 71,284 70,161 Inventory 280,672 184,602 Other current assets 55,587 44,658 Total current assets 11,114,189 718,042 Operating lease right-of-use assets, net 153,200 187,232 Property and equipment, net 147,791 133,795 Non-current Restricted Cash 57,653 57,092 TOTAL ASSETS 11,472,833 1,096,161 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Current Liabilities Accounts payable 842,928 1,534,078 Operating lease liabilities, current 136,457 142,090 Other current liabilities 339,200 596,087 Total Current Liabilities 1,318,585 2,272,255 Non-current Liabilities Long-Term Loans from Stockholders 190,894 190,365 Operating lease liabilities, non-current 16,743 45,143 Total Non-current liabilities 207,637 235,508 Total Liabilities 1,526,222 2,507,763 Stockholders’ Equity (Deficit) Common Stock of $ 0.001 par value (“Common Stock”): 500,000,000 shares authorized; 200,669,064 and 161,858,436 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively 200,669 161,858 Additional paid-in capital 102,118,435 89,005,407 Receipts on account of shares 47,376 - Accumulated other comprehensive income 100,017 124,062 Accumulated deficit (92,519,886 ) (90,702,929 ) Total Stockholders’ equity (deficit) 9,946,611 (1,411,602 ) TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) 11,472,833 1,096,161 The accompanying notes are an integral part of these condensed consolidated financial statements 3 INTEGRITY APPLICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS US dollars (except share data) US dollars (except share data) Nine-month period ended September 30, Three-month period ended September 30, (Unaudited) (Unaudited) 2020 2019 2020 2019 Revenue 2,271 140,255 - 4,175 Research and development 1,270,295 1,203,616 476,364 377,377 Selling and marketing expenses 274,183 444,555 93,366 168,259 General and administrative 711,795 1,391,916 317,597 439,012 Total operating expenses 2,256,273 3,040,087 887,327 984,648 Operating Loss (2,254,002 ) (2,899,832 ) (887,327 ) (980,473 ) Other income 338,067 - 338,067 - Finance Income (expense), net: 98,978 (17,455 ) 40,245 (16,304 ) Net Loss (1,816,957 ) (2,917,287 ) (509,015 ) (996,777 ) Other comprehensive expenses: Foreign currency translation adjustment (24,045 ) (29,625 ) (18,044 ) (2,987 ) Comprehensive loss for the period (1,841,002 ) (2,946,912 ) (527,059 ) (999,764 ) Net Loss per Common Share Basic (0.01 ) (0.01 ) (0.00 ) (0.01 ) Diluted (0.01 ) (0.01 ) (0.00 ) (0.01 ) Average number of common shares used in computing basic and diluted loss per share 194,312,810 152,240,776 200,537,588 162,012,688 The accompanying notes are an integral part of the condensed consolidated financial statements. 4 INTEGRITY APPLICATIONS, INC. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) US Dollars ( except share data) (Unaudited) Common Stock Additional Receipts on account Accumulated Other Total Stockholders’ Numbers of Shares Amount Paid-in Capital of shares Comprehensive Loss Accumulated Deficit Equity (Deficit) Balance at January 1, 2019 141,634,700 141,638 84,007,612 - 164,232 (87,186,783 ) (2,873,301 ) Loss for the period - - - - - (2,917,287 ) (2,917,287 ) Other comprehensive loss - - - - (29,625 ) - (29,625 ) Amounts allocated to Series D-1, D-2 and Series D-3 Warrants, net - - 31,915 - - - 31,915 Amount allocated to issuance of Common Stock from Series D offering 18,889,618 18,892 3,898,155 - - - 3,917,047 Issuance of shares as settlement of financial liabilities 1,190,141 1,190 305,866 - - - 307,056 Warrants issued as consideration for placement agent services - - 249,612 - - - 249,612 Stock-based compensation 348,840 351 451,416 - - - 451,767 Balance at September 30, 2019 162,063,299 162,071 88,944,576 - 134,607 (90,104,070 ) (862,816 ) Balance at July 1, 2019 161,947,019 161,955 88,823,095 - 137,594 (89,107,293 ) 15,351 Loss for the period - - - - - (996,777 ) (996,777 ) Other comprehensive loss - - - - (2,987 ) - (2,987 ) Stock-based compensation 116,280 116 121,481 - - - 121,597 Balance at September 30, 2019 162,063,299 162,071 88,944,576 - 134,607 (90,104,070 ) (862,816 ) Balance at January 1, 2020 161,858,436 161,858 89,005,407 - 124,062 (90,702,929 ) (1,411,602 ) Loss for the period - - - - - (1,816,957 ) (1,816,957 ) Other comprehensive loss - - - - (24,045 ) - (24,045 ) Issuance of Common Stock, net 37,500,000 37,500 12,215,682 - - - 12,253,182 Issuance of shares as settlement of financial liabilities 1,310,628 1,311 119,581 47,376 - - 168,268 Warrants issued as consideration for placement agent services - - 756,087 - - - 756,087 Stock-based compensation - - 21,678 - - - 21,678 Balance at September 30, 2020 200,669,064 200,669 102,118,435 47,376 100,017 (92,519,886 ) 9,946,611 Balance at July 1, 2020 200,525,066 200,525 102,052,553 62,086 118,061 (92,010,871 ) 10,422,354 Loss for the period - - - - - (509,015 ) (509,015 ) Other comprehensive loss - - - - (18,044 ) - (18,044 ) Issuance of shares as settlement of financial liabilities 143,998 144 57,455 (14,710 ) - - 42,889 Stock-based compensation - - 8,427 - - - 8,427 Balance at September 30, 2020 200,669,064 200,669 102,118,435 47,376 100,017 (92,519,886 ) 9,946,611 The accompanying notes are an integral part of these condensed consolidated financial statements 5 INTEGRITY APPLICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGE IN CASH FLOWS US Dollars Nine-month period ended September 30. 