Glucotrack, Inc. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Principal Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2021, or the Evaluation Date. Based on such evaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are ineffective in recording, processing, summarizing and reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is not accumulated and communicated to management, including our principal executive and financial officers, in a manner sufficient to allow timely decisions regarding required disclosure, due to the material weaknesses in internal control over financial reporting described below. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based principally on the framework and criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission as of the end of the period covered by this report. Based on that evaluation, we have identified material weaknesses related to our internal control over financial reporting as of December 31, 2021 and concluded that internal control over financial reporting as at December 31, 2021 were not effective. As defined in Regulation 12b-2 under the Securities Exchange Act, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented, or detected on a timely basis. Specifically, as of December 31, 2021, the ineffectiveness of the Company’s internal control over financial reporting was due to identification of material weaknesses related to lack of sufficient internal accounting personnel, segregation of duties, and lack of sufficient internal controls (including IT general controls) that encompass the Company as a whole with respect to entity and transactions level controls in order to ensure complete documentation of complex and non-routine transactions and adequate financial reporting. Management has identified corrective actions to remediate such material weaknesses, which includes hiring additional employees. Management intends to implement procedures to remediate such material weaknesses during the fiscal year 2022; however, the implementation of these initiatives may not fully address any material weaknesses that we may have in our internal control over financial reporting. Changes in Internal Control over Financial Reporting During the year ended December 31, 2021, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As the Company has historically had personnel both in the U.S. and Israel, there has been no change in working status due to working remotely as a result of COVID-19. Attestation Report of the Registered Public Accounting Firm This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this Annual Report. Item 9B. Other Information. None. Item 9 C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspection None. PART III Item 10. Directors, Executive Officers, and Corporate Governance. Except for the information about our Code of Ethics below, the information required by this Item 10 is incorporated by reference from our definitive proxy statement for our 2021 Annual Meeting of Stockholders (the “Proxy Statement”). The definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Annual Report on Form 10-K. 42 We maintain a Code of Business Conduct and Ethics (Code) that applies to all employees, including our principal executive officer, principal financial officer, principal accounting officer, controller and persons performing similar functions, and including our independent directors, who are not employees of the Company, with regard to their Integrity-related activities. The Code incorporates guidelines designed to deter wrongdoing and to promote honest and ethical conduct and compliance with applicable laws, rules and regulations. The Code also incorporates our expectations of our employees that enable us to provide accurate and timely disclosure in our filings with the SEC and other public communications. In addition, the Code incorporates guidelines pertaining to topics such as complying with applicable laws, rules, and regulations; insider trading; reporting Code violations; and maintaining accountability for adherence to the Code. The full text of our Code is published on our web site at http://www.integrity-app.com/investor-relations/corporate-governance/ and is incorporated by reference herein. We intend to disclose future amendments to certain provisions of our Code, or waivers of such provisions granted to our principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions on our web site. Except as expressly stated herein, the information contained on our website does not constitute a part of this Annual Report on Form 10-K and is not incorporated by reference herein. Item 11. Executive Compensation. The information required for this Item is incorporated by reference from our Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required for this Item is incorporated by reference from our Proxy Statement. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required for this Item is incorporated by reference from our Proxy Statement. Item 14. Principal Accountant Fees and Services. The information required for this Item is incorporated by reference from our Proxy Statement. PART IV Item 15. Exhibits, Financial Statement Schedules. (a) Document List (1) Financial Statements: The financial statements of the Company filed herewith are set forth in Part II, Item 8 of this report. (2) Financial Statement Schedules: None. (3) Exhibits: Exhibit Number Description 2.1 Merger Agreement and Plan of Reorganization, dated as of May 25, 2010, by and among Integrity Applications, Inc., Integrity Acquisition Ltd. and A.D. Integrity Applications Ltd. (1) 3.1 Certificate of Incorporation of Integrity Applications, Inc. (1) 43 3.2 Certificate of Amendment to Certificate of Incorporation of Integrity Applications, Inc. (1) 3.3 Bylaws of Integrity Applications, Inc. (1) 3.4 Certificate of Designation of Preferences and Rights of Series A 5% Convertible Preferred Stock (2) 3.5 Certificate of Designation of Preferences and Rights of Series B 5.5% Convertible Preferred Stock (3) 3.6 Certificate of Designation of Preferences and Rights of Series C 5.5% Convertible Preferred Stock (8) 3.7 Amendments to The Company's Certificate of Incorporation** 4.1 Specimen Certificate Evidencing Shares of Common Stock (1) 4.2 Form of Common Stock Purchase Warrant (1) 4.3 Form of Series A Securities Purchase Agreement (2) 4.4 Form of Series A Common Stock Purchase Warrant (2) 4.5 Form of Series A Registration Rights Agreement (2) 4.6 Form of Series B Securities Purchase Agreement (3) 4.7 Form of Series B-1 Common Stock Purchase Warrant (3) 4.8 Form of Series B-2 Common Stock Purchase Warrant (3) 4.9 Form of Series B Registration Rights Agreement (3) 4.10 Form of Series C Securities Purchase Agreement (8) 4.11 Form of Series C-1 Common Stock Purchase Warrant (8) 4.12 Form of Series C-2 Common Stock Purchase Warrant (8) 4.13 Form of Series C Registration Rights Agreement (8) 4.14 Form of Series D Securities Purchase Agreement (12) 4.15 Form of Series D-1 Common Stock Purchase Warrant (12) 4.16 Form of Series D-2 Common Stock Purchase Warrant (12) 4.17 Form of Series D-3 Common Stock Purchase Warrant (12) 4.18 Form of Series D Registration Rights Agreement (12) 10.1* Integrity Applications, Inc. 2010 Incentive Compensation Plan (1) 10.2* Amendment No. 1 to Integrity Applications, Inc. 2010 Incentive Compensation Plan (13) 10.3* Amendment No. 2 to Integrity Applications, Inc. 2010 Incentive Compensation Plan (11) 10.4* Form of Director and Officer Indemnification Agreement (1) 10.5* Personal Employment Agreement, dated as of October 19, 2010, between A.D. Integrity Applications Ltd. and Avner Gal (1) 10.6* Letter Agreement, effective as of April 7, 2017, among Integrity Applications, Inc., A.D. Integrity Applications Ltd., and Avner Gal (11) 10.7* Amended and Restated Personal Employment Agreement, effective as of April 7, 2017, between A.D. Integrity Applications Ltd. and David Malka (11) 10.8 Irrevocable Undertaking of Indemnification, dated as of July 26, 2010, by and among Integrity Applications, Inc., Avner Gal, Zvi Cohen, Ilana Freger, David Malka and Alexander Raykhman (1) 10.9 Investment Agreement, dated February 18, 2003, between A.D. Integrity Applications Ltd., Avner