GlucoTrack, Inc. - Quarter Report: 2021 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended September 30, 2021 |
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from ________________ to ________________ |
Commission File Number: 000-54785
INTEGRITY APPLICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 98-0668934 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
8 Ariel Sharon Street P.O. Box 6037607 Or Yehuda, Israel |
L3 7760049 | |
(Address of principal executive offices) | (Zip Code) |
972 (8) 675-7878
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
None. |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer ☒ | Smaller reporting company ☒ | |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 12, 2021, shares of the Company’s common stock, par value $0.001 per share, were outstanding.
INTEGRITY APPLICATIONS, INC.
TABLE OF CONTENTS
2 |
INTEGRITY APPLICATIONS, INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INTEGRITY APPLICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands of US dollars (except share data) | ||||||||
September 30, 2021 | December 31, 2020 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | 7,000 | 9,823 | ||||||
Accounts receivable, net | 66 | 66 | ||||||
Inventory | 288 | 284 | ||||||
Other current assets | 65 | 56 | ||||||
Total current assets | 7,419 | 10,229 | ||||||
Operating lease right-of-use assets, net | 65 | 166 | ||||||
Property and equipment, net | 71 | 149 | ||||||
Non-current Restricted Cash | 78 | 62 | ||||||
TOTAL ASSETS | 7,633 | 10,606 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable | 645 | 869 | ||||||
Operating lease liabilities, current | 32 | 84 | ||||||
Other current liabilities | 221 | 392 | ||||||
Total Current Liabilities | 898 | 1,345 | ||||||
Non-current Liabilities | ||||||||
Long-Term Loans from Stockholders | 201 | 197 | ||||||
Operating lease liabilities, non-current | 33 | 82 | ||||||
Total Non-current liabilities | 234 | 279 | ||||||
Total Liabilities | 1,132 | 1,624 | ||||||
Stockholders’ Equity | ||||||||
Common Stock of $ | par value (“Common Stock”):||||||||
shares authorized; shares issued and outstanding as of September 30, 2021 and December 31, 2020 | 15 | 15 | ||||||
Additional paid-in capital | 102,417 | 102,351 | ||||||
Accumulated other comprehensive income | 4 | 15 | ||||||
Receipts on account of shares | 25 | |||||||
Accumulated deficit | (95,960 | ) | (93,399 | ) | ||||
Total Stockholders’ equity | 6,501 | 8,982 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | 7,633 | 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
US dollars (except share data) | US dollars (except share data) | |||||||||||||||
Nine-month period ended September 30, | Three-month
period ended September 30, | |||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Research and development | 1,077 | 1,268 | 447 | 476 | ||||||||||||
Selling and marketing expenses | 136 | 274 | 113 | 93 | ||||||||||||
General and administrative | 1,323 | 712 | 207 | 318 | ||||||||||||
Total operating expenses | 2,536 | 2,254 | 767 | 887 | ||||||||||||
Operating Loss | (2,536 | ) | (2,254 | ) | (767 | ) | (887 | ) | ||||||||
Other Income (expenses) | (46 | ) | 338 | (46 | ) | 338 | ||||||||||
Finance Income, net | 21 | 99 | 9 | 40 | ||||||||||||
Net Loss | (2,561 | ) | (1,817 | ) | (804 | ) | (509 | ) | ||||||||
Other comprehensive expenses: | ||||||||||||||||
Foreign currency translation adjustment | (11 | ) | (24 | ) | (4 | ) | (18 | ) | ||||||||
Comprehensive loss for the period | (2,572 | ) | (1,841 | ) | (808 | ) | (527 | ) | ||||||||
Net Loss per Common Share | ||||||||||||||||
Basic | (0.17 | ) | (0.12 | ) | (0.05 | ) | (0.03 | ) | ||||||||
Diluted | (0.17 | ) | (0.12 | ) | (0.05 | ) | (0.03 | ) | ||||||||
Average number of common shares used in computing basic and diluted loss per share | 15,448,923 | 14,947,139 | 15,451,726 | 15,425,968 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4 |
INTEGRITY APPLICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
US Dollars (except share data) | ||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||
Common Stock | Additional | Receipts on account | Accumulated Other | Total Stockholders’ | ||||||||||||||||||||||||
Numbers of Shares | Amount | Paid-in Capital | of shares | Comprehensive Loss | Accumulated Deficit | Equity (Deficit) | ||||||||||||||||||||||
