Glucotrack, Inc. (filing registrant: Integrity Applications, Inc.) — Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016; unaudited. The company develops and commercializes GlucoTrack, a non-invasive glucose-monitoring device. The filing identifies the registrant as Integrity Applications, Inc., not Glucotrack, Inc.
Financial performance and position
| Metric | Six months ended June 30, 2016 | Prior-year period |
|---|---|---|
| Revenue | $470,878 | $143,167 |
| Operating expenses | $3,318,705 | $2,120,067 |
| Operating loss | $2,847,827 | $1,976,900 |
| Net loss | $2,815,762 | $3,201,337 |
| Net cash used in operations | $2,887,167 | $1,836,282 |
Second-quarter revenue was $381,731, versus $67,342 in Q2 2015; quarterly net loss was $1,588,998, versus $1,666,806. The filing does not provide a clear gross-margin figure.
- Cash and cash equivalents were $1,405,534 at June 30, up from $608,701 at December 31, 2015. Total current assets were $2,296,833 and current liabilities $1,039,095.
- Total liabilities were $2,210,913, including $161,992 in long-term stockholder loans and an $833,153 warrant liability. Convertible preferred stock of $9,288,812 was presented as temporary equity, not liabilities.
- Net cash from financing was $3,745,726, principally from the Series C financing; investing cash use was $46,397. No material off-balance-sheet arrangements were reported.
Changes versus prior period and financing
Revenue increased with customer orders for the improved device. Operating expenses rose, mainly due to additional personnel, product and manufacturing work, regulatory efforts, and a $211,077 one-time charge for modified placement-agent warrants. Net loss narrowed year over year chiefly because 2015 included a $1,270,971 non-cash loss on partial extinguishment of Series A preferred stock and warrants; operating loss and operating cash use both increased.
During Q2, the company raised approximately $3.75 million net through Series C units. The units include 5.5% convertible preferred stock initially convertible at $4.50 per share and five-year warrants exercisable at $4.50 and $7.75. The financing also triggered reductions in the conversion prices of Series A and B preferred stock and the Series A warrant exercise price to $4.50. The terms include anti-dilution protections, potential redemption obligations, dividends, and restrictions on certain corporate actions.
Outlook, risks and unusual items
- Going concern: The company reported a $32.5 million accumulated deficit, negative operating cash flow, and substantial doubt about its ability to continue as a going concern. Management said operations require additional financing and that existing operating income is not expected to fund the next 12 months. Based on cash on hand as of August 12, it estimated a runway of less than 30 days from the report date absent additional capital.
- Commercialization and revenue: The company reported about $489,000 in customer cash collections by August 15. It cited approximately $300,000 of orders for the improved product, of which $146,000 had been shipped and recognized as revenue in the first half; the balance was expected to ship in Q3–Q4, subject to payment. It also cited $1.75 million of orders contingent on local approvals; $300,000 was delivered in Q2, with $200,000 collected and the remainder expected in Q3. The remaining $1.45 million was not prepaid and timing or fulfillment was uncertain.
- Regulatory and product plans: The company received Korean regulatory approval in May, but sales awaited GMP documentation review. Authorities in China and Japan requested additional clinical trials, extending estimated reviews by 17–23 months or longer. Following FDA discussions in July, the company said U.S. trials were considered non-significant-risk studies and could proceed without an IDE; it expected to start in Q3 or Q4 2016, subject to finalizing site agreements and securing funds.
- Operations and spending: Management expected R&D and commercial expenses to increase, conditional on funding. It targeted a Wistron production line in Q3 or early Q4 2016, subject to a GMP audit, and development of a wireless module and related application by Q1 2017, also subject to funding. No formal financial guidance was provided.
- Key risks: Continued financing dependence, uncertain market acceptance and product performance, regulatory delays, manufacturing readiness, and the possibility that contingent orders will not convert to sales. The company had an unused bank credit line of about $39,000, secured by deposits. Future-sales royalties to the Israeli Chief Scientist were contingently payable up to about $72,993 plus interest.
Important facts for investors to verify
- Confirm the registrant identity and filing-company relationship: the 10-Q is for Integrity Applications, Inc.
- Review subsequent financing, cash balances, and actual runway; management warned that August 12 cash would support less than 30 days from the filing date.
- Check actual shipment, collection, and recognition of the stated orders, particularly those dependent on local regulatory approvals.
- Track regulatory milestones and required trials in the United States, China, Japan, and South Korea, along with Wistron manufacturing readiness.
- Assess potential dilution and cash obligations from preferred stock, warrants, dividends, anti-dilution provisions, and redemption triggers.