Gal, Zvi Cohen, David Freger and David Malka and Yigal Dimri (1) 10.10* Form of Stock Option Agreement (1) 10.11* Form of Stock Option Agreement (ESOP) (1) 10.12 Letter of Approval, addressed to Integrity Applications Ltd. from the Ministry of Industry, Trade and Employment of the State of Israel (6) 10.13 Letter of Undertaking, addressed to the Ministry of Industry, Trade and Employment of the State of Israel – Office of the Chief Scientist from Integrity Applications Ltd. (4) 10.14 Investment Agreement, dated March 16, 2004, by and among A.D. Integrity Applications Ltd., Yitzhak Fisher, Asher Kugler and Nir Tarlovsky. (4) 10.15* Personal Employment Agreement, dated as of October 22, 2013, between A.D. Integrity Applications Ltd. and Eran Hertz. (7) 44 10.16 Personal Employment Agreement, dated as of February 1, 2017, between A.D. Integrity Applications Ltd. and Sami Sassoun (9) 10.17 Amended and Restated Consulting Agreement, dated as of February 6, 2017, between Integrity Applications, Inc. and Strand Strategy (9) 10.18 Personal Employment Agreement, dated as of March 20, 2017, between Integrity Applications, Inc. and John Graham (9) 10.19* First Amendment to Employment Agreement, effective as of April 7, 2017, between Integrity Applications, Inc. and John Graham (11) 10.20* Employment Agreement, effective as of June 26, 2017, between Integrity Applications, Inc. and David Podwalski (5) 14.1 Code of Ethics (9) 21.1 Subsidiaries of Integrity Applications, Inc. (10) 23.1 Consent of Marcum LLP 31.1 Certification of Principal Executive Officer Pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as Adopted Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 ** 31.2 Certification of Principal Financial Officer Pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as Adopted Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 ** 32.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002 ** 32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002 ** 101.INS Inline XBRL Instance Document ** 101.SCH Inline XBRL Schema Document ** 101.CAL Inline XBRL Calculation Linkbase Document ** 101.DEF Inline XBRL Taxonomy Extension Calculation Linkbase ** 101.LAB Inline XBRL Label Linkbase Document ** 101.PRE Inline PRE XBRL Presentation Linkbase Document ** 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) (1) Previously filed as an exhibit to the Company’s Registration Statement on Form S-1, as filed with the SEC on August 22, 2011. (2) Previously filed as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on March 18, 2013. (3) Previously filed as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on September 5, 2014. (4) Previously filed as an exhibit to Amendment No. 1 to the Company’s Registration Statement on Form S-1, as filed with the SEC on October 7, 2011. (5) Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2017, as filed with the SEC on August 18, 2017. (6) Previously filed as an exhibit to Amendment No. 3 to the Company’s Registration Statement on Form S-1, as filed with the SEC on November 10, 2011. (7) Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as filed with the SEC on March 27, 2014. (8) Previously filed as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on April 15, 2016. (9) Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the SEC on March 31, 2017. (10) Previously filed as an exhibit to the Company’s Registration Statement on Form S-1, as filed with the SEC on November 7, 2017. (11) Previously filed as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on April 15, 2017 (12) Previously filed as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on March 7, 2018. (13) Previously filed as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on March 23, 2016. * Compensation Plan or Arrangement or Management Contract. ** Filed herewith. 45 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized as of March 31, 2022. GLUCOTRACK, INC. (FORMERLY : INTEGRITY APPLICATIONS, INC.) By: /s/ Paul Goode Name: Paul Goode Title: Chief Operating Officer (Principal Executive Officer) By: /s/ Jolie Kahn Name: Jolie Kahn Title: Chief Financial Officer (Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Jolie Kahn Chief Financial Officer March 31, 2022 Jolie Kahn (Principal Executive and Financial Officer and Principal Accounting Officer) /s/ Robert Fischell Director March 31, 2022 Dr. Robert Fischell /s/ Allen Danzig Director March 31, 2022 Allen Danzig /s/ Shimon Rapps Director March 31, 2022 Shimon Rapps /s/ Andrew Sycoff Director March 31, 2022 Andrew Sycoff /s/ Paul V.Goode COO March 31, 2022 Paul V.Goode /s/ Luis Malave Director March 31, 2022 Luis Malave 46 GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) Consolidated Financial Statements as of December 31, 2021 Table of Contents Page Report of Independent Registered Public Accounting Firm – ID No. 1375 F-2 Consolidated Financial Statements Balance Sheets F-3 Statements of Operations and Comprehensive Loss F-4 Statements of Changes in Stockholders’ Equity (Deficit) F-5 Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 – F-23 F- 1 Fahn Kanne & Co. Head Office 32 Hamasger Street Tel-Aviv 6721118, ISRAEL PO Box 36172, 6136101 T +972 3 7106666 F +972 3 7106660 www.gtfk.co.il Report of Independent Registered Public Accounting Firm Board of Directors and the Stockholders of GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) Opinion on the financial statements We have audited the accompanying consolidated balance sheets of GlucoTrack Inc. (Formerly: Integrity Applications, Inc.) (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Emphasis of a matter As discussed in Note 1B to the financial statements, the Company has suffered recurring losses from operations and negative cash flow from operating activities. Management’s evaluation of the events and conditions and management’s plans to mitigate these matters are also described in Note 1B. Critical accounting matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ FAHN KANNE & CO. GRANT THORNTON ISRAEL Certified Public Accountants (Isr.) We have served as the Company’s auditor since 2010. Tel-Aviv, Israel March 31, 2022 F- 2 GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) CONSOLIDATED BALANCE SHEETS In thousand of US dollars (except stock data) December 31, 2021 December 31, 2020 Current Assets Cash and cash equivalents 6,062 9,823 Accounts receivable, net - 66 Inventory (Note 3) - 284 Other current assets 43 56 Total current assets 6,105 10,229 Operating lease right-of-use assets, net (Note 4) 40 166 Property and equipment, net (Note 5) 69 149 Restricted cash 51 62 TOTAL ASSETS 6,265 10,606 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable 631 869 Operating lease liabilities, current (Note 4) 23 84 Other current liabilities (Note 6) 229 392 Total current liabilities 883 1,345 Non-current Liabilities Loans from stockholders (Note 7) 210 197 Operating lease liabilities, non-current (Note 4) 17 82 Total non-current liabilities 227 279 Total liabilities 1,110 1,624 Commitments and contingent liabilities (Note 8) Stockholders’ Equity Common Stock of $ 0.001 par value (“Common Stock”): 500,000,000 shares authorized; 15,452,285 and 15,444,697 shares issued and outstanding as of December 31, 2021 and 2020, respectively 15 15 Common Stock Value 15 15 Additional paid-in capital 102,612 102,351 Accumulated other comprehensive income (loss) ( 6 ) 15 Accumulated deficit ( 97,466 ) ( 93,399 ) Total stockholders’ equity 5,155 8,982 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 6,265 10,606 The accompanying notes are an integral part of these consolidated financial statements F- 3 GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS 2021 2020 In thousand of US dollars ( except stock and per stock amounts) 2021 2020 Research and development expenses (Note 10) 1,810 1,532 Marketing expenses (Note 11) 139 415 General and administrative expenses (Note 12) 2,091 1,185 Total operating expenses 4,040 3,132 Operating loss 4,040 3,132 Other expense (Income) 53 ( 338 ) Financing income, net ( 26 ) ( 98 ) Loss for the year 4,067 2,696 Other comprehensive loss: Foreign currency translation adjustment 21 109 Comprehensive loss for the year 4,088 2,805 Loss per share (Basic and Diluted) 