Glucotrack, Inc. (formerly Integrity Applications, Inc.) — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; filed May 19, 2020. Financial statements are unaudited and presented in U.S. dollars. The company develops and seeks to commercialize the GlucoTrack non-invasive glucose-monitoring device.
Financial results and liquidity
- Revenue: $2,174, down from $25,562 in Q1 2019, primarily due to fewer product orders. Gross margin is not clearly presented, and revenue was too small to make it a meaningful indicator.
- Operating expenses: $757,664, down from $1,050,615. R&D was $415,039 (prior year $425,117); selling and marketing was $90,756 ($125,343); general and administrative was $251,869 ($500,155).
- Loss: Operating loss was $755,490, compared with $1,025,053. Net loss was $733,769, compared with $1,021,653; basic and diluted loss per share was reported as $0.00 versus $0.01.
- Cash flow: Operating activities used $989,105, versus $821,023 in Q1 2019. Investing activities used $14,615. Financing provided $13,009,269, chiefly from the February share offering. Cash, cash equivalents and restricted cash totaled $12,478,017 at quarter-end; cash and cash equivalents alone were $12,422,578.
- Balance sheet: Total current assets were $12,814,674 and current liabilities were $1,983,739, implying working capital of approximately $10.8 million. Total liabilities were $2,385,757 and stockholders’ equity was $10,947,325, versus a deficit at year-end 2019. Non-current stockholder loans were $185,036; operating lease liabilities totaled $149,411.
- Financing and dilution: The company sold 37.5 million shares for $15 million gross proceeds in February and received approximately $13.0 million net. Shares outstanding were 199,358,436 at March 31 and 200,525,067 as of May 19.
Material changes and business developments
- Revenue declined about 91% year over year. Operating expenses declined about 28%, mainly reflecting lower G&A costs and reduced European business-development staffing; net loss narrowed about 28%.
- On January 21, 2020, the company announced CE Mark approval for self-calibration of GlucoTrack. The company says calibration takes about 30 minutes, uses three invasive reference measurements, and is repeated every six months; users can perform it themselves.
- The company described the device as ready for commercial launch in selected market segments, while continuing development of companion applications and a cloud-based offering. Its Netherlands pilot and discussions with insurers about reimbursement remain important to the commercialization plan.
Outlook, risks and contingencies
- Management said the February financing was expected to fund operations for at least 12 months from issuance of the financial statements and, based on its cash burn, strategy and operating plan, expected cash to last more than one year from the report date. Additional capital will be needed beyond that period, or sooner if needs increase. The company has incurred recurring losses and negative operating cash flows and reported an accumulated deficit of $91.4 million.
- Management expected R&D and selling and marketing expenses to increase in 2020 and beyond, but said spending may be adjusted to available resources and commercial needs. No quantified revenue or earnings guidance was provided.
- The filing identifies COVID-19 uncertainty, including potential effects on product demand, operations, the economy and recovery. It also describes reimbursement, partner selection, affordability, regulatory progress and market acceptance as important commercialization challenges.
- Future product sales are subject to a contingent royalty obligation to Israel’s Office of the Chief Scientist; the disclosed amount was approximately $34,000, excluding interest. The filing reports no off-balance-sheet arrangements.
- On April 23, 2020, the company increased authorized common shares from 200 million to 500 million. The filing says disclosure controls were effective at a reasonable-assurance level and reports no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether the device generates sustained orders and whether Netherlands pilots lead to reimbursement and commercial sales.
- Actual cash burn and runway against management’s estimate, and whether additional financing will be required.
- Potential dilution from outstanding options and warrants: 82,442,314 potential shares were excluded from diluted loss per share as anti-dilutive; confirm current terms and share counts.
- Effects of the 2020 offering, placement-agent fees and warrants, and the increase in authorized shares on existing shareholders.
- Any subsequent COVID-19 effects, regulatory or commercialization developments, and changes to the royalty contingency.