BUSINESS

 

Overview

 

On July 15, 2010, Integrity U.S., Integrity Israel, and Integrity Acquisition completed a reorganization, pursuant to which Integrity Acquisition 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.  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 our wholly-owned subsidiary.

 

On April 29, 2010, Integrity Israel received a tax ruling from the Israeli Tax Authorities pursuant to which the former stockholders and options holders of Integrity Israel will be exempt from tax liability with respect to the reorganization until they sell their holdings in our Company, provided that they deposit all their shares and options with a trustee for a period of two years from the issuance of shares in connection with the reorganization, give their written consent to the tax ruling and satisfy additional conditions detailed in the ruling. As a result, none of such stockholders will be entitled to sell any of their shares of common stock for such two year period.  Approximately 82% of our stockholders at the time of the reorganization complied with the ruling.

 

We are a development stage medical device company focused on the design, development and commercialization of non-invasive glucose monitoring devices for use by persons suffering from diabetes.  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 blood glucose monitor, the GlucoTrack DF-F, which is designed to help people with diabetes obtain blood glucose level readings without the pain, inconvenience, cost and difficulty of conventional (invasive) spot finger stick devices.  The GlucoTrack DF-F utilizes a patented combination of ultrasound, electromagnetic and thermal technologies to obtain blood 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.  Integrity Israel has conducted pre-clinical trials involving over 5,000 readings from approximately 350 patients over the last five years.  Clinical data collected during 2009 at the Soroka University Medical Center in Be’er Sheva, Israel indicate a positive correlation between GlucoTrack DF-F readings and those obtained from conventional invasive devices. More specifically, a set of pre-clinical trials conducted on 89 patients of various weights, age, diabetes type and gender involved 1,772 measurements, of which 96% were within the clinically acceptable zones of the CEG, (zones A and B).  Similarly, an at home study of four participants resulted in approximately 90% of the measurements within clinically acceptable zones A and B of the CEG.  Measurements are clinically acceptable, as compared to a referenced invasive device, when the variance, if any, between the devices would have no worse than a benign effect on the patients.  We expect to begin the performance and safety stage of formal clinical trials in Israel and Europe by the second quarter of 2012 and to begin clinical trials in the United States by late 2012, if our clinical trial protocol is approved by the FDA.

 

To our knowledge, there are currently no devices approved for use in either the United States or the European Union for spot or continuous non-invasive blood glucose measurement.

 

We were incorporated in Delaware and Integrity Acquisition was incorporated in Israel, in May 2010. Integrity Israel was incorporated on September 30, 2001. Integrity Israel recently conducted the reorganization pursuant to which, through a reverse triangular merger, Integrity Israel’s stockholders received newly issued shares of our common stock for their shares in Integrity Israel.  We operate primarily through Integrity Israel.  Our principal offices are located at 102 Ha’Avoda St., Ashkelon, Israel 78100 and our telephone number is 972-8-675-7878.

 

Our website address is http://www.integrity-app.com; the reference to such website address does not constitute incorporation by reference of the information contained on the website and such information should not be considered part of this prospectus.

 

Market Opportunity

 

Diabetes

 

Diabetes is a chronic, life-threatening disease for which there is no known cure. Diabetes is caused by the body’s inability to produce or effectively utilize the hormone insulin.  This inability prevents the body from adequately regulating blood glucose levels.  Glucose, the primary source of energy for cells, must be maintained at certain concentrations in the blood in order to permit optimal cell function and health.  Normally, the pancreas provides control of blood glucose levels by secreting the hormone insulin to decrease blood glucose levels when concentrations are too high.  In people with diabetes, blood glucose levels fluctuate between very high levels, a condition known as hyperglycemia, and very low levels, a condition called hypoglycemia.  Hyperglycemia can lead to serious long-term complications, such as blindness, kidney disease, nervous system disease, amputations, stroke and cardiovascular disease.  Hypoglycemia can lead to confusion, loss of consciousness or death.

 

Diabetes is typically classified into two major groups: Type 1 and Type 2.  Type 1 diabetes is characterized by the body’s inability to produce insulin, resulting from destruction of the insulin producing cells of the pancreas. Individuals with Type 1 diabetes must rely on frequent insulin injections in order to regulate and maintain blood glucose levels. Type 1 diabetes is frequently diagnosed during childhood or adolescence, although disease onset can occur at any age.  Type 2 diabetes, the more common form of diabetes, is characterized by the body’s inability to either properly utilize insulin or produce enough insulin.  Type 2 diabetes is associated with older age, obesity, family history of diabetes, history of gestational diabetes, impaired glucose metabolism, physical inactivity and race or ethnicity.  Depending on the severity of Type 2 diabetes, individuals may require diet and nutrition management, exercise, oral medications or insulin injections to regulate blood glucose levels.

 

According to the Diabetes Atlas (Fourth Edition) published by the IDF in 2009, an estimated 285 million adults aged from 20 to 79 worldwide, or 6.6% of the world’s adult population, will suffer from diabetes in 2010, not including those persons who suffer from IGT or Gestational Diabetes.  The IDF estimates that this number will grow to 439 million adults worldwide, or 7.8% of the world’s adult population, in 2030, and that by 2030 the number of adults suffering from diabetes will have increased by 98.1% in Africa, 93.9% in the Middle East and North Africa, 72.1% in Southeast Asia, 65.1% in South and Central America, 47.0% in the Western Pacific, 42.4% in North America and the Caribbean and 20.0% in Europe, over such regions’ respective 2010 levels.

 

Individuals with IGT generally do not take glucose level measurements because they do not find the pain and cost of monitoring to outweigh the risk they take by not monitoring their glucose level. Having knowledge about the glucose level can postpone, or even, to some extent prevent the development of diabetes. A simple to use, painless device may encourage this population to monitor themselves more frequently. We believe that a device like GlucoTrack (not necessarily the DF-F) may be attractive to the IGT community, given that the device is expected to be less expensive, easy to use and painless.

 

The CDC, in its 2007 National Diabetes Fact Sheet, estimated that in the United States alone, more than 23.6 million people, or 7.8% of the U.S. population, suffered from diabetes in 2007.  According to this fact sheet, approximately 5-10% of the diabetes population had Type 1 diabetes the time of measurement.

 

According to the National Diabetes Education Program, about 75% of all newly diagnosed cases of Type 1 diabetes in the United States occur in juveniles younger than 18 years of age. In addition, Type 2 diabetes is occurring with increasing frequency in young people. The increase in prevalence is related to an increase in obesity amongst children. As of 2002, approximately 16% of children and teens were overweight, about double the number two decades before.

