10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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Form 10-Q

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(Mark One)

☒          Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2017

OR

☐          Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from ________ to________.

Commission file number:  000-54785

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INTEGRITY APPLICATIONS, INC.

(Exact name of Registrant as Specified in Its Charter)

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Delaware (State or Other Jurisdiction of Incorporation or Organization)	98-0668934 (I.R.S. Employer Identification No.)
19 Ha’Yahalomim Street P.O. Box 12163 Ashdod, Israel L3 7760049 (Address of Principal Executive Offices) (Zip Code) Telephone:  972 (8) 675-7878 (Registrant’s Telephone Number, Including Area Code) N/A (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒  No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)

Yes ☒  No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐  No ☒

As of August 15, 2017, 6,381,149 shares of the Company’s common stock, par value $0.001 per share, were outstanding.

INTEGRITY APPLICATIONS, INC.

TABLE OF CONTENTS

Page

PART I - FINANCIAL INFORMATION		3
Item 1.	Financial Statements.	3
CONDENSED CONSOLIDATED BALANCE SHEETS		3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS		4
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT		5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS		6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	36
Item 4.	Controls and Procedures.	37
PART II - OTHER INFORMATION		38
Item 6.	Exhibits.	40

INTEGRITY APPLICATIONS, INC.

PART I - FINANCIAL INFORMATION

Item 1.          Financial Statements.

CONDENSED CONSOLIDATED BALANCE SHEETS

	US dollars (except share data)
	June 30, 2017			December 31, 2016
	(unaudited)
A S S E T S
Current Assets
Cash and cash equivalents		1,132,622			148,836
Accounts receivable, net		130,296			92,061
Inventories		1,508,312			1,419,604
Other current assets		157,868			356,994
Total current assets		2,929,098			2,017,495
Property and Equipment, Net		235,230			240,452
Long-Term Restricted Cash		39,234			35,673
Funds in Respect of Employee Rights Upon Retirement		184,031			167,326
Total assets		3,387,593			2,460,946
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Accounts payable		1,789,026			1,634,642
Other current liabilities		957,436			713,549
Total current liabilities		2,746,462			2,348,191
Long-Term Liabilities
Long-Term Loans from Stockholders		178,186			162,034
Liability for Employee Rights Upon Retirement		184,030			176,719
Warrants with down-round protection		764,545			681,970
Total long-term liabilities		1,126,761			1,020,723
Total liabilities		3,873,223			3,368,914
Temporary Equity
Convertible Preferred Stock of $ 0.001 par value (“Preferred Stock”):
10,000,000 shares of Preferred Stock authorized as of June 30, 2017 and December 31, 2016; 376 shares of Series A Preferred Stock issued and outstanding as of June 30, 2017 and December 31, 2016		221,152			221,152
15,031 shares of Series B Preferred Stock issued and outstanding as of June 30, 2017 and December 31, 2016		6,715,844			6,715,844
11,004 and 5,829 shares of Series C Preferred Stock issued and outstanding as of June 30, 2017 and December 31, 2016, respectively		5,943,451			3,104,466
Total temporary equity		12,880,447			10,041,462
Stockholders’ Deficit
Common Stock of $ 0.001 par value (“Common Stock”):
40,000,000 shares authorized as of June 30, 2017 and December 31, 2016; 6,381,149 and 6,026,527 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively		6,384			6,028
Additional paid in capital		27,967,185			24,586,142
Accumulated other comprehensive income		127,012			62,576
Accumulated deficit		(41,466,658	)		(35,604,176	)
Total stockholders’ deficit		(13,366,077	)		(10,949,430	)
Total liabilities, temporary equity and stockholders’ deficit		3,387,593			2,460,946