2020 2019 (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Loss for the period $ (1,816,957 ) $ (2,917,287 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 35,391 38,253 Stock-based compensation 21,678 451,767 Linkage difference on principal of loans from stockholders (1,335 ) 5,708 Changes in assets and liabilities: Increase in accounts receivable (437 ) (5,777 ) Decrease (increase) in inventory (94,262 ) 43,140 Increase in other current assets (10,604 ) (23,566 ) Decrease in accounts payable (359,719 ) (573,014 ) Gain from settlement of liability to service provider (338,067 ) - Decrease in other current liabilities (92,522 ) (121,732 ) Net cash used in operating activities (2,656,834 ) (3,102,508 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (45,900 ) (22,554 ) Net cash used in investing activities (45,900 ) (22,554 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock, net of cash issuance expenses 13,009,269 4,165,079 Proceeds allocated to Series D Warrants, net of cash issuance expenses - 33,495 Net cash provided by financing activities 13,009,269 4,198,574 Effect of exchange rate changes on cash and cash equivalents, and restricted cash (17,949 ) 55,708 Change in cash, cash equivalents, and restricted cash 10,288,586 1,129,220 Cash, cash equivalents, and restricted cash at beginning of the period 475,713 149,684 Cash, cash equivalents, and restricted cash, end of period $ 10,764,299 $ 1,278,904 Supplementary information on financing activities not involving cash flows (unaudited): During the period of nine months ending September 30, 2020 and 2019, the Company settled liability to the board members and management in the amount of approximately $168 and $307 thousand, respectively via issuance of common stocks. During the period of nine months ending September 30, 2020, $756,087 representing the fair value of warrants issued as consideration for placement agent services. This amount was accounted for as Warrants with down-round protection. Upon issuance, the fair value was recognized as an increase in additional paid in capital. The accompanying notes are an integral part of the condensed consolidated financial statements. 6 INTEGRITY APPLICATIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 – GENERAL A. Integrity Applications, Inc. (the “Company”) was incorporated on May 18, 2010 under the laws of the State of Delaware. On July 15, 2010, Integrity Acquisition Corp. Ltd. (hereinafter: “Integrity Acquisition”), a wholly owned Israeli subsidiary of the Company, which was established on May 23, 2010, completed a merger with A.D. Integrity Applications Ltd. (hereinafter: “Integrity Israel”), an Israeli corporation that was previously held by the stockholders of the Company. Pursuant to the merger, all equity holders of Integrity Israel received the same proportional ownership in the Company as they had in Integrity Israel prior to the merger. Following the merger, Integrity Israel became a wholly-owned subsidiary of the Company. As the merger transaction constituted a structural reorganization, the merger has been accounted for at historical cost in a manner similar to a pooling of interests. Integrity Israel was incorporated in 2001 and commenced its operations in 2002. Integrity Israel, a medical device company, focuses on the design, development and commercialization of non-invasive glucose monitoring devices for use by people with diabetes and prediabetes. B. Since its incorporation, the Company’s material operations have all been carried out by Integrity Israel. The development and commercialization of Integrity Israel’s product is expected to require substantial expenditures. The Company has not yet generated significant revenues from operations, and therefore they are dependent upon external sources for financing their operations. As of September 30, 2020, the Company has an accumulated deficit of $92,519,886. In addition, in each year since its inception, the Company reported losses from operations and negative cash flows from operating activities As described in Note 3, on February 14, 2020, the Company closed on a $15 million private placement of its common stock, for which it received net cash in excess of $13,009,269. As of September 30, 2020, the company has cash, cash equivalents and restricted cash in the amount of $10,764,299, which is expected to be sufficient to meet its capital needs for at least 12 months from the date of issuance of these financial statements, thus the Company is expected to be able to operate as a going concern for at least 12 months from the date hereof. 7 INTEGRITY APPLICATIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (cont.) NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Basis of presentation Accounting Principles The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the Securities and Exchange Commission (“SEC”) on April 14, 2020. The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the SEC related to interim financial statements. As permitted under those rules, certain information and footnote disclosures normally required or included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The financial information contained herein is unaudited; however, management believes all adjustments have been made that are considered necessary to present fairly the results of the Company’s financial position and operating results for the interim periods. All such adjustments are of a normal recurring nature The results for the nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any other interim period or for any future period. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiary. Significant intercompany balances and transactions have been eliminated in consolidation. Loss Per Share The Company computes net loss per share in accordance with ASC 260, “Earnings per share”. Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, net of the weighted average number of treasury shares (if any). Diluted loss per common share is computed similar to basic loss per share, except that the denominator is increased to include the number of additional potential shares of common stock that would have been outstanding if the potential shares of common stock had been issued and if the additional shares of common stock were dilutive. Potential shares of common stock are excluded from the computation for a period in which a net loss is reported or if their effect is anti-dilutive. An amount of 81,346,964 and 78,900,534 weighted average outstanding stock options and stock warrants have been excluded from the calculation of the diluted net loss per share for the period of nine months ended September 30, 2020 and 2019, respectively, because the effect of the common shares issuable as a result of the exercise or conversion of these instruments was determined to be anti-dilutive. An amount of 83,518,512 and 81,527,505 weighted average outstanding stock options and stock warrants have been excluded from the calculation of the diluted net loss per share for the period of three Months ended September 30, 2020 and 2019, respectively, because the effect of the common shares issuable as a result of the exercise or conversion of these instruments was determined to be anti-dilutive. 8 INTEGRITY APPLICATIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) B. Use of estimates in the preparation of financial statements The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. As applicable to these consolidated financial statements, the most significant estimates and assumptions relate to determination of net realizable value of inventory. C. Reclassified Amounts Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications did not have material effect on the reported results of operations, shareholder’s equity or cash flows . NOTE 3 – RECENT EVENTS A. On January 21, 2020, the Company announced that it has received CE Mark approval for a major enhancement to GlucoTrack, allowing for a user to perform the calibration process by themselves, without the need for a certified calibrator. The initial CE Mark approval received for GlucoTrack required a calibration process that took three hours to complete, required eight invasive finger stick reference measurements, needed to be repeated every thirty days and required a certified calibrator to perform the calibration. After a series of successful enhancements and approvals, the calibration process now takes just thirty minutes, requires just three invasive reference measurements, and needs to be repeated only once every nine months. With self-calibration, a user can now perform this simplified process in the privacy and convenience of their own home. B. On February 14, 2020, the Company entered into a Securities Purchase Agreement and Registration Rights Agreement (collectively, the “Agreements”) with an accredited investor, pursuant to which the accredited investor purchased 37,500,000 shares of the Company’s common stock, par value $0.001 per share, for an aggregate gross purchase price of $15,000,000. The Company received net proceeds of $13,009,269 after payment of fees to its placement agent and legal and accounting fees. In connection with the agreement, the Company’s placement agent was paid $1,950,000 in fees in connection therewith, and issued five years warrant to purchase 3,750,000 shares at an exercise price per share of $0.40 with terms similar to the terms of the Placement Agent Warrants issued in 2019. The fair value of the warrants as of the agreement date was $756,087. C. The Company may be at risk as a result of the current COVID-19 pandemic. Risks that could affect its business include the duration and scope of the COVID-19 pandemic and the impact on the demand for its products; actions by governments, businesses and individuals taken in response to the pandemic; the length of time of the COVID-19 pandemic and the possibility of its reoccurrence; the timing required to develop effective treatments and a vaccine in the event of future outbreaks; the eventual impact of the pandemic and actions taken in response to the pandemic on global and regional economies; and the pace of recovery when the COVID-19 pandemic subsides. 