Business context and reporting period
This is Integrity Applications, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2012. The filing identifies Integrity Applications—not Glucotrack, Inc.—as the registrant; GlucoTrack is its non-invasive glucose-monitoring product. The company was a development-stage medical-device business and had not commercialized the product or generated revenue.
Financial results and liquidity
| Metric (US$) | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | 469,836 | 461,077 | 1,423,364 | 1,242,191 |
| General and administrative expense | 216,190 | 239,169 | 664,738 | 493,905 |
| Operating loss | 686,026 | 700,246 | 2,088,102 | 1,736,096 |
| Net loss | 700,556 | 708,708 | 2,072,967 | 1,765,629 |
| Basic and diluted loss per share | $0.13 | $0.14 | $0.39 | $0.35 |
| Cash used in operating activities | Not separately stated | Not separately stated | 1,744,465 | 1,337,410 |
At September 30, cash and cash equivalents were $182,390, down from $1,896,504 at December 31, 2011. Current assets were $314,353 and current liabilities $419,234, implying negative working capital of approximately $104,881. Total liabilities were $1,242,065; these included $604,568 in long-term stockholder loans and $50,980 in bank credit. Stockholders’ equity was a deficit of $744,385. Profitability and margins are not meaningful because the company had no revenue.
Material changes and notable items
- Nine-month net loss increased by about $307,000 year over year; operating loss rose about $352,000. Research and development spending increased about $181,000, while general and administrative expense increased about $171,000.
- Management attributed higher R&D expense to formal clinical trials begun in March 2012, additional staffing, development of a new main-unit model, and preparation for clinical testing. Lower Q3 G&A expense mainly reflected reduced professional fees compared with the prior-year quarter; nine-month G&A rose with staffing, stock compensation, reporting-company compliance, and private-placement costs.
- Financing income was $15,135 for the nine-month period, versus financing expense of $29,533 in 2011, primarily due to a decline in the fair value of warrants, partly offset by foreign-exchange and stockholder-loan linkage costs. Q3 financing expense was $14,530 versus $8,462.
- In November 2012, after quarter-end, the company sold 165,057 shares at $7 per share for gross proceeds of approximately $1.1 million. Management said cash after loan repayment and placement commissions was approximately $850,000 as of November 19. The filing describes an offering of up to 785,714 shares and discusses possible amended terms involving preferred stock and warrants if further securities are sold.
Outlook, risks and contingencies
Management expected R&D spending to rise as Israeli clinical trials for a CE Mark application continued and product development advanced; it also anticipated higher public-company compliance costs. The company expected to begin U.S. clinical trials by early 2013, subject to FDA protocol approval. GlucoTrack had not been approved for sale in the United States, European Union, or elsewhere. Early studies reported favorable Clarke Error Grid results, but involved small populations and may not predict future results.
The filing states that substantial doubt exists about the company’s ability to continue as a going concern: it had accumulated losses of $14.59 million, cumulative negative operating cash flow of $11.02 million, no revenue, and limited liquidity. Management estimated that cash and cash equivalents after the November financing would support operations for approximately four months from the report date, and said additional capital would be needed. There is no assurance that financing will be available on acceptable terms. Management also cited development, market acceptance, competition, technology-change, and financing risks. No off-balance-sheet arrangements were reported.
Most important facts for investors to verify
- Whether additional financing was completed after the November 19 private-placement closing, on what terms, and with what dilution or anti-dilution effects.
- Actual cash runway and repayment of the Bank Leumi loan and Bank Hapoalim line of credit; the filing describes intended repayments from offering proceeds.
- Clinical-trial progress, FDA protocol status, CE Mark timing, and whether product performance is supported by larger studies and regulatory approvals.
- The going-concern uncertainty and the company’s ability to secure capital before available cash is exhausted.
- The filing contains differing descriptions of placement-agent warrants for the initial closing (16,506 in the financial-statement note versus 15,805 in MD&A); confirm the executed terms.