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, 2021. 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 were incorporated in Delaware in May 2010. On July 15, 2010, we completed a
reverse triangular merger with Integrity Israel and Integrity Acquisition Corp.
Ltd., an Israeli corporation and a wholly owned subsidiary of ours, pursuant to
which Integrity Acquisition Corp. Ltd. merged with and into Integrity Israel and
all of the stockholders and option holders of Integrity Israel became entitled
to receive shares and options in us in exchange for their shares and options in
Integrity Israel (the "Reorganization"). Following the Reorganization, the
former equity holders of Integrity Israel were entitled to the same proportional
ownership in us as they had in Integrity Israel prior to the Reorganization. As
a result of the Reorganization, Integrity Israel became a wholly owned
subsidiary of ours. We operate primarily through Integrity Israel.
10
We are a medical device company focused on the design, development and
commercialization of innovative technologies for use by people with diabetes and
prediabetes. Our first product focus is GlucoTrack®, a non-invasive blood
glucose monitor designed to help people with diabetes obtain spot blood glucose
level readings without the pain, inconvenience, cost and difficulty of
conventional (invasive) spot finger stick devices. Our first-generation device,
GlucoTrack® 1.0 utilized a patented combination of ultrasound, electromagnetic
and thermal technologies to obtain blood glucose measurements in approximately
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.
GlucoTrack® 1.0, which received CE Mark approval, underwent a limited release
beta test in Europe and the Middle East. The Company is now focused on the
development of its next generation non-invasive glucose monitor, GlucoTrack®
2.0. In addition, following the recent acquisition of certain related IP, the
Company has commenced an R&D program to develop a long-term implantable glucose
management technology to address the growing Type 1 and insulin dependent Type 2
diabetes market.
GlucoTrack® 2.0 utilizes a different and significantly simplified and less
costly sensor technology than our 1.0 technology. We are designing a form factor
that will shed the wired handheld unit from the GlucoTrack 1.0 design to be a
completely wireless clip with Bluetooth connectivity for pairing directly with
the user's own mobile device (smartphone and/or tablet). The device will be
pocket-sized and rechargeable, facilitating easy and convenient portability.
Eliminating the cabled main unit hardware is also expected to significantly
lower our manufacturing costs. This will enable an attractive end-user price
point while maintaining healthy margins for the company. In addition, we believe
that the new sensor technology will lead to a substantially faster measurement
than our 1.0 version.
In Q2 of this year, the Company completed lab testing of its 2.0 clinical
prototype system. This process included testing of multiple iterations of
electronics, ear clip, and mobile app with cloud-based software. In addition,
human factors testing of the mobile app has been completed through simulated use
in focus groups and by conducting a rigorous external design review for system
architecture, stability, and cybersecurity. The completion of bench testing and
analyses of the clinical prototype system was followed by simulated use testing.
During this in-house testing of multiple iterations, the Company achieved better
than expected accuracy and performance. Initial data collected indicates that
the Gen 2 system may achieve an accuracy comparable to invasive Continuous
Glucose Monitors (CGM's) currently available in the market when conducting the
upcoming first in-human clinical study. Further to that, the testing validated a
dramatically faster speed of measurement is possible, which will significantly
improve the patient use experience. The in-house testing also exposed some
clip-based human factors considerations that appear to impact consistent device
performance. Further improvements are being investigated to improve device
performance consistency prior to launching the first-in-human clinical study,
which is expected to be conducted at the Rabin Medical Center in Israel. The
initial results from this study will drive a follow-up multi-center study in the
United States, led by Dr. Klonoff, Chair of the Company's Scientific Advisory
Board and Medical Director of the Diabetes Research Institute of Mills-Peninsula
Medical Center. The U.S. study is intended to be a precursor to the eventual
pivotal trial for FDA clearance.
