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DiagnosTear Technologies Inc. Management Reports 2025
48482_rns_2025-08-27_9c61f013-0ae4-4b35-bef7-14e06cc93d7f.pdf
Management Reports
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DiagnosTear
Management's Discussion and Analysis
For the six-month period ended June 30, 2025
(Expressed in Canadian Dollars)
Prepared as of August 27, 2025
Management's Discussion and Analysis
For the six-month period ended June 30, 2025
ABOUT THIS MD&A
The following management's discussion and analysis ("MD&A") of financial condition and results of operations of DiagnosTear Technologies Inc. (the "Company", "DiagnosTear", previously "Oceanview Technologies Inc.") should be read in conjunction with the Company's consolidated financial statements for the six-month period ended June 30, 2025, and the accompanying notes thereto (the "Consolidated Financial Statements") and with the Company's audited consolidated financial statements for the period ended December 31, 2024 (the "Annual Consolidated Financial Statements"), which have been prepared in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards"). This MD&A has been prepared as of May 25, 2025, pursuant to the disclosure requirements under National Instrument 51-102 - Continuous Disclosure Obligations of the Canadian Securities Administrators. Additional information relating to DiagnosTear Ltd. is available on SEDAR+ at www.sedarplus.ca.
This MD&A was approved by the board of directors of the Company on August 27, 2025.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This MD&A contains certain statements which may constitute "forward-looking information" and "forward-looking statements" within the meaning of Canadian securities law requirements (collectively, "forward-looking statements" or "FLS"). These forward-looking statements are made as of the date of this MD&A and the Company does not intend, and does not assume any obligation, to update these FLS, except as required under applicable securities legislation. FLS relates to future events or future performance and reflects Company management's expectations or beliefs regarding future events. In certain cases, FLS can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved" or the negative of these terms or comparable terminology. In this document, certain forward-looking statements are identified by words including "may", "future", "expected", "intends" and "estimates". By their very nature FLS involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the FLS. The Company provides no assurance that FLS will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on FLS.
The Company's anticipated future operations are forward-looking in nature and, as a result, are subject to certain risks and uncertainties. Although the Company believes that the expectations reflected in these FLS are reasonable, undue reliance should not be placed on them as actual results may differ materially from the forward-looking statements. Such FLS are estimates reflecting the Company's best judgment based upon current information and involve a number of risks and uncertainties, and there can be no assurance that other factors will not affect the accuracy of such forward-looking statements.
Page 2 of 18
Management's Discussion and Analysis
For the six-month period ended June 30, 2025
BUSINESS OVERVIEW
Description of the Business
The Company is a Canadian company which was incorporated under the Business Corporations Act (British Columbia) and commenced operations on May 10, 2023. The Company's registered address is at Suite 2600-1066 West Hastings, Vancouver, Canada.
The Company, through its subsidiary, DiagnosTear Israel Ltd. ("DiagnosTear Israel" and, together with the Company, "the Group"), is an ophthalmic company focused on developing and commercializing disruptive diagnostic solutions for eye diseases. The Group has developed a testing platform for multi-parameter analysis of analytes (proteins) in human tears, being the TeaRx™ Point-of-Care Testing ("POCT") technology ("TeaRx™"), which is designed for the diagnosis of front of-the-eye diseases by multi-parameter analysis of the composition of the tear fluid.
Based upon TeaRx™, the Group has registered patents in the U.S., the European Union and in Israel, developed the first minimally invasive, POCT product for Dry Eye Syndrome (the "Dry Eye Product") for multi-parametric assessment of Dry Eye Syndrome ("DES"). DiagnosTear is currently developing a POCT product for diagnosis of Red Eye Syndrome (the "Red Eye Product") intended for differential diagnosis of Red Eye Syndrome ("RES").
Operational Highlights
Dry Eye Product:
(1) During the six-months period ending June 30, 2025, the Company continued its efforts of commercializing the CE-IVD approved, 3-parameter Product for diagnosis of Dry Eye (see Figure 1 below) through allocating and negotiating with potential distributors and potential strategic partners in Israel, South Asia, the UK and selected EU countries.