 

The CDC, in its 2007 National Diabetes Fact Sheet, estimates that the direct medical costs and indirect expenditures attributable to diabetes in the United States were $174 billion in 2007, an increase of $42 billion since 2002. Of this amount, the CDC estimates that approximately $116 billion were direct medical costs.  The IDF estimates that worldwide healthcare expenditures to treat and prevent diabetes and its complications will total at least $376 billion in 2010, $198 billion in the United States alone, and $490 billion worldwide in 2030.  According to a May 2010 special report by Pharmalive.com, a leading publisher of market research in medical markets, the market for self-monitoring glucose tests is estimated to be approximately $8 billion in 2010.

 

 

Glucose Monitoring

 

Blood glucose levels can be affected by many factors, including the carbohydrate and fat content of meals, exercise, stress, illness or impending illness, hormonal releases, variability in insulin absorption and changes in the effects of insulin in the body.  Given the many factors that affect blood glucose levels, maintaining glucose within a normal range can be difficult.  Diabetics generally manage their blood glucose levels by administering insulin or ingesting carbohydrates throughout the day to maintain blood glucose within normal ranges.  Normal ranges in diabetics vary from person to person.  In order to maintain blood glucose levels within normal ranges, diabetics must first measure their blood glucose levels so that they can make the proper therapeutic adjustments.  As adjustments are made, additional blood glucose measurements may be necessary to gauge the individual’s response to the adjustments.  More frequent testing of blood glucose levels provides patients with information that can be used to better understand and manage their diabetes.  Testing of blood glucose levels is usually done before meals, after meals and before going to sleep.  Diabetics who take insulin usually need to test more often than those who do not take insulin.

 

The outcome of clinical data supports the recommendation that frequent monitoring of blood glucose levels is an important component of effective diabetes management.  The DCCT, consisting of patients with Type 1 diabetes, and the 1998 UK Prospective Diabetes Study, consisting of patients with Type 2 diabetes, demonstrated that patients who intensely managed blood glucose levels delayed the onset and slowed the progression of diabetes-related complications.  In the DCCT, a major component of intensive management was monitoring blood glucose levels at least four times per day using conventional spot finger stick blood glucose meters.  The DCCT demonstrated that intensive management reduced the risk of complications by 76% for eye disease, 60% for nerve disease and 50% for kidney disease.  However, the DCCT also found that intensive management led to a three-fold increase in the frequency of hypoglycemic events.  In the December 2005 edition of the New England Journal of Medicine, the authors of a peer-reviewed study concluded that intensive diabetes therapy has long-term beneficial effects on the risk of cardiovascular disease in patients with Type 1 diabetes.  The study showed that intensive diabetes therapy reduced the risk of cardiovascular disease by 42% and the risk of non-fatal heart attack, stroke or death from cardiovascular disease by 57%.  However, despite evidence that intensive glucose management reduces the long-term complications associated with diabetes, industry sources estimated in 2001 that people with diabetes test their blood glucose values, on average, less than twice per day.

 

Spot finger stick devices are the most prevalent devices for blood glucose monitoring. These devices require inserting a strip into a glucose meter, taking a blood sample with a finger stick and placing a drop of blood on the test strip that yields a single point in time blood glucose measurement.  Despite continued developments in the field of blood glucose monitors, the routine measurement of glucose levels remains invasive, painful, inconvenient, difficult and costly.  This has resulted in a sub-optimal measurement regimen for many diabetics.

 

The FDA, has also recently approved CGM systems for blood glucose monitoring, when prescribed by a doctor.  CGM systems use sensors inserted under the skin to check glucose levels in interstitial fluid.  The sensor stays in place for several days to a week and then must be replaced.  A transmitter sends information about glucose levels via radio waves from the sensor to a pager-like wireless monitor.  According to the National Institute of Diabetes and Digestive and Kidney Diseases at the National Institutes of Health, CGM users must check blood samples with a conventional glucose meter to calibrate the CGM systems devices, and because currently approved CGM systems are not as accurate as standard blood glucose meters, users should confirm glucose levels with a meter before changing treatment.

 

To our knowledge, there are currently no devices approved for use in either the United States or the European Union for spot or continuous non-invasive blood glucose measurement.  The FDA has previously approved a single non-invasive product for glucose trend analysis, the GlucoWatch®, so long as the device was used with conventional finger stick glucose monitoring devices.  However, the device is no longer available commercially.

 

 

Integrity believes that a significant market opportunity exists for a reliable, inexpensive, non-invasive blood glucose measurement device and that such a device could greatly increase compliance with blood glucose measurement recommendations and help many diabetics better manage their disease, providing significant benefits to both patients and payors.

 

The Product

 

Integrity’s non-invasive blood glucose monitor, the GlucoTrack DF-F, utilizes a combination of ultrasound, electromagnetic and thermal technologies to obtain blood glucose measurements in less than one minute via a small sensor that is clipped onto one’s earlobe and connected to a handheld control and display unit.  See Figure A, below.

 

Figure A

 

 

Integrity believes that the GlucoTrack DF-F addresses the expressed, currently unmet needs of the diabetic market as it removes or diminishes two of the most significant barriers to the recommended frequent monitoring of blood glucose by diabetics:

 

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pain, as the GlucoTrack DF-F is a truly non-invasive device; and

 

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cost, as the device appears to require replacement of an ear clip unit every six months, as opposed to single-use glucose test strips. No other disposable items are required.

 

Integrity estimates that over a five-year period, a GlucoTrack DF-F   user could save an average of $6,405 when compared to the cost of a conventional invasive blood glucose monitoring system, while also taking advantage of the benefits of more frequent blood glucose testing.   See Figure B, below.

 

Figure B

 

The direct cost comparison assumes (i) a single invasive measurement costs $1.00; (ii) the average user of an invasive device takes five measurements daily; (iii) the average retail price for the GlucoTrack DF-F is $2,000 (including one PEC); and (iv) the PEC is replaced every six months at a cost of $80.