We are also developing a wireless mobile platform that will support capturing
anonymized data that can leverage novel machine learning (AI) and data analytic
techniques to facilitate device iterations and glucose sensing accuracy
improvements. In addition, mobile device pairing to this platform will
facilitate data transfer to electronic medical records (EMRs) used by managing
physicians to effectively treat their patients. Moreover, this data can provide
a potential revenue stream for valuable T2DM and pre-T2DM de-identified patient
data that can be used by third-party organizations such as pharma, insurance,
and others.
While historically the Company has operated out of its Israel location, the
Company has transitioned all operations and development to the United States as
of the end of Q3. Remaining activities in Israel include accounting and
as-needed contract resources to support the first-in-human clinical trial.
A number of high-quality individuals have joined the Company, each of whom bring
extensive experience in their respective fields. Paul, V. Goode PhD, who has a
decorated career developing innovative medical technologies, including at DexCom
and MiniMed and was a member of the Board of Directors of the Company, has been
appointed as President and Chief Executive Officer. In addition, James P.
Thrower PhD, a seasoned executive formerly of Sterling Medical Devices, Mindray
DS USA and DexCom, Inc. joined as Vice President of Engineering. Mark Tapsak
PhD, a medical research scientist, joined as Vice President of Sensor
Technology, bringing over 25 years of experience in the diabetes industry,
including previous senior roles at DexCom and Medtronic, Inc. Luis J. Malavé,
formerly of Insulet Corp, Medtronic and MiniMed has joined as an independent
board member. Several highly talented and accomplished executives joined the
Company as senior advisors to the Board. These include Yair Briman, the former
CEO of Philips Healthcare Informatics, Daniel McCaffrey MBA MA, a world-renowned
behavioral scientist and digital health expert currently VP of Digital Health
and Software at OMRON Healthcare, Inc. and 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.
Recent Events
On October 19, 2021, Paul V. Goode was appointed as President and Chief
Operating Officer of the Company, effective November 1, 2021 ("Effective Date").
He has served as a member of Integrity's Board of Directors since December 17,
2020. Concurrent with his new appointment, Mr. Goode stepped down from the
Board. As of the filing of this Quarterly Report, Mr. Goode has been appointed
Chief Executive Officer.
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In connection with our application to list our shares of common stock on Nasdaq
Capital Market ("NASDAQ"), on August 13, 2021, we effected a reverse split of
our common stock in a ratio of 1 for 13 (the "Reverse Share Split").
On September 27, 2021, our shelf registration statement on Form S-3 (file no.
333-259664) was declared effective by the SEC. The shelf registration statement
permits us to register up to $100,000,000 of certain equity and debt securities
of the Company via prospectus supplement.
On December 8, 2021, we announced that our shares of common stock were approved
for listing on the NASDAQ. Trading on NASDAQ commenced on December 10, 2021,
under its existing trading symbol, IGAP.
On March 14, 2022, we changed our name to GlucoTrack, Inc. with Nasdaq and our
trading symbol to GCTK.
On March 22, 2022, Shalom Shushan, Chief Technology Officer, provided notice of
his resignation from the Company, effective May 22, 2022, for personal reasons.
In connection with the Company's previously announced plans to migrate certain
aspects of product development to the United States, James P. Thrower PhD, Vice
President of Engineering, will be assuming Mr. Shushan's responsibilities.
In connection with the Company's previously announced plans to migrate certain
aspects of the product development of GT 2.0 to the United States, as well as in
preparation for U.S. clinical trials, Erez Ben-Zvi, VP of Product in Israel,
resigned from the Company, effective June 12, 2022.
On October 10, 2022, the Company announced that it has acquired certain IP
related to a long-term implantable continuous glucose monitor and that it
intends to develop the technology to address the growing Type 1 and insulin
dependent Type 2 diabetes market.
On October 14, 2022, the Company announced the hiring of Dr. Mark Tapsak as Vice
President of Sensor Technology.
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 2021 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.
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 the going concern assumptions.
12
Results of Operations
The following discussion of our operating results explains material changes in
our results of operations for the three and nine months period ended September
30, 2022 compared with the same period ended September 30, 2021. The discussion
should be read in conjunction with the financial statements and related notes
included elsewhere in this report.