(2) In May 2025, the 3-parameter Dry eye Product has been granted a new medical device registration from the Israeli Ministry of Health, clearing the product for use in Israel until the end of November 2026. This new registration extends the test's approved use beyond ophthalmologists to include broader general professional use in accordance with the manufacturer's instructions for use. The updated certification also includes approval of DiagnosTear's new manufacturing and storage facility in Israel.
(3) In May 2025, the results of the clinical trial of the 5-parameter Dry eye product (not yet approved for sale in the EU) were presented at the ARVO conference (Salt Lake City, UT) by the principal investigator of the study, Prof. Sayan Basu from LV Prasad Eye Institute, Hyderabad, India. The presentation entitled "A Novel Multi-Parameter Point-of-Care Tear Film Test for Diagnosis of Dry Eye Syndrome, Severe Meibomian Gland Dysfunction, and Responsiveness to Therapy" described the capacity of the 5-parameter product to detect dry eye at all severity levels, to differentiate between severe and non-severe dry eye, to detect severe meibomian gland dysfunction (MGD) in dry eye patients, and to predict at baseline responsiveness to topical Cyclosporine A therapy.
Figure 1 - Dry Eye Product
1 Microfluidic collection of tear liquid
2 Multifactorial assessment of biomarkers in the tear film
3 Intuitive interpretation of results via smart algorithms
Management's Discussion and Analysis
For the six-month period ended June 30, 2025
Red Eye Product:
(1) During the six-months period ending June 30 2025, the Company continued the development of the Product for differential diagnosis of the causes for Red Eye (Adenoviral Conjunctivitis, Herpetic Keratitis and Allergic Conjunctivitis, see Figure 2 below). The issuer has finalized the analytical validations of the product and continued with the clinical validations on human tear samples collected from suspected Red Eye patients.
(2) Overall, until June 30 2025, 100 tear samples were collected from suspected Red Eye patients. The Company plans to overall collect 200 samples which according to the Company's estimations will be sufficient for statistically significant representation of each of the indications. As of June 30, 2025, the Company is cooperating with six clinical collection sites in Israel and is planning to expand its efforts to include also two collection sites abroad (in India - for Herpetic Keratitis samples and in France - for Allergic Conjunctivitis samples).
(3) The Company plans to finalize the internal clinical validations of the Red eye Product and ensure readiness for external clinical trials towards FDA approval and CLIA waiver (FDA Pre-submission) before the end of 2025.
(4) During March 2025, the Company finalized the design and the fabrication of the plastic injection mould to produce the first 100,000 TeaRx™ Red Eye diagnostic devices and completed the manufacturing of the first 1,000 prototype devices to be used for internal and clinical validations.
Figure 2 - Red Eye Product
1 Swab conjunctival fluid
2 Mix swab in lysis vial
3 Press lysis vial firmly
4 Wait 10 min and read results
General
During the six-months period ending June 30, 2025, DiagnosTear exhibited and presented its technologies and products at three conferences: (i) the Israeli Society for Vision and Eye Research (ISVER) annual conference (Herzliya, Israel, February 2025), (ii) Ophthalmology Innovation Source (OIS) Israel, held as part of the International Life Science and Health Tech Week (MIXIII) (Jerusalem, Israel, March 2025). (iii), The eye micro-surgery workshop (Eilat, Israel, January 2025). In addition, during March 2025, the Issuer launched its new website www.diagnostear.com, which includes information on the company, its vision and mission, its leadership team, the technology, products, accreditations and approvals, clinical trials, as well as information to investors and shareholders.
Management's Discussion and Analysis
For the six-month period ended June 30, 2025
Management Highlights
In April 2025, the company held its annual general meeting of shareholders. In the annual meeting the shareholders approved the following:
- Setting the number of directors at five and electing Yaacov Michlin, Julia Reznik Zilberman (Independent), Karin Gurevitz, Igal Kohn and John Sinclair (Independent) as directors of the Company;
- The appointment of Fahn Kanne & Co. (the Israeli member firm of Grant Thornton International Ltd.), as the Company's auditors for the year ended December 31, 2024, and for the ensuing year, and;
- Approve and confirm the Company's "rolling 10%" equity incentive plan.
In October 2023, the Iron Swords War (the "War") broke out in the State of Israel. The prolongation of the War led to a slowdown in business activity in the Israeli economy, inter alia due to the closure of factories in the south and north of the country, damage to infrastructure, recruitment of reserve forces for an unknown period, and therefore, to disruption of economic activity in Israel. The prolongation of the War may have wide-ranging implications for many branches and different geographical areas in the country.
