Business context and reporting period
Integrity Applications, Inc. (the registrant named in the filing; its product is GlucoTrack) filed this unaudited Form 10-Q for the quarter ended September 30, 2019. The company develops and commercializes non-invasive glucose-monitoring devices. Its GlucoTrack DF-F had CE Mark approval for European markets; the filing describes additional product development and commercialization work.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $4,175 | $0 | $140,255 | $43,488 |
| Operating expenses | $984,648 | $1,611,106 | $3,040,087 | $5,570,847 |
| Operating loss | $(980,473) | $(1,611,106) | $(2,899,832) | $(5,527,171) |
| Net loss | $(996,777) | $(1,572,878) | $(2,917,287) | $(5,383,155) |
| Basic and diluted loss per share | $(0.01) | $(0.31) | $(0.01) | $(0.96) |
- For the nine months, operating cash use was $3.10 million, versus $3.80 million in 2018; investing cash use was $22,554. Financing provided $4.20 million, primarily from Series D securities. Cash, cash equivalents and restricted cash totaled $1.279 million at September 30; unrestricted cash and equivalents were $1.222 million.
- Current assets were $1.440 million and current liabilities $2.440 million, implying negative working capital of approximately $1.00 million. Total liabilities were $2.836 million. Stockholder loans were $186,929; operating lease liabilities totaled $147,042. No gross-margin figure is separately reported.
- Accumulated deficit was $90.1 million. Stockholders’ deficit narrowed to $862,816 from $2.873 million at year-end 2018. Shares outstanding increased to 162.1 million from 141.6 million.
Changes, outlook and risks
- Nine-month revenue rose by $96,767, attributed to shipments into two new markets during Q2. Q3 revenue remained minimal. The company reported no material cash collections from product orders during the first nine months.
- Year-to-date R&D, selling and marketing, and G&A expenses declined from 2018, mainly reflecting completion of clinical trials for the current device, lower personnel and stock compensation costs, reduced European business-development staffing, the former CEO’s departure, and lower professional fees. The lower expenses helped reduce net loss.
- Management stated that existing cash was expected to fund operations for approximately five months from the report date and that additional capital would be needed, potentially sooner if cash needs increased. Management concluded that accumulated losses, negative operating cash flows and negative working capital raise substantial doubt about the company’s ability to continue as a going concern. The statements include no adjustments for the outcome of this uncertainty.
- Management expected R&D and selling/marketing costs to increase as product development and sales efforts proceed, subject to obtaining financing; it also described plans to reduce G&A through staffing and function consolidation. No quantified revenue or earnings guidance was provided.
- Development priorities include a self-calibration module submitted for regulatory approval, wireless connectivity and apps, and a wireless ear-clip concept. Commercialization depends on financing, regulatory progress, customer adoption and reimbursement. In the European test markets, the company had reduced business-development spending pending evidence of reimbursement.
- The company raised approximately $4.2 million net through Series D financing in the first nine months, issuing 18.89 million common shares plus warrants. Placement-agent compensation included cash fees and warrants; the filing also reports 1.19 million shares issued to settle $307,056 of board and management obligations. These financings and issuances increase potential dilution.
- Other items: a contingent royalty obligation on future product sales was approximately $45,450, excluding interest. A director/officer resigned in October 2019 under an agreement including $25,000 in stock and a $25,000 cash payment conditional on raising an additional $2 million net. Management reported disclosure controls effective at a reasonable-assurance level and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether the company can raise sufficient capital to address the disclosed going-concern uncertainty and stated short cash runway.
- Whether new-market sales can grow from the very low reported revenue and produce meaningful cash collections.
- The regulatory status, timing and costs of self-calibration and next-generation device development, and progress toward U.S. regulatory requirements.
- Whether reimbursement and market acceptance can be demonstrated in test markets and support expansion of sales channels.
- The potential dilution from outstanding warrants, placement-agent warrants and other equity-linked securities; the filing excludes 78.9 million potential shares from diluted loss per share as anti-dilutive.
- The issuer identity and security details: this filing is by Integrity Applications, Inc.; confirm that it corresponds to the requested Glucotrack, Inc. issuer and period.