0.26 0.19 Weighted average number of common stock outstanding used in computing basic and diluted net loss per share 15,450,824 15,079,182 The accompanying notes are an integral part of the consolidated financial statements. F- 4 GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) Number of shares Amount paid in capital comprehensive loss Accumulated deficit (deficit) surplus In thousand of US dollars (except stock data) Common Stock Additional Accumulated other Total Stockholders’ Number Amount paid in capital comprehensive income (loss) Accumulated deficit Equity (deficit) Balance as of January 1, 2020 12,450,649 12 89,155 124 ( 90,703 ) ( 1,412 ) Loss for the year - - - - ( 2,696 ) ( 2,696 ) Other comprehensive loss - - - ( 109 ) - ( 109 ) Stock-based compensation - - 22 - - 22 Issuance of Common Stock, net 2,884,615 3 12,250 - - 12,253 Warrants issued as consideration for placement services - - 756 - - 756 Issuance of restricted shares as compensation to directors 109,433 ( * ) - 168 - - 168 Balance as of December 31, 2020 15,444,697 15 102,351 15 ( 93,399 ) 8,982 Balance as of January 1, 2021 15,444,697 15 102,351 15 ( 93,399 ) 8,982 Beginning balance, value 15,444,697 15 102,351 15 ( 93,399 ) 8,982 Loss for the year - - - - ( 4,067 ) ( 4,067 ) Other comprehensive loss - - - ( 21 ) - ( 21 ) Stock-based compensation - - 223 - - 223 Issuance of restricted shares as compensation to directors 7,588 ( * ) - 38 - - 38 Balance as of December 31, 2021 15,452,285 15 102,612 ( 6 ) ( 97,466 ) 5,155 Ending balance, value 15,452,285 15 102,612 ( 6 ) ( 97,466 ) 5,155 (*) Less than 1 thousand The accompanying notes are an integral part of the consolidated financial statements. F- 5 GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS 2021 2020 Cash flows from operating activities: Loss for the year ( 4,067 ) ( 2,696 ) Adjustments to reconcile loss for the year to net cash used in operating activities: Depreciation 42 47 Capital loss from sale of property and equipment 42 - Stock-based compensation 223 22 Issuance of restricted shares as compensation to directors 38 168 Linkage difference on principal of loans from stockholders 6 ( 8 ) Changes in assets and liabilities: Decrease in accounts receivable 68 10 Decrease (increase) in inventory 293 ( 85 ) Decrease (increase) in other current assets 15 ( 9 ) Decrease in accounts payable ( 257 ) ( 714 ) Decrease in other current liabilities ( 172 ) ( 236 ) Net cash used in operating activities ( 3,769 ) ( 3,501 ) Cash flows from investment activities: Proceeds from sale of property and equipment 4 - Purchase of property and equipment ( 5 ) ( 53 ) Net cash used in investment activities ( 1 ) ( 53 ) Cash flows from financing activities Proceeds from issuance of common stock, net of cash issuance costs - 13,009 Net cash provided by financing activities - 13,009 Effect of exchange rate changes on cash and cash equivalents ( 2 ) ( 46 ) Change in cash, cash equivalents, and restricted cash ( 3,772 ) 9,409 Cash, cash equivalents, and restricted cash at beginning of the year 9,885 476 Cash, cash equivalents, and restricted cash at end of the year 6,113 9,885 Supplementary information on financing activities not involving cash flows: During the years ending December 31, 2021 and 2020, the Company settled a portion of the outstanding board fees in the amount of $ 38 and $ 168 thousand through the issuance of common stock. During the years ending December 2020, $ 756 thousand representing the fair value of warrants issued as consideration for placement agent services. This amount was accounted for as warrants with down-round protection. Upon issuance, the fair value was recognized as an increase in additional paid in capital. The accompanying notes are an integral part of the consolidated financial statements. F- 6 GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – GENERAL A. GlucoTrack Inc (Formerly: Integrity Applications, Inc.) (the “Company”) was incorporated on May 18, 2010 under the laws of the State of Delaware. On July 15, 2010, GlucoTrack Acquisition Corp. Ltd. (hereinafter: “Integrity Acquisition”), a wholly owned Israeli subsidiary of the Company, which was established on May 23, 2010, completed a merger with A.D. Integrity Applications Ltd. (hereinafter: “Integrity Israel”), an Israeli corporation that was previously held by the stockholders of the Company. Pursuant to the merger, all equity holders of Integrity Israel received the same proportional ownership in the Company as they had in Integrity Israel prior to the merger. Following the merger, Integrity Israel remained a wholly-owned subsidiary of the Company. As the merger transaction constituted a structural reorganization, the merger has been accounted for at historical cost in a manner similar to a pooling of interests. Integrity Israel was incorporated in 2001 and commenced its operations in 2002 (The Company and Integrity Israel are referred as the “Group”) Integrity Israel, a medical device company, focuses on the design, development and commercialization of non-invasive glucose monitoring devices for use by people with diabetes. Since its incorporation, the Company did not conduct any material operations other than those carried out by Integrity Israel. The development and commercialization of Integrity Israel’s product is expected to require substantial expenditures. Integrity Israel and the Company (collectively, the “Group”) have not yet generated significant revenues from operations, and therefore they are dependent upon external sources for financing their operations. As of December 31, 2021, the Group has incurred accumulated deficit of $ 97,466 thousand, and negative operating cash flows. As of December 31, 2021, the Company had $ 6,062 thousand in cash, which is sufficient to meet its capital needs for fiscal 2022 and for at least 12 months from the date of issuance of these financial statements, thus it is expected that the company will be able to operate as a going concern for at least 12 months from the date hereof. On December 8, 2021, we announced that our shares of common stock were approved for listing on the Nasdaq Capital Market (“NASDAQ”). Trading on NASDAQ commenced on December 10, 2021 under its existing trading symbol, IGAP. On March 14, 2022, we announced that it has completed its corporate name and ticker symbol change on the Nasdaq Capital Market (from IGAP to GCTK), to be effective at the commencement of trading on March 14, 2022. In connection with its application to list its shares on Nasdaq Capital Market (“NASDAQ”), as detailed above, on August 13, 2021, the Company effected a reverse split of its Common Stock in a ratio of 1 for 13 (the “Reverse Share Split”). For accounting purposes, all Shares, options and warrants to purchase Common Stock and loss per share amounts have been adjusted to give retroactive effect to this Reverse Share Split for all periods presented in these consolidated financial statements. Any fractional shares resulting from the Reverse Share Split were rounded up to the nearest whole share. B. Liquidity and capital resources Since its inception date, the Company did not conduct any material operations other than those carried out by Integrity Israel. The development and commercialization of the Product is expected to require substantial expenditures. The Group has not yet generated significant revenues from operations, and therefore they are dependent upon external sources for financing their operations. As of December 31, 2021, the Group has incurred accumulated deficit of $ 97,466 thousand. During the year ended December 31, 2021 the Company incurred losses from ongoing operation and has negative cash flow from operating activity. On February 14, 2020, the Company closed on a $ 15 million private placement of its common stock, for which it received net cash in excess of $ 13,009 thousand. In addition, on September 27, 2021, the Company’s shelf registration statement on Form S-3 was declared effective by the Securities and Exchange Commission (SEC) which permits the Company to register up to $ 100,000 thousand of certain equity and debt securities of the Company via prospectus supplement. To date, funds have not been raised through this shelf registration