GlucoTrack(GCTK) - 2020 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements, management's discussion, and controls Item 1. Financial Statements. This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive loss, statements of changes in stockholders' equity (deficit), and statements of cash flows, along with their accompanying notes for the period ended March 31, 2020 Condensed Consolidated Balance Sheets This section details the company's financial position, including assets, liabilities, and equity, at specific reporting dates Condensed Consolidated Balance Sheets (March 31, 2020 vs. December 31, 2019) | Item | March 31, 2020 (unaudited) | December 31, 2019 | | :-------------------------------- | :------------------- | :------------------ | | Cash and cash equivalents | $12,422,578 | $418,621 | | Total current assets | $12,814,674 | $718,042 | | Total assets | $13,333,082 | $1,282,461 | | Total current liabilities | $1,983,739 | $2,272,255 | | Total liabilities | $2,385,757 | $2,964,063 | | Total stockholders' equity (deficit) | $10,947,325 | $(1,411,602) | - The company's cash and cash equivalents significantly increased from $418,621 at December 31, 2019, to $12,422,578 at March 31, 2020[9] - Total stockholders' equity shifted from a deficit of $(1,411,602) at December 31, 2019, to a positive equity of $10,947,325 at March 31, 2020[9] Condensed Consolidated Statements of Operations and Comprehensive Loss This section outlines the company's financial performance, including revenues, expenses, and net loss, over specific periods Condensed Consolidated Statements of Operations and Comprehensive Loss (Three-month period ended March 31) | Item | 2020 (unaudited) | 2019 (unaudited) | | :------------------------------------------ | :--------------- | :--------------- | | Revenues | $2,174 | $25,562 | | Research and development expenses | $415,039 | $425,117 | | Selling and marketing expenses | $90,756 | $125,343 | | General and administrative expenses | $251,869 | $500,155 | | Total operating expenses | $757,664 | $1,050,615 | | Operating loss | $755,490 | $1,025,053 | | Financing income, net | $21,721 | $3,400 | | Loss for the period | $(733,769) | $(1,021,653) | | Comprehensive loss for the period | $(714,478) | $(1,054,801) | | Loss per share (Basic and Diluted) | $(0.00) | $(0.01) | - Revenues decreased significantly from $25,562 in Q1 2019 to $2,174 in Q1 2020[11] - Loss for the period decreased from $(1,021,653) in Q1 2019 to $(733,769) in Q1 2020, primarily due to reduced operating expenses[11] Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficit) This section tracks the changes in the company's stockholders' equity or deficit over the reporting period Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficit) (Three-month period ended March 31, 2020) | Item | Balance as of Jan 1, 2020 | Loss for the period | Issuance of Common Stock net of cash issuance costs | Issuance of shares as settlement of financial liabilities | Warrants issued as consideration for placement services | Stock-based compensation | Balance as of Mar 31, 2020 | | :------------------------------------------ | :------------------------ | :------------------ | :-------------------------------------------------- | :-------------------------------------------------------- | :------------------------------------------------------ | :----------------------- | :------------------------- | | Common Stock (Amount) | $161,858 | - | $37,500 | - | - | - | $199,358 | | Additional paid in capital | $89,005,407 | - | $12,215,682 | - | $756,087 | $843 | $101,978,019 | | Receipts on account of shares | - | - | - | $63,293 | - | - | $63,293 | | Accumulated other comprehensive income | $124,062 | - | - | - | - | - | $143,353 | | Accumulated deficit | $(90,702,929) | $(733,769) | - | - | - | - | $(91,436,698) | | Total Stockholders' Equity (Deficit) | $(1,411,602) | $(733,769) | $12,253,182 | $63,293 | $756,087 | $843 | $10,947,325 | - Total Stockholders' Equity (Deficit) increased from $(1,411,602) at January 1, 2020, to $10,947,325 at March 31, 2020, primarily driven by the issuance of common stock[14] - Issuance of Common Stock net of cash issuance costs contributed $12,253,182 to equity during Q1 2020[14] Condensed Consolidated Statements of Cash Flows This section presents the cash inflows and outflows from operating, investing, and financing activities for the period Condensed Consolidated Statements of Cash Flows (Three-month period ended March 31) | Item | 2020 (unaudited) | 2019 (unaudited) | | :------------------------------------------ | :--------------- | :--------------- | | Net cash used in operating activities | $(989,105) | $(821,023) | | Net cash used in investing activities | $(14,615) | $(6,378) | | Net cash provided by financing activities | $13,009,269 | $756,111 | | Change in cash, cash equivalents, and restricted cash | $12,002,304 | $(64,823) | | Cash, cash equivalents, and restricted cash at end of the period | $12,478,017 | $84,861 | - Net cash provided by financing activities increased substantially from $756,111 in Q1 2019 to $13,009,269 in Q1 2020[16] - Cash, cash equivalents, and restricted cash at the end of the period increased significantly to $12,478,017 in Q1 2020 from $84,861 in Q1 2019[16] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements NOTE 1 – GENERAL This note describes the company's primary operations, financial condition, and going concern assessment - The Company's primary operations are carried out by its Israeli subsidiary, Integrity Israel, which focuses on non-invasive glucose monitoring devices[23] - As of March 31, 2020, the Company had an accumulated deficit of $91,436,698 and has reported losses and negative cash flows from operations since inception[23] - A $15 million private placement (net cash over $13,009,269) closed on February 14, 2020, is expected to provide sufficient capital for at least 12 months, supporting the going concern assumption[22] NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the key accounting principles, estimates, and assumptions used in preparing the financial statements - The unaudited condensed consolidated financial statements are prepared in accordance with SEC rules for interim financial statements and U.S. GAAP, with certain information condensed or omitted[25] - Significant estimates and assumptions include the measurement of benefits to warrants with down-round protection, going concern assumptions, stock-based compensation, and inventory valuation[30] - Diluted net loss per share calculation excluded 82,442,314 and 76,597,357 outstanding stock options and warrants for Q1 2020 and Q1 2019, respectively, as their effect was anti-dilutive[29] NOTE 3 – RECENT EVENTS This note highlights significant events, including product approvals, financing activities, and potential risks - On January 21, 2020, the Company received CE Mark approval for a major enhancement to GlucoTrack, enabling user self-calibration, reducing calibration time to 30 minutes, and frequency to once every six months[34] - On February 14, 2020, the Company closed a $15,000,000 private placement of common stock, receiving net proceeds of $13,009,269[34] - The Company identified potential risks to its business due to the current COVID-19 pandemic, including impacts on product demand and global economies[33] NOTE 4 – INVENTORIES This note provides a breakdown of the company's inventory components and valuation Inventories (March 31, 2020 vs. December 31, 2019) | Item | March 31, 2020 (unaudited) | December 31, 2019 | | :-------------------------------- | :------------------- | :------------------ | | Raw materials | $14,848 | $18,381 | | Work in process | $1,618,178 | $1,541,932 | | Finished products | $48,833 | $80,886 | | Total | $1,681,859 | $1,641,199 | | Less – provision for slow moving inventory | $(1,456,597) | $(1,456,597) | | Net Inventory | $225,262 | $184,602 | - Net inventory increased from $184,602 at December 31, 2019, to $225,262 at March 31, 2020[36] NOTE 5 – LEASES This note details the company's operating lease agreements, associated costs, and liabilities Operating Lease Costs (Three Months Ended March 31, 2020) | Item | Amount (unaudited) | | :---------- | :----------------- | | Office space | $30,000 | | Vehicles | $9,666 | | Total | $39,666 | - Remaining lease terms are 0.67 years for office space and 2.14 years for vehicles, with a weighted average discount rate of 10% for both[38] - Total operating lease payments as of March 31, 2020, are $162,462, with a present value of lease liabilities of $149,411[41] NOTE 6 – FINANCING INCOME, NET This note presents the components of the company's financing income and expenses Financing Income, Net (Three-month period ended March 31) | Item | 2020 (unaudited) | 2019 (unaudited) | | :------------------------------------------------ | :--------------- | :--------------- | | Israeli CPI linkage difference on principal of loans from stockholders | $(186) | $(523) | | Exchange rate differences | $(121) | $8,063 | | Interest Income (expenses) on credit from banks and others | $22,028 | $(4,140) | | Total Financing income, net | $21,721 | $3,400 | - Net financing income increased from $3,400 in Q1 2019 to $21,721 in Q1 2020, primarily due to interest income[42] NOTE 7 – SUBSEQUENT EVENTS This note reports significant events that occurred after the balance sheet date - On April 23, 2020, the Company increased its authorized shares of common stock from 200,000,000 to 500,000,000[43] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business, critical accounting