The potential fluctuations in prices of merchandise, foreign currency exchange rates, availability of materials, availability of personnel, local services and access to local resources in general and as might relate to the War may affect entities whose main activity is with or in Israel.
Since this is an event beyond the Company's control and characterized by uncertainty, inter alia as to when the War will end, as of the approval date of these Consolidated Financial Statements, the Company is unable to predict the intensity of the impact of the War on the Company's financial condition and the results of DiagnosTear Israel operations. The War may also impact clinical trials and funds raising required for the operations of the Company.
Page 5 of 18
Management's Discussion and Analysis
For the six-month period ended June 30, 2025
Reverse Takeover Transaction
In August 2023, the Company entered into a share exchange agreement ("SEA") with DiagnosTear Israel and BioLight Life Sciences Ltd. ("BioLight"), an Israeli public entity which was then a majority shareholder of DiagnosTear Israel.
On November 20, 2024, pursuant to the terms of the SEA, the Company, BioLight and DiagnosTear Israel closed the share exchange transaction (the "RTO"), whereby the shareholders of DiagnosTear Israel exchanged their shares of DiagnosTear Israel for shares of the Company (after the closing of the RTO, the "Resulting Issuer"). Upon closing, BioLight and other former shareholders of DiagnosTear Israel held approximately 60% of the Resulting Issuer. On the same day, the Company changed its name from "Oceanview Technologies Inc." to "Diagnostear Technologies Inc.". As part of and immediately pursuant to the RTO, the company raise $3,050 thousand.
On December 9, 2024, the Company's common shares commenced trading on the Canadian Securities Exchange (the "CSE") under the symbol "DTR".
At the completion of the RTO, as discussed above, the Company issued 35,193,001 common shares of the Company and 3,440,331 common share purchase warrants pro-rata to the shareholders of DiagnosTear Israel in consideration for the acquisition of all issued and outstanding ordinary shares of DiagnosTear Israel. The Company also issued 1,938,452 replacement stock options to holders of options issued by DiagnosTear Israel, which were cancelled in connection with the RTO.
The RTO is accounted for as a reverse merger, under which although the Company is the legal acquirer, DiagnosTear Israel is deemed to be the acquirer for accounting purposes on the basis that the former shareholders of DiagnosTear Israel owned approximately 60% of the issued and outstanding common shares of the Resulting Issuer, which means the control of the combined companies passed to the former shareholders of DiagnosTear Israel. Consequently, the Consolidated Financial Statements are a continuation of the financial statements of DiagnosTear Israel.
As the Company did not qualify as a business according to the definition in IFRS 3 Business Combinations, the RTO does not constitute a business combination. Thus, the RTO is accounted for as an issuance of shares by DiagnosTear Israel for the net assets of the Company based on their carrying amounts at the effective time of the RTO. Consideration paid by DiagnosTear Israel for the Company's net assets is measured by calculating the number of common shares that DiagnosTear Israel would have had to issue to acquire all the outstanding shares of the Company, in order to provide the same percentage ownership as they have in the Resulting Issuer as a result of the reverse merger. The fair value of the Company's common shares that was used in measuring the consideration paid and was based on the closing price of the Company on the transaction date. Any excess of consideration paid (allocated common shares that were issued to former shareholders of the Company) over carrying amount of identified assets acquired and liabilities assumed was charged immediately to profit and loss.
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Management's Discussion and Analysis
For the six-month period ended June 30, 2025
OVERALL FINANCIAL PERFORMANCE
The Consolidated Financial Statements have been prepared on a going concern basis in accordance with IFRS Accounting Standards. The Company prepares its Financial Statements in accordance with the currency of the country and principal economic environment in which it operates, which constitutes the functional currency from which it is primarily affected (the "Functional Currency"). Management has determined that the Functional Currency of the Company is the Canadian dollar ("C$", "$"), and the Functional Currency of DiagnosTear Israel is the New Israeli Shekel ("NIS"). The Consolidated Financial Statements are presented in Canadian dollars. Consequently, in accordance with IAS 21, "Accounting for Foreign Exchange Rates", results of operations of DiagnosTear Israel were translated into Canadian dollar using the actual action date currency rate and assets and liabilities were translated into Canadian dollar using currency rates at period end. Foreign currency translation adjustments are recorded as a component of accumulated other comprehensive income within shareholders' equity.