statement The management believes the cash balance amounted to $ 6,062 thousand as of December 31, 2021, is sufficient to meet its capital needs of the Group for at least 12 months from the issuance date of these consolidated financial statements. Thus, it is expected that the Company will be able to operate as a going concern for at least 12 months from the date hereof. F- 7 GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 1 – GENERAL (cont.) C. Effect of the spread of the Coronavirus on the Company In December 2019, the Covid-19 epidemic erupted in China (hereinafter - the “Corona Virus”, the “Event” or the “Crisis”) and at the beginning of 2020, it spread to additional countries across the globe. In January 2020, the World Health Organization declared the outbreak of Corona as a global health emergency and in March 2020, it declared the Corona virus to be a global pandemic. The spreading of the Corona Virus is an extraordinary macroeconomic event in many countries worldwide. As a result of the event, many countries, including Israel, have taken significant steps in an attempt to stem the spreading of the virus. These steps include, inter alia, restriction of civilian movement and employment, closure of businesses and malls, restrictions of gatherings and events, restriction of the transportation of people and goods, closure of international border crossings, reduction in the number of employees permitted to come to their workplaces, etc. The event and the steps being taken by the various countries, as mentioned above, have had a significant impact on many global and local economies as well as on global capital markets, characterized by sharp decreases and extreme volatility in the prices of many securities. In addition, there is an ever-increasing risk of a market recession. As a result of the COVID-19 pandemic, as near-term measures, the Company has transitioned some of its employees to remote working arrangements. which has had no material impact on the Company’s operations. Due to the uncertainty of COVID-19, the Company will continue to assess the situation, including abiding by any government-imposed restrictions, market by market. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP). A. Use of estimates in the preparation of financial statements The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. As applicable to the consolidated financial statements, the most significant estimates and assumptions relate to the going concern assumptions. B. Functional currency The functional currency of the Company is the US dollar, which is the currency of the primary economic environment in which it operates. In accordance with ASC 830, “Foreign Currency Matters” (ASC 830), balances denominated in or linked to foreign currency are stated on the basis of the exchange rates prevailing at the applicable balance sheet date. For foreign currency transactions included in the statement of operations, the exchange rates applicable on the relevant transaction dates are used. Gains or losses arising from changes in the exchange rates used in the translation of such transactions are carried as financing income or expenses. The functional currency of Integrity Israel is the New Israeli Shekel (“NIS”) and its financial statements are included in consolidation, based on translation into US dollars. Accordingly, assets and liabilities were translated from NIS to US dollars using year-end exchange rates, and income and expense items were translated at average exchange rates during the year. Gains or losses resulting from translation adjustments are reflected in stockholders’ equity, under “accumulated other comprehensive income (loss)”. SCHEDULE OF OFFICIAL EXCHANGE RATE 2021 2020 Official exchange rate of NIS 1 to US dollar 0.321 0.311 Increase (decrease) of the official exchange rate of NIS 1 to US dollar during the year: 2021 3.22 % 2020 7.2 % F- 8 GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) C. Principles of consolidation The consolidated financial statements include the accounts of the Company and its subsidiary. All intercompany balances and transactions have been eliminated in consolidation. D. Cash and cash equivalents The Group considers all short-term investments, which are highly liquid investments with original maturities of three months or less at the date of purchase, to be cash equivalents. E. Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined as follows: With respect to raw materials, the Group calculates cost using the average cost method. With respect to work in process and finished products, the Group calculates the cost on the basis of the average direct manufacturing costs, including materials, labor, subcontracting costs and other direct manufacturing costs. Management evaluated periodically whether inventory is required to be written-down due to slow-moving or obsolete items and recognize inventory impairment, as applicable . F. Property and equipment, net 1. Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. When an asset is retired or otherwise disposed of, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition is reflected in the statements of operations. 2. Rates of depreciation: SCHEDULE OF PROPERTY AND EQUIPMENT, RATES OF DEPRECIATION % Computers 33 Furniture and office equipment 7 - 15 Leasehold improvements Shorter of lease term and 10 years G. Impairment of long-lived assets The Group’s long-lived assets are reviewed for impairment in accordance with ASC 360, “Property, Plant and Equipment”, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. To date the Group did not incur any material impairment losses related to long lived assets. F- 9 GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) H. Restricted cash Restricted cash is invested in certificates of deposit, which are used to secure Integrity Israel’s obligations in respect of its headquarters lease and credit card (See also Note 8B). For presentation of statement of cash flows purposes, restrict cash balances are included with cash and cash equivalents, when reconciling the reported period total amounts. SCHEDULE OF RESTRICT CASH BALANCES ARE INCLUDED WITH CASH AND CASH EQUIVALENTS In thousand of US dollars December 31 December 31 2021 2020 Cash and cash equivalents $ 6,062 $ 9,823 Restricted cash $ 51 $ 62 Total cash, cash equivalents, and restricted cash shown in the statement of cash flows $ 6,113 $ 9,885 I. Income tax The Group accounts for income taxes in accordance with ASC 740, “Income Taxes”. Accordingly, deferred income taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and the tax bases of assets and liabilities under the applicable tax law. Deferred tax balances are computed using the enacted tax rates expected to be in effect when these differences reverse. Valuation allowances in respect of deferred tax assets are provided for, if necessary, to reduce deferred tax assets to amounts more likely than not to be realized. The Group accounts for uncertain tax positions in accordance with ASC Topic 740-10, which prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. According to ASC Topic 740-10, tax positions must meet a more- likely-than-not recognition threshold. The Group’s accounting policy is to classify interest and penalties relating to uncertain tax positions under income taxes, however the Group did not recognize such items in its fiscal 2021 and 2020 financial statements and did not recognize any liability with respect to unrecognized tax position in its balance sheet. J. Liability for employee rights upon retirement Integrity Israel’s liability for employee rights upon retirement with respect to its Israeli employees is calculated pursuant to the Israeli Severance Pay Law, based on the most recent salary of each employee multiplied by the number of years of employment of each such employee as of the balance sheet date. Employees are entitled to one month’s salary for each year of employment, or ratable portion thereof for periods less than one year. Integrity Israel makes monthly deposits to insurance policies and severance pay funds. The deposited funds may be withdrawn upon the fulfillment of Integrity Israel’s severance obligations pursuant to Israeli severance pay laws or labor