Business context and reporting period
The filing is a Form 10-Q for the quarter ended September 30, 2018, filed November 14, 2018. Although the request identifies Glucotrack, Inc., the filing names the registrant as Integrity Applications, Inc. The company develops and commercializes GlucoTrack, a non-invasive glucose monitor for people with Type 2 diabetes and pre-diabetes. Its product had CE Mark approval in Europe but was not approved for commercial sale in the United States.
Financial performance and position
| Metric | Nine months ended September 30, 2018 | Prior-year period |
|---|---|---|
| Revenue | $43,488 | $125,881 |
| Operating expenses | $5,570,847 | $8,021,937 |
| Operating loss | $(5,527,171) | $(7,896,056) |
| Net loss | $(5,383,155) | $(7,672,266) |
| Net cash used in operations | $(3,802,460) | $(5,107,009) |
| Net cash from financing | $4,705,828 | $5,374,074 |
Third-quarter revenue was zero, versus $20,900 in Q3 2017; quarterly net loss was $1,572,878, versus $2,584,740. At September 30, cash and equivalents were $941,869, total current assets $2,079,633, and current liabilities $3,817,207, implying negative working capital of about $1.74 million. Total liabilities were $5,032,425; long-term stockholder loans were $173,485. The balance sheet also reported $864,349 of warrant liabilities and $13,421,333 of temporary equity in preferred stock. Accumulated deficit was $54,776,727 and stockholders’ deficit was $15,995,905.
As of November 14, management reported cash on hand of approximately $114,000 and estimated that available cash would fund operations for about three months from the report date. The filing gives no gross-margin figure; the text does not provide a clear value for margins.
Changes versus the prior comparable period
- Nine-month revenue fell by $82,393, primarily because the prior-year period included an initial Hong Kong customer order. Q3 revenue declined from $20,900 to zero.
- Nine-month operating expenses declined by about $2.45 million, mainly due to lower general and administrative costs after 2017 executive compensation, severance, recruiting, and related expenses.
- Net loss narrowed by about $2.29 million; operating cash use also declined by about $1.30 million.
- Cash increased from $53,782 at December 31, 2017 to $941,869 at September 30, 2018, primarily following equity-linked financing.
Outlook, risks, and unusual items
- Going concern: Management states that substantial doubt exists about the company’s ability to continue as a going concern. It expects operations to require additional financing and says operating income is not expected to fund operations over the next 12 months. No assurance is given that new capital will be available.
- Financing and dilution: The company raised approximately $4.7 million net through Series D units in the first nine months. The units included common stock and five-year warrants; Series D warrants outstanding were exercisable for an aggregate 3,902,667 shares. Placement-agent compensation included commissions, expenses, and warrants with full-ratchet anti-dilution protection. Preferred-stock dividends were unpaid and accruing interest at 9% annually.
- Commercial plans: Management expected research and development, selling and marketing, and general and administrative spending to rise if financing became available, while noting spending could be adjusted to available resources. A U.S. clinical program was contingent on financing; management said it did not expect to begin trials without at least $10 million in additional capital.
- Market access: The company terminated its China distributor relationship amid disputed alleged breaches. It said it might be unable to resubmit the current product to China’s regulator for up to five years and could lose access to the market if it cannot secure another partner and clearance. New distribution and launch efforts included the Netherlands and Scandinavia; management described insurance reimbursement as important to meaningful sales.
- Leadership: CEO and Chairman John Graham gave notice of resignation effective October 31, 2018. David Podwalski became President and COO and was appointed a director. The filing also describes salary arrears and equity compensation arrangements for both executives.
- Accounting and unusual items: Nine-month financing income included a $251,790 gain from lower fair value of down-round warrants; the company also recorded an $82,777 late-fee penalty for overdue preferred dividends. Management was evaluating new accounting guidance that could affect down-round instruments.
Investor verification priorities
- Confirm the registrant’s identity and ticker; the supplied filing is for Integrity Applications, Inc., not a registrant named Glucotrack, Inc.
- Verify current cash, subsequent financing, burn rate, and whether the stated three-month runway estimate was extended.
- Assess the going-concern disclosure and the company’s ability to raise capital without substantial dilution.
- Review Series D warrant terms, preferred dividends and arrears, and potential common-share dilution.
- Check the status of China distribution/regulatory access, European launch and reimbursement efforts, and U.S. trial financing plans.
- Reconcile the filing’s expense figures: the financial statements report nine-month R&D expense of $1,818,108, while MD&A reports $1,818,814.