Business context and reporting period
The filing is a Form 10-Q for the quarter ended September 30, 2013, filed by Integrity Applications, Inc. (the registrant named in the filing), a development-stage medical-device company developing the GlucoTrack non-invasive glucose monitor. The filing reports no commercial revenue. The company had received CE Mark approval for the GlucoTrack DF-F in June 2013 but had not begun sales; U.S. commercial approval had not been obtained.
Key financial metrics
Amounts are in U.S. dollars. The company had no gross profit or meaningful operating margin because it had no revenue.
| Metric | Three months ended September 30, 2013 | Three months ended September 30, 2012 | Nine months ended September 30, 2013 | Nine months ended September 30, 2012 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| R&D expense | $495,207 | $469,836 | $1,460,755 | $1,423,364 |
| General and administrative expense | $232,189 | $216,190 | $786,259 | $664,738 |
| Operating loss | $727,396 | $686,026 | $2,247,014 | $2,088,102 |
| Net loss | $699,868 | $700,556 | $2,620,060 | $2,072,967 |
| Loss per common share, basic and diluted | $0.16 | $0.13 | $0.52 | $0.39 |
| Cash used in operating activities | Not provided by quarter | $2,282,455 | $1,744,465 |
At September 30, 2013, cash and cash equivalents were $3,516,615, versus $543,411 at December 31, 2012. Total assets were $3,857,332; current liabilities were $547,514; total liabilities were $3,291,026. Stockholders’ deficit was $3,796,239, and convertible preferred stock of $4,362,545 was classified as temporary equity. Long-term stockholder loans were $680,825. There was no bank borrowing at September 30; the company reported no line-of-credit borrowings as of October 31.
Material changes versus the prior comparable period
- Nine-month net loss increased about 26% from 2012, while third-quarter net loss was nearly unchanged. Nine-month operating loss increased about 8%.
- Nine-month R&D expense rose about 3%, while G&A expense rose about 18%, attributed mainly to salaries, professional and legal fees connected with an ongoing arbitration, and investor-relations services.
- Nine-month net cash used in operations increased to $2.28 million from $1.74 million.
- Financing expense was $373,046 for the first nine months of 2013, compared with financing income of $15,135 in the prior-year period. The filing attributes the change principally to costs allocated to warrants with down-round protection, foreign-exchange losses, and inflation-linked stockholder-loan adjustments.
Outlook, risks, contingencies, and unusual items
- The March 2013 private placement generated approximately $5.4 million net proceeds. It issued Series A 5% convertible preferred stock and warrants, with initial conversion and exercise prices of $5.80 and $6.96 per share, respectively. The instruments include adjustment and potential redemption provisions; conversion and warrant exercise could dilute common shareholders.
- Management said October 31 cash of approximately $3.2 million was expected to fund operations for about nine months from the filing date, based on the then-current cash burn, strategy, and operating plan. Additional capital or revenue would be needed thereafter, potentially sooner if spending or plans changed. This is not a guarantee of continued funding.
- The company had accumulated losses of $18.38 million and had not generated revenue. The filing says these conditions raise substantial doubt about its ability to continue as a going concern; the financial statements include no adjustments for the outcome of that uncertainty.
- Management expected R&D and G&A expenses to rise as it pursued product development, post-market follow-up, regulatory work, manufacturing preparation, and eventual marketing. U.S. clinical trials were expected to begin by early 2014, subject to FDA approval of the protocol.
- Key execution risks include completion and performance of development work, regulatory and clinical outcomes, market acceptance, competition, manufacturing and distribution readiness, and the need to secure further financing. The company had not yet established marketing, sales, or distribution capabilities.
- Contingencies and obligations include preferred-stock dividends and possible redemption under specified events, contractual protections and restrictions tied to the preferred stock and warrants, stockholder loans generally repayable only after accounting profits, and contingent royalties to Israel’s Office of the Chief Scientist on future product sales. The company reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the issuer identity: this filing names Integrity Applications, Inc.; “Glucotrack, Inc.” is not the registrant name shown in the supplied filing.
- Check actual cash use and financing needs against management’s approximately nine-month runway estimate, and whether additional capital was obtained.
- Verify progress and outcomes for U.S. FDA clinical plans, EU post-market follow-up, and any further regulatory approvals; CE Mark approval alone did not establish commercial sales.
- Review the preferred-stock, warrant, down-round, dividend, redemption, and placement-agent terms for potential dilution, cash obligations, or restrictions.
- Assess the status and potential cost of the arbitration and other legal matters; the filing does not provide a clear quantified outcome.
- Note that cumulative operating cash use is reported inconsistently: $13,856,515 in the cash-flow statement versus $13,853,770 in MD&A. The filing text does not reconcile the difference.