9 INTEGRITY APPLICATIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (cont.) NOTE 4 – LEASES The Company has entered into several non-cancellable operating lease agreements for the Company’s offices and three vehicles. the Company’s leases have original lease periods expiring between 2020 and 2022. Payments due under such lease contracts include primarily fix payments. the Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. the company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The components of lease costs, lease term and discount rate are as follows: US dollars Nine Months Ended September 30, 2020 (unaudited) Operating lease cost: Office space 89,009 Vehicles 29,204 118,213 Remaining Lease Term Office space 0.92 years Vehicles 1.64 years Weighted Average Discount Rate Office space 10 % Vehicles 10 % 10 INTEGRITY APPLICATIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (cont.) NOTE 4 – LEASES (cont.) The following is a schedule, by years, of maturities of operating lease liabilities as of September 30, 2020: US dollars September 30, 2020 (unaudited) Period: The remainder of 2020 45,842 2021 104,552 2022 11,119 Total operating lease payments 161,513 Less: imputed interest 8,313 Present value of lease liabilities 153,200 NOTE 5 – FINANCING INCOME (EXPENSES), NET US dollars US dollars Nine-month period ended September 30, Three-month period ended September 30, 2020 2019 2020 2019 (Unaudited) (Unaudited) Israeli CPI linkage difference on principal of loans from stockholders 1,335 (5,708 ) (171 ) (1,843 ) Exchange rate differences (4,499 ) 1,808 2,020 (8,761 ) Interest income on credit in bank 105,072 - 47,833 - Others (2,930 ) (13,555 ) (9,437 ) (5,700 ) 98,978 (17,455 ) 40,245 (16,304 ) 11 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, 2019. 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 are a medical device company, founded in 2001, focused on the design, development and commercialization of non-invasive glucose monitoring devices for use by people with diabetes and prediabetes. We have developed a non-invasive blood glucose monitor, the GlucoTrack® model DF-F glucose monitoring device, 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. The GlucoTrack® model DF-F 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. We are currently nearing the completion of our own companion mobile application for both Android and iOS and a cloud-based solution, to offer a digital platform to provide real time, data driven personalized tools to effectively help a user manage their diabetes. In addition to being a critical and effective management tool for the end user, we believe that third parties such as insurers, pharmaceutical companies and advertisers would be willing to pay for the de-identified data that we will obtain through our platform, and that this is an opportunity for us to develop an additional revenue source. We are also nearing the completion of the GT-Link®, a technology that enables the current version of GlucoTrack® to be Bluetooth and wi-fi enabled. In June 2013, we received the initial Conformité Européene (CE) Mark (indicating the conformity of the Company’s product with health, safety, and environmental protection standards for products sold within the European Economic Area) approval for the GlucoTrack® model DF-F non-invasive glucose monitoring device from DEKRA Certification B.V., our European notified body (the “Notified Body”), which is an entity that has been accredited by a member state of the European Union (“EU”) to assess whether a product to be placed on the market meets certain preordained standards. This original approval required that the device be re-calibrated every 30 days, with each such re- calibration taking between 2.5 and 3 hours to complete. In 2014, we received CE Mark approval for nine months’ calibration validity of the same device. This approval eliminated the need for monthly re-calibrations and enabled the calibration process to be conducted only when the sensor is replaced, once every 6 months. In 2015, we received a further approval from the Notified Body for improvements to the GlucoTrack® model DF-F to simplify and shorten the initial calibration process for the device (from approximately 2.5 hours to approximately half an hour). All these improvements enhance the competitiveness of the device and its commercial viability. In addition, we received approval from the Notified Body on the updated intended use for the device, which expands the intended user population to include not only Type 2 diabetics, but also people suffering from pre-diabetes conditions, which we believe represents a material expansion of the potential market for the device. Also in 2015, we received approval from the Notified Body for further improvements to the GlucoTrack® model DF-F that increase the accuracy and efficacy of the device. On January 21, 2020, the Company announced that it has received CE Mark approval for a major enhancement to GlucoTrack, allowing for a user to perform the calibration process by themselves, without the need for a certified calibrator. The initial CE Mark approval received for GlucoTrack required a calibration process that took three hours to complete, required eight invasive finger stick reference measurements, needed to be repeated every thirty days and required a certified calibrator to perform the calibration. After a series of successful enhancements and approvals, the calibration process now takes just thirty minutes, requires just three invasive reference measurements, and needs to be repeated only once every six months. With self-calibration, a user can now perform this simplified process in the privacy and convenience of their own home. As a result of these incremental, but important, enhancements to the performance of the device, we believe that the product is ready for commercial launch in specific market segments. We continue to invest resources on our intellectual property to protect our existing patents and trademarks, and anticipate additional patents for our existing technology, as well as future products in development. In addition, we are exploring improvements and changes to our algorithms and sensor technologies with a goal of increasing our Mean Absolute Relative Difference (MARD) and overall accuracy. 