Three Months ended September 30, 2022 compared to Three Months ended September
30, 2021
Research and development expenses
Research and development expenses were $434 thousand for the three-month period
ended September 30, 2022, as compared to $447 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 2022 and beyond,
primarily due to hiring additional personnel and developing and validating 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.
Marketing expenses
Marketing expenses were $0 thousand for the three-month period ended September
30, 2022, as compared to $113 thousand for the prior-year period. The decrease
is primarily attributable to the Company's decision to reduce/stop its marketing
expenses until the completion of the development of the GlucoTrack® 2.0.
Marketing expenses during the three-month period ended September 30, 2021,
consisted in primarily of professional services, salaries, travel expenses and
other related expenses.
General and administrative expenses
General and administrative expenses were $495 thousand for the three-month
period ended September 30, 2022, as compared to $207 thousand for the prior-year
period. The increase is primarily attributable to the additional expenses that
the company accrued due to its listing on the Nasdaq Capital Market ("NASDAQ").
General and administrative expenses consist primarily of professional services,
salaries, 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, net
Financing income, net was approximately $2 thousand for the three-month period
ended September 30, 2022, as compared to financing income of $9 thousand for the
prior-year period. The decrease in the financing income is mainly 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 $928 thousand for the three-month period ended September 30, 2022,
as compared to $804 thousand for the prior-year period. The increase in net loss
is attributable primarily to the increase in our operating expenses, as
described above.
13
Nine Months ended September 30, 2022 compared to Nine Months ended September 30,
2021
Research and development expenses
Research and development expenses were $1,363 thousand for the nine-month period
ended September 30, 2022, as compared to $1,077 thousand for the prior-year
period. The increase is primarily attributable to developing and validating our
next generation product line.
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 2022 and beyond,
primarily due to hiring additional personnel and developing and validating 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.
Marketing expenses
Marketing expenses were $0 thousand for the nine-month period ended September
30, 2022, as compared to $136 thousand for the prior-year period. The decrease
is primarily attributable to the Company's decision to reduce/stop its Selling
and marketing expenses until the completion of the development of the
GlucoTrack® 2.0.
Marketing expenses consisted primarily of professional services, salaries,
travel expenses and other related expenses.
General and administrative expenses
General and administrative expenses were $1,782 thousand for the nine-month
period ended September 30, 2022, as compared to $1,323 thousand for the
prior-year period. The increase is primarily attributable to hiring of new and
augmented personnel to move forward our business agenda, and to additional
expenses that the company accrued due to its listing on the Nasdaq Capital
Market ("NASDAQ").
General and administrative expenses consist primarily of professional services,
salaries, 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 (expenses), net was approximately $(2) thousand for the
nine-month period ended September 30, 2022, as compared to financing income of
$21 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 $3,148 thousand for the nine-month period ended September 30, 2022,
as compared to $2,561 thousand for the prior-year period. The increase in net
loss is attributable primarily to the increase in our operating expenses, as
described above.
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Going Concern Uncertainty
As of September 30, 2022, cash on hand was approximately $3.2 million. 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.
Net Cash Used in Operating Activities for the Nine-Month Periods Ended September
30, 2022 and September 30, 2021
Net cash used in operating activities was $2,789 thousand and $2,796 thousand
for the nine-month periods ended September 30, 2022 and 2021, respectively. Net
cash used in operating activities primarily reflects the net loss for those
periods of $3,148 thousand and $2,561 thousand, respectively.
Net Cash Used (provided) in Investing Activities for the Nine-Month Periods
Ended September 30, 2022 and September 30, 2021
Net cash used (provided) in investing activities was $4 and $(3) thousand for
the nine-month periods ended September 30, 2022 and 2021, respectively, and was
used (provided) mostly to purchase and sale of equipment.
Off-Balance Sheet Arrangements
As of September 30, 2022, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4) of Regulation S-K.
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