Glucotrack (Integrity Applications, Inc.) — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2018. The filing identifies the registrant as Integrity Applications, Inc.; it describes the company’s GlucoTrack non-invasive glucose-monitoring business. Financial statements are unaudited and stated in U.S. dollars.
Business context and financial results
The company develops and commercializes GlucoTrack, a non-invasive glucose monitor intended for people with Type 2 diabetes and prediabetes. It had not generated material recurring revenue and remained dependent on outside financing.
| Metric | Q2 2018 | Six months 2018 | Comparable 2017 period |
|---|---|---|---|
| Revenue | $15,279 | $43,488 | Q2: $8,744; six months: $104,981 |
| Operating loss | $2,006,256 | $3,916,065 | Q2: $2,648,094; six months: $5,247,694 |
| Net loss | $1,962,483 | $3,810,277 | Q2: $2,557,201; six months: $5,087,526 |
| Basic and diluted loss per share | ($0.33) | ($0.67) | Q2: ($0.48); six months: ($0.96) |
| Operating cash used | Not stated separately | $2,442,209 | Six months: $3,606,014 |
Gross profit and operating margins are not clearly provided. With very low revenue and substantial operating expenses, the company continued to incur significant losses.
Balance sheet, funding and liquidity
- At June 30, cash and cash equivalents were $17,345; current assets were $1.14 million and current liabilities were $3.93 million. The resulting working-capital deficit was approximately $2.79 million.
- Total liabilities were $5.07 million, including $171,699 in long-term stockholder loans and $787,453 in warrant liabilities. No conventional long-term borrowing balance is separately identified.
- For the six months, financing activities provided $2.42 million net, primarily from Series D securities. The company reported approximately $1.8 million of cash on hand as of August 14, after additional financing activity.
- Management estimated that cash would fund operations for about five months from the report date and said further capital would be required. It did not expect operating income to sustain operations over the next 12 months.
Changes versus prior periods
- Six-month revenue fell about 59%, which management attributed mainly to a Hong Kong customer’s initial order in Q1 2017. Q2 revenue increased from the low prior-year base.
- Six-month net loss narrowed by about $1.28 million, mainly because general and administrative expenses declined from unusually high 2017 costs related to management changes, severance, bonuses, recruiting and associated compensation.
- Six-month R&D expense rose to $1.28 million from $1.20 million, largely reflecting stock-based compensation; selling and marketing expense was broadly unchanged.
- Operating cash use improved by about $1.16 million year over year, but cash on hand at quarter-end remained very low.
Outlook, risks and unusual items
- Going concern: Management stated that accumulated losses, negative operating cash flow and negative working capital raise substantial doubt about the company’s ability to continue as a going concern. The financial statements include no adjustments for the outcome of this uncertainty.
- Financing and dilution: The company raised approximately $2.4 million net in Series D financing during the first half. Subsequent closings through August 10 generated $2.632 million gross, according to the subsequent-events note. Units included common shares and five-year warrants exercisable at $4.50, $5.75 and $7.75. Placement-agent warrants carry full-ratchet anti-dilution provisions. The financing adds potential dilution.
- Commercial plans: Management expected R&D, selling and marketing, and general and administrative spending to increase, subject to available funding. It described product-development priorities including wireless connectivity, digital-health applications, improved accuracy and miniaturization. U.S. clinical trials were contingent on adequate financing; management said at least $10 million would be needed to commence them.
- Distribution and regulatory risk: The company terminated its China distributor after alleging breaches, which the distributor denied. The company said it may be unable to resubmit the current product’s file to China’s regulator for up to five years; access to China depends on finding another partner and obtaining clearance for future products. New distribution arrangements and market launches also remained subject to execution and reimbursement progress.
- Unusual charges and obligations: Financing income included a $44,280 late-fee penalty for unpaid preferred dividends. Preferred dividends, including stock dividends on Series B and C, remained unpaid with interest accruing at 9% annually. The company also disclosed approximately $34,244 of contingent royalties on future sales, excluding interest.
- Other: Management concluded disclosure controls were effective at the reasonable-assurance level and reported no material quarterly change in internal control over financial reporting. No off-balance-sheet arrangements were reported.
Most important facts for investors to verify
- Whether subsequent financing materially extends the stated five-month cash runway, and the company’s current cash balance and capital needs.
- Exact Series D proceeds, outstanding warrants and potential dilution; the filing includes multiple financing totals and closing dates.
- Whether the China distribution termination is legally effective and its impact on product approval and future market access.
- Evidence of meaningful GlucoTrack sales, reimbursement progress, distributor performance and regulatory advancement, including funding for U.S. trials.
- Unpaid preferred dividends and related penalties, warrant-liability valuation assumptions, and the continuing going-concern uncertainty.