Balance at January 1, 2020 | 12,450,649 | 12 | 89,155 | - | 124 | (90,703 | ) | (1,412 | ) | |||||||||||||||||||
Loss for the period | - | - | - | - | - | (1,817 | ) | (1,817 | ) | |||||||||||||||||||
Other comprehensive loss | - | - | - | - | (24 | ) | - | (24 | ) | |||||||||||||||||||
Amounts allocated to issuance of Common Stock | 2,884,615 | 3 | 12,250 | - | - | - | 12,253 | |||||||||||||||||||||
Issuance of shares as settlement of financial liabilities | 100,818 | - | 120 | 48 | - | - | 168 | |||||||||||||||||||||
Warrants issued as consideration for placement agent services | - | - | 756 | - | - | - | 756 | |||||||||||||||||||||
Stock-based compensation | - | - | 22 | - | - | - | 22 | |||||||||||||||||||||
Balance at September 30, 2020 | 15,436,082 | 15 | 102,303 | 48 | 100 | (92,520 | ) | 9,946 | ||||||||||||||||||||
Balance at July 1, 2020 | 15,425,005 | 15 | 102,237 | 63 | 118 | (92,011 | ) | 10,422 | ||||||||||||||||||||
Loss for the period of three months | - | - | - | - | - | (509 | ) | (509 | ) | |||||||||||||||||||
Other comprehensive loss | - | - | - | - | (18 | ) | - | (18 | ) | |||||||||||||||||||
Issuance of shares as settlement of financial liabilities | 11,077 | - | 57 | (15 | ) | - | - | 42 | ||||||||||||||||||||
Stock-based compensation | - | - | 9 | - | - | - | 9 | |||||||||||||||||||||
Balance at September 30, 2020 | 15,436,082 | 15 | 102,303 | 48 | 100 | (92,520 | ) | 9,946 | ||||||||||||||||||||
Balance at January 1, 2021 | 15,444,697 | 15 | 102,351 | - | 15 | (93,399 | ) | 8,982 | ||||||||||||||||||||
Loss for the period | - | - | - | - | - | (2,561 | ) | (2,561 | ) | |||||||||||||||||||
Other comprehensive loss | - | - | - | - | (11 | ) | - | (11 | ) | |||||||||||||||||||
Issuance of shares as settlement of financial liabilities | - | - | - | 25 | - | - | 25 | |||||||||||||||||||||
Stock-based compensation | - | - | 66 | - | - | - | 66 | |||||||||||||||||||||
Balance at September 30, 2021 | 15,444,697 | 15 | 102,417 | 25 | 4 | (95,960 | ) | 6,501 | ||||||||||||||||||||
Balance at July 1, 2021 | 15,444,697 | 15 | 102,409 | 10 | 8 | (95,156 | ) | 7,286 | ||||||||||||||||||||
Loss for the period | - | - | - | - | - | (804 | ) | (804 | ) | |||||||||||||||||||
Other comprehensive loss | - | - | - | - | (4 | ) | - | (4 | ) | |||||||||||||||||||
Issuance of shares as settlement of financial liabilities | - | - | - | 15 | - | - | 15 | |||||||||||||||||||||
Stock-based compensation | - | - | 8 | - | - | - | 8 | |||||||||||||||||||||
Balance at September 30, 2021 | 15,444,697 | 15 | 102,417 | 25 | 4 | (95,960 | ) | 6,501 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5 |
INTEGRITY APPLICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
US Dollars | ||||||||
Nine-month period ended September 30. | ||||||||
2021 | 2020 | |||||||
(Unaudited) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Loss for the period | $ | (2,561 | ) | $ | (1,817 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 33 | 35 | ||||||
Capital loss on sale of property and equipment | 41 | |||||||
Stock-based compensation | 66 | 22 | ||||||
Linkage difference on principal of loans from stockholders | 5 | (1 | ) | |||||
Gain from settlement of liability to service provider | (338 | ) | ||||||
Changes in assets and liabilities: | ||||||||
Increase in inventory | (6 | ) | (94 | ) | ||||
Increase in other current assets | (9 | ) | (11 | ) | ||||
Decrease in accounts payable | (223 | ) | (360 | ) | ||||
Decrease in other current liabilities | (142 | ) | (93 | ) | ||||
Net cash used in operating activities | (2,796 | ) | (2,657 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Proceeds from sale of property and equipment | 4 | |||||||
Purchase of property and equipment | (1 | ) | (46 | ) | ||||
Net cash provided by (used in) investing activities | 3 | (46 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from 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 and cash equivalents, and restricted cash | (14 | ) | (18 | ) | ||||
Increase (decrease) in cash, cash equivalents, and restricted cash | (2,807 | ) | 10,288 | |||||
Cash, cash equivalents, and restricted cash at beginning of the period | 9,885 | 476 | ||||||
Cash, cash equivalents, and restricted cash, end of period | $ | 7,078 | $ | 10,764 |
Supplementary information on financing activities not involving cash flows (unaudited):