Figure C

 

 

As shown in Figure C, the GlucoTrack DF-F contains two units: the main unit, which we refer to as the MU, which contains the triggers that produce the signals to obtain the necessary measurements utilizing three distinct technologies, which the MU signals to the transmission module, which is located in the second unit, the personal ear clip, which we refer to as the PEC. The PEC is attached to the user’s earlobe.  The transmission module in the PEC transmits the signal through the earlobe. The receiving sensor in the PEC receives signals from the earlobe with modified characteristics, impacted by the glucose concentration in the earlobe.  The receiving sensor in the PEC converts the signals into digital data and transmits the data to the receiver in the MU.  The data is then analyzed and compared to the transmitted signals based on the calibration data by the main processor and the result is displayed on the large screen of the MU, as well as recorded for further analysis.  The entire process is synchronized by the main clock, located in the MU.  The main unit and the PEC are connected through a multi-wire flexible cable.  When and if we develop our continuous measurement model, we plan for this connection to be wireless.

 

Although we have not yet commenced the clinical trials that we will use for our regulatory clearances and approvals, in 2009, Integrity Israel completed its initial hospital pilot study at Soroka University Medical Center in Be’er Sheva, Israel using the GlucoTrack DF-F on 89 patients of varying weights, age, diabetes type and gender for a total of two discrete, non-successive days each. The study produced a total of 1,772 reference blood glucose measurements.  The primary statistical tools used to evaluate the performance of GlucoTrack DF-F were CEG analysis and Mean Absolute Relative Difference, which we refer to as MARD mean . The CEG analysis was developed by Dr. William Clarke and his team from the University of Virginia as a universal tool for assessing the accuracy of glucose monitors and is currently used (and has been used for the last two decades) widely all over the world as the industry-standard analytical tool to assess such accuracy. The purpose of the CEG is to assess measurement error from a clinical point of view, i.e. the statistical difference in the readings and the impact of any error on the patient. The CEG is a plot of all data pairs categorized into five discrete zones:  A (clinically accurate reading), B (the decision based on the reading is benign or no treatment is given), C (the decision based on the reading leads to normal glucose levels being overcorrected), D (the decision based on the reading results in a failure to treat high and low levels) and E (the decision based on the reading results in an erroneous treatment decision). The A and B zones are the most clinically desirable zones and the D and E zones are the least clinically desirable zones. For example, a pair of data points at 200 mg/dl for the reference device compared to 280 mg/dl for the Unit Under Testing, which we refer to as UUT, are within zone B despite the significant difference between the two while measurements of 50 mg/dl for the reference device compared to 110 for the UUT are in zone D because of the possible failure to treat a low level of glucose. Devices with a higher combined A and B percentage (closer to 100%) and lower combined D and E percentage (closer to 0) are considered to have better performance.  MARD mean is an error calculation tool that measures the average relative difference between the UUT and the reference measurements, on a percentage basis. While CEG is a specific tool to evaluate clinical risk due to errors in measuring glucose, MARD mean is a common statistical tool, subtracting the measurement value of a measurement of a specific subject with respect to a tested device from the measurement value of that subject’s measurement from a reference device and then taking the absolute value of the result. The last step is to calculate the mean of these absolute values to obtain MARD mean . MARD mean is a common statistical index that is used to compare a set of paired measurements coming from two devices or systems in order to evaluate the bias between the two.

 

 

CEG analysis of data from the study conducted by Integrity Israel during 2009 at Soroka University Medical Center showed that GlucoTrack DF-F had 96% of the data in the combined A and B zones, with approximately 60% in the A zone, 36% in the B zone, 2% in each of the C and D zones and 0% in the E zone. MARD mean for the study was approximately 22%.  We believe that the results of the Soroka University study show that GlucoTrack DF-F accurately and reliably measured blood glucose readings using the same calibration set.  See also the home measurement study below.

 

In plotting the CEG analysis, the horizontal axis represents the reference device, while the vertical axis represents the UUT.  See Figure D below.  The relevant range of glucose measurements (generally 40-500 mg/dl) is measured on each axis.  The CEG is split into two halves by a line of full correlation which represents where the measurements obtained from the reference device and the UUT are identical.  This line forms a 45° angle from both the vertical and horizontal axes. Zones A, B, C, D and E are on each side of the 45° line.

 

Each measurement is taken simultaneously by the reference device and the UUT.  A point in the CEG is plotted at the intersection of the two readings.  The location within the CEG is checked against the various zones to determine which zone the data pair falls within.  Figure E sets forth an example of an A zone case.  The error between the UUT and the reference device of 16.7% is considered clinically accurate as no risk is involved due to this particular error.

 

Figure D

 

 

 

Figure E

 

 

An even more extreme example is set forth in Figure F.  The deviation between the UUT and the reference device is 60%, but since the CEG point falls within zone B, which suggests benign decisions (as in this particular example) or no treatment due to the error, the result is clinically accepted, as the risk is slight.

 

Figure F

 

 

A full explanation of the different CEG zones is set forth below in Figure G:

 

 

 

The CEG analysis from the testing of the GlucoTrack DFF-F in the clinic is set forth below in Figure H:

 

Figure H

 

 

 

 

Since the GlucoTrack DF-F non-invasive measurement does not directly measure glucose levels, but rather measures a series of physiological characteristics that correlate with glucose levels, each patient must be calibrated by using a reference to an invasive device.  Calibration consists of comparing each individual patient’s physiological measurements by GlucoTrack DF-F to the measurements from the invasive device under different circumstances over a defined period (such as fasting and after eating).  Pre-clinical trials indicate that recalibration is necessary every few months, while to our knowledge, competing products require recalibration significantly more frequently. However, to date, in informal discussions with the FDA, the FDA has indicated that initially it would require recalibration of the GlucoTrack DF-F every month.

 

The following results for the GlucoTrack DF-F set forth below in Figure I measured between 1 to 22 days after calibration, but without re-calibration for each patient, demonstrates that calibration of the GlucoTrack DF-F remains valid for the period tested without degredation in the accuracy level.

 

Figure I

 

 

 

 

We conducted an initial study of home users to test the performance of the GlucoTrack DF-F outside of the clinic environment while the device is being operated by the patients themselves, without being monitored by professionals at the clinic.  In this study, the performance of the GlucoTrack DF-F was monitored under normal home or home-like use conditions for four participants and 222 data points, with each subject performing the measurement procedure him or herself in the home or home-like environment for at least seven days. In this group, GlucoTrack readings were compared with each participant’s own invasive glucose monitoring device, which served as the reference for calibration and comparison of measurements.  Each participant was monitored according to his or her own routine of glucose monitoring, but no less than five measurements per day were taken.  In the home study, GlucoTrack DF-F had 90% of the data in the combined A and B C E G zones, with approximately 54% in the A zone, 36% in the B zone, 1% in the C zone, 9% in the D zone and 0% in the E zone.  The MARD mean for the study was approximately 23.6%.