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

INTEGRITY APPLICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

	US dollars (except share data)
	Six-month period ended June 30,						Three-month period ended June 30,
	2017			2016			2017			2016
	(unaudited)						(unaudited)
Revenues		104,981			470,878			8,744			381,731
Research and development expenses		1,198,363			1,531,396			616,824			880,696
Selling and marketing expenses		598,234			614,121			361,295			349,804
General and administrative expenses		3,556,078			1,173,188			1,678,719			734,661
Total operating expenses		5,352,675			3,318,705			2,656,838			1,965,161
Operating loss		5,247,694			2,847,827			2,648,094			1,583,430
Financing income (expenses), net		160,168			32,065			90,893			(5,568	)
Loss for the period		5,087,526			2,815,762			2,557,201			1,588,998
Other comprehensive (income) loss:
Foreign currency translation loss (income)		(64,436	)		30,039			(31,697	)		8,063
Comprehensive loss for the period		5,023,090			2,845,801			2,525,504			1,597,061
Loss per share (Basic and Diluted)		(0.96	)		(0.54	)		(0.48	)		(0.30	)
Common shares used in computing loss per share (Basic and Diluted)		6,116,366			5,716,566			6,205,104			5,742,468

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

INTEGRITY APPLICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

	US dollars (except share data)
	(unaudited)
	Number of shares		Common Stock Amount		Additional paid in capital		Accumulated other comprehensive income		Accumulated deficit			Total Stockholders’ deficit
Balance as of January 1, 2017		6,026,527		6,028		24,586,142		62,576		(35,604,176	)		(10,949,430	)
Loss for the period of six months										(5,087,526	)		(5,087,526	)
Other comprehensive income								64,436					64,436
Amounts allocated to Series C-1 and Series C-2 Warrants, net						1,404,911							1,404,911
Stock dividend on Series C Preferred Stock		116,354		117		276,457				(276,574	)
Stock dividend on Series B Preferred Stock		206,844		207		491,461				(491,668	)
Cash dividend on Series A Preferred Stock										(6,714	)		(6,714	)
Stock-based compensation		31,424		32		1,208,214							1,208,246
Balance as of June 30, 2017		6,381,149		6,384		27,967,185		127,012		(41,466,658	)		(13,366,077	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

INTEGRITY APPLICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	US dollars
	Six-month period ended June 30,
	2017			2016
	(unaudited)
Cash flows from operating activities:
Loss for the period		(5,087,526	)		(2,815,762	)
Adjustments to reconcile loss for the period to net cash used in operating activities:
Depreciation		33,024			27,980
Stock-based compensation		1,208,246			34,297
Remeasurement adjustment of warrants issued to placement agent					211,077
Change in the fair value of Warrants with down-round protection		(191,075	)		(64,212	)
Linkage difference on principal of loans from stockholders		26			(639	)
Changes in assets and liabilities:
(Increase) in accounts receivable		(28,615	)		(51,053	)
Decrease in inventory		49,255			130,203
Decrease in other current assets		222,952			147,697
(Decrease) increase in accounts payable		26,829			(638,908	)
Increase in other current liabilities		171,018			132,153
Decrease in liability for employee rights upon retirement		(10,148	)		-
Net cash used in operating activities		(3,606,014	)		(2,887,167	)
Cash flows from investing activities:
Purchase of property and equipment		(4,849	)		(46,397	)
Net cash used in investing activities		(4,849	)		(46,397	)
Cash flows from financing activities:
Cash dividend on Series A Preferred Stock		2,686			(4,753	)
Proceeds allocated to Series C Preferred Stock, net of cash issuance expenses		3,022,002			2,508,321
Proceeds allocated to Series C Warrants, net of cash issuance expenses		1,495,541			1,242,158
Net cash provided by financing activities		4,520,229			3,745,726
Effect of exchange rate changes on cash and cash equivalents		74,420			(15,329	)
Increase in cash and cash equivalents		983,786			796,833
Cash and cash equivalents at beginning of the period		148,836			608,701
Cash and cash equivalents at end of the period		1,132,622			1,405,534

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

INTEGRITY APPLICATIONS, INC.