In the annual consolidated Financial Statements, the Company's auditor's draw attention to Note 1C to the annual Consolidated Financial Statements, which indicates that the Company had an accumulated deficit of approximately $28,269 thousand as of December 31, 2024, and incurred a net loss and had negative cash flows from operations throughout all periods since its inception. These events or conditions, along with other matters as set forth in Note 1C to the annual Consolidated Financial Statements, indicate that a material uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern.
Page 7 of 18
Management's Discussion and Analysis
For the six-month period ended June 30, 2025
SELECTED QUARTERLY INFORMATION
The selected financial information provided below is derived from the Consolidated Financial Statements.
Summary of Statements of Financial Position
| June 30, 2025 (C$, thousands) | December 31, 2024 (C$, thousands) | Explanation to material changes (C$, thousands) | |
|---|---|---|---|
| Current Assets | 1,652 | 2,619 | The current assets comprised mainly from cash. The decrease in cash as of June 30, 2025, compared to December 31, 2024, is mainly due to expenses paid for current operating activity. |
| Non-current Assets | 1,485 | 1,523 | The non-current assets were mainly comprised of property and equipment, in the net amounts of $1,423 and $1,388 as of June 30, 2025, and as of December 31, 2024, respectively. |
| The decrease in non-current assets resulted primarily from decrease and reclassification of long-term deposits to short-term deposits (for office lease) and a decrease in right of use assets, net, due to the lease term offset by the increase in property and equipment net due to foreign currency translation. | |||
| Total Assets | 3,137 | 4,142 | |
| Current liabilities | 310 | 292 | The current liabilities as of June 30, 2025, comprised mainly from (i) current maturities of lease liability in the amount of $55 (2024 - $90), (ii) other current liabilities in the amount of $202 (2023 - $171) and (iii) trade payables in the amount of $53 (2023 - $31). |
| Non-current liabilities | 468 | 499 | The non-current liabilities mainly represent governmental grants received from the Israeli Innovation Authority. The increase is mainly due to changes in the exchange rate of the USD/CAD and the period until revenue is generated. |
| These grants are to be repaid only if and out of future revenues, see note 9 to the annual Consolidated Financial Statements. | |||
| Total liabilities | 778 | 791 | |
| Shareholders' equity | 2,359 | 3,351 | The decrease in the shareholders' equity as of June 30, 2025, compared to December 31, 2024, is mainly due to loss for the six-month period ended June 30, 2025. |
Page 8 of 18
Management's Discussion and Analysis
For the six-month period ended June 30, 2025
DISCUSSION OF OPERATIONS
Summary of statements of loss and comprehensive loss
| For the three months ended June 30, 2025 (C$, thousands) | For the three months ended June 30, 2024 (C$, thousands) | For the six months ended June 30, 2025 (C$, thousands) | For the six months ended June 30, 2024 (C$, thousands) | Explanation to material changes (C$, thousands) | |
|---|---|---|---|---|---|
| Research and development expenses | (429) | (317) | (913) | (483) | The research and development expenses were comprised mainly of subcontractors, payroll and related expenses and share-based payments (non-cash) expenses. |
| The increase in the research and development expenses in the six-months period ended June 30, 2025 compared to six-months period ended June 30, 2024, is mainly due to grant of options in February and May 2025 in the amount of $271 (2024 - $8), and due to grants received from the Israeli Innovation Authority ("IIA") in the six-months period ended June 30,2024, that offset the R&D expenses in the amount of $137. | |||||
| General and administrative expenses | (465) | (33) | (853) | (59) | The general and administrative expenses are primarily comprised of payments to subcontractors and share-based payment (non-cash) expenses. |
| The increase in the G&A expenses in the six-months period ended June 30, 2025, compared to the six-months period ended June 30, 2024, is mainly due to subcontractors' expenses related to the company been public company in December 2024 and due to grant of option in February and May 2025 in the amount of $422. |
Page 9 of 18
Management's Discussion and Analysis
For the six-month period ended June 30, 2025
| For the three months ended June 30, 2025 (C$, thousands) | For the three months ended June 30, 2024 (C$, thousands) | For the six months ended June 30, 2025 (C$, thousands) | For the six months ended June 30, 2024 (C$, thousands) | Explanation to material changes (C$, thousands) | |
|---|---|---|---|---|---|
