Business Context and Reporting Period
This summary covers Integrity Applications, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2015, filed August 14, 2015. The filing identifies the registrant as Integrity Applications, Inc., not Glucotrack, Inc.
The company is developing and commercializing GlucoTrack DF-F, a non-invasive glucose monitor for home use. It had begun limited sales, but had not generated material recurring revenue.
Financial Results and Liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $67,342 in 2015; none in 2014 | $143,167 in 2015; none in 2014 |
| Operating expenses | $1,163,545 in 2015; $882,326 in 2014 | $2,120,067 in 2015; $1,769,512 in 2014 |
| Operating loss | $1,096,203 in 2015; $882,326 in 2014 | $1,976,900 in 2015; $1,769,512 in 2014 |
| Net income (loss) | $(1,666,806) in 2015; $5,261,928 in 2014 | $(3,201,337) in 2015; $4,525,009 in 2014 |
| Net cash used in operations | Not provided by quarter | $1,836,282 in 2015; $1,556,095 in 2014 |
Gross profit and gross margin are not separately presented. Cash and cash equivalents were $3.52 million at June 30, down from $5.83 million at December 31, 2014. Current assets were $3.82 million and current liabilities $793,392. Total liabilities were $1.57 million; stockholders’ deficit was $4.54 million, alongside $7.12 million of temporary equity, principally preferred stock.
Long-term stockholder loans were $166,640, with no current portion reported at June 30. The company had no borrowings under its bank line of credit, with approximately $79,597 available subject to cash collateral. Management reported cash of approximately $2.9 million on August 10 and estimated it would fund operations for about seven months from the report date, based on its then-current burn rate and plan.
Material Changes and Unusual Items
- Revenue began in 2015 from GlucoTrack device and replacement ear-clip orders; the comparable 2014 periods had no sales.
- Operating expenses rose year over year, driven by research and development staffing and manufacturing work, and by sales, marketing, and professional services costs.
- Net results swung from income in 2014 to losses in 2015. The comparison was heavily affected by non-cash warrant fair-value changes: 2014 included substantial financing income, while 2015 included a $1.27 million non-cash loss from partial extinguishment of Series A preferred stock and warrants following exchanges into Series B securities.
- Six-month operating cash use increased from $1.56 million to $1.84 million. Investing cash use was $43,171; financing cash use was $486,975, including a $439,939 stockholder-loan repayment and preferred-stock dividends.
- An arbitration settlement was completed: founders transferred 440,652 common shares to Dimri, and the company paid the outstanding loan principal and attorney-fee reimbursement. The parties released related claims.
Outlook, Risks, and Contingencies
- The filing states that accumulated losses, stockholders’ deficit, and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern. It depends on additional financing and gives no assurance it can obtain it.
- Management expected research and development expenses to remain at similar levels through 2015 and selling, marketing, and general and administrative expenses to increase. No revenue or earnings guidance is provided.
- The device had CE Mark approval for European sales, but the company was seeking notified-body approval for calibration and intended-use changes. Local regulatory approvals could still be required in distribution territories, and sales there were not assured.
- The device was not approved for commercial sale in the United States. The company submitted FDA pre-submission materials on August 10, 2015; U.S. clinical trials were expected to begin in early 2016 only if the protocol received FDA approval.
- Regulatory review estimates were approximately 9–12 months for China, 3–6 months for South Korea, and 15–18 months for Japan. Wistron’s production line was expected to become operational between late 2015 and early 2016; timing and commercial-scale production remained uncertain.
- The company reported an approximately $87,375 contingent royalty obligation on future product sales, excluding interest, to Israel’s Office of the Chief Scientist. It reported no off-balance-sheet arrangements.
Most Important Facts to Verify
- Confirm the registrant identity: this filing is under Integrity Applications, Inc., despite the request identifying Glucotrack, Inc.
- Assess financing needs and runway against actual subsequent cash burn, fundraising, and operating plans; the stated runway was about seven months from August 14, 2015.
- Check actual sales, gross margins, and repeat demand; the filing reports only limited revenue and does not provide gross margin.
- Verify FDA, EU notified-body, and country-specific regulatory outcomes, as well as clinical-trial and manufacturing milestones.
- Review the terms and dilution potential of preferred stock and warrants, and the assumptions behind the Level 3 warrant valuation.