Glucotrack, Inc. 10-Q

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, 2023. 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 focused on the design, development and commercialization of novel technologies for use by people with diabetes. We are currently developing an implantable (“CBGM”) for those with Type 1 diabetes and insulin-dependent Type 2 diabetes. The Company was founded with a mission to develop GlucoTrack®, a non-invasive glucose monitoring device designed to help people with diabetes and pre-diabetics obtain glucose level readings without the pain, inconvenience, cost and difficulty of conventional (invasive) spot finger stick devices. The first generation of GlucoTrack, which successfully received CE Mark approval, obtained glucose measurements via a small sensor clipped onto one’s earlobe. A limited release beta test in Europe and the Middle East demonstrated the need for an updated product with improved accuracy and human factors. As the glucose monitoring landscape rapidly moved away from point-in-time measurement to continuous measurement since then, the Company recently determined that it would focus its efforts on developing its Implantable CBGM. As such, we have since withdrawn our CE Mark for GlucoTrack and are no longer pursuing commercialization of this product or development of any further iterations. 15 The Company is currently developing an implantable CBGM for use by Type 1 diabetes patients as well as insulin-dependent Type 2 patients. Implant longevity is key to the success of such a device. We have recently completed a feasibility study successfully demonstrating that a minimum two-year implant life is highly probable with the current sensor design. We have also initiated an animal study with an initial prototype system that has thus far demonstrated a simple implant procedure and good functionality. The Company will initiate a long-term animal trial in late Q4 2024 as well as initiate development of its commercial device, also in late Q4, in preparation of regulatory submission in late 2024 for a first in human study. We believe our technology, if successful, has the potential to be more accurate, more convenient and have a longer duration than other implantable glucose monitors that are either in the market or currently under development. We are currently developing our own mobile companion application and a cloud-based solution platform to provide real time, data driven personalized tools to effectively help users 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. Our Senior Management team includes; CEO and President, Paul V. Goode PhD, who has a decorated career developing innovative medical technologies, including at Dexcom and MiniMed, CFO, James Cardwell, CPA who has over 16 years of experience as a Chief Financial Officer and Chief Operating Officer with a concentration in both SEC financial reporting and tax compliance, James P. Thrower PhD, Vice President of Engineering, a seasoned executive formerly of Sterling Medical Devices, Mindray DS USA and Dexcom, Inc., Mark Tapsak PhD, Vice President of Sensor Technology, a medical research scientist who brings over 25 years of experience in the diabetes industry, including previous senior roles at Dexcom and Medtronic, and Drinda Benjamin, Vice President of Marketing, a medical device professional with over 20 years of experience in the medical device and diabetes industry with senior roles at Intuity Medical, Senseionics, Abbott Diabetes, and Medtronic Diabetes. Several highly talented and accomplished executives joined the Company as senior advisors to the Board. These include Daniel McCaffrey MBA MA, a world-renowned behavioral scientist and digital health expert formerly at Samsung Health and Dexcom, Inc., Dr. Alexander Raykhman PhD, a measurement and artificial intelligence expert and Dr. David C. Klonoff, world renowned endocrinologist and diabetes technology thought leader. We intend to continue to invest in our talent and to expand and strengthen all areas within the Company. 16 Recent Events As previously reported, on May 26, 2023, the Company received a staff deficiency notice from The Nasdaq Stock Market (“Nasdaq”) indicating that the Company no longer complied with the $1.00 minimum bid price requirement for continued listing on the Nasdaq Capital Market under Rule 5550(a)(2) of the Nasdaq Listing Rules (the “Bid Price Rule”). Pursuant to Nasdaq Marketplace Rule 5810(c)(3)(A), the Company was provided with a compliance period of 180 calendar days, or until November 22, 2023, to regain compliance with the Bid Price Rule. On November 24, 2023, the Company received a notice from Nasdaq stating that it has been granted an additional 180 calendar days, or until May 20, 2024, to regain compliance with the Bid Price Rule (the “Extended Compliance Period”). If at any time during the Extended Compliance Period, the closing bid price of our Common Stock is at least $1.00 per share for a minimum of 10 consecutive business days, the Nasdaq will provide written confirmation that we have regained compliance with the Bid Price Rule. If we cannot demonstrate compliance during the Extended Compliance Period, then Nasdaq will provide notice that our Common Stock will be subject to delisting. At that time, the Company may appeal the Staff’s determination to a hearings panel. At the Company’s annual meeting of stockholders held on April 26, 2024, the stockholders of the Company approved a proposal to authorize the Company’s Board of Directors (the “Board”) to file a Certificate of Amendment to the Company’s Certificate of Incorporation, as amended, to effect a reverse stock split of the Company’s common stock, par value $0.001 per share at a ratio between 1-for-5 and 1-for-30, to be effected at such time and date, if at all, as determined by the Board in its sole discretion (the “Reverse Stock Split”). On April 30, 2024, the Board approved the Reverse Stock Split. Among other considerations, the Company plans to implement the Reverse Stock Split to satisfy the Bid Price Rule for continued listing on Nasdaq. There can be no assurance that we will be able to regain and sustain compliance with all applicable requirements for continued listing on Nasdaq. In the event that we are unable to regain and sustain compliance with all applicable requirements for continued listing on the Nasdaq, our common stock may be delisted from Nasdaq. On February 13, 2024, the Company entered into an exchange agreement with certain shareholders (the “Holders”), pursuant to which the Company and the Holders agreed to exchange 4,381,953 of common stock purchase warrants owned by the Holders for 3,593,203 shares of the Company’s common stock, par value $0.001 per share. The summary of our significant accounting policies is included under Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of our fiscal 2023 Form 10-K. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. There have been no material changes to the critical accounting policies and estimates as filed in such report. 17 Results of Operations The following discussion of our operating results explains material changes in our results of operations for the three-months ended March 31, 2024 compared with the same periods ended March 31, 2023. The discussion should be read in conjunction with the financial statements and related notes included elsewhere in this report. Consolidated Results of Operations for the Three Months ended March 31, 2024 and 2023 Research and development expenses Research and development expenses were approximately $2.1 million for the three-month period ended March 31, 2024, as compared to approximately $642,000 for the prior-year period. The increase is attributable to consulting fees we accrued during the period. Research and development expenses consist primarily of salaries and other personnel-related expenses, materials, animal 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. Marketing expenses Marketing expenses were approximately $70,000 for the three-month period ended March 31, 2024, as compared to $0 for the prior-year period. This increase is primarily attributable to business development personnel and professional marketing services. General and administrative expenses General and administrative expenses were approximately $733,000 for the three-month period ended March 31, 2024, as compared to approximately $642,000 for the prior-year period. The increase is attributable to professional fees we accrued during the period. General and administrative expenses consist primarily of professional services, salaries, consulting fees, insurance, travel expenses and other related expenses for executive, finance and administrative personnel, including stock-based compensation expenses. Other general and administrative costs and expenses include facility-related costs not otherwise included in research and development costs and expenses, and professional fees for legal and accounting services. Financing income (expenses), net Financing income, net was approximately $24,000 for the three-month period ended March 31, 2024, as compared to financing expense of approximately $2,000 for the prior-year period. The increase is attributable to interest income received during the period. Net Loss Net loss was approximately $2.93 million for the three-month period ended March 31, 2024, as compared to approximately $1.31 million for the prior-year period. The increase in net loss is attributable primarily to the increase in our research and development operating expenses, as described above. 18 Cash Flows for the Nine Months Ended March 31, 2024 and 2023 Operating Activities Net cash used in operating activities was approximately $2.94 million and approximately $1.31 million for the three-month periods ended March 31, 2024 and 2023, respectively. Net cash used in operating activities primarily reflects the net loss for those periods of approximately $2.93 million and approximately $1.29 million, respectively. Investing Activities Net cash used in investing activities was $59,000 and $0 for the three-month periods ended March 31, 2024 and 2023, respectively. Net cash used in investing activities primarily reflects the purchasing of fixed assets. Off-Balance Sheet Arrangements As of March 31, 2024, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K. 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, 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 condensed 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. Liquidity and Capital Resources To date, we have not generated any revenues and have experienced net losses and negative cash flows from our activities. Since our incorporation, we have devoted substantially all our resources to research and product development and to providing general and administrative support for these activities. Since our incorporation, we have incurred significant losses and negative cash flows from operations. During the three months ended March 31, 2024, we incurred a net loss of approximately $3.0 million and used $2.9 million of cash in our operations. As of March 31, 2024, we had an accumulated deficit of approximately $112.8 million. We expect to continue to incur significant and increasing losses and do not expect positive cash flows from operations for the foreseeable future, and our net losses may fluctuate significantly from period to period depending on the timing of and expenditures on our research and development activities. Based on our operating plans, we do not expect that our current cash and cash equivalents as of March 31, 2024, 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 $1,497,000. 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 a shelf registration statement on Form S-3 that was declared effective on September 27, 2021 by the SEC which allows the Company to register up to $90,000 of certain equity and/or debt securities of the Company). There can be no assurance that we will succeed in obtaining the necessary financing to continue our operations. However, in April 2024, the Company raised net proceeds of $500,000 through the completion of a private placement transaction. Item 3. Quantitative and Qualitative Disclosures About Market Risk. As a smaller reporting company, we are not required to provide the information required by this Item.