Glucotrack, Inc. — filing identity and reporting period
The supplied filing is a Form 10-Q for the quarter ended September 30, 2014, filed by Integrity Applications, Inc.—not Glucotrack, Inc. GlucoTrack is the company’s non-invasive glucose-monitoring device. The company describes itself as a development-stage medical-device business; its financial statements are unaudited.
Financial results and position
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | 2014: $27,309; 2013: $0 | 2014: $27,309; 2013: $0 |
| Research and development expense | 2014: $421,704; 2013: $495,207 | 2014: $1,327,577; 2013: $1,460,755 |
| Selling, marketing and general and administrative expense | 2014: $436,296; 2013: $232,189 | 2014: $1,299,935; 2013: $786,259 |
| Operating loss | 2014: $830,691; 2013: $727,396 | 2014: $2,600,203; 2013: $2,247,014 |
| Net income (loss) | 2014: $(769,571); 2013: $(699,868) | 2014: $3,755,438; 2013: $(2,620,060) |
Gross profit and operating margins are not clearly provided; revenue was nominal relative to operating expenses. Nine-month net income was driven principally by a noncash $6.385 million decrease in the estimated fair value of warrants with down-round protection, not by operating profitability. The company remained loss-making at the operating level.
- Cash and liquidity: Cash and cash equivalents were $4.388 million at September 30, 2014, up from $2.386 million at December 31, 2013. Current assets were $4.639 million and current liabilities $576,576.
- Cash flow, nine months: $2.420 million used in operations; $79,543 used in investing; $4.542 million provided by financing. Net cash increased by $2.002 million.
- Liabilities and equity: Total liabilities were $3.282 million, including a $1.832 million warrant liability and $651,712 in long-term stockholder loans. Temporary equity included $6.583 million of convertible preferred stock. Stockholders’ deficit was $4.914 million.
- Funding: August–September Series B financing generated approximately $5.6 million gross and $4.8 million net. The company reported approximately $1.0 million net proceeds from an October 31, 2014 additional Series B sale; MD&A describes the amount as approximately $1.1 million.
Material changes versus the prior comparable period
- Initial GlucoTrack wholesale revenue was recognized in 2014; the comparable 2013 periods reported no revenue.
- Nine-month R&D expense declined 9%, while selling, marketing and general and administrative expense rose 65%, reflecting a shift toward commercialization and higher consulting, professional, and public-company costs.
- Quarterly net loss widened by about $70,000. Nine-month results swung to net income because of the warrant fair-value adjustment.
- Cash rose year over year-end, principally with support from Series B financing; operating cash use increased from $2.282 million in the first nine months of 2013 to $2.420 million in 2014.
Outlook, risks and unusual items
- Management estimated that cash would support operations for approximately 18 months from the report date, based on its then-current cash burn, strategy and operating plan; additional revenue, capital, or both would be needed thereafter or sooner if needs increased.
- The filing and auditor identify substantial doubt about the company’s ability to continue as a going concern. The company has not generated material recurring operating revenue and depends on external financing; management gives no assurance that future financing will be available.
- The device had EU CE Mark approval, expanded in March 2014 to permit six-month calibration validity. It was not approved for U.S. commercial sale. The company expected to begin U.S. clinical trials in the first half of 2015 if its protocol was approved by the FDA.
- Management reported exclusive distribution agreements in more than 10 countries, with some sales dependent on local regulatory approvals. A July 2014 agreement appointed Wistron to provide non-exclusive, turnkey manufacturing services.
- Management expected R&D expense to remain at similar levels through the rest of 2014, subject to commercial and development needs, and selling, marketing and administrative expense to increase as commercialization and public-company obligations continued.
- Series B preferred stock carries a 5.5% cumulative dividend and is convertible initially at $5.80 per share; accompanying five-year warrants have $5.80 and $10.00 exercise prices. Financing terms include potential dilution, price adjustments, and specified redemption or higher-dividend provisions upon triggering events. The financing also adjusted the exercise price of existing Series A warrants.
- Other disclosed exposures include approximately $93,000 of contingent Israeli government royalties on future product sales, excluding interest, and substantial product-development, market-acceptance, competitive, regulatory and financing risks.
Important facts for investors to verify
- Confirm the issuer identity: this is Integrity Applications, Inc.’s filing, notwithstanding the Glucotrack, Inc. request metadata.
- Assess the warrant valuation assumptions and the extent to which reported nine-month income depends on the noncash fair-value gain.
- Verify current cash runway, subsequent financing proceeds and terms, and the timing and cost of any further capital raise.
- Track actual GlucoTrack sales, distributor launches and required local approvals, as well as FDA protocol and trial progress.
- Review potential dilution and preferred-stock rights, including Series B conversion, warrant, dividend and redemption provisions.