Filing and period
Issuer in the filing: Integrity Applications, Inc., a development-stage medical-device company operating primarily through its Israeli subsidiary. The request identifies Glucotrack, Inc.; that name does not match the issuer named in this 10-K. This is the annual report for the fiscal year ended December 31, 2012, not a standalone Q4 report. Filed April 1, 2013.
Business context and product
The company is developing GlucoTrack DF-F, a non-invasive, earlobe-clip glucose monitor using ultrasound, electromagnetic and thermal technologies. It had no commercial product approvals and had generated no operating revenue through year-end. A 2012 study of 135 subjects and 6,275 measurements reported 96.5% of readings in Clarke Error Grid zones A and B and approximately 30% MARD; management cautioned that limited trial results may not predict later results.
Financial performance and position
| Metric | FY 2012 / Dec. 31, 2012 | FY 2011 / Dec. 31, 2011 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $1.921 million | $1.789 million |
| General and administrative expense | $853 thousand | $544 thousand |
| Net loss | $2.772 million | $2.364 million |
| Operating cash used | $2.297 million | $1.916 million |
| Cash and cash equivalents | $543 thousand | $1.897 million |
| Total assets | $815 thousand | $2.182 million |
| Total liabilities | $1.318 million | $1.214 million |
| Stockholders’ equity (deficit) | $(503) thousand | $968 thousand |
Margins are not meaningful because the company had no revenue. Working capital was approximately $167 thousand at year-end. Long-term stockholder loans were $631 thousand; the balance sheet also showed $37 thousand of bank credit outstanding. No conventional revenue or profit guidance was provided.
Changes, liquidity and financing
- Net loss increased about 17% year over year, while R&D and G&A expenses rose, primarily due to staffing, compensation and public-company costs.
- Year-end cash fell by approximately $1.353 million. Financing activities provided $954 thousand in 2012, versus $2.383 million in 2011.
- After year-end, on March 13, 2013, the company raised $6.3 million gross ($5.5 million net) through preferred-stock-and-warrant units. Management reported approximately $5.3 million cash after offering costs and estimated that funds would support about 23 months of operations from the report date, subject to assumptions and spending changes.
- The financing carries cumulative 5% preferred dividends, conversion and warrant dilution, potential redemption provisions, and restrictive covenants. The filing also describes potential share adjustments benefiting prior investors.
Outlook, risks and unusual items
- The company submitted its CE Mark technical file in December 2012 and additional clinical evaluation data in March 2013. The filing gives inconsistent timing for anticipated CE Mark approval: elsewhere it says as early as April 2013, and in the regulatory discussion it says no earlier than April 2013 while also referring to April 2014. U.S. trials were planned for late 2013 or early 2014, subject to FDA protocol approval; management believed FDA approval would be at least 18 months later. All timelines are uncertain.
- The independent auditor issued an unqualified opinion but highlighted substantial doubt about the company’s ability to continue as a going concern. The company had cumulative losses of $15.290 million and cumulative negative operating cash flow of $11.574 million through year-end, and depends on external financing.
- A pending arbitration with Dimri concerns claimed rights to maintain an 18% ownership interest and possible anti-dilution protection. Hearings were scheduled for June 2013; the company could not estimate a reasonably possible loss and recorded no provision.
- Key risks include clinical performance and regulatory approval, market adoption, reimbursement and pricing, competition, financing and dilution, third-party manufacturing and distribution, intellectual-property challenges, and operations in Israel. The company also owes the Israeli Office of the Chief Scientist royalties on qualifying product sales, subject to a stated cap plus interest.
- The common stock had no active public trading market or reported trades despite an unpriced OTC quotation. There is no assurance a market will develop.
Most important facts to verify
- Confirm the intended issuer: the filing is for Integrity Applications, Inc., not Glucotrack, Inc.
- Reconcile the CE Mark schedule and check subsequent notified-body decisions and actual regulatory status.
- Review post-March 2013 cash, spending, financing terms, preferred dividends, conversion adjustments and potential dilution.
- Check clinical-study protocols, full performance data and whether later studies support the reported accuracy results.
- Track the Dimri arbitration, any resulting share transfers or liabilities, and the company’s continuing going-concern status.
- Reconcile the cash-flow discussion’s reported 2012 investing cash use ($17,334 in the narrative versus $17,734 in the cash-flow statement).