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 novel technologies for use by people with diabetes. Our mission is to become a leader in diabetes management by bringing to market innovative and cost-effective technologies that address multiple verticals within the diabetes market. We are developing an implantable CBGM. This product is designed to have a 2-year implant longevity without the requirement for any wearable components. 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 U.S. GAAP. 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 and expenses and related disclosures. Management believes that there are no critical accounting estimates in these financial statements. 34 Recent Accounting Pronouncements In November 2023, the Financial Standards Accounting Board (FASB) issued Accounting Standards Update (ASU) 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for the Company’s annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted. In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topics 740): Improvements to Income Tax Disclosures” to expand the disclosure requirements for income taxes, specifically relating to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for the Company’s annual periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the potential effects that ASU 2023-07 and ASU 2023-09 will have on the consolidated financial statement disclosures. Results of Operations The following discussion of our operating results explains material changes in our results of operations for the years ended December 31, 2023 and December 31, 2022. The discussion should be read in conjunction with the financial statements and related notes included elsewhere in this report. Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Research and development expenses Research and development expenses were $4,704 for the year ended December 31, 2023, as compared to $1,967 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 2024 and beyond, primarily due to hiring additional personnel, as well the development of Glucotrack CBGM; 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 CBGM models and others. General and administrative expenses General and administrative expenses were $2,278 for the year ended December 31, 2023, as compared to $2,465 for the prior-year period. The change is primarily attributable to the decrease in stock based compensation expense in 2023 versus 2022. 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 $7 for the year ended December 31, 2022, as compared to $11 for the prior-year period. The decrease in the financing income is attributed to the reduction in the company’s cash balance over the year. 35 Net Loss Net loss was $7,097 for the year ended December 31, 2023, as compared to a net loss of $4,435 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. Liquidity and Capital Resources For the years ended December 31, 2023 and December 31, 2022, our net losses were $7,097 million and $4,435, respectively. As of December 31, 2023, we had an accumulated deficit of $109,853. Our primary requirements for liquidity have been to fund our clinical trial activity and general corporate and working capital needs. On April 13, 2023, the Company completed an underwritten public offering under which the Company received gross proceeds of approximately $10 million for issuance of (i) 5,376,472 shares of common stock and (ii) 1,976,470 pre-funded warrants at a price to the public of $1.36 per share. Based on our operating plans, we do not expect that our current cash and cash equivalents as of December 31, 2023, will be sufficient to fund our operating, investing, and financing cash flow needs for at least the next twelve months, assuming our programs advance as currently contemplated. Based upon this review and our current financial condition, the Company has concluded that substantial doubt exists as to our ability to continue as a going concern. We have and believe we will continue to be able to raise additional capital through debt financing, private or public equity financings, license agreements, collaborative agreements or other arrangements with other companies, or other sources of financing. However, there can be no assurances that such financing will be available or will be at terms acceptable to us, or at all. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce, or eliminate our clinical trials or other operations. If any of these events occur, our ability to achieve our operational goals would be adversely affected. Our future capital requirements and the adequacy of available funds will depend on many factors, including those described in the section titled “Risk Factors.” Depending on the severity and direct impact of these factors on us, we may be unable to secure additional financing to meet our operating requirements on commercially acceptable terms favorable to us, or at all. Going Concern Uncertainty As of December 31, 2023, cash on hand was $4,492. 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 $90,000 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. 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 Company will be required to pay the loans, in quarterly installments, commencing on the first quarter following the first fiscal year in which the Company reports net profit in its annual report. At such time, the Company 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 Company will not be required to repay the loans during any period in which such payment would cause a deficit in the Company’s working capital. As of December 31, 2023, the Company does not expect to make any material repayments during the following 12-month period, if any, and accordingly the balance of $196 of the loans from stockholders, have been presented as long-term liabilities. We are required to pay royalties to the IIA 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, plus interest at LIBOR from the date of grant. As to the replacement of the LIBOR benchmark rate, even though the IIA has not declared the alternative benchmark rate to replace the LIBOR, we do not believe it will have a significant impact. As of December 31, 2023, the contingent liability with respect to royalty payment on future sales equals to approximately $73, excluding interest. 36 Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Net Cash Used in Operating Activities for the Years Ended December 31, 2023 and December 31, 2022 Net cash used in operating activities was $6,558 and $3,729 for the years ended December 31, 2023 and 2022, respectively. Net cash used in operating activities primarily reflects the net loss for those periods of $7,097 and $4,435, respectively, less reduction in stock-based compensation expenses and change in working capital. Net Cash Provided by Investing Activities for the Years Ended December 31, 2023 and December 31, 2022 Net cash provided by investing activities was $0 and $1 for the years ended December 31, 2023 and 2022, respectively, mainly consisting of equipment sales and purchases (such as computers, research and development and office equipment). Net Cash Provided by Financing Activities for the Years Ended December 31, 2023 and December 31, 2022 Net cash provided by financing activities was $8,730 for the year ended December 31, 2023, due to the proceeds from the April 2023 public offering. There were no financing activities during the year ended December 31, 2022. Off-Balance Sheet Arrangements As of December 31, 2023, 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. As a smaller reporting company, we are not required to provide the information required by this Item. 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.