Glucotrack, Inc. 10-Q

Item 1. Financial Statements INTEGRITY APPLICATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS In thousands of US dollars (except share data) March 31, 2021 December 31, 2020 (Unaudited) Assets Current Assets Cash and cash equivalents 8,887 9,823 Accounts receivable, net 69 66 Inventory 279 284 Other current assets 45 56 Total current assets 9,280 10,229 Operating lease right-of-use assets, net 149 166 Property and equipment, net 133 149 Non-current Restricted Cash 66 62 TOTAL ASSETS 9,628 10,606 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable 694 869 Operating lease liabilities, current 110 84 Other current liabilities 444 392 Total Current Liabilities 1,248 1,345 Non-current Liabilities Long-Term Loans from Stockholders 192 197 Operating lease liabilities, non-current 39 82 Total Non-current liabilities 231 279 Total Liabilities 1,479 1,624 Stockholders’ Equity Common Stock of $ 0.001 par value (“Common Stock”): 500,000,000 shares authorized; 200,781,064 shares issued and outstanding as of March 31, 2021 and December 31, 2020 201 201 Additional paid-in capital 102,214 102,165 Accumulated other comprehensive income 37 15 Accumulated deficit (94,303 ) (93,399 ) Total Stockholders’ equity 8,149 8,982 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 9,628 10,606 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 In thousands of US dollars Three-month period ended March 31, 2021 2020 (Unaudited) Research and development expenses 309 413 Selling and Marketing 23 91 General and administrative expenses 564 252 Total operating expenses 896 756 Operating loss 896 756 Financing income (expense), net (8 ) 22 Loss for the period 904 734 Other comprehensive income: Foreign currency translation adjustment 22 19 Comprehensive Loss for the period 882 715 Loss per share (Basic and Diluted) (0.00 ) (0.00 ) Common shares used in computing Basic and Diluted Loss per share 200,781,064 181,790,919 4 INTEGRITY APPLICATIONS, INC. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY US dollars (except share data) (unaudited) Common Stock Additional Receipts on Accumulated other Total Stockholders’ Number of shares Amount paid in capital account of shares comprehensive income Accumulated deficit (deficit) Equity Balance as of January 1, 2020 161,858,436 162 89,005 - 124 (90,703 ) (1,412 ) Loss for the period of three months - - - - (734 ) (734 ) Other comprehensive income - - - - 19 - 19 Issuance of Common Stock net of cash issuance costs 37,500,000 38 12,215 - - - 12,253 Issuance of shares as settlement of financial liabilities - - - 63 - - 63 Warrants issued as consideration for placement services - - 756 - - - 756 Stock-based compensation - - 2 - - - 2 Balance as of March 31, 2020 199,358,436 200 101,978 63 143 (91,437 ) 10,947 US dollars (except share data) (unaudited) Common Stock Additional Accumulated other Total Number of shares Amount paid in capital comprehensive income Accumulated deficit Stockholders’ Equity Balance as of January 1, 2021 200,781,064 201 102,165 15 (93,399 ) 8,982 Loss for the period of three months (904 ) (904 ) Other comprehensive income - - - 22 - 22 Stock-based compensation - - 49 - - 49 Balance as of March 31, 2021 200,781,064 201 102,214 37 (94,303 ) 8,149 5 INTEGRITY APPLICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS US dollars Three-month period ended March 31, 2021 2020 (unaudited) Cash flows from operating activities: Loss for the period (904 ) (734 ) Adjustments to reconcile loss for the period to net cash used in operating activities: Depreciation 12 12 Stock-based compensation 49 2 Linkage difference on principal of loans from stockholders 2 - Changes in assets and liabilities: Increase in accounts receivable (5 ) (2 ) Increase in inventory (6 ) (47 ) Decrease (increase) in other current assets 10 (53 ) Decrease in accounts payable (155 ) (118 ) Increase (Decrease) in other current liabilities 64 (49 ) Net cash used in operating activities (933 ) (989 ) Cash flows from investing activities: Purchase of property and equipment - (15 ) Net cash used in investing activities - (15 ) Cash flows from financing activities Issuance of Common Stock net of cash issuance expenses - 13,009 Net cash provided by financing activities - 13,009 Effect of exchange rate changes on cash, cash equivalents and restricted cash 1 (3 ) Change in cash, cash equivalents, and restricted cash (932 ) 12,002 Cash, cash equivalents, and restricted cash at beginning of the period 9,885 476 Cash, cash equivalents, and restricted cash at end of the period 8,953 12,478 The accompanying notes are an integral part of these condensed consolidated financial statements. Supplementary information on financing activities not involving cash flows (unaudited): During the three months ending March 31, 2020, the Company settled the board members fees for the first quarter of 2020 in the amount of $63 thousand through the issuance of 158,237 shares of common stock (issuance of the abomination stocks was done on the second quarter of 2020). During the three months ending March 31, 2020, $756 thousand 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. 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 Group has not yet generated significant revenues from operations, and therefore they are dependent upon external sources for financing their operations. As of March 31, 2021, the Company has an accumulated deficit of $94,303 thousand. In addition, in each year since its inception, the Company reported losses from operations and negative cash flows from operating activities 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 thousand. As of March 31,2021, the company had cash and cash equivalents in the amount of approximately $8,887 thousand, which is expected to be sufficient to meet its capital needs for at least 12 months from the date of issuance of these interim 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 our consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission (“SEC”) on April 13, 2021. 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 three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 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. Net 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 84,260,774 and 82,442,314 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 March 31, 2021 and 2020, 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 the 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 . 