Glucotrack, Inc. (then Integrity Applications, Inc.) — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; filing dated May 15, 2019. The filing identifies the registrant as Integrity Applications, Inc., a medical-device company developing and commercializing the GlucoTrack non-invasive glucose monitor. Figures below are in U.S. dollars unless stated otherwise.
Financial performance and condition
| Metric | Q1 2019 | Q1 2018 / period-end comparison |
|---|---|---|
| Revenue | $25,562 | $28,209 |
| Operating expenses | $1,050,615 | $1,938,018 |
| Operating loss | $1,025,053 | $1,909,809 |
| Net loss | $1,021,653 | $1,847,794 |
| Basic and diluted loss per share | $0.01 | $0.34 |
| Operating cash used | $821,023 | $1,426,868 |
| Cash and cash equivalents at March 31 | $30,576 | $97,079 at December 31, 2018 |
| Total current assets / current liabilities | $261,918 / $3,096,051 | $314,145 / $3,221,609 at December 31, 2018 |
| Total liabilities | $3,525,450 | $3,561,487 at December 31, 2018 |
The filing does not present a gross-profit figure or gross margin. Revenue remained minimal relative to expenses. Cash, cash equivalents, and restricted cash totaled $84,861 at quarter-end; this includes $54,285 of long-term restricted cash. The company reported negative working capital and a stockholders’ deficit of $2,686,348. Accounts payable were $1,850,716. Stockholder loans totaled $174,117 and are generally not repayable until the company reports an annual accounting profit, subject to the stated terms.
Changes versus the prior comparable period
- Revenue declined about 9% year over year, with management describing the change as not material.
- Operating expenses decreased about 46%. R&D fell to $425,117 from $592,697, reflecting completion of clinical trials for the current DF-F version and lower personnel-related costs. Selling and marketing declined to $125,343 from $308,637, partly due to reduced European business-development staffing. General and administrative expense decreased to $500,155 from $1,036,684, primarily due to the former CEO’s departure, lower professional fees, and lower stock-based compensation.
- Net loss narrowed to $1,021,653 from $1,847,794. Financing income declined to $3,400 from $62,015, largely because the company stopped marking certain down-round-protected warrants to market following adoption of accounting guidance.
- Operating cash use improved to $821,023 from $1,426,868. The company received $756,111 of net financing proceeds in Q1 2019, compared with $1,697,700 in Q1 2018.
Outlook, risks, and notable items
- Going concern and funding: Management stated that cash and cash equivalents were expected to fund operations for less than one month from the report date and that additional capital was required. The filing says substantial doubt exists about the company’s ability to continue as a going concern; the financial statements contain no adjustments for the outcome. Management plans to seek equity, equity-linked or debt financing, but gives no assurance it can obtain it.
- Business plans: Product-development priorities include wireless connectivity, digital-health applications, self-calibration, and miniaturization. Further development, R&D and commercial spending are conditional on obtaining additional funds. Management expects spending in several expense categories to increase if financing becomes available; no quantified earnings or revenue guidance is provided.
- Commercial and development risks: The company had not generated significant operating revenue. Its plans depend on product development, market acceptance, distribution, reimbursement progress, and regulatory requirements, including potential FDA-related work. Management reduced European business-development staffing pending proof of reimbursement in test markets.
- Financing and dilution: Q1 private placements generated approximately $756,111 net proceeds. The filing also reports $902,920 of gross proceeds in its unregistered-sales discussion. The financing included warrants, and the company reported 76,597,357 weighted-average potential shares from options and warrants excluded from diluted loss per share as anti-dilutive. It also issued 1,190,141 shares to settle $307,056 of board-fee and payroll obligations.
- Subsequent event: After quarter-end, the company reported a securities sale for $130,000 gross proceeds, alongside common shares and warrants and placement-agent compensation.
- Other items: Inventory was carried at $157,344 after a $1,456,597 reserve for slow-moving inventory, attributed to low sales. The company disclosed a contingent royalty obligation of approximately $48,812, excluding interest, payable from qualifying future product sales. It reported no material litigation and no off-balance-sheet arrangements. Adoption of the new lease standard resulted in recognition of lease assets and liabilities; quarter-end lease liabilities were $198,324.
Important facts for investors to verify
- Runway and financing needs: quarter-end cash was only $30,576, and management estimated less than one month of runway from the report date.
- Offering figures: reconcile the reported $902,920 gross proceeds with approximately $756,111 net proceeds and confirm the shares and units issued; the filing’s descriptions of unit and share counts are not fully consistent.
- Potential dilution from outstanding warrants and options, including placement-agent warrants with full-ratchet anti-dilution provisions.
- Progress toward product development, regulatory requirements, reimbursement evidence, and meaningful recurring sales.
- Recoverability of inventory and the assumptions supporting the going-concern assessment.