Business context and reporting period
Filing identity: The supplied filing is Integrity Applications, Inc.’s Form 10-Q for the quarter ended June 30, 2013—not a filing under the name Glucotrack, Inc. The company describes GlucoTrack DF-F, a non-invasive glucose-monitoring device, as its product. Verify the issuer identity before relying on this summary.
Integrity Applications was a development-stage medical-device company with no revenue. It reported that it had received CE Mark approval for GlucoTrack DF-F on June 4, 2013, but had not started sales and lacked marketing, sales, and distribution capabilities. The device was not approved for commercial sale in the United States.
Financial results and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $0 in 2013 and 2012 | $0 in 2013 and 2012 |
| Research and development expense | $461,303; prior year $508,462 | $965,548; prior year $953,528 |
| General and administrative expense | $370,491; prior year $245,613 | $554,070; prior year $448,548 |
| Net loss | $576,597; prior year $737,458 | $1,920,192; prior year $1,372,411 |
| Loss per share attributable to common stockholders | $0.13; prior year $0.14 | $0.38; prior year $0.26 |
| Net cash used in operating activities | Not stated in the presented quarterly comparison | $1,522,127; prior year $1,123,975 |
At June 30, 2013, cash and cash equivalents were $4.32 million, versus $543,411 at December 31, 2012. Current assets were $4.40 million and current liabilities $548,694. The resulting current ratio was approximately 8.0, although the company continued to depend on external financing and had no operating revenue. Total liabilities were $3.34 million, including $662,329 in long-term stockholder loans and a $1.90 million derivative warrant liability. Convertible preferred stock of $4.39 million was presented as temporary equity. Stockholders’ deficit was $3.07 million. No bank credit was outstanding at June 30.
Material changes and unusual items
- In March 2013, the company completed a private placement of preferred-stock-and-warrant units, reporting approximately $5.4 million in net proceeds. The financing included 5% convertible preferred stock and warrants with down-round price protection. The filing reports $5.33 million of net cash provided by financing activities for the first half.
- First-half net loss increased by about $548,000 year over year, primarily due to financing expense associated with the warrant offering and foreign-exchange and loan-indexation effects. The six-month financing expense was $400,574, versus financing income of $29,665 in 2012; it included $390,928 of issuance costs allocated to warrants. In the second quarter, financing income was $255,197, principally reflecting a favorable change in warrant fair value.
- Quarterly R&D expense declined, which management attributed partly to completion of clinical work related to CE Mark approval. First-half R&D rose modestly, while G&A increased in both the quarter and half-year comparisons.
- The company cancelled 162,907 shares sold in the November 2012 first closing and exchanged them for units. It also agreed, subject to holder consents, to issue 100,526 additional common shares to reduce the effective purchase price for certain earlier investors.
- The preferred stock carries cumulative 5% dividends, certain redemption rights and potential 9% dividend terms upon specified triggering events. Warrants have down-round protection and are recorded as a fair-value derivative liability; changes in fair value affect financing results.
Outlook, risks and contingencies
Management expected R&D and G&A costs to increase as it pursued U.S. regulatory approval, EU post-market follow-up, product improvement, development of a new model, and preparation for manufacturing and commercialization. The company expected to begin U.S. clinical trials by late 2013 or early 2014, if the FDA approved its protocol. These are expectations, not assurances, and the filing provided no sales or earnings forecast.
As of July 31, 2013, cash was approximately $4.0 million. Management estimated that available cash would fund operations for about 12 months from the filing date under its then-current cash burn, strategy, and operating plan; additional capital would be needed thereafter, or sooner if needs increased. The filing states that accumulated losses were $17.59 million and cumulative operating cash outflow was $13.10 million, and that these conditions raised substantial doubt about the company’s ability to continue as a going concern. The financial statements included no adjustments for the outcome of that uncertainty.
Risks include continued financing needs, regulatory and clinical uncertainty, product performance and market acceptance, competition, and the lack of commercialization infrastructure. The company disclosed contingent royalties to Israel’s Office of the Chief Scientist on future sales of products resulting from funded research, capped at grant amounts plus interest; the stated contingent balance was NIS 420,000, or approximately $117,779 at the cited exchange rate, excluding interest. It reported no off-balance-sheet arrangements and effective disclosure controls as of June 30, 2013.
Important facts for investors to verify
- Confirm the issuer and security: this is an Integrity Applications, Inc. filing, despite the request naming Glucotrack, Inc.
- Check subsequent filings for cash runway, additional financing, dilution, and preferred-stock dividends or redemption events.
- Verify FDA trial authorization and progress, commercialization plans, and whether CE Mark approval led to actual sales.
- Review the preferred-stock and warrant terms, including down-round adjustments, conversion, redemption triggers, and the derivative liability valuation.
- Assess the going-concern warning and the company’s ability to fund operations beyond management’s estimated 12-month runway.