Supplementary information on financing activities not involving cash flows (unaudited):

During the six-month period ended June 30, 2017, $491,668 and $276,574, representing the fair value of the shares of Common Stock issued to owners of Series B Preferred Stock and owners of Series C Preferred Stock, respectively, were accounted for as stock dividends in the statement of changes in stockholders’ deficit and was charged to accumulated deficit against additional paid in capital and Common Stock therein.

During the three months ended June 30, 2017, the Company accrued a cash dividend in the amount of $4,700, in the aggregate, to be paid to holders of its Series A Preferred Stock and a stock dividend in the amount of $406,225, in the aggregate, representing the fair value of the shares of Common Stock to be issued to owners of Series B Preferred Stock and of Series C Preferred Stock, in lieu of cash dividends.  The Company paid such dividends, plus interest at a rate of 9% per annum, on August 4, 2017.

During the six-month period ended June 30, 2017, $273,650, representing the fair value of warrants issued as consideration for placement agent services, was accounted for as Warrants with down-round protection within long-term liabilities.  Of these direct issuance expenses, $90,633 was allocated to the Series C-1 and Series C-2 Warrants and was recorded as a reduction of additional paid in capital, and $183,017 was allocated to the Series C Preferred Stock and recorded as a reduction of temporary equity.

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

INTEGRITY APPLICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1   –          GENERAL

A. Integrity Applications, Inc. (the “Company”) was incorporated on May 18, 2010 under the laws of the State of Delaware.  On July 15, 2010, Integrity Acquisition Corp. Ltd. (hereinafter:  “Integrity Acquisition”), a wholly owned Israeli subsidiary of the Company, which was established on May 23, 2010, completed a merger with A.D. Integrity Applications Ltd. (hereinafter:  “Integrity Israel”), an Israeli corporation that was previously held by the stockholders of the Company.  Pursuant to the merger, all equity holders of Integrity Israel received the same proportional ownership in the Company as they had in Integrity Israel prior to the merger.  Following the merger, Integrity Israel remained a wholly-owned subsidiary of the Company.  As the merger transaction constituted a structural reorganization, the merger has been accounted for at historical cost in a manner similar to a pooling of interests.  Integrity Israel was incorporated in 2001 and commenced its operations in 2002.  Integrity Israel, a medical device company, focuses on the design, development and commercialization of non-invasive glucose monitoring devices for use by people with diabetes and pre-diabetes.

B. Going concern uncertainty

Since its incorporation, the Company did not conduct any material operations other than those carried out by Integrity Israel.  The development and commercialization of Integrity Israel’s product is expected to require substantial expenditures.  Integrity Israel and the Company (collectively, the “Group”) have not yet generated significant revenues from operations, and therefore they are dependent upon external sources for financing their operations.  As of June 30, 2017, the Group has incurred an accumulated deficit of $41,466,658, a stockholder’s deficit of $13,366,077 and negative operating cash flows.  Management considered the significance of such conditions in relation to the Group’s ability to meet its current and future obligations and determined that these conditions raise substantial doubt about the Group’s ability to continue as a going concern.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.  To fund its operations the Company has raised funds through the issuance of (a) Series A units (the “Series A Units”) consisting of shares of the Company’s Series A Convertible Preferred Stock (the “Series A Preferred Stock”) and detachable warrants to purchase shares of the Company’s Common Stock (the “Series A Warrants” or “Warrants with down-round protection”) and (b) Series B units (the “Series B Units”), each consisting of (i) one share of the Company’s designated Series B 5.5% Convertible Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”), convertible into Common Stock at an initial conversion price of $5.80 per share, (ii) a five year warrant to purchase, at an exercise price of $5.80 per share, up to such number of shares of Common Stock issuable upon conversion of such share of Series B Preferred Stock (each a “Series B-1 Warrant”) and (iii) a five year warrant to purchase, at an exercise price of $10.00 per share, up to such number of shares of Common Stock issuable upon conversion of such share of Series B Preferred Stock (each a “Series B-2 Warrant” and, together with the Series B-1 Warrants, collectively, the “Series B Warrants”).  Additionally, during the period between April 2016 and June 2017, the Company raised funds in an aggregate amount of approximately $9.47 million (of which amount of approximately $4.52 million was raised during the six-month period ended June 30, 2017) (net of related cash expenses) through the issuance of 11,003.80 units (the “Series C Units”).  Each of the Series C Units consists of (a) one share of the Company’s designated Series C 5.5% Convertible Preferred Stock, par value $0.001 per share (the “Series C Preferred Stock”), convertible into Common Stock at an initial conversion price of $4.50 per share, (b) a five‑year warrant to purchase, at an exercise price of $4.50 per share, up to such number of shares of Common Stock issuable upon conversion of such share of Series C Preferred Stock (each a “Series C-1 Warrant”) and (c) a five-year warrant to purchase, at an exercise price of $7.75 per share, up to such number of shares of Common Stock issuable upon conversion of such share of Series C Preferred Stock (each a “Series C-2 Warrant” and, together with the Series C-1 Warrants, collectively, the “Series C Warrants”), as described in further detail in Note 3.  See also Note 8 regarding issuance of additional Series C Units subsequent to the balance sheet date.

