Glucotrack, Inc. (legal registrant: Integrity Applications, Inc.) — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. This is an annual report, not a standalone fourth-quarter report; the filing does not provide clear standalone Q4 financial results. The company develops and commercializes GlucoTrack, a non-invasive glucose monitor.
Business context and operating progress
- GlucoTrack DF-F uses ultrasound, electromagnetic and thermal technologies with an earlobe sensor. The company reported CE Mark approval for Europe and approvals in certain other markets, but no U.S. commercial clearance or approval.
- After reviewing its commercial strategy, the company selected the Netherlands and Israel for pilot launches targeted for Q2 2018. Broader European rollout was conditional on successful pilots. Some distributor agreements were terminated after little or no sales.
- Manufacturing relied on third parties in Israel and Taiwan. Wistron’s production line became operational after Taiwanese clearance and a GMP audit in 2017.
Financial performance and liquidity
| Metric (US dollars) | FY 2017 | FY 2016 |
|---|---|---|
| Revenue | $589,462 | $611,689 |
| Research and development expense | $3,207,466 | $2,881,817 |
| Selling and marketing expense | $1,525,168 | $1,127,915 |
| General and administrative expense | $6,432,679 | $2,257,799 |
| Operating loss | $10,575,851 | $5,655,842 |
| Net loss | $10,328,806 | $5,409,737 |
| Net cash used in operating activities | $5,895,119 | $5,311,830 |
- Revenue was primarily from device and personal ear-clip orders. The filing does not provide a clear gross profit or gross margin figure.
- Cash and cash equivalents were $53,782 at year-end, compared with $148,836 a year earlier. Current assets were $1.23 million and current liabilities $3.69 million, indicating negative working capital of approximately $2.46 million. Total assets were $1.67 million.
- Total liabilities were $4.82 million; the balance sheet also reported $13.42 million of preferred stock as temporary equity and a $16.57 million stockholders’ deficit. Stockholder loans were $182,767 and reported as long-term; the company had no material conventional funded-debt balance identified in the provided text.
- The company reported a $47.37 million accumulated deficit and negative operating cash flows. The auditor highlighted substantial doubt about the company’s ability to continue as a going concern.
- Financing activities provided $5.75 million in 2017, primarily from Series C and Series D securities. The company reported approximately $332,000 of cash on March 30, 2018, and said its then-current plan and burn rate implied less than one month of runway without further funding. First-quarter 2018 Series D financing generated approximately $1.69 million net, but management did not expect operating income to fund the next 12 months.
Changes, outlook, and material risks
- Revenue declined about 4% year over year, while net loss increased about 91%. The main expense increase was G&A, including executive transition compensation and stock awards; R&D also included a $756,134 slow-moving inventory reserve. Selling and marketing expense rose with commercial leadership hiring and related costs.
- Management reduced headcount from approximately 45 to 27 full-time employees and described a refocused operating plan. It expected R&D and commercial spending could rise in 2018 if financing became available, but said spending could be adjusted to available resources.
- Management stated that U.S. clinical trials would require adequate financing and that it did not expect to commence them without at least $10 million in additional capital. U.S. regulatory pathway and clinical requirements remained uncertain.
- Preferred shares carry cumulative dividends, generally at 5% or 5.5%, and redemption rights under specified triggering events. The company said it could not distribute preferred dividends for Q3 and Q4 2017 because it lacked the required statutory surplus; late fees of 9% per annum may apply. The filing also reports stock dividends to preferred holders during 2017; reconciliation of amounts paid, issued, and accrued should be checked.
- Further key risks include reliance on external financing, possible dilution from preferred stock, warrants and options, uncertain product acceptance and reimbursement, dependence on distributors and contract manufacturers, and regulatory and clinical execution. Two customers represented approximately 94% of 2017 sales, and two vendors approximately 57% of purchases.
- The company reported no material litigation or off-balance-sheet arrangements. Management concluded disclosure controls and internal control over financial reporting were effective as of year-end; the auditor did not provide an internal-control attestation.
Most important facts for investors to verify
- Current cash runway, financing needs, and the status and net proceeds of subsequent Series D closings.
- Whether the Netherlands and Israel pilots launched as planned, achieved meaningful customer demand, and led to distributor expansion or reimbursement progress.
- Reconciliation of preferred dividends reported as issued or distributed versus amounts described as accrued and unpaid, including late fees.
- Potential dilution and cash obligations from preferred-stock conversion and redemption provisions, warrants, options, and registration-rights agreements.
- Inventory quality and realizable value after the $756,134 reserve, and the concentration of sales and purchases among a small number of counterparties.