agreements with its employees. The value of the deposited funds is based on the cash surrender value of these policies, and includes immaterial profits or losses. Commencing in 2011, Integrity Israel’s agreements with its Israeli employees are in accordance with Section 14 of the Severance Pay Law. Payments in accordance with Section 14 release the employer from any future severance payments in respect of those employees. Related obligations and liabilities under Section 14 are not recorded as an asset or as a liability in the Company’s balance sheet. For the year ended December 31, 2021, and 2020, severance expenses amounted to $ 43 and $ 24 thousand, respectively. F- 10 GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) K. Research and development expenses Research and development expenses are charged to operations as incurred. L. Royalty-bearing grant s Royalty-bearing grants from the Israeli Innovation Authority (IIA) to fund approved research and development projects are recognized at the time Integrity Israel is entitled to such grants, on the basis of the costs incurred and reduce research and development costs. To date, the cumulative research and development grants received by Integrity Israel from amounted to $ 93 thousand. M. Warranty The Group provides a 24-month warranty for its products at no cost. The group estimates the costs that may be incurred during the warranty period and records a liability for the amounts of such costs at the time revenues are recognized. For the year ended December 31, 2021 and 2020 warranty expenses were clearly insignificant. N. Basic and diluted loss per share Basic loss per share is computed by dividing the loss for the period applicable for Common Stockholders by the weighted average number of shares of Common Stock outstanding during the period. In computing, diluted loss per share, basic earnings per share are adjusted to reflect the potential dilution that could occur upon the exercise of options or warrants issued or granted using the “treasury stock method”, if the effect of each of such financial instruments is dilutive. In computing diluted loss per share, the average stock price for the period is used in determining the number of common stock assumed to be purchased from the exercise of stock options or stock warrants. Shares that will be issued upon exercise of all stock options and stock warrants, have been excluded from the calculation of the diluted net loss per share for all the reported periods for which net loss was reported because the effect of the common shares issuable as a result of the exercise or conversion of these instruments was anti-dilutive An amount of 6,404,238 and 6,446,920 outstanding stock options and stock warrants have been excluded from the calculation of the diluted net loss per share for the years ended December 31, 2021 and 2020, respectively, because the effect of the common shares issuable as a result of the exercise of such instruments was determined to be anti-dilutive. O. Stock-based compensation The Group measures and recognizes the compensation expense for all equity-based payments to employees based on their estimated fair values in accordance with ASC 718, “Compensation-Stock Compensation”. Share-based payments including grants of stock options are recognized in the statement of operations as an operating expense based on the fair value of the award at the date of grant. The fair value of stock options granted is estimated using the Black-Scholes option-pricing model. The Group has expensed compensation costs, net of estimated forfeitures, applying the accelerated vesting method, over the requisite service period or over the implicit service period when a performance condition affects the vesting, and it is considered probable that the performance condition will be achieved. Commencing January 1, 2019, following the adoption of ASU 2018-07, which aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees (with certain exceptions), share-based payments to non-employees are accounted in accordance with ASC 718. F- 11 GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) P. Fair value of financial instruments ASC Topic 825-10, “Financial Instruments” defines financial instruments and requires disclosure of the fair value of financial instruments held by the Group. The Group considers the carrying amount of cash and cash equivalents, restricted cash, accounts receivable, other current assets, accounts payable and other current liabilities balances, to approximate their fair values due to the short-term maturities of such financial instruments. ASC Topic 825-10, establishes the following fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value: Level 1 - Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. Level 2 - Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. Level 3 - Unobservable inputs are used when little or no market data is available. Level 3 inputs are considered as the lowest priority under the fair value hierarchy. The Group did not estimate the fair value of the loans from stockholders since their repayment schedule has not yet been determined. Q. Concentrations of credit risk Financial instruments that potentially subject the Group to concentrations of credit risk consist primarily of cash and cash equivalents, and restricted cash. Cash and cash equivalents and restricted cash are deposited with major banks in Israel and the United States of America. Management believes that such financial institutions are financially sound, accordingly, minimal credit risk exists with respect to these financial instruments. The Group does not have any significant off-balance-sheet concentration of credit risk, such as foreign exchange contracts, option contracts or other foreign hedging arrangements. R. Contingencies The Group records accruals for loss contingencies arising from claims, litigation and other sources when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. Legal costs incurred in connection with loss contingencies are expensed as incurred. F- 12 GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) S. Warrants with Down-Round Protection Following the application of Accounting Standard Update (ASU) No. 2017-11, “Earnings Per Share” (ASU 2017-11), the Company disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. Based on its evaluation, management has determined that such warrants with Down-Round Protection are eligible for equity classification. In accordance with the provisions of ASU 2017-11, upon the occurrence of an event that triggers a down round protection (i.e., when the exercise price of the warrants is adjusted downward because of the down round feature), the effect is accounted for as a deemed dividend and as a reduction of income available to common shareholders for purposes of basic earnings per share (EPS) calculation. T. Modification of equity-classified contracts The modification or exchange of equity-classified contracts, such as warrants that were classified as equity before the modification or exchange and remained eligible for equity classification after the modification, is accounted for in a similar manner to a modification of stock-based compensation. Accordingly, the incremental fair value from the modification or exchange (the change in the fair value of the instrument before and after the modification or exchange) is recognized as a reduction of retained earnings of increase of accumulated deficit as a deemed dividend. Modifications or exchanges that result in a decrease in the fair value of an equity-classified share-based payment awards are not recognized. In addition, the amount of the deemed dividend is also recognized as an adjustment to earnings available to common shareholders for purposes of calculating earnings per share. U. Allowance for doubtful accounts The allowance for doubtful accounts is determined with respect to amounts the Company has determined to be doubtful of collection, in order to reflect the expected credit losses on accounts receivable balances. Judgment is required in the estimation of the allowance for doubtful accounts and the Company evaluates the collectability of its accounts receivable based on a combination of factors (including, among other things, the length of time that the balance is past due and the customer’s current ability to pay. If it’s becomes aware of a customer’s inability to meet its financial obligations, an allowance is recorded to reduce the net receivable to the amount reasonably believed to be collectible from such customer V. Operating Lease The Company entered into several non-cancelable lease agreements for vehicles for use in its operations, which are classified as operating leases. Commencing January 1, 2019, the Company applies ASC Update 2016-02, Leases (Topic 842). The Company determines if an arrangement is a lease at inception. Under the new guidance, arrangements meeting the definition of a lease are classified as operating or financing leases. A classification of a lease is determined based on the following criteria: 1. The lease transfers ownership of the underlying asset to the lessee by the end of the lease term. 2. The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise. 3. The lease term is for the major part of the remaining economic life of the underlying asset (Generally, 75% or more of the remaining economic life of the underlying assets). 