Until such time as the Group generates sufficient revenue to fund its operations (if ever), the Group plans to finance its operations through the sale of equity or equity-linked securities and/or debt securities and, to the extent available, short term and long-term loans.  There can be no assurance that the Group will succeed in obtaining the necessary financing to continue its operations as a going concern.

8

INTEGRITY APPLICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (cont.)

NOTE 1   –          GENERAL (cont.)

C. Risk factors

As described in Note 1A and Note 1B above, the Group has a limited operating history and faces a number of risks and uncertainties, including risks and uncertainties regarding continuation of the development process, demand and market acceptance of the Group’s products, the effects of technological changes, competition and the development of products by competitors.  Additionally, other risk factors also exist, such as the ability to manage growth and the effect of planned expansion of operations on the Group’s future results and the availability of necessary financing.  In addition, the Group expects to continue incurring significant operating costs and losses in connection with the development of its products and marketing efforts.  The Group has not yet generated material revenues from its operations to fund its activities and therefore is dependent on the receipt of additional funding from its stockholders and/ or new investors in order to continue its operations.

D. Use of estimates in the preparation of financial statements

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.  As applicable to these consolidated financial statements, the most significant estimates and assumptions relate to (i) the fair value estimate of the Warrants with down-round protection, (ii) the allocation of the proceeds and the related issuance costs of the Series C Units, and (iii) the going concern assumptions.

NOTE 2    –          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Basis of presentation

Accounting Principles

The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with our consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.  The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) related to interim financial statements.  As permitted under those rules, certain information and footnote disclosures normally required or included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.  The financial information contained herein is unaudited; however, management believes all adjustments have been made that are considered necessary to present fairly the results of the Company’s financial position and operating results for the interim periods.  All such adjustments are of a normal recurring nature.

The results for the three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017 or for any other interim period or for any future period.

9

INTEGRITY APPLICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (cont.)

NOTE 2    –          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiary.  Significant intercompany balances and transactions have been eliminated in consolidation.

B. Warrants with down-round protection

The Company has determined its derivative warrant liability with respect to the remaining Series A Warrants and warrants issued to Andrew Garrett, Inc., (“AGI”) as part of the Series A Unit offering, the Series B Unit offering and the Series C Unit offering to be a Level 3 fair value measurement and has used the Binomial pricing model to calculate its fair value.  Because the warrants contain a down round protection feature, the probability that the exercise price of the warrants would decrease as the stock price decreased was incorporated into the valuation calculations.