 

Within the last three years a new device was introduced into the market, Continuous Glucose Monitoring System, which we refer to as CGMS. Currently, three different brands have obtained FDA clearance and are being sold in the US market.  These brands are sold by Medtronic-MiniMed, Abbott and Dexcom. CGMS devices are invasive devices in which a needle is inserted under the skin (either in the abdomen or the upper arm) and measures Interstitual Fluid. Although we cannot predict what standards will be employed by applicable regulatory authorities as we seek a CE mark and FDA clearance, the average results, to date, in our pre-clinical trials of the GlucoTrack DF-F are similar to the results obtained from the CGM devices that have been introduced to the market, as of the time of their introduction.

 

Analyses show that there are a few parameters that reduce accuracy, such as the learning curve, the use of a home use device as a reference and failure to properly follow instructions for use, including use of the reference (invasive) device.  We have already made some modifications to the GlucoTrack DF-F to limit the effect of these parameters, which we believe will improve these results.  Further modifications are in process.  We believe that the results of the home study show that with some modifications to the GlucoTrack DF-F, we will be able to improve the accuracy and reliability measurements of glucose levels in the home and home-like environments.

 

The three different technologies used by GlucoTrack DF-F, ultrasound, electromagnetic and thermal, simultaneously measure three independent criteria.  As indicated in the Soroka University study, these three criteria are correlated to produce an acceptable measurement of a user’s blood glucose level.  Additional development and wider studies will be necessary in order to demonstrate that GlucoTrack DF-F produces an acceptable measurement of a user’s blood glucose level outside of the clinic setting prior to our beginning formal clinical trials of the device.

 

The technologies operate as follows:

 

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Ultrasound:  The GlucoTrack DF-F uses ultrasound technology to measure the change of speed of sound through the earlobe, which is impacted by the glucose concentration in the capillary blood vessels.

 

·

Electromagnetic: The GlucoTrack’s DF-F’s electromagnetic technology uses a measurement of conductivity to measure the change in tissue impedance, which is a function of glucose concentration.  The GlucoTrack DF-F’s electromagnetic technology analyzes criteria similar to those analyzed by conventional invasive devices, such as spot finger stick devices, but does so in a non-invasive manner.

 

 

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Thermal:  The GlucoTrack DF-F’s thermal technology uses heat transfer characteristics of the tissue, which are influenced by glucose concentration.

 

The GlucoTrack DF-F does not directly measure the glucose level concentration in  the blood.  Rather, it measures several physiological phenomena which are correlated with the glucose level.  In order to correlate between the measured signal and the glucose level, a translation is needed.  This process is actually the calibration of the device.

 

Non-invasive devices (under different stages of development) generally require frequent recalibration.  The former GlucoWatch required recalibrations approximately every 13 hours.  The main reasons for calibration are that tissue parameters generally fluctuate in the area of the measurement, and are sensitive to the location of the sensor and the impact of potential disturbances.  For various reasons, we believe that the GlucoTrack DF-F will have significantly less need for recalibration initially, just once a month and hopefully less later.  Disturbances are less frequent in the earlobes, where the GlucoTrack DF-F takes its measurements.  Utilizing three channels simultaneously reduces the noise contribution in the measurement.  In addition, the PEC also contains sensors that help locate it in the right place.  In informal clinical trials to date, the measurements were conducted between one and 22 days post-calibration, with a median duration of six days.  Although these measurements were based on the same calibration, no degradation in accuracy was observed.

 

The GlucoTrack does not use any optical method (either Infra Red (IR) or Near Infra Red (NIR) technology), which we understand are being used by other developers of noninvasive blood glucose measurement devices.  Integrity believes that optical technologies are less reliable than the GlucoTrack’s combination of ultrasound, electromagnetic and thermal technologies due to inherent physiological limitations with optical technology.  More specifically, optical technology is based on dispersion of a beam that is analyzed by spectrometric methods.  As such devices are non-invasive, the beam passes through other components in the finger tip, such as skin, bone, muscle and fat tissue, which interfere with the measurements.  Generally, most of these interferences have been overcome, but not the epidermis, primarily due to roughness, pigmentation and perspiration, which act like lenses in optical wavelengths.

 

Unlike conventional spot finger stick devices, which require single-use glucose test strips, the GlucoTrack DF-F requires no short term disposables.  We believe that the PEC which accompanies each GlucoTrack DF-F will need to be replaced only every six months.  Since there is no additional cost or pain involved with each blood glucose measurement using the GlucoTrack DF-F, we believe that users of the device would be encouraged to take multiple blood glucose measurements per day, significantly increasing compliance with blood glucose measurement recommendations and helping diabetics better manage their disease.  More frequent testing of blood glucose levels may provide a patient with information that can be used to determine optimal timing and dosage for corrective treatments such as insulin, and can also direct a patient to seek a clinical analysis or detailed testing and diagnosis.  We believe that the GlucoTrack DF-F’s non-invasive advantages will particularly appeal to diabetic markets which require special care, including the premature infant (through a separate GlucoTrack device to be developed later), pediatric and elderly care markets.

 

We intend to eventually develop a family of GlucoTrack devices, including devices for night time usage, or DF-N, devices which would provide advance warnings of potential hypoglycemic episodes, continuous measurement devices, or DF-C, driver alert devices, or DF-M, a basic model to be used in poorer countries, or DF-B, a device for use in pediatric incubators, or DF-I, and a device for people with pre-diabetes, or DF-P.  The current GlucoTrack device, or DF-F, measures glucose levels at discrete times as desired by the user, known as spot measurement.  We intend that next generation models of GlucoTrack will include both spot and continuous measurements of glucose levels.  We also intend to develop accessories for GlucoTrack, including colored ear clips for use with those models of GlucoTrack where a single main unit supports up to three different users, belt holders, desktop stands and software applications for data processing and analysis. Certain models of the device will include a USB port to allow for offline analysis of downloaded data.  All of the above models will be derivative of the current DF-F model.  The modifications involve mostly engineering changes as opposed to development.  Notwithstanding the foregoing, there is no assurance that we will be successful in developing or engineering any of these models or accessories.  We are currently replacing the display in the Main Unit with a color touch-screen.

 

 

The GlucoTrack DF-F has not yet been approved for commercial sale in the United States, the European Union or any other jurisdiction.  See “Government Regulation - Regulation of the Design, Manufacture and Distribution of Medical Devices” below for a discussion of the approval process for commercial sale.  There can be no assurance that approval for commercial sale in any jurisdiction will be obtained.

