Glucotrack, Inc. (Integrity Applications, Inc.) — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; filed April 15, 2019. The filing identifies the registrant as Integrity Applications, Inc., which develops and commercializes the GlucoTrack device. This is an annual report, not a standalone fourth-quarter report; fourth-quarter information is included only where specifically disclosed.
Business context
The company is a development-stage medical-device business focused on GlucoTrack DF-F, an earlobe-clip glucose monitor using ultrasound, electromagnetic and thermal technologies. The device has CE Mark and certain non-U.S. clearances, but was not approved for U.S. commercial sale. Sales rely on distributors, and the company reported no material recurring revenue. Management is pursuing commercial pilots, reimbursement discussions and product improvements, subject to obtaining financing.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $43,488 | $589,462 |
| Operating expenses | $6,582,088 | $11,165,313 |
| Operating loss | $6,538,600 | $10,575,851 |
| Net loss | $6,715,420 | $10,328,806 |
| Cash used in operating activities | $4,892,277 | $5,895,014 |
| Cash provided by financing activities | $4,961,862 | $5,750,736 |
- Revenue fell approximately 93%, which the company attributed to initial sales to a new distributor at the end of 2017. One customer accounted for approximately 72% of 2018 sales.
- Research and development expense was $3.03 million, down from $3.21 million; selling and marketing expense was $1.09 million, down from $1.53 million. General and administrative expense declined to $2.46 million from $6.43 million, largely reflecting lower compensation-related costs and the reversal of approximately $1.1 million of stock-based compensation following the CEO’s departure.
- Fourth-quarter 2018 included an approximately $700,000 inventory reserve. Total inventory reserves were approximately $1.46 million at year-end, leaving net inventory of $171,000.
- Cash and cash equivalents were $97,079 at year-end, versus $53,782 a year earlier. Current assets were $314,145 and current liabilities were $3.22 million. The balance sheet reported a $2.87 million stockholders’ deficit and an $87.19 million accumulated deficit.
- Operating cash burn remained substantial. Financing proceeds, primarily from Series D unit sales, supported operations; the company reported no material cash proceeds from fulfillment of product orders in 2018.
- The company had no institutional line of credit. Long-term stockholder loans were $168,221; repayment is tied to future profitability and sales. It reported no off-balance-sheet arrangements.
- No meaningful gross margin was stated in the filing. The reported statements do not separately present cost of revenue.
Material changes, outlook and risks
- Going concern and funding: The auditor and management cited substantial doubt about the company’s ability to continue as a going concern. The company said it needed additional financing to continue operations; cash on hand was approximately $152,000 as of March 23, 2019, which management said would fund less than one month at the then-current burn rate. No assurance was given that financing would be available.
- Equity restructuring and dilution: Shareholders approved forced conversion of Series A, B and C preferred stock on December 31, 2018, at a conversion price of $0.258 per share. The transaction converted preferred securities and reset certain offering and warrant terms, with additional common shares issued or issuable. The company reported 141.6 million common shares outstanding at year-end and 146.7 million as of April 15, 2019. Warrants and options create further potential dilution; the filing reports substantial warrant holdings with anti-dilution features.
- Commercial execution: The Netherlands distributor’s first 30-unit order was received in 2018. CuraTec Nordic ordered 100 units; some were delivered in early 2019, with Scandinavian launch preparations underway. Reimbursement and distributor performance are identified as important to scaling sales. Several underperforming distribution arrangements were terminated.
- Development and regulatory: U.S. clinical trials had not commenced; management said at least $10 million in additional capital would be needed to fund the U.S. clinical program through completion. The FDA pathway remained subject to regulatory review, and approval, timing and commercial acceptance were uncertain. The company also described plans for wireless connectivity, digital applications, self-calibration and device miniaturization.
- Leadership and operations: CEO and Chairman John Graham resigned effective October 31, 2018; David Podwalski became President and COO and joined the board. Manufacturing and sales depend on third parties. Two vendors represented approximately 84% of 2018 purchases.
- Other exposures: The company faces reimbursement, competition, product-liability, regulatory, intellectual-property, manufacturing and international-market risks. OCS grant royalties of 3%–5% of applicable sales remain contingent up to the outstanding grant balance plus interest. The company reported no material litigation.
- Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2018. The auditor did not provide an internal-control attestation.
Most important facts for investors to verify
- Current cash, monthly cash burn, financing availability and the company’s ability to meet near-term obligations.
- Subsequent financing, registration obligations, forced-conversion share releases, warrant adjustments and fully diluted share count.
- Whether distributor orders convert into recurring sales, and whether reimbursement pilots lead to coverage and meaningful demand.
- The status, cost and funding plan for U.S. clinical trials and the FDA’s required regulatory pathway.
- Inventory recoverability and the assumptions behind the fourth-quarter reserve; also customer and supplier concentration.