Glucotrack, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Prospective investors should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this report. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . Overview We are a medical device company focused on the design, development and commercialization of non-invasive glucose monitoring devices for use by people with diabetes. Integrity Israel was founded in 2001 with a mission to develop, produce and market non-invasive glucose monitors for home use by diabetics. We have developed a non-invasive blood glucose monitor, GlucoTrack®, which is designed to help people with diabetes obtain blood glucose level readings without the pain, inconvenience, cost and difficulty of conventional (invasive) spot finger stick devices. Our first generation product, GlucoTrack® 1.0 utilizes a patented combination of ultrasound, electromagnetic and thermal technologies to obtain blood glucose measurements in less than one minute via a small sensor that is clipped onto one’s earlobe and connected to a small, handheld control and display unit, all without drawing blood. Our next generation product, GlucoTrack® 2.0 which is currently under development, utilizes substantially identical underlying sensor technology, and is expected to be a completely wireless sensor to be clipped on the earlobe. GlucoTrack eliminates the handheld unit and will transmit results directly to a user’s smartphone. 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. 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. Critical accounting estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with USGAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, net sales, costs and expenses and related disclosures. management believes that there are no critical accounting estimates in these financial statements. 34 Recent Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans, and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. The guidance also requires increased disclosures. For the Company, the amendments in the update were originally effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In November 2019, the FASB issued ASU No. 2019-10, which delayed the effective date of ASU 2016-13 for smaller reporting companies (as defined by the SEC) and other non-SEC reporting entities to fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. Early adoption is permitted. As the company is eligible to considered as smaller reporting company ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of this standard is not expected to result in a material impact to the Company’s financial statements. Results of Operations The following discussion of our operating results explains material changes in our results of operations for the years ended December 31, 2022 and December 31, 2021. The discussion should be read in conjunction with the financial statements and related notes included elsewhere in this report. Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Research and development expenses Research and development expenses were $1,967 thousand for the year ended December 31, 2022, as compared to $1,810 thousand for the prior-year period. The increase is attributable to professional fees we accrued during the year. 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 2023 and beyond, primarily due to hiring additional personnel and developing our product line, as well the development of GlucoTrack® 2.0; 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 $0 thousand for the year ended December 31, 2022, as compared to $139 thousand for the prior-year period. The decrease is primarily attributable to the Company’s decision to reduce its business development expenses until the completion of the development of the GlucoTrack® 2.0. 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 $2,465 thousand for the year ended December 31, 2022, as compared to $2,091 thousand for the prior-year period. The increase is primarily attributable to insurance expenses of it directors and officers, which the Company accrued due to its listing on the Nasdaq Capital Market (“NASDAQ”). 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 $11 thousand for the year ended December 31, 2022, as compared to financing Income, net, of $26 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 $4,435 thousand for the year ended December 31, 2022, as compared to a net loss of $4,067 thousand for the prior-year period. The increase in net loss is attributable primarily to the increase in our general and administrative expenses and development expenses as described above. Going Concern Uncertainty As of December 31, 2022, and December 31, 2021, cash on hand was $2,312 thousand and $6,062 thousand, respectively. 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. 35 During the years 2003-2004, Integrity Israel received loans from stockholders (four separate lenders). The loans are indexed to the Israeli Consumer Price Index from their origination date and bear no interest. The Group will be required to pay the loans, in quarterly installments, commencing on the first quarter following the first fiscal year in which the Group reports net profit in its annual report. At such time, the Group will be required to make quarterly payments equal to 10% of its total sales for each quarter until the loans have been repaid in full. Notwithstanding the repayment mechanism, the Group will not be required to repay the loans during any period in which such payment would cause a deficit in the Group’s working capital. As of December 31, 2022, the Group does not expect to make any material repayments during the following 12-month period, if any, and accordingly the balance of $195 thousand of the loans from stockholders, have been presented as long-term liabilities. We are required to pay royalties to the Office of the Chief Scientist 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 thousand, plus interest at LIBOR from the date of grant. As of December 31, 2022, the contingent liability with respect to royalty payment on future sales equals to approximately $80 thousand, excluding interest. Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Net Cash Used in Operating Activities for the Years Ended December 31, 2022 and December 31, 2021 Net cash used in operating activities was $3,729 thousand and $3,769 thousand for the years ended December 31, 2022 and 2021, respectively. Net cash used in operating activities primarily reflects the net loss for those periods of $4,435 thousand and $4,067 thousand, respectively. Net Cash Provided by (Used in) Investing Activities for the Years Ended December 31, 2022 and December 31, 2021 Net cash provided by (used in) investing activities was $1 thousand and $(1) thousand for the years ended December 31, 2022 and 2021, respectively, mainly consisting of equipment sales and purchases (such as computers, research and development and office equipment). Off-Balance Sheet Arrangements As of December 31, 2022, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Not required for smaller reporting companies. Item 8. Financial Statements and Supplementary Data. The financial statements required by this Item 8 are filed herewith commencing on page F-1 hereto and are incorporated herein by reference. Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure. None. 36