 

Manufacturing

 

We do not have commercial manufacturing facilities and do not intend to build commercial manufacturing facilities of our own in the foreseeable future.  We intend to enter into agreements with various third parties for the formulation and manufacture of our products.  We make prototypes of GlucoTrack devices for testing, including for limited use in clinical testing, in the prototype laboratory located at our Ashkelon, Israel offices.  We intend to enter into agreements with third-party manufacturers for the manufacture of prototypes for certain GlucoTrack devices.  These suppliers and their manufacturing facilities must comply with FDA regulations, current quality system regulations, or QSRs, which include current good manufacturing practices, or cGMPs, and to the extent laboratory analysis is involved, current good laboratory practices, or cGLPs.

 

Sales & Marketing

 

We do not have dedicated sales or marketing personnel yet, because neither the GlucoTrack DF-F nor other GlucoTrack devices are approved for commercial sale.  In order to commercialize the GlucoTrack DF-F, if it is approved for commercial sale, we intend to collaborate with third parties with established sales and marketing operations in the medical device industry to market and sell the GlucoTrack DF-F to end users or for personal use.  However, there can be no assurance that we will be able to enter into distribution agreements on terms acceptable to it or at all.  We have signed an agreement with a leading chain of private diabetes clinics to purchase GlucoTrack DF-F devices, pending approval for commercial sale by that chain’s headquarters, which will depend on performance of the device in upcoming clinical trials.  The agreement requires tests of a few devices by the clinics (no FDA or CE Mark approval is required in this particular country) as a prerequisite for sales.  If the device is approved by the chain, then it will purchase devices directly from us for sale directly to its patients, without the need for third-party marketing or sales.  If the device is approved by the chain’s headquarters, this chain will have an annual obligation during the first year to purchase a minimum of 10,000 units at a price of $835 per unit.  Minimum obligations for the second and following years are subject to mutual agreement.  There is no assurance that any sales will be made pursuant to this agreement.  We anticipate that we will begin sales efforts in various jurisdictions as the GlucoTrack DF-F receives commercial approval in such jurisdictions.

 

Government Regulatory

 

Healthcare is heavily regulated in the United States by federal, state and local governments, and by similar authorities in other countries. Any product that we develop must receive all relevant regulatory approvals or clearances, as the case may be, before it may be marketed in a particular country.  The laws and regulations affecting healthcare change regularly thereby increasing the uncertainty and risk associated with any healthcare-related venture.  The United States government has in the past considered, is currently considering and may in the future consider healthcare policies and proposals intended to curb rising healthcare costs, including those that could significantly and adversely affect reimbursement for healthcare products such as GlucoTrack DF-F devices.  These policies have included, and may in the future include: basing reimbursement policies and rates on clinical outcomes, the comparative effectiveness and costs of different treatment technologies and modalities; imposing price controls and taxes on medical device providers; and other measures. Future significant changes in the healthcare systems in the United States or elsewhere could also have a negative impact on the demand for GlucoTrack, if it is approved or cleared for sale, or our future products, if any. These include changes that may reduce reimbursement rates for such products and changes that may be proposed or implemented by the current administration or Congress.  We cannot predict, however, if any proposal that has been or will be considered will be adopted or what effect any such legislation will have on us.

 

In the United States, the federal government regulates healthcare through various agencies, including but not limited to the following:  (i) the FDA which administers the Food, Drug, and Cosmetic Act, which we refer to as the FD&C Act, as well as other relevant laws; (ii) the Centers for Medicare & Medicaid Services, which we refer to as the CMS, which administers the Medicare and Medicaid programs; (iii) the Office of Inspector General, which we refer to as the OIG, which enforces various laws aimed at curtailing fraudulent or abusive practices including, by way of example, the Anti-Kickback Law, the Anti-Physician Referral Law, commonly referred to as Stark, the Anti-Inducement Law, the Civil Money Penalty Law, and the laws that authorize the OIG to exclude health care providers and others from participating in federal healthcare programs; and (iv) the Office of Civil Rights which administers the privacy aspects of the Health Insurance Portability and Accountability Act of 1996, which we refer to as the HIPAA.  All of the aforementioned are agencies within the Department of Health and Human Services, which we refer to as the HHS.  Healthcare is also provided or regulated, as the case may be, by the Department of Defense through its TriCare program, the Department of Veterans Affairs under, among other laws, the Veterans Health Care Act of 1992, the Public Health Service within HHS under the Public Health Service Act, the Department of Justice through the Federal False Claims Act and various criminal statutes, and state governments under the Medicaid program and their internal laws regulating all healthcare activities.

 

Regulation of the Design, Manufacture and Distribution of Medical Devices

 

Any product that we develop must receive all relevant regulatory clearances or approvals, as the case may be, before it may be marketed in a particular country.  In the United States, under Section 201(h) of the FD&C Act, a medical device, which we refer to as device, is an article, which, among other things, is intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment or prevention of disease, in man or other animals.  We believe that GlucoTrack devices will be classified as medical devices and subject to regulation by numerous agencies and legislative bodies, including the FDA and its foreign counterparts.  Devices are subject to varying levels of regulatory control, the most comprehensive of which requires that a clinical evaluation be conducted before a device receives approval for commercial distribution.  The FDA classifies medical devices into one of three classes.  Class I devices are relatively simple and can be manufactured and distributed with general controls.  Class II devices are somewhat more complex and require greater scrutiny.  Class III devices are new and frequently help sustain life.

 

In the United States, a company generally can obtain permission to distribute a new device in two ways – through a Section 510(k) premarket notification application, which we refer to as 510(k) submission, or through a Section 515 premarket approval, which we refer to as PMA, application.  The 510(k) submission applies to any device that is substantially equivalent to a device first marketed prior to May 1976 or to another device marketed after that date, but which was substantially equivalent to a pre-May 1976 device.  These devices are either Class I or Class II devices.  Under the 510(k) submission process, the FDA will issue an order finding substantial equivalence to a predicate device (pre-May 1976 or post-May 1976 device that was substantially equivalent to a pre-May 1976 device) and permitting commercial distribution of that device for its intended use.  A 510(k) submission must provide information supporting its claim of substantial equivalence to the predicate device.  The FDA permits certain low risk medical devices to be marketed without requiring the manufacturer to submit a premarket notification.  In other instances, the FDA may require that a premarket notification not only be submitted, but also be accompanied by clinical data.  If clinical data from human experience is required to support the 510(k) submission, this data must be gathered in compliance with investigational device exemption, which we refer to as IDE, regulations for investigations performed in the United States.  The FDA review process for premarket notifications submitted pursuant to section 510(k) should take about 90 days, but it can take substantially longer if the agency has concerns, and there is no guarantee that the agency will clear the device for marketing, in which case the device cannot be distributed in the United States.  Nor is there any guarantee that the agency will deem the device subject to the 510(k) process, as opposed to the more time-consuming, resource intensive and problematic PMA process described below.

