Integrity Applications, Inc. (now identified in the request as Glucotrack, Inc.) — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019; filed August 14, 2019. The filing registrant is named Integrity Applications, Inc. Financial amounts below are U.S. dollars.
Business context
The company is a medical-device developer focused on the GlucoTrack DF-F, a non-invasive glucose monitor for people with diabetes. The device had CE Mark approval, but revenue remained limited. The company reported that it had not generated material operating revenue and depended on external financing.
Financial performance and liquidity
| Metric | Three months ended June 30, 2019 | Six months ended June 30, 2019 | Comparable 2018 period |
|---|---|---|---|
| Revenue | $110,518 | $136,080 | $15,279 quarterly; $43,488 six months |
| Operating expenses | $1,004,824 | $2,055,439 | $2,021,535 quarterly; $3,959,553 six months |
| Operating loss | $(894,306) | $(1,919,359) | $(2,006,256) quarterly; $(3,916,065) six months |
| Net loss | $(898,857) | $(1,920,510) | $(1,962,483) quarterly; $(3,810,277) six months |
| Basic and diluted loss per share | $(0.01) | $(0.01) | $(0.33) quarterly; $(0.67) six months |
Six-month R&D expense was $826,239, selling and marketing was $276,296, and G&A was $952,904. The filing does not report gross profit or gross margin as a separate measure.
- Cash flow: Six-month operating cash use was $2,041,043; investing cash use was $9,913; financing provided $4,198,574, principally from the Series D offering. Cash, cash equivalents, and restricted cash ended the period at $2,331,583.
- Balance sheet: June 30 cash and cash equivalents were $2,276,293; current assets $2,505,504; current liabilities $2,627,741, implying negative working capital of about $122,000. Total liabilities were $3,039,681. Stockholders’ equity was a small surplus of $15,351, versus a deficit of $2,873,301 at year-end 2018.
- Debt and leases: Stockholder loans totaled $180,715, with repayment tied to future profitability and limited if repayment would create a working-capital deficit. Operating lease liabilities totaled $172,950. No conventional borrowing balance is separately identified in the filing’s balance sheet.
Material changes versus prior periods
- Revenue increased year over year, attributed to shipments to two new markets in Q2. Revenue remained modest, and management said first-half customer orders had not generated material cash proceeds.
- Operating expenses and net loss declined from 2018, reflecting lower R&D costs after completion of clinical trials for the current DF-F version, reduced selling and marketing activity, and lower G&A costs, including reduced professional fees and stock-based compensation.
- Financing results shifted from $105,788 of income in the first half of 2018 to $1,151 of expense in 2019. The company said adoption of ASU 2017-11 moved certain down-round warrants from liabilities to stockholders’ deficit and ended quarterly fair-value remeasurement.
- Common shares outstanding increased from 141.6 million at December 31, 2018 to 161.9 million at June 30, 2019, including shares issued in the financing and to settle liabilities.
Outlook, risks, and unusual items
- Going concern: Management said accumulated deficit of $89.1 million, negative operating cash flow, negative working capital, and reliance on external financing raise substantial doubt about the company’s ability to continue as a going concern. The statements include no adjustments for the outcome of that uncertainty.
- Runway and funding: Cash on hand was approximately $1.982 million as of July 23, 2019. Management estimated cash would fund operations for about five months from the report date and said additional capital would be needed to fund anticipated needs beyond that period. It did not expect operating income to sustain operations over the next 12 months.
- Financing and dilution: The first-half private placement generated approximately $4.2 million net proceeds and included common shares and five-year warrants. Placement-agent compensation included cash commissions and warrants, some with cashless exercise and full-ratchet anti-dilution terms.
- Product and commercial risks: Further R&D and commercial expansion were contingent on obtaining funds. Planned work included wireless connectivity, digital-health applications, self-calibration, and device miniaturization. Management also described European marketing reductions pending evidence of reimbursement in test markets; FDA registration and market acceptance remain relevant risks.
- Contingencies and accounting: Future product sales are subject to Israeli government royalties of 3%–5%, with a reported contingent amount of approximately $45,450 plus interest. Inventory of $129,868 was net of a $1.457 million reserve for slow-moving or obsolete inventory. Adoption of lease accounting resulted in recognition of right-of-use assets and lease liabilities; ASU 2018-07 had no significant impact.
- Management concluded disclosure controls and procedures were effective at the reasonable-assurance level and reported no material quarterly change in internal control over financial reporting.
Key facts for investors to verify
- Whether the two new markets produce repeat orders, meaningful revenue, and cash collections, and whether reimbursement can be established.
- Actual cash burn and financing availability relative to the stated five-month runway, including any subsequent capital raises.
- The terms and potential dilution from outstanding Series D and placement-agent warrants, and reconciliation of share issuance figures across the filing.
- Evidence supporting inventory recoverability and progress on regulatory, clinical, and product-development plans.
- The exact status and repayment terms of stockholder loans and the contingent royalty obligation.