Glucotrack, Inc. quarterly report, Q1 FY2012

Business context and reporting period

Integrity Applications, Inc. (the registrant named in the filing; not Glucotrack, Inc.) filed this unaudited Form 10-Q for the quarter ended March 31, 2012. It is a development-stage medical-device company developing GlucoTrack DF-F, a non-invasive glucose monitor for people with diabetes. The company had not commercialized the product or generated revenue.

Financial results and position

At March 31, 2012, cash and cash equivalents were $1.416 million; current assets were $1.481 million and current liabilities $324,000. Total assets were $1.689 million, total liabilities $1.273 million and stockholders’ equity $416,243. Long-term stockholder loans were $625,837; the balance sheet reported no bank credit outstanding and a $65,360 liability for warrants with down-round protection. The company disclosed approximately $81,000 of available credit-line capacity. No gross margin is reported because there were no sales.

Changes versus the prior comparable period

• Net loss increased $94,689, about 17.5%; operating loss increased about 20.2%.
• R&D expense rose about 19.2%, reflecting staffing and compensation, a new main-unit model and work to prepare for clinical trials. G&A expense rose about 22.5%, including public-company compliance and professional costs.
• Operating cash use increased $108,477, about 29.5%. The company received no financing cash in Q1 2012, compared with $573,407 in Q1 2011.
• Cash declined $480,379 from year-end 2011. The share count remained 5,295,543 at March 31, 2012.

Outlook, risks and unusual items

• Management estimated that cash and available credit would fund operations for about eight months under its then-current plan; it may need additional capital sooner if plans change. The filing states that substantial doubt exists about the company’s ability to continue as a going concern. Additional financing may not be available on acceptable terms, or at all.
• The company began the performance and safety phase of formal Israeli clinical trials in March 2012 for a CE Mark application. It expected U.S. trials to begin in late 2012 or early 2013, subject to FDA protocol approval. The product was not approved for sale in the U.S., EU or elsewhere.
• A new disclosed risk: the nickel coating on the ear-clip sensors failed an in-vitro cytotoxicity test, with severe adverse reactions in that test. A contractor’s review of prior patient exposure data found no evidence of sensitization or irritation in patients, but regulators may reject the company’s safety rationale or require a different coating, delaying or preventing approval.
• The company expects R&D and administrative costs to continue increasing as development and clinical work advance. Other stated risks include product-development uncertainty, market acceptance, competition and dependence on external funding.
• On March 12, 2012, employees received options to purchase 17,500 shares at $6.25 per share. There were no off-balance-sheet arrangements disclosed. Management concluded disclosure controls were effective at a reasonable-assurance level; the filing reported no material quarterly change in internal control over financial reporting.

Important facts for investors to verify

• Verify the filing identity: this 10-Q is for Integrity Applications, Inc., despite the request metadata naming Glucotrack, Inc.
• Track cash burn, financing access and progress against the stated approximately eight-month runway and going-concern uncertainty.
• Confirm clinical-trial progress, FDA protocol status and regulatory review of the sensor-coating test and proposed safety evidence.
• Review the terms and repayment conditions of stockholder loans, anti-dilution protections, warrants and outstanding options, including potential dilution.
• Assess whether development milestones, product approval and commercialization can be achieved without material delays or additional funding.