12 Safety and quality are non-negotiables in the medical devices industry. Regulatory requirements are increasingly stringent throughout every step of a product’s life cycle, including service and delivery. More and more, organizations in the industry are expected to demonstrate their quality management processes and ensure best practice in everything they do. ISO 13485, is an internationally agreed standard that sets out the requirements for a quality management system specific to the medical devices industry. On February 19, 2016, we received an extension of our ISO 13485:2003 certificate and Annex II certification from the EU. The ISO 13485:2003 certification signifies that we have met the standards required for company-wide implementation of device quality management system(s). The scope of the certification is design, development, manufacture and service of non-invasive glucose monitoring systems for home use. Annex II also addresses quality control systems. The certification allows us to self-certify certain modifications and changes and simplifies some of the reporting to and review by the relevant Notified Body. This can shorten the CE-mark review process of future GlucoTrack® model DF-F enhancements or revisions, including software updates and other improvements of the device that do not affect the intended use and/or safety performance. The ISO 13485:2003 and Annex II certifications enable us to potentially reduce the time to market for product sales on new, enhanced or modified GlucoTrack® model DF-F devices. We have identified, what we believe, are the critical success factors necessary for the successful commercialization of Glucotrack®. These factors include: 1) selecting the right distribution partner within countries that have knowledge and experience in diabetes, the appropriate capabilities and proven performance in the sales, marketing, and customer service in support of medical devices, and a commitment to investing the appropriate resources required for a successful launch and building of the business; 2) segmenting and targeting the right customers including key opinion leaders, treating physicians, and diabetes nurses within the healthcare provider communities as well as those patient groups that will benefit most from the use of a non-invasive device; 3) creating a cost structure and end user price point for GlucoTrack® so that it will be more affordable on a monthly basis for patients; and 4) working with government authorities and health insurance companies to achieve full or partial reimbursement for GlucoTrack® within covered medical plans. We have started the implementation of this commercial approach with the Netherlands, and signed an exclusive distribution agreement with MediReva B.V. We have been working closely with our new distributor on product and disease area training across the organization, and segmentation of the local target audiences including key opinion leaders, treating physicians, and diabetes nurses. An important aspect of our launch preparations are the discussions being held with many health insurance companies. Approval of full or partial reimbursement by the health insurance companies will be a key factor in enabling us to achieve significant sales volume. We are currently working with several of these insurance companies on steps towards reimbursement approval. In addition to the Netherlands, we are in the process of identifying and negotiating with additional distributors in other key geographic regions. Following our successful capital raise in the first quarter of this year of $15,000,000, we have been planning for an up-listing of our Common Stock to a national exchange. While we believe we have been taking the appropriate steps to up-list, we cannot provide assurances at this time as to whether and when we will be successful with respect to this plan. This year, as we have begun the commercialization stage of the Company, we continue to add to our talent base in important management positions and advisors, each with expertise in their respective fields, such as artificial intelligence, data analytics, digital health and wearables. We may be at risk as a result of the current COVID-19 pandemic. Risks that could affect our business include the duration and scope of the COVID-19 pandemic and the impact on the demand for our products; actions by governments, businesses and individuals taken in response to the pandemic; the length of time of the COVID-19 pandemic and the possibility of its reoccurrence; the timing required to develop effective treatments and a vaccine in the event of future outbreaks; the eventual impact of the pandemic and actions taken in response to the pandemic on global and regional economies; and the pace of recovery when the COVID-19 pandemic subsides. 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 determination of net realizable value of inventory. 