The changes in the fair value of the Level 3 liability are as follows (in US dollars):

	Warrants with down-round Protection June 30,
	2017			2016
	(unaudited)
Balance, Beginning of the period		681,970			321,695
Warrants issued as consideration for placement services		273,650			234,008
Amount classified out of stockholders’ deficit and presented as Warrants with down-round protection		-			341,662
Change in fair value Warrants with down-round protection		(191,075	)		(64,212	)
Balance, End of period		764,545			833,153

The key inputs used in the fair value calculations were as follows:

	June 30,
	2017		2016
Dividend yield (%)		-		-
Expected volatility (%) (*)		56.59		62.16
Risk free interest rate (%)		0.92		0.72-1.11
Expected term of options (years)		0.70-4.98		1.70-5.00
Exercise price (US dollars)		4.50, 7.75		4.50, 7.75
Share price (US dollars) (**)		2.38		2.38
Fair value (US dollars)		0.06-0.76		0.61

(*) Due to the low trading volume of the Company’s Common Stock, the expected volatility was based on the historical volatility of the share price of other public companies that operate in the same industry sector as the Company.

(**) The Common Stock price, per share reflects the Company’s management’s estimation of the fair value per share of Common Stock as of June 30, 2017 and 2016.  In reaching its estimation for such periods, management considered, among other things, a valuation prepared by a third-party valuation firm following the issuance of the Series C Units (See Note 3).

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INTEGRITY APPLICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (cont.)

NOTE 2    –          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

C. Recently issued accounting pronouncements

1. Accounting Standards Update 2014-09, “Revenue from Contracts with Customers”

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”).

ASU 2014-09 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.  ASU 2014-09 also requires entities to disclose sufficient information, both quantitative and qualitative, to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

An entity should apply the amendments in ASU 2014-09 using one of the following two methods:  1. Retrospectively to each prior reporting period presented with a possibility to elect certain practical expedients, or, 2. Retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application.  If an entity elects the latter transition method, it also should provide certain additional disclosures.

During 2016, the FASB issued several Accounting Standards Updates (“ASUs”) that focus on certain implementation issues of the new revenue recognition guidance including Narrow-Scope Improvements, Practical Expedients and technical corrections.

In accordance with an amendment to ASU 2014-09, introduced by Accounting Standard 2015-14, “Revenue from contracts with Customers – Deferral of the Effective Date”, for a public entity, the amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period (the first quarter of fiscal year 2018 for the Company).  Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.

The Company intends to adopt ASU 2014-09 as of January 1, 2018.

The Company is in the process of evaluating the impact of ASU 2014-09 on its revenue streams and selling contracts, if any, and on its financial reporting and disclosures.  Management is expecting to complete the evaluation of the impact of the accounting and disclosure changes on the business processes, controls and systems during 2017.

Since the company did not report significant revenues, management believes that the adoption of ASU 2014-09 will not have a significant impact on its consolidated financial statements.

2. Accounting Standards Update 2015-11, “Simplifying the Measurement of Inventory”

Effective January 1, 2017, the Group adopted ASU No. 2015-11, Simplifying the Measurement of Inventory (Topic 330) (“ASU 2015- 11”).

ASU 2015-11 outlines that inventory within the scope of its guidance be measured at the lower of cost and net realizable value.  Inventory measured using last-in, first-out (LIFO) and the retail inventory method (RIM) are not impacted by the new guidance.  Prior to the issuance of ASU 2015-11, inventory was measured at the lower of cost or market (where market was defined as replacement cost, with a ceiling of net realizable value and floor of net realizable value less a normal profit margin).

The adoption of ASU 2015-11 did not have a significant effect on the consolidated financial statements.

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INTEGRITY APPLICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (cont.)

NOTE 2    –          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

3. Accounting Standard Update (ASU) No. 2017-11, “Earnings Per Share”

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815):  (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”).

Among others, Part I of ASU 2017-11 simplifies the accounting for certain financial instruments with down round features, which is a provision in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment of the current exercise price based on the price of future equity offerings.  Current accounting guidance creates cost and complexity for organizations that issue financial instruments with down round features by requiring, on an ongoing basis, fair value measurement of the entire instrument or conversion option.

ASU 2017-11 require companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification.  Companies that provide earnings per share (EPS) data will adjust their basic EPS calculation for the effect of the feature when triggered (i.e., when the exercise price of the related equity-linked financial instrument is adjusted downward because of the down round feature) and will also recognize the effect of the trigger within equity.

