Business context and reporting period
The supplied filing is Integrity Applications, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2016, not a filing under the name Glucotrack, Inc. Integrity Applications develops and commercializes GlucoTrack, a non-invasive glucose-monitoring device. The product had European CE Mark approval; it was not approved for commercial sale in the United States.
Financial results and position
| Metric | Q1 2016 | Q1 2015 or prior balance |
|---|---|---|
| Revenue | $89,147 | $75,825 |
| Operating expenses | $1,353,544 | $956,522 |
| Operating loss | $1,264,397 | $880,697 |
| Net loss | $1,226,764 | $1,534,531 |
| Basic and diluted loss per share | $0.24 | $0.31 |
| Net cash used in operating activities | $486,381 | $595,413 |
| Cash and cash equivalents at quarter-end | $131,401 | $608,701 at December 31, 2015 |
| Total current liabilities | $2,200,457 | $1,510,432 at December 31, 2015 |
| Total liabilities | $2,823,664 | $2,166,578 at December 31, 2015 |
Gross margin is not separately presented in the supplied filing text. The company reported no material recurring operating revenue and a $30.7 million accumulated deficit. Stockholders’ deficit was $8.2 million; current assets were $1.09 million, including $800,314 of inventory. The company had approximately $28,000 drawn on a bank credit line at quarter-end and repaid it by May 16.
Changes versus prior period
Revenue increased about 18%, reflecting orders for the improved device. Operating expenses rose about 42%: R&D increased to $650,700 from $478,325, and selling, marketing and G&A rose to $702,844 from $478,197. Net loss narrowed chiefly because Q1 2015 included a $773,297 non-cash loss on partial extinguishment of preferred stock and warrants; Q1 2016 recorded net financing income of $37,633. Operating cash use decreased, but quarter-end cash fell by $477,300, while payables and other current liabilities increased.
Outlook, risks and unusual items
- Going concern: Management and the auditor cite substantial doubt about the company’s ability to continue as a going concern. The filing says May 16 cash of approximately $910,000 was expected to fund less than 60 days under the then-current plan; further financing was needed.
- Subsequent financing: In April, the company raised approximately $2.2 million net from Series C preferred-stock units. The securities carry 5.5% dividends, conversion and warrant features, anti-dilution provisions, and potential redemption obligations; the financing also dilutes existing holders. Series C proceeds do not eliminate the stated near-term funding need.
- Sales and regulatory status: Q1 orders totaled approximately $300,000; $89,147 was shipped and recognized in the quarter, with the remainder expected in Q2 and Q3. A further $1.75 million of orders was contingent on local approvals, and the company had received no payment on those contingent orders. South Korea approval was received May 4, subject to a GMP document review. China and Japan authorities requested additional clinical trials, extending the expected review by 17–23 months or potentially longer.
- Development and operations: Subject to financing, management expected R&D and commercial spending to rise. U.S. clinical trials were anticipated in Q2 or Q3 2016 only if the FDA accepted the protocol and funding was available. Wistron’s manufacturing line was expected to become operational in Q2 or Q3, subject to audit and readiness.
- Liquidity pressure: The company deferred supplier payments and some management payroll. It expected to pay down all deferred balances by June 30, 2016. Preferred dividends were unpaid when due on March 31 because of insufficient legal surplus; late fees of 9% were applicable.
- Other obligations: The company disclosed approximately $80,592 of contingent future-sales royalties, excluding interest, payable to the Israeli Office of the Chief Scientist.
Most important facts to verify
- Confirm issuer identity: the filing names Integrity Applications, Inc.; the request identifies Glucotrack, Inc.
- Reconcile the Series B accrued stock-dividend amounts: the financial statements and loss-per-share note show $122,820, while Part II reports $206,680 payable in common shares.
- Verify post-quarter cash, spending, and financing needs against the filing’s estimate of less than 60 days of runway as of May 16, 2016.
- Check whether contingent distributor orders converted to paid, shipped sales and whether required country approvals and manufacturing audits were obtained.
- Assess the conversion, warrant, dividend, redemption, and anti-dilution terms of the preferred-stock financings for dilution and potential cash obligations.