The more comprehensive PMA approval process applies to a new device that is not substantially equivalent to a pre-May 28, 1976 product or to one that is to be used in supporting or sustaining life or preventing impairment.  These devices are normally Class III devices and can only be marketed following approval of a PMA.  For example, most implantable devices are subject to the PMA approval process.  Two steps of FDA approval generally are required before a company can market a product in the U.S. that is subject to Section 515 PMA approval, as compared to a Section 510(k) clearance.  First, a company must comply with IDE regulations in connection with any human clinical investigation of the device; however those regulations permit a company to undertake a clinical study of a “non-significant risk” device without formal FDA approval.  Prior express FDA approval is required if the device is a significant risk device.  If there is any doubt as to whether a device is a “non-significant risk” device, companies normally seek prior approval from the FDA.  Normally, clinical studies of new diagnostic products are conducted in tandem with a cleared or approved device and treatment decisions are based on the results from the existing diagnostic device.  In such a setting, the FDA may well consider the clinical trial as one not posing a significant risk.  However, FDA action is always uncertain and dependent on the contours of the design of the clinical trial and the device and there is no assurance that the FDA would consider any proposed clinical trial as one posing a non-significant risk.  Moreover, before undertaking any clinical trial, the company sponsoring the trial and the investigator conducting the trial are required by federal law to seek and obtain the approval of institutional review boards, which we refer to as IRB.  An IRB weighs the risks and benefits of a proposed trial to ensure the human subjects are not exposed to unnecessary risk.  University medical centers as well as other entities maintain and operate IRBs.  The GlucoTrack DF-F will be classified as a significant risk device, although that may not be true with other products mentioned in this prospectus.  Second, the FDA must review a company’s PMA application, which contains, among other things, clinical information acquired under the IDE.  The FDA will approve the PMA application if it finds there is reasonable assurance the device is safe and effective for its intended use.  The PMA process takes substantially longer than the 510(k) process.

 

We believe that the GlucoTrack DF-F device will be classified as a Class III device that will be subject to the PMA approval process and require human clinical trials, although that may not be true with other products mentioned in this prospectus.  We currently anticipate that we will submit the protocol for U.S. clinical trials of the GlucoTrack DF-F to the FDA by mid-2012.  Following approval of the clinical trial protocol for the GlucoTrack DF-F by the FDA, we intend to conduct clinical trials of the GlucoTrack DF-F device at two locations in the U.S.  We have commenced negotiations for these locations.

 

Sales of medical devices outside the United States are subject to foreign regulatory requirements that vary widely from country to country. These laws and regulations range from simple product registration requirements in some countries to complex clearance and production controls in others. As a result, the processes and time periods required to obtain foreign marketing approval may be longer or shorter than those necessary to obtain FDA approval. These differences may affect the efficiency and timeliness of international market introduction of GlucoTrack DF-F.  For countries in the European Union, or EU, medical devices must display a CE mark before they may be imported or sold and must comply with the requirements of the European Medical Device Directive, which we refer to as the MDD, or the Active Implantable Medical Device Directive.  Integrity anticipates that the GlucoTrack devices will be subject to the MDD.  Compliance with the MDD and obtaining a CE Mark involve obtaining International Organization for Standardization, or ISO, 13485 certification, an internationally recognized quality system, and approval of the product’s technical file by a notified body that is recognized by applicable authorities of an EU Member State.  We have selected Kema, a Dutch company, as the notified body with which we will seek approval of GlucoTrack.  Kema has approved the clinical protocol for the GlucoTrack DF-F device and the protocol has been approved by the ethical committee of Soroka University Medical Center in Be’er Sheva, Israel, enabling the commencement of clinical trials at the center.  We have also had an initial meeting with a Spanish medical center with respect to conducting clinical trials in that center as well.  We currently anticipate that clinical trials of the GlucoTrack DF-F at Soroka University Medical Center and in the Spanish medical center (assuming agreement is reached) by late 2011.  The Soroka University Medical Center and Spanish center trials are anticipated to last for approximately four months each, following which the results of such trials will be analyzed and submitted to Kema for review and audit.  Further, we currently anticipate receiving the CE Mark no earlier than the fourth quarter of 2012 and FDA approval approximately one year thereafter, however, there can be no assurance that either such approval will be obtained within such time frames, or at all.

 

Even when a clinical study has been approved or cleared by the FDA or a notified body or deemed approved, the study is subject to factors beyond a manufacturer’s control, including, but not limited to the fact that the institutional review board at a given clinical site might not approve the study, might decline to renew approval which is required annually, or might suspend or terminate the study before the study has been completed.  Also, the interim results of a study may not be satisfactory, leading the sponsor to terminate or suspend the study on its own initiative or the FDA or a notified body may terminate or suspend the study.  There is no assurance that a clinical study at any given site will progress as anticipated; there may be an insufficient number of patients who qualify for the study or who agree to participate in the study, or the investigator at the site may have priorities other than the study.  Also, there can be no assurance that the clinical study will provide sufficient evidence to assure the FDA or a notified body that the product is safe and effective, a prerequisite for FDA approval of a PMA, or substantially equivalent in terms of safety and effectiveness to a predicate device, a prerequisite for clearance under 510(k).  Even if the FDA or a notified body approves or clears a device, it may limit its intended uses in such a way that manufacturing and distributing the device may not be commercially feasible.

 

After clearance or approval to market is given, the FDA and foreign regulatory agencies, upon the occurrence of certain events, are authorized under various circumstances to withdraw the clearance or approval or require changes to a device, its manufacturing process or its labeling or additional proof that regulatory requirements have been met.

 

A manufacturer of a device approved through the PMA process is not permitted to make changes to the device which affect its safety or effectiveness without first submitting a supplement application to its PMA and obtaining FDA approval for that supplement.  In some instances, the FDA may require clinical trials to support a supplement application.  A manufacturer of a device cleared through a 510(k) submission must submit another premarket notification if it intends to make a change or modification in the device that could significantly affect the safety or effectiveness of the device, such as a significant change or modification in design, material, chemical composition, energy source or manufacturing process.  Any change in the intended uses of a PMA device or a 510(k) device requires an approval supplement or cleared premarket notification.  Exported devices are subject to the regulatory requirements of each country to which the device is exported, as well as certain FDA export requirements.