| Financing income, net | 164 | 13 | 96 | 23 | The change in the financing expenses is mainly due to changes in the liability in respect of governmental grants received from the IIA, mainly due to currency exchange differences. |
| Loss of the period | (730) | (337) | (1,670) | (519) | |
| Other comprehensive income | (28) | (13) | (15) | 1 | The change in other comprehensive loss is mainly due to the currency exchange difference between the Functional Currency of DiagnosTear Israel (NIS) and the presentation currency of the Company (Canadian dollars). |
| Comprehensive loss for the period | (758) | (350) | (1,685) | (518) | |
| Basic and diluted net loss per share | (0.01) | (0.01) | (0.03) | (0.01) |
Page 10 of 18
Management's Discussion and Analysis
For the six-month period ended June 30, 2025
LIQUIDITY AND CAPITAL RESOURCES
Summary of Statements of cash flows
| For the six months ended June 30, 2025 (C$, thousands) | For the six months ended June 30, 2024 (C$, thousands) | Explanation to material changes (C$, thousands) | |
|---|---|---|---|
| Cash | 1,520 | 256 | The increase in cash as of June 30, 2025, compared to as of June 30, 2024, is mainly due to completion of the RTO in November 2024. |
| Net cash used in operating activities | (928) | (520) | The increase in net cash used for operating activities is mainly due to the research and development expenses efforts and the on-going operations as a public company. |
| Net cash provided by investment activity | - | 185 | The positive in net cash provide by investment activity in 2024 is primarily due to indemnity received for the investment in property and equipment in the amount of $208. |
| Net cash provided by (used in) financing activity | (49) | 316 | The positive in net cash provided by financing activity in 2024 compared to the negative in net cash used in 2025 (2025 - due to repayment of lease liability principal) is mainly due to governmental grants received from IIA in the amount of $182 in the six-months period ended June 30, 2024 and due to proceeds from private placement transactions in the amount of $185. |
The Company's future capital requirements will depend on many factors including, without limitation, the scope of the Company's research and development efforts, the results of the clinical studies that comprise those efforts, the Company's ability to successfully manage its development partners, the Company's ability to grow its business and the Company's ability to conclude licensing or partnering agreements. If the development of the products proceeds as planned, and the scientific results of the planned development work are positive, the Company expects to be in a position to attract new investment and/or obtain additional financing. However, financial market and other conditions may result in the Company not being able to secure the additional financing needed to complete the development of any of its assets on terms acceptable to the Company, or at all.
As of June 30, 2025, the Company had no commitments for capital expenditures and no sources of financing arranged-but-not-used.
Page 11 of 18
Management's Discussion and Analysis
For the six-month period ended June 30, 2025
Equity Investments
-
To date, the Group's activities have been funded primarily by equity investments through private placement transactions and the completion of the RTO in November 2024, as discussed above.
-
In February 2025, the Company's board of directors approved grant of 3,380,095 incentive stock options to certain key management personnel, directors and other optionees. Each incentive stock option is exercisable into one common share of the Company, over a vesting schedule as determined by the board of directors (between 1-3 years vesting), at an exercise price between $0.53-$0.75 (2,715,622 of such incentive stock options have an exercise price of $0.53 and 664,473 of such incentive stock options have an exercise price of $0.75) per common share (subject to standard adjustments). The fair value of the benefit in respect of the grant of incentive stock options is estimated at total amount of approximately $1,714 thousand to be carried to profit and loss over the vesting period.
The fair value of the incentive stock options granted was estimated using the Black-Scholes model and the following parameters: price per share - $0.55, expected volatility - 108% (average of peers), expected term (in years) - 7 and risk-free interest - 2.96%.
- In May 2025, the Company's Board of Directors approved a grant of 500,000 share options to certain optionees. Each option is exercisable into one common share of the Company, over a vesting schedule as determined by the Board of Directors (6 months vesting), at an exercise price between $0.50 per share (subject to standard adjustments). The fair value of the benefit in respect of the grant is estimated at the total amount of $215 to be carried to profit and loss over the vesting period.
