Glucotrack, Inc. (then named Integrity Applications, Inc.) — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; financial statements are unaudited. The company develops and commercializes GlucoTrack, a non-invasive glucose monitor. It had CE Mark approval for EU markets but had not received U.S. FDA approval for commercial sale.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 / comparator |
|---|---|---|
| Revenue | $75,825 | $0 |
| Operating expenses | $956,522 | $887,186 |
| Operating loss | $880,697 | $887,186 |
| Financing income (expenses), net | ($653,834) | $150,267 income |
| Net loss | $1,534,531 | $736,919 |
| Comprehensive loss | $1,576,194 | $736,047 |
| Loss per share, basic and diluted | $0.31 | $0.16 |
| Cash used in operating activities | $595,413 | $688,269 |
Revenue came from sales of GlucoTrack devices and replacement personal ear-clips. The filing does not provide a clear gross-margin figure or cost of revenue breakdown. R&D expense was $478,325, up from $451,084; selling, marketing and G&A expense was $478,197, up from $436,102.
Cash and cash equivalents were $4,695,269 at March 31, 2015, down from $5,827,560 at December 31, 2014. Total assets were $5,182,540; current liabilities were $728,544. Stockholders’ deficit was $4,274,415, alongside $7,389,088 of temporary equity in preferred stock. Stockholder loans totaled $156,063, all classified as long-term at quarter-end. The company had no outstanding bank-line borrowings; approximately $75,377 was available under a secured line of credit. Management estimated cash of approximately $4.1 million on May 12 and said existing cash would fund operations for about 15 months from the report date, based on its then-current plan and burn rate.
Material changes and unusual items
- Net loss more than doubled year over year, primarily because financing results shifted from $150,267 of income to $653,834 of expense. This included a $773,297 non-cash loss on extinguishment of exchanged Series A preferred shares and warrants. The company also recognized a $65,770 benefit from a decrease in the estimated fair value of warrants with down-round protection.
- During Q1, certain Series A holders exchanged 4,341 preferred shares and 898,146 warrants for Series B preferred shares and Series B-1 and B-2 warrants. Additional exchanges completed by April 30 were expected to result in an approximately $250,000 non-cash extinguishment loss in Q2.
- An arbitration settlement required company founders to transfer 440,652 common shares to Dimri. The subsidiary repaid Dimri’s $439,939 loan principal in March and paid $81,870 toward legal fees in April; the latter amount had been accrued at quarter-end. The settlement released the parties from claims relating to the arbitration.
- Cash dividends paid on Series A preferred stock were $20,514; a stock dividend on Series B preferred stock was recorded. Potential shares from preferred stock, options and warrants were excluded from diluted loss per share as anti-dilutive.
Outlook, risks and contingencies
- The company expected R&D expense to remain at similar levels through 2015, subject to available funds and development and regulatory needs. It expected selling, marketing and G&A expense to increase as commercialization efforts and public-company costs grew.
- Management planned to seek additional financing through equity, equity-linked or debt securities, and/or loans, and said additional capital or increased revenue would be needed to fund needs beyond the estimated cash runway. The filing states that substantial doubt exists about the company’s ability to continue as a going concern; there is no assurance financing will be available, and the statements include no adjustments for the outcome of this uncertainty.
- Management expected to seek FDA pre-submission feedback in late May 2015 and, if the clinical protocol were approved, to begin U.S. clinical trials during 2015. It was working to reduce initial device calibration time from approximately 2.5 hours to approximately one hour; changes would require CE Mark approval before EU marketing.
- Exclusive distribution agreements covered more than 10 countries, but sales in many territories depended on local regulatory approvals. The company estimated review timelines of about 12 months for China, 6 months for South Korea and 18 months for Japan. A Taiwanese contract manufacturer’s production line was expected to be operational in Q2 2015; timing and regulatory milestones were forward-looking estimates.
- Risks include limited operating history, product-development and market-acceptance uncertainty, competition, regulatory approval, reliance on external financing and third-party manufacturing. The company disclosed approximately $89,232 of potential future royalties to Israel’s Office of the Chief Scientist, excluding interest, payable as a percentage of qualifying product sales. No off-balance-sheet arrangements were reported.
Most important facts for investors to verify
- Whether the company secured financing or achieved revenue growth sufficient to extend the stated cash runway, and whether actual cash burn matched management’s estimate.
- Progress and required approvals for U.S. clinical trials, calibration improvements, and local market authorizations, including the stated international review timelines.
- Commercial sales, device performance, customer uptake and distributor execution; Q1 revenue was only $75,825 and the prior-year quarter had no revenue.
- The impact of preferred-stock and warrant terms, subsequent exchanges, potential dilution and related non-cash valuation charges.
- Whether the company’s going-concern uncertainty, arbitration-related payments and contingent royalty obligations changed after quarter-end.