 

Recently Enacted Health Care Reform Legislation

 

Congress recently passed health care reform legislation. The President signed the measure into law on March 23, 2010 and on March 30, 2010, the President signed into law a reconciliation bill that modifies certain provisions of the same.

 

The principal aim of the law as currently enacted is to expand health insurance coverage to approximately 32 million Americans who are currently uninsured.  The law’s most far-reaching changes do not take effect until 2014, including a requirement that most Americans carry health insurance. The consequences of these significant coverage expansions on the sales of our products is unknown and speculative at this point.

 

The enacted legislation contains many provisions designed to generate the revenues necessary to fund the coverage expansions.  The most relevant of these provisions are those that impose fees or taxes on certain health-related industries, including medical device manufacturers.

 

Beginning in 2013, each medical device manufacturer will have to pay an excise tax (or sales tax) in an amount equal to 2.3% of the price for which such manufacturer sells its medical devices.  The tax applies to all medical devices, including our products and product candidates.

 

Additionally, the legislation as enacted also provides for increased enforcement of the fraud and abuse regulations previously mentioned.

 

Reimbursement

 

We anticipate that sales volumes and prices of the GlucoTrack DF-F and any other products we commercialize will depend in large part on the availability of reimbursement from third-party payors. Third-party payors include governmental programs such as Medicare and Medicaid, private insurance plans and workers’ compensation plans.  These third-party payors may deny reimbursement for a product or therapy if they determine that the product was not medically appropriate or necessary.  Also, third-party payors are increasingly challenging the prices charged for medical products and services.  Some third-party payors must also approve coverage for new or innovative devices before they will reimburse health care providers who use the products.  Even though a new product may have been cleared for commercial distribution, it may find limited demand for the device until reimbursement approval has been obtained from governmental and private third-party payors.

 

Inasmuch as a percentage of the projected patient population that could potentially benefit from the GlucoTrack DF-F is elderly, Medicare would likely be a potential source of reimbursement. Medicare is a federal program that provides certain hospital and medical insurance benefits to persons age 65 and over, certain disabled persons, persons with end-stage renal disease and those suffering from Lou Gehrig’s Disease. In contrast, Medicaid is a medical assistance program jointly funded by federal and state governments and administered by each state pursuant to which benefits are available to certain indigent patients. The Medicare and Medicaid statutory framework is subject to administrative rulings, interpretations and discretion that affect the amount and timing of reimbursement made under Medicare and Medicaid.

 

Medicare reimburses for medical devices in a variety of ways depending on where and how the device is used. However, Medicare only provides reimbursement if CMS determines that the device should be covered and that the use of the device is consistent with the coverage criteria. A coverage determination can be made at the local level, known as a Local Coverage Determination, by the Medicare administrative contractor (formerly called carriers and fiscal intermediaries), a private contractor that processes and pays claims on behalf of CMS for the geographic area where the services were rendered, or at the national level by CMS through a National Coverage Determination. There are new statutory provisions intended to facilitate coverage determinations for new technologies under the Medicare Prescription Drug Improvement and Modernization Act of 2003, or MMA, §§ 731 and 942, but it is unclear how these new provisions will be implemented. Coverage presupposes that the device has been cleared or approved by the FDA and, further, that the coverage will be no broader than the approved intended uses of the device (i.e., the device’s label) as cleared or approved by the FDA, but coverage can be narrower. In that regard, a narrow Medicare coverage determination may undermine the commercial viability of a device.

 

Obtaining a coverage determination, whether local or national, is a time-consuming, expensive and highly uncertain proposition, especially for a new technology, and inconsistent local determinations are possible.  On average, according to an industry report, Medicare coverage determinations for medical devices lag 15 months to five years or more behind FDA approval for respective devices.  Moreover, Medicaid programs and private insurers are frequently influenced by Medicare coverage determinations.  A key component in the reimbursement decision by most private insurers will be whether the GlucoTrack DF-F is reimbursed by virtue of a National Coverage Determination by CMS.  We may negotiate contracted rates for the GlucoTrack DF-F with private insurance providers for the purchase of the GlucoTrack DF-F by their members pending a coverage determination by CMS.  Our inability to obtain a favorable coverage determination for the GlucoTrack DF-F may adversely affect our ability to market the GlucoTrack DF-F and thus, the commercial viability of the product.  In international markets, reimbursement and healthcare payment systems vary significantly by country and many countries have instituted price ceilings on specific product lines.  Distributors expressly support the reimbursement process and, depending on the distribution agreement and geographic area, may assume responsibility for the process.

 

We believe that the overall escalating cost of medical products and services has led to, and will continue to lead to, increased pressures on the healthcare industry to reduce the costs of products and services. There can be no assurance that third-party reimbursement and coverage will be available or adequate, or that future legislation, regulation, or reimbursement policies of third-party payors will not adversely affect the demand for our products or our ability to sell these products on a profitable basis. The unavailability or inadequacy of third-party payor coverage or reimbursement could have a material adverse effect on our business, operating results and financial condition. Until reimbursement or insurance coverage is established, patients will have to bear the financial cost of GlucoTrack. Third-party coverage may be particularly difficult to obtain while the GlucoTrack DF-F is not approved by the FDA as a replacement for existing single-point finger stick devices.

 

Until a reimbursement code is achieved, in order to reduce out of pocket money for users and increase the number of devices sold, a leasing program is planned (Europe and USA). Leases for a period of one, two or three years may be offered for the end-users of the device. The pay per month will then be similar to the current monthly payment for the invasive measurement, although there will be no limitation on the number of measurements per day a patient can perform. In this approach, the device will pay for itself in a shorter time.