During the Nine months ending September 30, 2021 and 2020, the Company settled independent board members’ fees for the first nine month of 2020 and 2021 in the amount of approximately $168 and $25 thousand through the issuance of shares of common stock.
During the Nine months ending September 30, 2020, an amount of $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.
The accompanying notes are an integral part of these condensed consolidated financial statements.
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 September 30, 2021, the Company has an accumulated deficit of $95,960 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 September 30,2021, the company had cash and cash equivalents in the amount of approximately $7,000 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. | |
C. | In connection with its application to list its shares on NASDAQ, on August 13, 2021, the Company effected a reverse split of its Ordinary Shares in a ratio of 1 for 13 (the “Reverse Share Split”). For accounting purposes, all Shares, options and warrants to purchase Ordinary Shares and loss per share amounts have been adjusted to give retroactive effect to this Reverse Share Split for all periods presented in these consolidated interim financial statements. Any fractional shares resulting from the Reverse Share Split were rounded up to the nearest whole share. | |
D. | On September 27, 2021, the Company’s shelf registration statement on Form S-3 (file no. 333-259664) was declared effective by the SEC. The shelf registration statement permits the Company to register upto $100,000,000 of certain equity and debt securities of the Company via prospectus supplement.
|
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 and nine months ended September 30, 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 and outstanding stock options and stock warrants have been excluded from the calculation of the diluted net loss per share for the periods of nine months ended September 30, 2021 and 2020, respectively, because the effect of the common shares issuable as a result of the exercise of such 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 interim 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. |
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 | ||||
Nine Months Ended | ||||
September 30, 2021 | ||||
(unaudited) | ||||
Operating lease cost: | ||||
Office space | 86 | |||
Vehicles | 32 | |||
118 | ||||
Remaining Lease Term | ||||
vehicles | 2.29 years | |||
Weighted Average Discount Rate | ||||
Office space | 10 | % | ||
Vehicles | 10 | % |
9 |
INTEGRITY APPLICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 3 – LEASES (cont.)
The following is a schedule, by years, of maturities of operating lease liabilities as of September 30, 2021:
US dollars | ||||
September 30, 2021 | ||||
(unaudited) | ||||
Period: | ||||
The remainder of 2021 | 8 | |||
2022 | 34 | |||
2023 | 29 | |||
Total operating lease payments | 71 | |||
Less: imputed interest | 6 | |||
Present value of lease liabilities | 65 |
NOTE 4 – SUBSEQUENT EVENTS
None. [to be updated if any before filing].
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
Incorporated in Delaware in May 2010, 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 and pre-diabetics. 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.
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 glucose monitor, the GlucoTrack® glucose monitoring device, which is 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 GlucoTrack (“GlucoTrack 1.0”) utilizes a patented combination of ultrasound, electromagnetic and thermal technologies to obtain 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 or interstitial fluid.
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.
After a home-based short calibration process of approximately thirty minutes consisting of three typical blood glucose reference measurements, GlucoTrack 1.0 can be used to non-invasively measure glucose levels for six months before a user is required to repeat the calibration process. The entire calibration process can be performed by the user themselves without the need for a trained calibrator. We believe the simple-to-perform calibration, as well as the infrequency of the required re-calibration are significant advantages over our competition.
