Glucotrack, Inc. annual report, FY2019

Business Context and Reporting Period

This is Integrity Applications, Inc.’s Form 10-K for the fiscal year ended December 31, 2019, filed April 14, 2020. Although the request metadata identifies Glucotrack, Inc., the filing names Integrity Applications, Inc. as the registrant. The company develops and commercializes GlucoTrack DF-F, an earlobe-based, non-invasive glucose monitor. The filing reports annual results; it does not provide standalone fourth-quarter financial statements.

The product had CE Mark approval and was authorized for sale in several jurisdictions, but had not received U.S. FDA clearance or approval. The company had limited commercial activity, depended on third-party manufacturers and distributors, and had seven full-time employees at year-end.

Financial Performance and Liquidity

Amounts are in U.S. dollars. The audited statements report:

Revenue rose about 380% from a small base, but remained immaterial relative to expenses. Gross margin is not clearly provided in the filing. Research and development expense fell to $1.61 million from $3.03 million; selling and marketing expense fell to $573,495 from $1.09 million; and general and administrative expense fell to $1.54 million from $2.46 million. Lower spending and the non-recurrence of a $127,057 late-dividend fee contributed to the reduced net loss. The filing says 99% of 2019 sales were to one customer.

At December 31, 2019, current assets were $718,042 and current liabilities were $2,272,255, implying negative working capital of approximately $1.55 million. Total liabilities were $2,694,063; these included $190,365 in long-term stockholder loans and $187,233 in operating lease liabilities. The company reported no institutional credit line. It had an accumulated deficit of $90.7 million and stockholders’ deficit of $1.41 million in the audited balance sheet.

Financing activities provided $4.20 million in 2019, primarily from Series D securities. On February 14, 2020, the company sold 37.5 million shares for $15 million gross and received $12,979,270 net. Management said this financing was expected to fund operations for at least 12 months from issuance of the financial statements. The 2019 audit opinion was unqualified; the auditor did not provide an opinion on internal control effectiveness.

Material Changes Versus the Prior Period

• Revenue increased by $165,274, though sales remained very small and concentrated in one customer.
• Net loss narrowed by $3.20 million, mainly reflecting lower R&D, selling and marketing, and administrative costs, as well as no repeat of the prior-year dividend late fee.
• Operating cash use improved by about $993,000 but remained substantial relative to year-end cash.
• Year-end cash increased by $321,542. The company also raised capital through Series D financing and issued shares to settle some liabilities and board compensation.
• Common shares outstanding increased to 162.8 million at year-end from 141.6 million a year earlier. The February 2020 financing added 37.5 million shares; the filing reported approximately 199.4 million shares outstanding as of April 2020.

Outlook, Risks, Contingencies, and Unusual Items

• Commercial and regulatory outlook: In January 2020, the company announced CE Mark approval for user self-calibration. Calibration time was reduced to about 30 minutes, with three invasive reference measurements, and the process could be repeated every six months. The company described the product as ready for launch in selected market segments. U.S. clinical trials had not begun; management said planning had restarted following financing.
• Spending outlook: Management expected R&D and selling and marketing expenses to rise in 2020 and beyond, subject to available financing and commercial priorities.
• Key risks: The company had no material recurring revenue and expected continued losses. Commercial success depends on FDA progress, market acceptance, reimbursement, distribution partners, manufacturing performance, and additional product development. COVID-19 was cited as a potential source of demand, operational, and economic disruption.
• Contingencies and commitments: Future royalties to Israel’s Office of the Chief Scientist are 3%–5% of applicable product sales, up to the grant amount plus interest; the remaining contingent royalty obligation was approximately $43,000 excluding interest. Stockholder loans are generally repayable only after annual profitability and subject to working-capital conditions.
• Unusual items and disclosure checks: Inventory included a $1.46 million reserve for slow-moving inventory, including a $700,000 charge recognized in fourth-quarter 2018. The filing’s narrative gives different accumulated-deficit and stockholders’-deficit figures from the audited balance sheet; use the audited figures above, but verify the discrepancy. The MD&A also says accumulated deficit was $90.84 million, while the audited balance sheet reports $90.70 million.

Most Important Facts for Investors to Verify

1. Confirm the registrant identity: the supplied metadata says Glucotrack, Inc., while this 10-K is filed by Integrity Applications, Inc.
2. Verify the February 2020 financing’s net proceeds, use of funds, resale-registration obligations, and resulting share dilution.
3. Track whether self-calibration translates into commercial launches, repeat orders, and less reliance on the single large customer.
4. Check the status, funding, design, and timetable of U.S. clinical trials and the FDA regulatory pathway.
5. Assess cash burn and working-capital needs against management’s post-financing runway estimate, and reconcile the deficit figures stated in the narrative with the audited statements.