ASU 2017-11 also addresses navigational concerns within the FASB Accounting Standards Codification related to an indefinite deferral available to private companies.

The provisions of the new ASU related to down rounds are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 (fiscal 2019 for the Company).  Early adoption is permitted for all entities.

The Company is evaluating the impact of ASU 2017-11 on its financial statements.  Although this process has not been completed, managements believes that its provisions might impact the accounting of the financial instruments issued by the Company that include down-round protection.

D. Reclassified Amounts

Certain prior year amounts have been reclassified for consistency with the current year presentation.  These reclassifications did not have material effect on the reported results of operations, shareholder’s deficit or cash flows.

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INTEGRITY APPLICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (cont.)

NOTE 3    –    RECENT EVENTS

1. On April 7, 2017, the Board of Directors of the Company (the “Board”) approved an amendment to the 2010 Incentive Compensation Plan of the Company (the “Plan”) to increase the number of shares of the Company’s Common Stock reserved for issuance under the Plan from 1,000,000 shares to 5,625,000 shares.

2. Effective April 7, 2017 (the “Gal Effective Date”), the Company and Integrity Israel entered into a letter agreement with Avner Gal whereby Mr. Gal separated from his employment and directorship at the Company to act as a part time consultant to the Company (the “Gal Agreement”).  Pursuant to the terms of the Gal Agreement, and as consideration for Mr. Gal’s separation from employment and services as a consultant, the Company agreed, among other things, to (a) pay Mr. Gal an amount equal to his Salary (as defined in the Gal Employment Agreement) and other financial benefits Mr. Gal was entitled to receive under the Employment Agreement entered into by and between Integrity Israel and Mr. Gal in October 2010 (the “Gal Employment Agreement”), that would have been paid to Mr. Gal during the Notice Period (as defined in the Gal Employment Agreement), in lieu of such prior notice; (b) modify the Adjustment Period, pursuant to section 19 of the Gal Employment Agreement, to 24 Salaries (as defined in the Gal Employment Agreement), including all the benefits mentioned in the Gal Employment Agreement, provided Mr. Gal does not work or provide services to a company in direct competition with the Company; (c) accelerate the vesting of 88,259 outstanding unvested options to purchase Common Stock, at an exercise price per share equal to $6.25, held by Mr. Gal as of the Gal Effective Date (since the original performance conditions were not expected to be satisfied as of the date of the modification of the terms, the fair value of such grant was measured based on the fair value of the modified award at the modification date; such amount was measured as approximately $51,000);  (d) extend the term of all outstanding options (vested and unvested) held by Mr. Gal to be exercisable for five years from the Gal Effective Date (with respect to all vested options, at the modification date the company recognized compensation cost in an amount equal to the excess amount of the fair value of the modified award as of the modification date over the fair value of the original award immediately); and (e) grant Mr. Gal an option to purchase up to 300,000 shares of Common Stock of the Company having an exercise price per share equal to $4.50 and an option to purchase up to an additional 50,000 shares of common stock of the Company having an exercise price per share equal to $7.75.  These options vest monthly over a 24 months period following the date of grant.

3. Effective April 7, 2017, the Company entered into an amendment to the employment agreement (the “Graham Employment Amendment”) with John Graham, whom the Company appointed as Chief Executive Officer on March 20, 2017, to modify the base compensation provision and the equity compensation provision under that certain Employment Agreement, dated March 20, 2017 (the “Graham Effective Date”), by and between the Company and Mr. Graham.

4. Pursuant to the terms of the Graham Employment Amendment, (a) Mr. Graham’s base compensation was modified such that he receives a base salary of $500,000 per year, as well as a one-time payment of $375,000 paid to Mr. Graham upon commencement of Mr. Graham’s employment with the Company which amount was recognized as an expense as of the employment commencement date, and (b) the vesting periods of Mr. Graham’s options to purchase Common Stock were modified whereby (1) 307,754 shares of Common Stock underlying Mr. Graham’s option to purchase Common Stock at an exercise price of $4.50 per share (the “$4.50 Options”) vested immediately, (2) 923,262 of the $4.50 Options vest on the six month anniversary of the Graham Effective Date, and (3) the remaining 442,980 of the $4.50 Options as well as Mr. Graham’s remaining unvested options granted pursuant to the Graham Employment Amendment vest on the two (2) year anniversary of the Graham Effective Date.