The fair value of the share options granted was estimated using the Black and Scholes model and the following parameters: Price per share - $0.47, Expected volatility - 107% (average of peers), Expected term (in years) - 10 and Risk-free interest - 3.21%.
For more information about the Company's equity financing, see Note 10 to the annual Consolidated Financial Statements.
Governmental grants
Through December 31, 2024, DiagnosTear Israel received grants in respect of participation in research and development from the IIA, in a total amount of $900 thousand (including the grants received during the year of 2024, as described below), including interest. In return, DiagnosTear Israel undertook to pay annual royalties at a rate of 3% - 3.5% of the revenues that will be derived from the know-how and technology to be developed as part of the projects in respect of which such financing was received.
In January 2024, DiagnosTear Israel was entitled to participation in research and development funding from the IIA in the total amount of $365 thousand under a new approval, under which $264 thousand were received during the year of 2024.
For more information about the Company's governmental grants, see Note 9 to the annual Consolidated Financial Statements.
Going concern
In the annual consolidated Financial Statements, the Company's auditor's draw attention to Note 1C to the annual Consolidated Financial Statements, which indicates that the Company had an accumulated deficit of approximately $28,269 thousand as of December 31, 2024 (as of June 30, 2025 - $29,939 thousands), and incurred a net loss and had negative cash flows from operations throughout all periods since its inception. These events or conditions, along with other matters as set forth in Note 1C to the annual Consolidated
Page 12 of 18
Management's Discussion and Analysis
For the six-month period ended June 30, 2025
Financial Statements, indicate that a material uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern.
The Company's ability to raise funds from various sources depends substantially on the success of its ongoing research and development programs, economic conditions, and the state of the life sciences industry. Accessing the capital markets can be particularly challenging for companies that operate in the life sciences industry. There can be no assurance that additional funding by way of equity financing will continue to be available. Any additional equity financing, if secured, would result in dilution to the existing shareholders and such dilution may be significant. The Company may also seek additional funding from or through other sources, including technology licensing, co-development collaborations, mergers and acquisitions, joint ventures, and other strategic alliances, which, if obtained, may reduce the Company's interest in its projects or products or result in significant dilution to existing shareholders. There can be no assurance, however, that any alternative sources of funding will be available. The failure of the Company to obtain additional financing on a timely basis may result in the Company reducing, delaying, or cancelling one or more of its planned research, development and/or marketing programs, including clinical trials, further reducing overhead, or monetizing non-core assets, any of which could impair the current and future value of the business or cause the Company to consider ceasing operations and undergoing liquidation.
The Company does not have any credit facilities and is therefore not subject to any externally imposed capital requirements or covenants. The Company manages its liquidity risk by continuously monitoring forecasts and actual cash flow from operations and anticipated investment and financing activities.
There have been no changes to the Company's approach to capital management during the six-months period ended June 30, 2025.
OFF BALANCE SHEET ARRANGEMENTS
The Company has not entered any off-balance sheet transactions that have, or are reasonably likely to have, a current or future effect on the financial performance of financial condition of the Company.
SUMMARY OF MATERIAL ACCOUNTING POLICIES AND USE OF ESTIMATES
The preparation of the Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the Consolidated Financial Statements, and the reported amount of expenses during the reporting period. Actual results may vary from the current estimates. These estimates are reviewed periodically and, as adjustments become necessary, they are reported in income in the year in which such adjustments become known.
A. Capitalization of development costs
Development expenses are capitalized and recorded as an asset, commencing with the phase during which technological feasibility is achieved, when the Company has intentions and the technical and financial ability to complete and use (or sell) the asset, it is expected that the developed asset will generate future economic benefits and it is possible to estimate the development costs in a reliable manner. In determining whether an expense qualified for capitalization, management estimates the cash flow expected to derive from the asset, the timing of such flows, the discounting rates and the expected benefit period. As of December 31, 2024 and throughout all reported periods, management determined that the aforesaid conditions were not met and thus development costs were not capitalized.
