GlucoTrack(GCTK) - 2021 Q4 - Annual Report

Part I Business GlucoTrack, Inc. is a medical device company developing non-invasive glucose monitoring devices, focusing on the advanced GlucoTrack 2.0 for global markets Overview and Product Development The company focuses on developing GlucoTrack 2.0, an advanced wireless non-invasive glucose monitor, for European and U.S. markets - GlucoTrack has developed a non-invasive glucose monitor (GlucoTrack®) that uses a combination of ultrasound, electromagnetic, and thermal technologies to measure glucose levels from the earlobe without drawing blood[22] - The company is accelerating the development of GlucoTrack 2.0, a wireless and rechargeable ear-clip paired with a smartphone, offering increased accuracy, greater margins, and lower cost compared to the 1.0 model[35] - The company is now focusing on the U.S. market, planning for FDA clinical trials and building a U.S. go-to-market strategy[37] Market Opportunity and Competition The substantial global diabetes market presents opportunities, but the company faces intense competition from established and CGM device manufacturers - The International Diabetes Federation estimated that 463 million adults worldwide had diabetes in 2019, with this number expected to grow to approximately 700 million by 2045[51] - The company faces significant competition from four major companies that dominate the self-monitored glucose testing market: Roche, LifeScan (a division of Johnson & Johnson), Abbott Laboratories, and Ascensia[113] - Continuous Glucose Monitoring (CGM) devices from competitors like Medtronic plc, Abbott Laboratories, and Dexcom, Inc. represent another major competitive threat[115] Regulatory and Reimbursement GlucoTrack 1.0 has EU approval, but U.S. market entry requires FDA approval and securing uncertain third-party reimbursement - GlucoTrack 1.0 received CE Mark approval, allowing it to be marketed and sold in EU member countries, and the company also holds ISO 13485:2016 certification[26][28] - The product has not been approved for commercial sale in the United States, though the FDA confirmed U.S. clinical trials would be considered non-significant risk device studies, allowing them to proceed without an Investigational Device Exemption (IDE) application[86][87] - Commercial success is highly dependent on obtaining reimbursement from third-party payors such as Medicare, Medicaid, and private insurance plans, which is an uncertain and lengthy process[94][98] Intellectual Property The company proactively protects its technology with 59 issued patents and "GlucoTrack®" trademark registrations in 24 countries - The company holds 59 issued patents in multiple jurisdictions, including the United States, Europe, China, and Japan, covering its core technology[108] - Trademark registrations for "GlucoTrack®" have been obtained in 24 countries, including the US, Europe, and China[110] Risk Factors Significant risks include operating losses, GlucoTrack 2.0's success dependency, third-party reliance, and internal control weaknesses - The company has a history of operating losses, with a net loss of approximately $4.0 million in 2021 and an accumulated deficit of $97.5 million as of December 31, 2021[127] - The business is highly dependent on the success of its next-generation product, GlucoTrack® 2.0, which has not yet received regulatory approval or been commercialized[135] - The company relies on third parties for manufacturing and distribution, which exposes it to risks related to production quality, supply chain disruptions, and sales performance[160][164] - A material weakness was identified in the company's internal control over financial reporting as of December 31, 2021, related to insufficient accounting personnel, lack of segregation of duties, and inadequate internal controls[187] Unresolved Staff Comments The company reports no unresolved staff comments - There are no unresolved staff comments[199] Properties The company leases vehicles and flexible shared workspaces for its principal offices, owning no real estate - The company leases several vehicles with terms expiring between 2023 and 2024[200] - Since March 2021, the company rents flexible shared workspaces in Or Yehuda, Israel, on short-term agreements (typically 6 months)[201] Legal Proceedings The company is not currently a party to any material litigation - The company reports no material litigation as of the filing date[202] Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[203] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities As of March 2022, the company had 358 common stock holders and does not anticipate paying cash dividends - As of March 30, 2022, there were approximately 358 holders of record of the company's Common Stock[206] - The company has never paid cash dividends and does not plan to in the foreseeable future[207] Management's Discussion and Analysis of Financial Condition and Results of Operations Net loss increased in 2021 due to higher R&D and G&A expenses; cash balance is sufficient for 12 months Results of Operations (in thousands of US dollars) | Expense Category | 2021 | 2020 | Change | Reason for Change | | :--- | :--- | :--- | :--- | :--- | | Research & Development | $1,810 | $1,532 | +18.1% | Increase due to slow inventory write-off | | Selling & Marketing | $139 | $415 | -66.5% | Reduced business development expenses pending GlucoTrack® 2.0 | | General & Administrative | $2,091 | $1,185 | +76.4% | Hiring of new and augmented personnel | | Net Loss | $4,067 | $2,696 | +50.8% | Primarily due to increased G&A and R&D expenses | - As of December 31, 2021, the company had cash on hand of $6,062 thousand and believes this is sufficient to meet its capital needs for at least 12 months[226] Net Cash Flow Summary (in thousands of US dollars) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($3,769) | ($3,501) | | Net Cash Used in Investing Activities | ($1) | ($53) | | Net Cash Provided by Financing Activities | $0 | $13,009 | Controls and Procedures Disclosure controls were ineffective in 2021 due to material weaknesses in internal control, with remediation planned - Management concluded that disclosure controls and procedures were ineffective as of December 31, 2021[237] - Material weaknesses were identified related to a lack of sufficient internal accounting personnel, inadequate segregation of duties, and insufficient internal controls for complex and non-routine transactions[238] - Management has identified corrective actions, including hiring additional employees, and intends to implement remediation procedures during fiscal year 2022[239] Part III Directors, Executive Officers, Corporate Governance, Compensation, and Related Transactions Information for Items 10-14 is incorporated by reference from the company's definitive proxy statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's definitive Proxy Statement[245][248][249][250][251] Part IV Exhibits, Financial Statement Schedules This section lists financial statements, schedules, and exhibits filed with the Form 10-K report - This section provides a list of all exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and certifications[253][255][256] Financial Statements Consolidated Financial Statements 2021 financial statements show decreased assets, increased net loss, and an inventory write-down due to strategic shift Consolidated Balance Sheet Data (in thousands of US dollars) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $6,062 | $9,823 | | Total Assets | $6,265 | $10,606 | | Total Liabilities | $1,110 | $1,624 | | Total Stockholders' Equity | $5,155 | $8,982 | | Accumulated Deficit | ($97,466) | ($93,399) | Consolidated Statement of Operations Data (in thousands of US dollars) | Account | 2021 | 2020 | | :--- | :--- | :--- | | Total operating expenses | $4,040 | $3,132 | | Operating loss | ($4,040) | ($3,132) | | Loss for the year | ($4,067) | ($2,696) | | Loss per share (Basic and Diluted) | $0.26 | $0.19 | - In the fourth quarter of 2021, the company recorded an inventory write-down of approximately $321 thousand as the development of its second-generation device rendered the existing inventory obsolete[345] - The company has an outstanding contingent liability to the Israeli Innovation Authority (IIA) for royalties on future sales, amounting to approximately $43 thousand plus interest[356]