4. The present value of the sum of the lease payments and any residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset (Generally, 90% or more of the fair value of the underlying asset). 5. The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. If any of these five criteria is met, the lease is classified as a finance lease. Otherwise, the lease is classified as an operating lease. Leases are recorded on the consolidated balance sheet as both a right of use asset and a lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset results in straight-line rent expense over the lease term. Variable lease expenses, if any, are recorded when incurred. The Company also elected the short-term lease recognition exemption for all leases that qualify (leases with a term shorter than 12 months). For those leases, right-of-use assets or lease liabilities are not recognized and rent expense is recognized on a straight-line basis over the lease term. The Company had no material capital leases throughout the reporting periods. See note 4 for further discussion. F- 13 GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) W. Reclassification Certain comparative figures have been reclassified to conform to the current year presentation. Such reclassifications did not have any significant impact on the Company’s equity, net income or cash flows. X. Recent Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans, and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. The guidance also requires increased disclosures. For the Company, the amendments in the update were originally effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In November 2019, the FASB issued ASU No. 2019-10, which delayed the effective date of ASU 2016-13 for smaller reporting companies (as defined by the SEC) and other non-SEC reporting entities to fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. Early adoption is permitted. As the company is eligible to considered as smaller reporting company ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of this standard is not expected to result in a material impact to the Company’s financial statements. F- 14 GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 3 – INVENTORIES SCHEDULE OF INVENTORIES Inventory In thousand of US dollars December 31, 2021 December 31, 2020 Raw materials 94 95 Work in process 194 155 Finished products 33 34 321 284 inventory write-down ( 321 ) - - 284 (*) Management evaluated periodically whether inventory is required to be written-down due to slow-moving or obsolete items and recognize inventory impairment, as applicable. As a result of the development of the second generation of the glucose monitoring device the Group has recorded in the fourth quarter of 2021 inventory written-down in the amount of approximately $ 321 thousand. NOTE 4 – LEASES The Company has entered into several non-cancellable operating lease agreements for few vehicles. the Company’s leases have original lease periods expiring between 2023 and 2024. Payments due under such lease contracts include primarily fixed payments. the Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. the company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The components of lease costs, lease term and discount rate are as follows: SCHEDULE OF LEASE COSTS, LEASE TERM AND DISCOUNT In thousand of US dollars December 31, 2021 Operating lease cost: Vehicles 72 Office space : Over 12 month 53 Short term leases 46 171 Remaining Lease Term Vehicles 2.01 years Weighted Average Discount Rate Vehicles 10 % F- 15 GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 4 – LEASES (cont.) The following is a schedule, by years, of maturities of operating lease liabilities as of December 31, 2021: SCHEDULE OF OPERATING LEASE MATURITY PAYMENTS In thousand of US dollars December 31, 2021 Period: 2022 24 2023 20 Total operating lease payments 44 Less: imputed interest 4 Present value of lease liabilities 40 NOTE 5 – PROPERTY AND EQUIPMENT, NET SCHEDULE OF PROPERTY AND EQUIPMENT, NET Property and Equipment In thousand of US dollars December 31, 2021 December 31, 2020 Computers 306 380 Furniture and office equipment 183 312 Leasehold improvements - 82 Property and equipment, gross 489 774 Less – accumulated depreciation ( 420 ) ( 625 ) Property and equipment, net 69 149 During the years ended December 31, 2021 and 2020, depreciation expenses amounted to $ 42 and $ 47 thousand respectively, and new equipment purchases amounted to $ 5 and $ 53 thousand, respectively. NOTE 6 – OTHER CURRENT LIABILITIES SCHEDULE OF OTHER CURRENT LIABILITIES Other Current Liabilities In thousand of US dollars December 31, 2021 December 31, 2020 Employees and related institutions 98 244 Accrued expenses and other 131 148 229 392 F- 16 GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 7 – LOANS FROM STOCKHOLDERS During the years 2003-2004, Integrity Israel received loans from stockholders (four separate lenders) in a total amount of approximately $ 400 thousand. However, following the repayment of the entire balance to certain lender in 2015, the remaining balance as of December 31,2021 is approximately $ 210 thousand. The loans are indexed to the Israeli consumer price index from their origination date and bear no insert. The Group will be required to pay the loans, in quarterly installments, commencing on the first quarter following the first fiscal year in which the Group reports net profit in its annual report. At such time, the Group will be required to make quarterly payments equal to 10 % of its total sales for each quarter until the loans have been repaid in full. Notwithstanding the repayment mechanism, the Group will not be required to repay the loans during any period in which such payment would cause a deficit in the Group’s working capital. As of December 31, 2021, the Group does not expect to make any additional material repayments during the following 12-month period, if any, and accordingly the entire remaining balance of the loans from stockholders have been presented as long-term liabilities. NOTE 8 – COMMITMENTS AND CONTINGENT LIABILITIES A. On March 4, 2004, the Israel innovation authority (IIA) provided Integrity Israel with a grant of approximately $ 93 thousand (NIS 420 thousand), for its plan to develop a non-invasive blood glucose monitor (the “Development Plan”). Integrity Israel is required to pay royalties to the IIA at a rate ranging between 3 - 5 % of the proceeds from the sale of the Group’s products arising from the Development Plan up to an amount equal to $ 93 thousand, plus interest at LIBOR from the date of grant. As of December 31, 2021, the remaining contingent liability with respect to royalty payment on future sales equals approximately $ 43 thousand, excluding interest. Such contingent obligation has no expiration date. As of December 31, 2021, the Group accrued royalties to the IIA in insignificant amounts. B. On August 1, 2017 the Company entered into an Advisory Agreement with Andrew Garrett, Inc. (AGI), pursuant to which the Company engaged AGI as placement