GlucoTrack 1.0 has 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 1.0 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. The intended use for GlucoTrack 1.0 received by the Notified Body is for both those subjects with Type 2 diabetes as well as those suffering from pre-diabetes.
11 |
Receipt of the CE Mark allows us to market and sell GlucoTrack 1.0 glucose monitoring device in EU member countries that have adopted the European Medical Device Directive (the “MDD”) without being subject to additional national regulations with regard to demonstration of performance and safety. However, although the MDD is applicable throughout the EU, in practice it does not ensure uniform regulation throughout the EU. Accordingly, member countries may apply and enforce the MDD’s terms differently, and certain EU member countries may request or require performance and/or safety data in addition to the MDD’s requirements from time to time, on a case-by-case basis. The CE Mark also permits the sale in countries that have an MDD Mutual Recognition Agreement with the EU. This would include some countries in South East Asia as well as in Latin America, opening new potential markets for Integrity on a global basis.
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 March 1, 2019 we received an extension of our ISO 13485:2016 certificate and Annex II certification from the EU. The ISO 13485:2016 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 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 13485:2016 and Annex II certifications enable us to potentially reduce the time to market for product sales on new, enhanced or modified GlucoTrack devices.
Clinical trials conducted in Germany by Pfutzner Science & Health Institute, GmbH, headed by Prof. Dr. Andreas Pfutzner, on subjects with Type 2 diabetes and pre-diabetes, as well as at Soroka University Medical Center, Beer-Sheva, Israel, demonstrated favorable results. Results from the trials show 99.3% of the study data points were within the clinically accepted A and B zones of the Clarke Error Grid (which is a tool used to quantify the clinical accuracy of blood glucose estimates generated by meters as compared to a reference value), and 17.0% Mean Absolute Relative Difference. In addition, the German trial concluded that the data confirms the performance of the GlucoTrack among its intended users, including pre-diabetic patients.
In addition, the Company has demonstrated (1) GlucoTrack 1.0 demonstrates consistent glucose measurement repeatability between different GlucoTrack devices and on each earlobe of the same subject; (2) the repeatability of different GlucoTrack 1.0 devices is similar at all tested glucose ranges and post-prandial time periods; and (3) the GlucoTrack 1.0 mean precision absolute relative difference (PARD) of 8.2% is equivalent or better than the independently reported PARD values of commercially available continuous glucose monitoring systems.
12 |
The Company conducted an additional study that evaluated GlucoTrack accuracy in 172 adults with type 2 diabetes who were prescribed one or more medications for major medical conditions associated with diabetes and presented key findings of this study at the European Association for the Study of Diabetes Congress (EASD) in Lisbon, Portugal. The experiment stratified participants into five medication groups, focusing on anti-cholesterolemia, anti-hypertension, anti-thrombotic, and anti-diabetic (prolonged duration and short and mixed duration) medications. The study demonstrated that the use of these common concomitant medications in diabetes had no effect on the performance of GlucoTrack 1.0.
The Company had begun the implementation of a proof-of-concept pilot program for GlucoTrack 1.0 in the Netherlands, a country chosen based on the relatively smaller size of the marketplace to allow us to rapidly assess our performance and make adjustments as necessary. We have been working closely with our exclusive distributor in the Netherlands, Medireva B.V., and have accomplished product and disease area training across the organization and segmentation of the local target audiences including key opinion leaders, treating physicians, and diabetes nurses. The most important aspect of our pilot program in the Netherlands are the discussions 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. The Company has made progress with several of these companies on initial programs with GlucoTrack 1.0 as an important step towards reimbursement approval.
Talent development, recruiting and organizational health have been a critical focus of the Company. A number of high-quality individuals have joined the Company, each of whom bring extensive experience in their respective fields. We have bolstered our Senior Management with the recruitment of Erez Ben-Zvi, a highly experienced MedTech development professional who joined us last year as Vice President of Product, and recently took on the additional role of General Manager, and Shalom Shushan, a seasoned executive who joined us as Chief Technology Officer. 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, was appointed as President and Chief Operating Officer. 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 at Samsung Health and formerly of Dexcom, 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.