5. Effective April 7, 2017, Integrity Israel entered into an amended and restated personal employment agreement (the “Malka Employment Agreement”) with David Malka for his continued service as Vice President of Operations of the Company and Integrity Israel, effective as of March 20, 2017 (the “Malka Effective Date”).  Pursuant to the terms of the Malka Employment Agreement, Mr. Malka (a) receives a base monthly salary of NIS 20,000 (approximately $5,508 based on an exchange rate of 3.63 NIS / 1 USD in effect on August 8, 2017), which may increase to NIS 35,000 per month (approximately $9.639 using the same exchange rate) in the event certain performance milestones are met (the “Malka Base Salary”); (b) is eligible to earn an annual performance bonus between 420-864% of the Malka Base Salary, subject to certain performance criteria to be established by the Board within the first ninety (90) days of each fiscal year; (c) is eligible to earn a retention bonus equal to 60% of the aggregate Malka Base Salary earned through the one-year anniversary of the Malka Effective Date, payable thirty days following the one-year anniversary of the Malka Effective Date and provided that Mr. Malka remains employed with Integrity Israel through and on the one-year anniversary of the Malka Effective Date; (d) received a modification to the terms of his option to purchase Common Stock at an exercise price per share equal to $6.25 whereby the unvested portion of such options will accelerate and will be immediately exercisable, effective as of the Malka Effective Date (since the original performance conditions were not expected to be satisfied as of the date of the modification of the terms, the fair value of such grant was measured based on the fair value of the modified award at the modification date);  and (e) received certain additional equity awards (pursuant to the Plan) under the terms and conditions as set forth in the Malka Employment Agreement.  In addition, the Malka Employment Agreement provides for the payment of certain social benefits and the use of a company car.  The Malka Employment Agreement is terminable by Integrity Israel and Mr. Malka on 90 days’ prior written notice (the “Malka Notice Period”), without Cause, or immediately by Integrity Israel for Cause (as defined in the Malka Employment Agreement).  Integrity Israel may terminate Mr. Malka’s employment without Cause prior to the expiration of the Malka Notice Period, but will be required to pay Mr. Malka a severance fee equal to the Malka Base Salary plus the financial value of all other benefits Mr. Malka would have been entitled to receive in respect of the portion of the Malka Notice Period which was forfeited.

13

INTEGRITY APPLICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (cont.)

NOTE 3    –    RECENT EVENTS (cont.)

On May 23, 2017, the Board approved the salary increase to NIS 35,000 per month pursuant to the Malka Employment Agreement, notwithstanding the foregoing performance goal requirement, as consideration for Mr. Malka’s continued service as Vice President of Operations of the Company and Integrity Israel.

6. On May 4, 2017, the Board unanimously voted to appoint Angela Strand, a member of the Board, as the interim Chief Strategy Officer of the Company, effective as of May 1, 2017 through September 30, 2017. On May 5, 2017, the Company entered into a letter agreement (the “Strand Employment Agreement”) with Ms. Angela Strand confirming her appointment as interim Chief Strategy Officer of the Company.  Pursuant to the terms of the Strand Employment Agreement, Ms. Strand receives aggregate compensation of $150,000 for her service during the term of employment, paid monthly on the schedule mutually agreed upon by the parties.