agent on a non-exclusive basis to provide certain advisory services to the Company for a period of 9 months which was subsequently extended twice and was in effect until October 31, 2019 . During the year ended December 31, 2020 the Company paid the placement Agent approximately $ 2 million for placement services (see above) in cash. In addition, during the year ended December 31, 2020, $ 756 thousand representing the fair value of warrants issued as consideration for placement agent services to AGI. This amount was accounted for as warrants with down-round protection. Upon issuance, the fair value was recognized as an increase in additional paid in capital. C. Since March 2021 Integrity Israel is renting several workspaces at office building in the city Or – Yehoda. This workspace rent replaces the principal offices the Company in the city Ashdod. According to the new agreement the Company renting those flexible shared workspaces for period shorter than one year. NOTE 9 – COMMON STOCK AND WARRANTS WITH-DOWN ROUND PROTECTION A. 1. Description of the rights attached to the Common Stock Each share of Common Stock entitles the holder to one vote, either in person or by proxy, on each matter submitted to the approval of the Company’s stockholders. The holders of Common Stock are not permitted to vote their shares cumulatively. 2. Description of February 14, 2020 Issuance of common stock On February 14, 2020, the Company entered into a Securities Purchase Agreement and Registration Rights Agreement with an accredited investor, pursuant to which the accredited investor purchased 2,884,615 shares of the Company’s common stock, par value $ 0.001 per share, for an aggregate gross purchase price of $ 15 million, less cash expenses of approximately $ 2 million Placement Agent Compensation Pursuant to a placement agent agreement (the “Placement Agent Agreement”) with the placement agent for the Offering (the “Placement Agent”), at the closing of the above mentioned sale of the common stock the Company paid the Placement Agent, as a commission, a cash amount equal to 7 % of the aggregate sales price of the Units, plus 3% of the aggregate sales price as a management fee plus a non-accountable expense allowance equal to 3 % of the aggregate sales price of the Units. In addition, pursuant to the placement agent agreement, the company is required to issue to the Placement Agent warrants to purchase up to such number of shares of Common Stock equal to 10 % of the aggregate Shares sold in the Offering plus warrants equal to 10% of the total number of the Warrants issued to the Purchasers in the Offering (collectively, the “Placement Agent Warrants”). The terms of the Placement Agent Warrants will be substantially similar to the Warrants except that the Placement Agent Warrants will also be exercisable on a cashless basis and will include full ratchet anti-dilution protection. F- 17 GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 9 – COMMON STOCK AND WARRANTS WITH-DOWN ROUND PROTECTION (cont.) B. Stock-based compensation 1. Grants to non-employees a. In connection with the 2017 Offering, the Company has issued to the Placement Agent (a) 5 -year warrants to purchase up to 1,062,717 shares of Common Stock at an exercise price of $ 3.354 per share, (b) 5 -year warrants to purchase up to 108,305 shares of Common Stock at an exercise price of $ 23.40 per share.(c) 5 -year warrants to purchase up to 8,331 shares of Common Stock at an exercise price of $ 46.80 per share, and (d) 5 -year warrants to purchase up to 8,331 shares of Common Stock at an exercise price of $ 70.20 per share. The terms of the Placement Agent warrants are substantially similar to the terms of the Series D warrants except that the Placement Agent warrants may also be exercisable on a cashless basis at all times. In connection with February 2020 Offering, the Company has issued to the Placement Agent 5 -year warrants to purchase up to 288,462 shares of Common Stock at an exercise price of $ 5.2 per share. During the year ending December 31, 2020, $ 756 thousand, respectively, representing the fair value of warrants issued as consideration for placement agent services to AGI. This amount was accounted for as Warrants with down-round protection. Upon issuance, the fair value was recognized as an increase in additional paid in capital As of December 31, 2020, the key inputs used in the fair value calculations of the warrant that were affected by the down-round protection were as follows: SCHEDULE OF FAIR VALUE ASSUMPTIONS Fair value calculations – Warrant 31-Dec-20 Dividend yield (%) - Expected volatility (%) 56.32 Risk free interest rate (%) 2.5 Expected term of options (years) 5 Exercise price (US dollars) 5.2 Share price (US dollars) 5.2 Fair value (US dollars) 2.6 2. Grants to employees In August 2007, Integrity Israel’s Board of Directors (“Integrity Israel’s Board”) approved a stock option plan (“Integrity Israel’s plan”) for the grant, without consideration of options exercisable into ordinary shares of NIS 0.01 par value of Integrity Israel to employees, officers and directors of Integrity Israel. The exercise price and vesting period for each grantee of options was determined by Integrity Israel’s Board and specified in such grantee’s option agreement. The options vested over a period of 1-12 quarters based on each grantee’s option agreements. Any option not exercised within 10 years after the date of grant thereof will expire . F- 18 GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 9 – COMMON STOCK AND WARRANTS WITH-DOWN ROUND PROTECTION (cont.) B. Stock-based compensation (cont.) 2. Grants to employees (cont.) In July 2010, following the merger with Integrity Israel, the Company adopted the 2010 Share Incentive Plan (the “2010 Share Incentive Plan”), pursuant to which the Company’s Board of Directors is authorized to grant options exercisable into Common Stock of the Company. The purpose of the 2010 Share Incentive Plan is to offer an incentive to employees, directors, officers, consultants, advisors, suppliers and any other person or entity whose services are considered valuable to the Company, as well as to replace the Integrity Israel Plan and to replace all options granted in the past by Integrity Israel. Effective June, 2020, Erez Ben-Zvi has joined the Company as its Vice President of Product. On February 8, 2021, the Company announced that it has promoted Erez Ben-Zvi to General Manager in addition to his current role as Vice President of Product, effective immediately The Company granted Mr. Ben-Zvi annual award of NIS 210 thousand worth (approximately $ 65 thousand) of restricted stock units (the “RSU”) effective as of the employee Start Date and on each one-year anniversary following the employee Start Date subject to the approval of the board of directors (the “additional RSU”). The RSU and each of the Additional RSU (if approved by the board of directors), as applicable, shall be based on the stock price at actual the date of grant (and not lower than US$ 5.20 per share). 1/12 of the RSUs shall vest and become nonforfeitable three months following the Start Date, and an additional 1/12 of the RSUs shall vest and become nonforfeitable at the end of every 3-months period thereafter, provided that the employee continues to be employed by the Company at the applicable date of vesting . The vesting schedule shall be also applied to each of the Additional RSUs granted, mutatis mutandis, such that the vesting period of each of the respective Additional RSU shall commence from its actual date of grant Effective November, 2020, Mr. Shalom Shushan has joined the Company as its Chief Technology Officer, Mr. Shushan will lead all technology and research and development activities for Integrity and will serve on the Company’s executive leadership team. The Company granted Mr. Shushan annual award of NIS 90 thousand worth (approximately $ 28 thousand) of restricted stock units (the “RSU”) effective as of the employee Start Date. Furthermore, on each one-year anniversary following the employee Start Date subject to the approval of the board of directors, Company shall grant the Employee with NIS 60 thousand worth of restricted stock units (the “Additional RSU’’). Both the RSU and each of the Additional RSU (if approved by the board of directors), as applicable, shall be based on the stock price at actual the date of grant (and not lower than US$ 5.20 per share). 