B. Impairment Assessment of Non-Financial Assets
Non-financial assets (mainly self-built production-line) that have not yet been brought to the location and condition necessary for it to be capable of operating in the manner intended by management) are examined for impairment, on the occurrence of events or changes in circumstances, which indicate that their carrying value will not be recoverable. Impairment loss is recognized to the extent that the carrying amount of non-monetary asset exceeds its recoverable value. The recoverable amount is the higher of the fair value of the
Page 13 of 18
Management's Discussion and Analysis
For the six-month period ended June 30, 2025
asset, less costs to sell, and its value in use. For the purpose of examining impairment, the assets are allocated into the lowest levels for which there are separate identifiable cash flows (cash-generating units). The impairment assessment of such non-financial assets is involved with inherent uncertainty regarding the amounts and timing of estimated future cash flows and the applicable discount rate.
C. Liability in Respect of Government Grants
Government grants in respect of a research and development project that are subject to repayment through future royalties payments are recognized as a liability and are measured at their fair value as of the receipt date, unless at that date, it is reasonably assured that the amount received will not be repaid. In determining these assumptions, management makes use of a forecast regarding revenues expected to derive from the items in respect of which the grants were received and the royalties that have to be paid in respect thereof. There exists a degree of uncertainty in respect of the estimated future cash flows, timing of such cash flows and estimate of the discount rate used in determining the amount of the liability
CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
The Company has not changed any accounting policy during the six-months period ended June 30, 2025. All the accounting policies (including accounting policies that were initially adopted) are described in Note 3 to the Annual Consolidated Financial Statements.
RELATED PARTY TRANSACTIONS
A. The Company's key management personnel consist of those people having authority and responsibility for planning, directing, and controlling the activities of the Company as a whole. The Company has determined that its key management personnel consist of members of the board of directors and executive officers (currently the Company's CEO and CTO).
B. The Group entered into management service fee agreements with its major shareholder, BioLight, under which the Company is charged a monthly service fee of NIS 50 thousand (approximately $19 thousand) for certain services provided by them, which include, inter alia, costs related to customary management services, CFO services and office and lab lease (until February 2024).
In July 2023, the Company entered into an amendment to the management service fee agreement, according to which upon the completion of its listing on the CSE in December 2024 (see also note 10D of the Annual Consolidated Financial Statements), the monthly service fee was increased to total amount of NIS 60 thousand (approximately $22 thousand).
During the six-months period ended June 30, 2025 and 2024, the Company paid management fees in the amount of $141 thousand and $59 thousand, respectively.
C. On May 2025, the company entered into a compensation agreement with its independent directors. Under this agreement, each director will receive a monthly payment of $500 (retroactively from December 2024).
D. The remuneration of directors and key management personnel during the six-months periods ending June 30, 2025, and 2024, is set out below:
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Management's Discussion and Analysis
For the six-month period ended June 30, 2025
| Related Party Reconciliation | For the six months ended June 30, 2025 (C$, thousands) | For the six months ended June 30, 2024 (C$, thousands) |
|---|---|---|
| CEO and CTO compensation: | ||
| Salaries and benefits | 286 | 286 |
| Share-based compensation | 488 | 7 |
| Sub-Total | 774 | 293 |
| Directors’ compensation: | ||
| Salaries and benefits | 7 | - |
| Share-based compensation | 236 | - |
| Sub-Total | 243 | - |
| Total Compensation | 1,017 | 293 |
As of June 30, 2025, accounts payable and accrued liabilities included accrued executive salaries, short-term benefits of $14 thousand (As of June 30, 2024 - $16 thousand).
As of June 30, 2025, the balance with BioLight is shown in the other current liabilities in the amount of $56 thousand (As of December 31, 2024 - $15 thousand, shown as other current assets).
PROPOSED TRANSACTIONS
As of June 30, 2025, or the date of this MD&A, the Company had the following proposed transactions:
On June 3, 2025, the Company announced a non-brokered private placement of 1,400,000 units at a price of $0.50 per unit for aggregate gross proceeds of $700 thousands.
Each Unit will consist of one common share of the Issuer and one common share purchase warrant. Each Warrant will be exercisable to purchase one Common Share at an exercise price of $1.00 for a term of eighteen (18) months from the closing date of the Offering.
As of this date the private placement has not closed.
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Management's Discussion and Analysis
For the six-month period ended June 30, 2025
OUTSTANDING SHARE DATA
A summary of the number of the Company's issued and outstanding equity instruments is as follows:
| June 30, 2025 | Date of this MD&A | |
|---|---|---|
| Common shares issued and outstanding (1) | 58,788,335 | 58,788,335 |
| Equity incentive stock options | 5,671,871 | 5,671,871 |
| Common share purchase warrants (2) | 5,867,218 | 5,867,218 |
Notes:
(1) Authorized: Unlimited common shares without par value.