9 INTEGRITY APPLICATIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (cont.) NOTE 3 – LEASES The company has entered into several non-cancelable operating lease agreements for the company’s offices and few vehicles. The company’s leases have original lease periods expiring between 2021 and 2023. Payments due under such lease contracts include primarily fix payments. The company does not assume renewals in the 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 Three Months Ended March 31, 2021 (unaudited) Operating lease cost: Office space 29 Vehicles 15 44 Remaining Lease Term Office space 0.42 years vehicles 2.29 years Weighted Average Discount Rate Office space 10 % Vehicles 10 % The following is a schedule, by years, of maturities of operating lease liabilities as of March 31, 2021: US dollars March 31, 2021 (unaudited) Period: The remainder of 2021 101 2022 40 2023 22 Total operating lease payments 163 Less: imputed interest 14 Present value of lease liabilities 149 10 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, 2020. 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 developing our own companion applications and a cloud-based solution, as well as conducting ongoing discussions with potential partners, to offer an effective 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. 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 six 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. 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. 11 In the second half of 2017 we conducted a strategic review of our previous commercial activities. We established a cross-functional task force with the goal of reviewing the current commercial performance in all countries and identifying the critical success factors (CSF’s) necessary for successful commercialization. The CSF’s that were determined to be most important to our future commercial success 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) revising the cost structure 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 new commercial program by selecting the Netherlands, where we will pilot this approach as our proof-of-concept. This country was chosen based on the relatively smaller size of the marketplace that will allow us to be able to rapidly assess our performance and make adjustments as necessary. On December 22, 2017 we signed an exclusive distribution agreement with a new partner in the Netherlands (MediReva B.V.) and are underway. We have been working closely with our new distributor and have accomplished: product and disease area training across the organization; segmentation of the local target audiences including key opinion leaders, treating physicians, and diabetes nurses. The most 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 companies on initial pilot programs with GlucoTrack® as an important step towards reimbursement approval. 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. 12 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, 2021 compared with the same period ended March 31, 2020. The discussion should be read in conjunction with the financial statements and related notes included elsewhere in this report. Three Months ended March 31, 2021 compared to Three Months ended March 31, 2020 Revenues During the three-month period ended March 31, 2021, we had no revenues. Research and development expenses Research and development expenses were $309 thousand for the three-month period ended March 31, 2021, as compared to $413 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 2021 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. Selling and marketing expenses Selling and marketing expenses were $23 thousand for the three-month period ended March 31, 2021, as compared to $91 thousand for the prior-year period. The decrease is immaterial . Selling and marketing expenses consist primarily of professional services, salaries, travel expenses and other related expenses. General and administrative expenses General and administrative expenses were $564 thousand for the three-month period ended March 31, 2021, as compared to $252 thousand for the prior-year period. The increase is primarily attributable to hiring of new and augmented personnel to move forward our business agenda. 13 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 expenses, net was approximately $8 thousand for the three-month period ended March 31, 2021, as compared to financing income of $22 thousand for the prior-year period. Net Loss Net loss was $904 thousand for the three-month period ended March 31, 2021, as compared to $734 thousand for the prior-year period. The decrease in net loss is attributable primarily to the decrease in our operating expenses, as described above. Liquidity and Capital Resources As of March 31, 2021, cash on hand was approximately $8.9 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. Net Cash Used in Operating Activities for the Three-Month Periods Ended March 31, 2021 and March 31, 2020 Net cash used in operating activities was $933 thousand and $989 thousand for the three-month periods ended March 31, 2021 and 2020, respectively. Net cash used in operating activities primarily reflects the net loss for those periods of $904 thousand and $734 thousand, respectively. 14 Net Cash Used in Investing Activities for the Three-Month Periods Ended March 31, 2021 and March 31, 2020 Net cash used in investing activities was $0 and $15 thousand for the three-month periods ended March 31, 2021 and 2020, respectively, and was used to purchase equipment (such as computers, research and development, and office equipment). Net Cash Provided by Financing Activities for the Three-Month Periods Ended March 31, 2021 and March 31, 2020 Net cash provided by financing activities was $0 and $13,009 thousand for the three-month periods ended, March 31, 2021 and 2020, respectively. Cash provided by financing activities for the three-month period ended March 31, 2020 reflected net capital raised from the February 2020 private placement and issuance of our common stock. Off-Balance Sheet Arrangements As of March 31, 2021, 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.