 

Anti-Fraud and Abuse Rule

 

There are extensive federal and state laws and regulations prohibiting fraud and abuse in the healthcare industry that can result in significant criminal and civil penalties that can materially affect us. These federal laws include, by way of example, the following:

 

·

The anti-kickback statute (Section 1128B(b) of the Social Security Act) prohibits certain business practices and relationships that might affect the provision and cost of healthcare services reimbursable under Medicare, Medicaid and other federal healthcare programs, including the payment or receipt of remuneration for the referral of patients whose care will be paid by Medicare or other governmental programs;

 

·

The physician self-referral prohibition (Ethics in Patient Referral Act of 1989, as amended, commonly referred to as the Stark Law, Section 1877 of the Social Security Act), which prohibits referrals by physicians of Medicare or Medicaid patients to providers of a broad range of designated healthcare services in which the physicians (or their immediate family members) have ownership interests or with which they have certain other financial arrangements;

 

·

The anti-inducement law (Section 1128A(a)(5) of the Social Security Act), which prohibits providers from offering anything to a Medicare or Medicaid beneficiary to induce that beneficiary to use items or services covered by either program;

 

·

The False Claims Act (31 U.S.C. § 3729 et seq.), which prohibits any person from knowingly presenting or causing to be presented false or fraudulent claims for payment to the federal government (including the Medicare and Medicaid programs); and

 

·

The Civil Monetary Penalties Law (Section 1128A of the Social Security Act), which authorizes the United States Department of Health and Human Services to impose civil penalties administratively for fraudulent or abusive acts.

 

Sanctions for violating these federal laws include criminal and civil penalties that range from punitive sanctions, damage assessments, monetary penalties, imprisonment and/or denial of Medicare and Medicaid payments or exclusion from the Medicare and Medicaid programs, or both. These laws also impose an affirmative duty on those receiving Medicare or Medicaid funding to ensure that they do not employ or contract with persons excluded from the Medicare and other government programs.

 

Many states have adopted or are considering legislative proposals similar to the federal fraud and abuse laws, some of which extend beyond the Medicare and Medicaid programs, to prohibit the payment or receipt of remuneration for the referral of patients and physician self-referrals regardless of whether the service was reimbursed by Medicare or Medicaid. Many states have also adopted or are considering legislative proposals to increase patient protections, such as limiting the use and disclosure of patient specific health information. These state laws also impose criminal and civil penalties similar to the federal laws.

 

In the ordinary course of their business, medical device manufacturers and suppliers have been and are subject regularly to inquiries, investigations and audits by federal and state agencies that oversee these laws and regulations. Recent federal and state legislation has greatly increased funding for investigations and enforcement actions, which have increased dramatically over the past several years. This trend is expected to continue. Private enforcement of healthcare fraud also has increased due in large part to amendments to the civil False Claims Act in 1986 that were designed to encourage private persons to sue on behalf of the government. These whistleblower suits by private persons, known as qui tam relators, may be filed by almost anyone, including present and former patients or nurses and other employees, as well as competitors. HIPAA, in addition to its privacy provisions, created a series of new healthcare-related crimes.

As federal and state budget pressures continue, federal and state administrative agencies may also continue to escalate investigation and enforcement efforts to root out waste and to control fraud and abuse in governmental healthcare programs. A violation of any of these federal and state fraud and abuse laws and regulations could have a material adverse effect on a supplier’s liquidity and financial condition. An investigation into the use of a device by physicians may dissuade physicians from recommending that their patients use the device. This could have a material adverse effect on our ability to commercialize the GlucoTrack DF-F.

 

The Privacy Provisions of HIPAA

 

HIPAA, among other things, protects the privacy and security of individually identifiable health information by limiting its use and disclosure.  HIPAA directly regulates “covered entities,” such as healthcare providers, insurers and clearinghouses, and regulates “business associates,” with respect to the privacy of patients’ medical information.  All entities that receive and process protected health information are required to adopt certain procedures to safeguard the security of that information.  It is uncertain whether we would be deemed to be a covered entity under HIPAA and it is unlikely that, based on its current business model, we would be a business associate.  Nevertheless, we will likely be contractually required to physically safeguard the integrity and security of any patient information that we receive, store, create or transmit.  If we fail to adhere to our contractual commitments, then our physician, hospital or insurance customers may be subject to civil monetary penalties, which could adversely affect our ability to market our devices.  Recent changes in the law wrought by the HITECH Act provisions of the American Recovery and Reinvestment Act of 2009 increase the duties of business associates and covered entities with respect to protected health information that thereby subject them to direct government regulation, increasing its compliance costs and exposure to civil monetary penalties and other government sanctions.  While the new law does not alter the definition of a business associate, it makes it more likely that covered entities with whom we are likely to do business will require us to enter into business associate agreements.

 

Intellectual Property

 

We believe that intellectual property is important to our business and to the medical device industry overall.  We rely on a combination of patent, copyright and other intellectual property laws, trade secrets, nondisclosure agreements and other measures to protect our intellectual property and proprietary rights.

 

We understand the importance of obtaining patent and trade secret protection for new technologies, products and processes. Our success will depend in large part on our ability to file for and obtain patent protection of our principal products and procedures, to defend existing or future patents, to maintain trade secrets and to operate without infringing upon the proprietary rights of others.

 

We have obtained an issued patent for “A Method of Monitoring Glucose Level” in the United States, Europe, Australia, Canada, China, Israel, Japan, Mexico, the Philippines, Russia, South Africa and South Korea. Additional patent applications are pending in various stages of review in Brazil and India.

 

We have filed patent applications in the United States, Taiwan and the PCT for an invention entitled “Device For Non-Invasively Measuring Glucose.”

 

We have obtained a registered trademark for GlucoTrack in the United States, Europe and fifteen other countries, including Australia, Brazil, Canada, Israel Japan, South Korea, Russia and South Africa, and have trademark applications for GlucoTrack in various stages of approval in two other countries.  We have two additional trademark applications filed in the United States and Israel.

 

Patent protection is highly uncertain and involves complex legal and factual questions and issues. The patent application and issuance process can be expected to take several years and entail considerable expense.  There can be no assurance that patents will issue as a result of any applications or that our existing patents, or any patents resulting from such applications, will be sufficiently broad to afford protection against competitors with similar or competing technology.  Patents that we obtain may be challenged, invalidated or circumvented, or the rights granted under such patents may not provide us with any competitive advantages.

We believe that our patents and products do not and will not infringe patents or violate proprietary rights of others, although it is possible that our existing patent rights may not be valid or that infringement of existing or future patents or proprietary rights may occur.  Litigation may be necessary to defend or enforce our patent rights or to determine the scope and validity of the proprietary rights of others. Defense and enforcement of patent claims can be expensive and time consuming, even in those instances in which the outcome is favorable, and could result in the diversion of substantial resources and management time and attention from our other activities. An adverse outcome could subject us to significant liability to third parties, require us to obtain licenses from third parties, alter our products or processes, or require that we cease altogether any related research and development activities or product sales.

 

We are currently pursuing further patents covering the technologies related to GlucoTrack’s particular measurements, as well as the combination of the three technologies used by GlucoTrack.  A provisional patent has recently been filed and final application(s) will be made later.