Recently, the Company performed a top-down analysis of the GlucoTrack 1.0 model to identify areas of potential enhancement, as it relates to the platform, integrations, sensor technologies, accuracy as well as manufacturing costs. The result of this comprehensive review is an accelerated development plan for GlucoTrack 2.0. GlucoTrack 2.0 will be a completely wireless and rechargeable earclip to be paired with a smartphone, with more capabilities and features, increased accuracy, significantly greater margins for the Company and lower cost to the end-user as compared to GlucoTrack 1.0.
As previously reported, the Company has made significant progress towards receiving insurance reimbursement in the Netherlands. With the new accelerated development plan for GlucoTrack 2.0, and all of the expected advantages over GlucoTrack 1.0, it became clear to the Company that introducing GlucoTrack 2.0 rather than the GlucoTrack 1.0 would serve the diabetes market and the Company more effectively. We are currently working with our European partners on the roadmap for distribution of GlucoTrack 2.0 when completed and ready to market.
In addition to the European markets, the Company is now focused on the U.S. market as well, including building out its U.S. go-to-market strategy and planning the required FDA clinical trials and field testing to support its entrance into the market. The Company is currently in the process of identifying clinical sites in the U.S., interviewing Contract Research Organizations (CRO’s), and forming its Scientific and Medical Advisory Boards. We intend to build out a team to support the U.S. activities while continuing our technology development in our R&D facility located in Israel.
13 |
On October 19, 2021, Paul V. Goode was appointed as President and Chief Operating Officer of Integrity Applications, Inc. (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 will be stepping down from the Board. In this role, Goode will lead the company’s operations, overseeing strategy, design, manufacturing, business and product development and begin to build the U.S. infrastructure in preparation for the U.S. clinical trials of GlucoTrack. He will devote such time as necessary to perform his duties but shall be able to pursue other professional opportunities at the same time. His base salary shall be $175,000 per year, and he shall be entitled to a cash bonus of up to 20% of his annual base salary as determined by the Company’s Compensation Committee and shall be granted options to purchase up to One and half Percent (1.5%) of the fully diluted common stock, par value $0.001 per share, of the Company (“Common Stock”) as of the Effective Date, with a per share exercise price equal to the greater of (A) $5.20 per share or (B) the closing price of a share of Common Stock on the Effective Date, as reported by Bloomberg L.P., which shall vest in equal monthly installments over a three year period following the Effective Date. The bonus and equity incentives shall be subject to clawback rights if there is a misstatement of financials which changes any metrics upon which a bonus or incentives are based and the clawback will be pro rata based upon the changes in the financials with respect to the effect on any underlying metrics.
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.
14 |
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, 2021 compared with the same period ended September 30, 2020. The discussion should be read in conjunction with the financial statements and related notes included elsewhere in this report.
Three Months ended September 30, 2021 compared to Three Months ended September 30, 2020
Revenues
During the three-month period ended September 30, 2021, we had no revenues.
Research and development expenses
Research and development expenses were $447 thousand for the three-month period ended September 30, 2021, as compared to $476 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 $113 thousand for the three-month period ended September 30, 2021, as compared to $93 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 $207 thousand for the three-month period ended September 30, 2021, as compared to $318 thousand for the prior-year period. The increase is primarily attributable to hiring of new and augmented personnel to move forward our business agenda.
15 |
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 approximately $9 thousand for the three-month period ended September 30, 2021, as compared to financing income of $40 thousand for the prior-year period. The decrease is immaterial.
Net Loss
Net loss was $804 thousand for the three-month period ended September 30, 2021, as compared to $509 thousand for the prior-year period. The increase in net loss is attributable primarily to one-time income in the amount of $ 338 recorded in the three-month period ended September 30, 2020 resulting from an agreement signed with one of our suppliers.
Nine Months ended September 30, 2021 compared to Nine Months ended September 30, 2020
Revenues
During the nine-month period ended September 30, 2021, we had no revenues.