13 Our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included elsewhere in this report. Results of Operations The following discussion of our operating results explains material changes in our results of operations for the nine-month period ended September 30, 2020 compared with the same period ended September 30, 2019. The discussion should be read in conjunction with the financial statements and related notes included elsewhere in this report. Nine Months ended September 30, 2020 compared to Nine Months ended September 30, 2019 Revenues During the nine-month period ended September 30, 2020, we had revenues of $2,271 from orders for our GlucoTrack® model DF-F glucose monitoring device and PEC that are replaced every six months, as compared with $140,255 for the prior-year period due to a decrease in orders for our products. We recognize revenues from sales of the GlucoTrack® model DF-F and PECs when control is transferred to the customer and collectability is probable. Research and development expenses Research and development expenses were $1,270,295 for the nine-month period ended September 30, 2020, as compared to $1,203,616 for the prior-year period. The increase is immaterial. Research and development expenses consist primarily of salaries and other personnel-related expenses, including stock-based compensation expenses, materials, (including provision for slow inventory), travel expenses, clinical trials and other expenses. We expect research and development expenses to increase in 2020 and beyond, primarily due to hiring additional personnel and developing our product line, as well as improvement of the GlucoTrack® model DF-F; 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. Selling and marketing expenses Selling and marketing expenses were $274,183 for the nine-month period ended September 30, 2020, as compared to $444,555 for the prior-year period. The decrease is primarily attributable to the Company’s decision to reduce its business development personnel in the European market until such a time when the proof of concept of obtaining reimbursement for the product in test markets is realized. Selling and marketing expenses consist primarily of professional services, salaries, travel expenses and other related expenses. We expect selling and marketing expenses to increase in 2020 and beyond as we continue our focus on marketing and sales of the GlucoTrack® model DF-F and potential FDA clinical trials. General and administrative expenses General and administrative expenses were $711,795 for the nine-month period ended September 30, 2020, as compared to $1,391,916 for the prior-year period. The decrease is primarily attributable to the departure of our former President and CFO, a reduction in professional fees and the reduction of stock based compensation during the last half of 2019. 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 income, net Financing income, net was $98,978 for the nine-month period ended September 30, 2020, as compared to financing expenses of $17,455 for the prior-year period. For more information see Note 5 to the financial statements. Net Loss Net loss was $1,816,957 for the nine-month period ended September 30, 2020, as compared to $2,917,287 for the prior-year period. The decrease in net loss is attributable primarily to the decrease in our operating expenses, as described above. 14 Three Months ended September 30, 2020 compared to Three Months ended September 30, 2019 Revenues During the three-month period ended September 30, 2020, we had zero revenues from orders for our GlucoTrack® model DF-F glucose monitoring device and PEC that are replaced every six months, as compared with $4,175 for the prior-year period due to a decrease in orders for our products. We recognize revenues from sales of the GlucoTrack® model DF-F and PECs when control is transferred to the customer and collectability is probable. Research and development expenses Research and development expenses were $476,364 for the three-month period ended September 30, 2020, as compared to $377,377 for the prior-year period. The increase is attributable to an increase in salary and other personnel-related expenses during 2020. Research and development expenses consist primarily of salaries and other personnel-related expenses, including stock-based compensation expenses, materials, travel expenses, clinical trials and other expenses. We expect research and development expenses to increase in 2020 and beyond, primarily due to hiring additional personnel and developing our product line, as well as improvement of the GlucoTrack® model DF-F; 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. Selling and marketing expenses Selling and marketing expenses were $93,366 for the three-month period ended September 30, 2020, as compared to $168,259 for the prior-year period. The decrease is primarily attributable to the Company’s decision to reduce its business development personnel in the European market until such a time when the proof of concept of obtaining reimbursement for the product in test markets is realized. Selling and marketing expenses consist primarily of professional services, salaries, travel expenses and other related expenses. We expect selling and marketing expenses to increase in 2020 and beyond as we continue our focus on marketing and sales of the GlucoTrack® model DF-F and potential FDA clinical trials. General and administrative expenses General and administrative expenses were $317,597 for the three-month period ended September 30, 2020, as compared to $439,012 for the prior-year period. The decrease is primarily attributable to the departure of our former President and CFO, a reduction in professional fees and the reduction of stock based compensation during the last half of 2019. 