(2) Each common share purchase warrant entitles the holder thereof to acquire one common share of the Company for $1.00 until May 20, 2026.
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Management's Discussion and Analysis
For the six-month period ended June 30, 2025
ADDITIONAL DISCLOSURE FOR VENTURE ISSUERS WITHOUT SIGNIFICANT REVENUE
As described in the Operational Highlights section above, the Company is continuing its efforts to commercialize the Dry Eye Product and developing efforts on the Red Eye Product. For more information on the Research and Development expenses see Summary of statements of loss and comprehensive loss above and note 12A to the Annual Consolidated Financial Statements.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, other current assets, accounts payable, accrued liabilities and liability in respect of government grants. Financial assets and financial liabilities are measured on an ongoing basis at fair value or amortized cost. See also Note 15 to the Annual Consolidated Financial Statements.
Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:
- Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;
- Level 2 - Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
- Level 3 - Inputs that are not based on observable market data.
The fair value of the Company's cash, other current assets, accounts payable and accrued liabilities approximate their carrying value, which is the amount recorded on the statement of financial position. In addition, the Company has a liability in respect of government grants that is measured at the initial recognition date at fair value and in subsequent periods at the amortized cost using the effective interest method. Taking into consideration that there has not been a significant change in the discount rate used for recognition of both liability and the current discount rate, the balance constitutes an approximation of fair value.
The Company's financial instruments expose it to certain financial risks, including credit risk, liquidity risk, interest rate risk and currency exchange risk.
Credit risk
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. As of June 30, 2025, the Company's exposure to credit risk is mainly from cash. The Company's cash is held in a checking account in Canadian and Israeli banks. The Company's maximum exposure to credit risk is the carrying value of this asset. Management regularly assesses the financial strength of the financial institutions the Company works with. Accordingly, management believes that the credit risk related to its cash is negligible. The Company has not entered any financial instruments to mitigate this risk. For additional information, please refer to Note 15A(2)B to the Annual Consolidated Financial Statements.
Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments.
As of June 30, 2025, the Company's positive working capital amounted to $1,342 thousand. The Company's policy is to manage its liquidity by assessing current forecasts for purposes of managing its cash for operating purposes during the normal course of business. Depending on its current needs, the Company conducts, from time to time, additional rounds of fundraising from its current shareholders, however there is a significant doubt that additional funds will be available to the Company in the future. For additional information, please refer to Note 15A(2)C to the Annual Consolidated Financial Statements.
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Management's Discussion and Analysis
For the six-month period ended June 30, 2025
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. As of June 30, 2025, the Company did not have any financial instruments subject to any material interest rate risk. For additional information, please refer to Note 15A(2)A to the Annual Consolidated Financial Statements.
Currency exchange risk
Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Functional Currency of DiagnosTear Israel is NIS, and, as such, the Company is exposed to currency exchange risk due to fluctuations in foreign exchange rates against the Canadian dollar. For additional information, please refer to Note 15A(2)D to the Annual Consolidated Financial Statements.
A summary of the Canadian dollar (CAD) exchange rates against the New Israeli Shekel (NIS) is as follows:
| Currency | June 30, 2025 | June 30, 2024 | December 31, 2024 |
|---|---|---|---|
| NIS/CAD | 2.467 | 2.741 | 2.535 |
| NIS/CAD Average | 2.552 | 2.721 | 2.701 |
RISKS AND UNCERTAINTIES
In addition to the other information included in this report, readers should consider carefully the risk factors contained in the Prospectus under "Risk Factors", which describe the risks, uncertainties and other factors that may materially and adversely affect the Company's business, products, financial condition and operating results. There are many factors that affect the Company's business and results of operations, some of which are beyond the Company's control. Except as required by law, the Company undertakes no obligation to update any such FLS to reflect events or circumstances after the date of this MD&A.
For a discussion of risk factors, please refer to the final prospectus of the Company under "Risk Factors" therein. The final prospectus dated November 14, 2024, is available under the Company's profile on SEDAR+ at www.sedarplus.ca.
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