policies, detailed analysis of revenue and expenses, liquidity, and capital resources. It also includes cautionary notes regarding forward-looking statements and risks Overview This section introduces the company's business, core product, and strategic commercialization efforts - The Company is a medical device company focused on non-invasive glucose monitoring devices (GlucoTrack® model DF-F) for people with diabetes and prediabetes[47] - GlucoTrack® utilizes a patented combination of ultrasound, electromagnetic, and thermal technologies to obtain blood glucose measurements in less than one minute[47] - Recent CE Mark approval (January 21, 2020) allows for user self-calibration, reducing calibration time to 30 minutes and frequency to once every six months, enhancing commercial viability[51][52] - Strategic commercialization efforts include selecting appropriate distribution partners, targeting key customer segments, revising cost structures, and seeking reimbursement approval, with a pilot program underway in the Netherlands[54][55] - The company is developing companion applications and a cloud-based solution, aiming to create an additional revenue source by monetizing de-identified data[48] Critical Accounting Policies This section highlights the accounting policies requiring significant management judgment and estimation - The most significant estimates and assumptions relate to the measurement of the benefit to warrants with down-round protection and the going concern assumption[57] - Due to the early stage of operations, management considers the going concern assessment as the primary critical accounting policy[58] Results of Operations This section analyzes the company's financial performance by examining revenue and expense categories Revenues This section details the company's revenue performance and contributing factors Revenues (Three-month period ended March 31) | Period | Amount | | :----- | :----- | | 2020 | $2,174 | | 2019 | $25,562 | - Revenues decreased significantly in Q1 2020 compared to Q1 2019 due to a decrease in orders for GlucoTrack® and PEC products[60] Research and development expenses This section analyzes the company's research and development expenditures and future expectations Research and Development Expenses (Three-month period ended March 31) | Period | Amount | | :----- | :----- | | 2020 | $415,039 | | 2019 | $425,117 | - R&D expenses decreased slightly in Q1 2020, primarily due to lower salary and personnel-related expenses, including stock-based compensation[62] - R&D expenses are expected to increase in 2020 and beyond due to hiring additional personnel, product line development, and GlucoTrack® improvements[63] Selling and marketing expenses This section analyzes the company's selling and marketing expenditures and future strategic focus Selling and Marketing Expenses (Three-month period ended March 31) | Period | Amount | | :----- | :----- | | 2020 | $90,756 | | 2019 | $125,343 | - Selling and marketing expenses decreased in Q1 2020, mainly due to a strategic decision to reduce business development personnel in the European market[64] - These expenses are expected to increase in 2020 and beyond as the company focuses on marketing and sales of GlucoTrack® and potential FDA clinical trials[65] General and administrative expenses This section analyzes the company's general and administrative expenditures and their drivers General and Administrative Expenses (Three-month period ended March 31) | Period | Amount | | :----- | :----- | | 2020 | $251,869 | | 2019 | $500,155 | - G&A expenses decreased significantly in Q1 2020, primarily due to the departure of former executives, reduced professional fees, and lower stock-based compensation[66] Financing income, net This section analyzes the company's net financing income and its components Financing Income, Net (Three-month period ended March 31) | Period | Amount | | :----- | :----- | | 2020 | $21,721 | | 2019 | $3,400 | - Net financing income increased to $21,721 in Q1 2020 from $3,400 in Q1 2019[68] Net Loss This section analyzes the company's net loss and its primary drivers Net Loss (Three-month period ended March 31) | Period | Amount | | :----- | :----- | | 2020 | $(733,769) | | 2019 | $(1,021,653) | - Net loss decreased in Q1 2020, primarily due to the reduction in operating expenses[69] Liquidity and Capital Resources This section discusses the company's ability to meet its financial obligations and manage its capital - As of March 31, 2020, cash on hand was approximately $12.4 million, primarily from a $15 million private placement (net cash of $13 million) in February 2020[70] - The current cash and cash equivalents are expected to enable operations for over one year from the report date[70] - The company has outstanding loans from stockholders (totaling $143,662 as of March 31, 2020) that are not required to be repaid until the first year of accounting profit[71] - A contingent liability for royalty payments to the Office of the Chief Scientist of the Ministry of Industry, Trade and Labor of the State of Israel was approximately $34,000 as of March 31, 2020[72] Net Cash Used in Operating Activities This section analyzes the cash flows generated or used by the company's core business operations Net Cash Used in Operating Activities (Three-month period ended March 31) | Period | Amount | | :----- | :----- | | 2020 | $(989,105) | | 2019 | $(821,023) | - Net cash used in operating activities increased in Q1 2020, primarily reflecting the net loss for the period[73] Net Cash Used in Investing Activities This section analyzes the cash flows related to the company's investment activities Net Cash Used in Investing Activities (Three-month period ended March 31) | Period | Amount | | :----- | :----- | | 2020 | $(14,615) | | 2019 | $(6,378) | - Cash used in investing activities was primarily for the purchase of equipment[75] Net Cash Provided by Financing Activities This section analyzes the cash flows resulting from the company's financing activities Net Cash Provided by Financing Activities (Three-month period ended March 31) | Period | Amount | | :----- | :----- | | 2020 | $13,009,269 | | 2019 | $756,111 | - Net cash provided by financing activities significantly increased in Q1 2020 due to net capital raised from the February 2020 private placement and common stock issuance[76] Off-Balance Sheet Arrangements This section discloses any material off-balance sheet commitments or obligations of the company - As of March 31, 2020, the Company did not have any off-balance sheet arrangements[77] Item 3. Quantitative and Qualitative Disclosures About Market Risk. This item is not required for smaller reporting companies - The Company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[78] Item 4. Controls and Procedures. This section discusses the evaluation of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures This section assesses the effectiveness of controls for financial reporting - Management, including the President and Interim Chief Financial Officer, evaluated the effectiveness of disclosure controls and procedures as of March 31, 2020[79] - It was concluded that the disclosure controls and procedures were effective at the reasonable assurance level[79] Changes in Internal Control over Financial Reporting This section reports any changes in internal controls - There were no changes in internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[80] PART II - OTHER INFORMATION This section includes additional information not covered in the financial statements, such as equity sales and exhibits Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's unregistered sales of equity securities, including the Series D Units offering in 2019 and a significant private placement of common stock in February 2020, along with associated placement agent compensation Offering of Series D Units This section describes the company's private placement of Series D Units and common stock - During 2019, the Company received aggregate gross proceeds of $4,873,520 from the private placement of Series D Units to accredited investors[82] - On February 14, 2020, the Company sold 37,500,000 shares of common stock to an accredited investor for an aggregate gross purchase price of $15,000,000[86] Placement Agent Compensation This section outlines the compensation, including cash and warrants, provided to placement agents - For the Series D Units offering, the placement agent received a cash commission of 10% of the aggregate sales price, a 3% non-accountable expense allowance, and warrants to purchase up to 10% of the shares and warrants issued[87] - In Q1 2020, Andrew Garrett was paid $1,950,000 in fees and issued a warrant to purchase 3,750,000 shares for placement agent services related to the February 2020 private placement[87] Item 6. Exhibits. This section lists the exhibits filed as part of the Form 10-Q, including organizational documents, agreements, and certifications - Exhibits include the Merger Agreement, Certificate of Incorporation, Bylaws, Form of Securities Purchase Agreement, and various certifications (e.g., Section 302 and 906 of Sarbanes-Oxley Act)[88] - XBRL Instance, Schema, Calculation, Label, Presentation, and Definition Linkbase Documents are also included[88] SIGNATURES This section contains the required signatures of the company's authorized officers, certifying the filing of the report - The report was signed on May 19, 2020, by David Malka, President (Principal Executive Officer), and Jolie Kahn, Interim Chief Financial Officer (Principal Financial Officer)[91]