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 income (expenses), net Financing income, net was $40,245 for the three-month period ended September 30, 2020, as compared to financing expenses of $16,304 for the prior-year period. For more information see Note 5 to the financial statements. Net Loss Net loss was $509,015 for the three-month period ended September 30, 2020, as compared to $996,777 for the prior-year period. The decrease in net loss is attributable primarily to the decrease in our operating expenses, as described above. 15 Liquidity and Capital Resources As of September 30, 2020, cash on hand was approximately $10.7 million as a result of our $15 million private placement which closed during February 2020, for which we received net cash of approximately $13 million. Based on our current cash burn rate, strategy and operating plan, we believe that our cash and cash equivalents will enable us to operate for a period in excess of one year from the date of this report. In order to fund our anticipated liquidity needs beyond such period (or possibly earlier if our current cash burn rate, strategy or operating plan change in a way that accelerates or increases our liquidity needs), we will need to raise additional capital. Messrs. Avner Gal and Zvi Cohen collectively loaned Integrity Israel NIS 176,000 ($51,764 based on the exchange rate of 3.4 NIS/dollar as of September 30, 2020) on May 15, 2002 pursuant to a board approval. Messrs. Nir Tarlovsky, Yitzhak Fisher and Asher Kugler loaned Integrity Israel NIS 336,300 ($98,912 based on the same exchange rate) on March 16, 2004. These loans are not required to be repaid until the first year in which we realize profits in our annual statement of operations (accounting profit). At such time, the loans are to be repaid on a quarterly basis in an amount equal to 10% of our total sales in the relevant quarter, beginning on the quarter following the first year in which we realize profits in our annual statement of operations. The total amount to be repaid by us to each lender shall be an amount equal to the aggregate principal amount loaned by such lender to us, plus an amount equal to the product of the amount of each payment made by us in respect of such loan multiplied by the percentage difference between the Israeli Consumer Price Index on the date on which the loan was made and the Israeli Consumer Price Index on the date of such payment. However, notwithstanding the above-mentioned mechanism, we will not be required to repay the loans during any time when such repayment would cause a deficit in our working capital. Our Board of Directors is entitled to modify the repayment terms of these loans, so long as such modification does not discriminate against any particular lender, and provided that all payments must be allocated among the lenders on a pro-rata basis. Integrity Israel is required to pay royalties to the Office of the Chief Scientist of the Ministry of Industry, Trade and Labor of the State of Israel at a rate ranging between 3-5% of the proceeds from the sale of the Company’s products arising from the development plan up to an amount equal to $93,300, plus interest at LIBOR from the date of grant. As of September 30, 2020, the contingent liability with respect to royalty payment on future sales equaled approximately $34,000, excluding interest. Net Cash Used in Operating Activities for the Nine-month Periods Ended September 30, 2020 and September 30, 2019 Net cash used in operating activities was $2,656,834 and $3,102,508 for the nine-month periods ended September 30, 2020 and 2019, respectively. Net cash used in operating activities primarily reflects the net loss for those periods of $1,816,957 and $2,917,287, respectively. Net Cash Used in Investing Activities for the Nine-month Periods Ended September 30, 2020 and September 30, 2019 Net cash used in investing activities was $45,900 and $22,554 for the nine-month periods ended September 30, 2020 and 2019, respectively, and was used to purchase equipment (such as computers, research and development, and office equipment). Net Cash Provided by Financing Activities for the Nine-month Periods Ended September 30, 2020 and September 30, 2019 Net cash provided by financing activities was $13,009,269 and $4,198,574 for the nine-month periods ended, September 30, 2020 and 2019, respectively. Cash provided by financing activities for the nine-month period ended September 30, 2020 reflected net capital raised from the February 2020 private placement and issuance of our common stock. Cash provided by financing activities for the nine-month period ended September 30, 2019, reflected net capital raised from the issuance of Series D Units. 16 Off-Balance Sheet Arrangements As of September 30, 2020, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not required for smaller reporting companies.