Research and development expenses
Research and development expenses were $1,077 thousand for the nine-month period ended September 30, 2021, as compared to $1,268 thousand for the prior-year period. The decrease is attributable to a decrease in research and development as the change in management evaluates the Company’s direction and potential move to clinical trials in the U.S.
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 $136 thousand for the nine-month period ended September 30, 2021, as compared to $274 thousand for the prior-year period. The decrease is attributable to the occurrence of minimal sales and marketing activities in 2021.
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 $1,323 thousand for the nine-month period ended September 30, 2021, as compared to $712 thousand for the prior-year period. The increase is primarily attributable to hiring of new and augmented personnel to move forward our business agenda.
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 approximately $21 thousand for the nine-month period ended September 30, 2021, as compared to financing income of $99 thousand for the prior-year period. The decrease is due to lower interest rates on savings accounts.
Net Loss
Net loss was $2,561 thousand for the nine-month period ended September 30, 2021, as compared to $1,817 thousand for the prior-year period. The increase in net loss is attributable primarily to one-time income in the amount of $ 338 recorded in the nine-month period ended September 30, 2020 resulting from an agreement signed with one of our suppliers.
16 |
Liquidity and Capital Resources
As of September 30, 2021, cash on hand was approximately $7 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.
On September 27, 2021, the Company’s shelf registration statement on Form S-3 (file no. 333-259664) was declared effective by the SEC. The shelf registration statement permits the Company to register up to $100,000,000 of certain equity and debt securities of the Company via prospectus supplement.
Net Cash Used in Operating Activities for the Nine-Month Periods Ended September 30, 2021 and September 30, 2020
Net cash used in operating activities was $2,796 thousand and $2,657 thousand for the nine-month periods ended September 30, 2021 and 2020, respectively. Net cash used in operating activities primarily reflects the net loss for those periods of $2,561 thousand and $1,817 thousand, respectively.
Net Cash Used in Investing Activities for the Nine-Month Periods Ended September 30, 2021 and September 30, 2020
Net cash used (provided) in investing activities was $(3) and $46 thousand for the nine-month periods ended September 30, 2021 and 2020, respectively, and was used mostly to purchase equipment (such as computers, research and development, and office equipment).
Net Cash Provided by Financing Activities for the Nine-Month Periods Ended September 30, 2021 and September 30, 2020
Net cash provided by financing activities was $0 and $13,009 thousand for the nine-month periods ended September 30, 2021 and 2020, respectively. Cash provided by financing activities for the nine-month period ended September 30, 2020 reflected net capital raised from the February 2020 private placement and issuance of our common stock.
Off-Balance Sheet Arrangements
As of September 30, 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.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Interim Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2021, our President and Interim Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
17 |
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Private Placement
On February 14, 2020, we entered into a Securities Purchase Agreement and Registration Rights Agreement with an accredited investor, pursuant to which the accredited investor purchased 2,884,615 shares (post adjustment to reflect the effect of the reverse stock split described in Note 4 to part I - FINANCIAL INFORMATION) per share, for an aggregate gross purchase price of $15,000 thousand.
Placement Agent Compensation
In the nine-months ended September 30, 2020, Andrew Garrett was paid $1,950 thousand in fees in connection therewith, and issued a warrant to purchase 288,462 shares (post adjustment to reflect the effect of the reverse stock split described in Note 4 to part I - FINANCIAL INFORMATION) to the placement agent with terms similar to the terms of the Placement Agent Warrants issued in 2019.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
Item 6. Exhibits.
Exhibit No. | Description | |
31.1 | Certification of Principal Executive Officer and Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of Principal Executive Officer and Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | XBRL Instance Document (2) | |
101.SCH | XBRL Schema Document (2) | |
101.CAL | XBRL Calculation Linkbase Document (2) | |
101.LAB | XBRL Label Linkbase Document (2) | |
101.PRE | XBRL Presentation Linkbase Document (2) | |
101.DEF | XBRL Definition Linkbase Document (2) | |
104 | Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101). |
18 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: November 15, 2021
INTEGRITY APPLICATIONS, INC. | ||
By: | /s/ Jolie Kahn | |
Name: | Jolie Kahn | |
Title | Interim Chief Financial Officer | |
(Principal Executive and Financial Officer) |
19 |