1/12 of the RSUs shall vest and become nonforfeitable three months following the Start Date, and an additional 1/12 of the RSUs shall vest and become nonforfeitable at the end of every 3-months period thereafter, provided that the Employee continues to be employed by the Company at the applicable date of vesting . The vesting schedule shall be also applied to each of the Additional RSUs granted to the Employee, mutatis mutandis, such that the vesting period of each of the respective Additional RSU shall commence from its actual date of grant On October 19, 2021, Paul V. Goode was appointed as President and Chief Operating Officer of the company, Inc, effective November 1, 2021. He has served as a member of Integrity’s Board of Directors since December 17, 2020. Concurrent with his appointment, Mr. Goode has stepped down from the Board. Effective November 20201, the Company granted Mr. Paul V. Goode options to purchase up to 1.5 % of the fully diluted common stock, par value $ 0.001 per share (approximately 330 thousand options), of the Company (“Common Stock”) as of the Effective Date, with a per share exercise price equal to the greater of (A) $ 5.20 per share or (B) the closing price of a share of Common Stock on the Effective Date, as reported by Bloomberg L.P., which shall vest in equal monthly installments over a three year period following the Effective Date. On December 3, 2021, James p. thrower was appointed as Vice President Engineering of the company. Effective December 20201, the Company granted Mr. James p. Thrower options to purchase up to 1.15 % of the fully diluted common stock, par value $ 0.001 per share (approximately 250 thousand options), of the Company (“Common Stock”) as of the Effective Date, with a per share exercise price equal to the greater of (A) $ 5.20 per share or (B) the closing price of a share of Common Stock on the Effective Date, as reported by Bloomberg L.P., which shall vest in equal monthly installments over a three year period following the Effective Date. SCHEDULE OF STOCK GRANTS ACTIVITY Grants to Employees Number Weighted average exercise price (US$) Balance outstanding as of December 31,2019 156,007 $ 63.44 Balance exercisable of December 31,2019 132,630 $ 60.19 Granted during 2020 - $ - Forfeited during 2020 ( 25,770 ) $ 58.63 Balance outstanding as of December 31,2020 130,237 $ 64.35 Balance exercisable of December 31,2020 128,296 64.48 Granted during 2021 577,064 5.20 Forfeited during 2021 ( 98,177 ) 64.64 Balance outstanding as of December 31,2021 609,124 8.10 Balance exercisable of December 31,2021 39,223 46.41 The following tables summarize information about options outstanding at December 31, 2021: SCHEDULE OF STOCK GRANTS, BY EXERCISE PRICE RANGE Exercise price (US$) Outstanding at December 31, 2021 Exercisable at December 31, 2021 Weighted average remaining contractual life (years) 5.2 579,004 9,103 2.75 58.5 26,274 26,274 5.18 100.75 3,846 3,846 5.26 609,124 39,223 F- 19 GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 9 – COMMON STOCK AND WARRANTS WITH-DOWN ROUND PROTECTION (cont.) C. Stock-based compensation (cont.) 2. Grants to employees (cont.) The fair value of options granted to employees during the years ended on December 31, 2021 was estimated at the dates of grant using the Black-Scholes option model. The following are the data and assumptions used: SCHEDULE OF ASSUMPTIONS USED TO VALUE OPTIONS Fair value calculations - Warrant December 31, 2021 Dividend yield (%) - Expected volatility (%) 49.21 Risk free interest rate (%) 2.5 Expected term of options (years) 3 Exercise price (US dollars) 5.2 Share price (US dollars) 3.1 - 4.65 Fair value (US dollars) 0.6 - 1.48 NOTE 10 – RESEARCH AND DEVELOPMENT EXPENSES SCHEDULE OF RESEARCH AND DEVELOPMENT EXPENSES In thousand of US dollars Research and Development December 31, 2021 December 31, 2020 Salaries and related expenses 916 754 Professional fees 337 462 Expenses due to slow inventory write-off 321 - Depreciation 32 32 Vehicle maintenance 42 47 Other 162 237 Total research and development expenses, net 1,810 1,532 F- 20 GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 11 – MARKETING EXPENSES SCHEDULE OF SELLING AND MARKETING EXPENSES Selling and Marketing December 31, 2021 December 31, 2020 Salaries and related expenses 22 156 Professional fees 115 241 Other 2 18 Total selling and marketing expenses 139 415 NOTE 12 – GENERAL AND ADMINISTRATIVE EXPENSES SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES In thousand of US dollars General and Administrative December 31, 2021 December 31, 2020 Salaries and related expenses 608 368 Professional fees 1,224 694 Bad debt expense 59 - Vehicle maintenance 41 28 Depreciation 10 15 Insurance 97 73 Other 52 7 Total general and administrative expenses 2,091 1,185 NOTE 13 – INCOME TAX A. Measurement of results for tax purposes under the Israeli Income Tax (Inflationary Adjustments) Law, 1985 (the “Inflationary Adjustment Law”) Commencing January 1, 2008, the results of operations of Integrity Israel for tax purposes have been measured on a nominal basis. B. Tax assessments For federal, state and local income tax purposes the Company remains open for examination by the tax authorities for the tax years from 2017 through 2020 under the general statute of limitations. Notwithstanding, pursuant and subject to the provisions of article 145 of the Income Tax Ordinance, Integrity Israel’s tax returns that were filed with the tax authority up to and including 2016 are considered final. C. Carryforward tax losses As of December 31, 2021, the Company had cumulative net operating losses (NOL) for US federal purposes of approximately $ 10.5 million. Integrity Israel has losses carry forward balances for Israeli income tax purposes of approximately $ 41.0 million to offset against future taxable income for an indefinite period of time. D. For the years ended December 31, 2021 and 2020, the main reconciling item between the statutory tax rate of the Company and the effective tax rate at the rate of 21.0 % for 2021 and 2020, respectively, is the recognition of valuation allowance in respect of deferred taxes relating to accumulated net operating losses carried forward and other permanent and temporary differences due to the uncertainty of the realization of such deferred taxes and withholding taxes that were deducted by the Company’s customers. F- 21 GLUCOTRACK INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 13 – INCOME TAX (cont.) E. Deferred taxes result principally from temporary differences in the recognition of certain revenue and expense items for financial and income tax reporting purposes. Significant components of the Group’s future tax assets are as follows: SCHEDULE OF DEFERRED TAXES 2021 2020 Composition of deferred tax assets: Provision for employee-related obligation 6 22 Non-capital loss carry forwards 11,654 10,889 Valuation allowance ( 11,660 ) ( 10,912 ) Total deferred tax assets - - NOTE 14 – SEGMENT INFORMATION The Company operates in one operating segment with no income in 2021. All long-lived assets are owned by Integrity Israel and are located in Israel. NOTE 15 – RELATED PARTIES A. Andrew Garrett, Inc., which is controlled by one of our directors, Andrew Sycoff, received during the year ended December 31, 2020, cash approximately $ 2 million in placement agent fees and 3,750,000 warrants for Placement Agent fees in 2020 from us. During the year ended December 31, 2020, $ 756 thousand, representing the fair value of warrants issued as consideration for placement agent services to AGI. This amount was accounted for as Warrants with down-round protection. Upon issuance, the fair value was recognized as an increase in additional paid in capital NOTE 16 – SUBSEQUENT EVENTS The Company has evaluated all subsequent events through the date when these financial statements were issued to determine if these must be reported. The Company determined that there were no reportable subsequent events to disclose in these financial statements. F- 22