7. On May 23, 2017, the Board approved the following compensation for all non-employee directors and interim officers serving on the Board:

a. an annual cash payment to each non-employee director and interim officer of the Company in the amount of $35,000, payable in four equal quarterly installments of $8,750 each on the last day of each calendar quarter commencing with the fourth quarter of 2017, subject to their continued service as of each such date;

b. an additional annual cash payment to each member of a Board committee who is not the Chairperson of that particular committee in the amount of $5,000, payable in four equal quarterly installments of $1,250 each on the last day of each calendar quarter commencing with the second quarter of 2017, subject to their continued service as of each such date;

c. an additional annual cash payment to the chairperson of a Board committee in the amount of $12,500, payable in four equal quarterly installments of $3,125 each on the last day of each calendar quarter commencing with the second quarter of 2017, subject to their continued service as of each such date;

14

INTEGRITY APPLICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (cont.)

NOTE 3    –    RECENT EVENTS (cont.)

d. the grant to each non-employee director and each interim officer of the Company of a one-time award of options to purchase up to an aggregate of 14,894 shares of Common Stock, at an exercise price of $4.50, under and pursuant to the Plan, which options vest in 12 equal monthly increments commencing as of June 1, 2017 (subject to their continued service as of each such date) and have a term of 10 years;

e. the grant to each non-employee director and each interim officer of the Company of an award of Restricted Stock Units (“RSUs”), to be granted on June 1, 2017 and vesting on June 1, 2018, with a fair value of $45,000 based on the 30-day volume weighted average price of the Company’s Common Stock on June 1, 2017, subject to their continued service on and through such date; and

f. an additional annual fair value payment to the vice chairperson of the Board in the amount of $20,000, payable in RSUs under the same vesting terms.

8. On May 23, 2017, the Board appointed Michael Hauck to serve as a director of the Company, effective on that date.  The Board further appointed Mr. Hauck to serve as a member of the Nominating and Corporate Governance Committee of the Board as well as on the Compensation Committee of the Board.

There are no arrangements or understandings between Mr. Hauck and any other person pursuant to which Mr. Hauck was selected as a director.  There are no relationships between Mr. Hauck and the Company that would require disclosure under Item 404(a) of Regulation S-K of the Securities Exchange Act of 1934, as amended.

9. On May 23, 2017, the Board established an Audit Committee of the Board and appointed each of Leslie Seff and Revan Schwartz to serve as members of the committee.  Mr. Schwartz will serve as chairperson of the committee. The Board determined that each of the members of the Audit Committee designated above is independent pursuant to the required standards set forth in Rule 10A-3(b) of the Securities Exchange Act of 1934, as amended, based on an evaluation of the relationships between the Company and each of the members.

10. On June 7, 2017, the Board appointed David Podwalski as the Chief Commercial Officer of the Company, effective as of June 26, 2017 (the “Podwalski Effective Date”).

On June 7, 2017, the Company entered into an employment agreement (the “CCO Employment Agreement”) with Mr. Podwalski to serve as Chief Commercial Officer of the Company.  Under the CCO Employment Agreement, Mr. Podwalski (1) receives a base salary of $240,000 per year (“Base Salary”); (2) receives a sign-on bonus of $25,000, payable on the six month anniversary of the Podwalski Effective Date, subject to his continued employment through and on such payment date; (3) is eligible to receive an annual performance bonus, having a minimum bonus opportunity equal to 20% of his current Base Salary based upon 80% achievement of performance criteria (the “Minimum Performance Goal”), a target bonus opportunity equal to 25% of his current Base Salary based upon 100% achievement of performance criteria, and a maximum bonus opportunity equal to 37.5% of his current Base Salary based upon 150% achievement of performance criteria (the “Maximum Performance Goal”), provided, however, that such performance bonus will be determined using straight-line interpolation of the level of achievement between the Minimum Performance Goal and the Maximum Performance Goal; and (4) receive an initial stock option grant to purchase shares of Common Stock equal to 1% of the total fully diluted shares of Common Stock as of the Podwalski Effective Date, with an exercise price of $4.50 per share or the fair market value of a share of Common Stock on the grant date, whichever is greater, vesting monthly over a three year period commencing on the Podwalski Effective Date, subject to his continued employment through and on each such vesting date (the total fair value of the grant as of the Podwalski Effective Date is approximately $270,000).

The CCO Employment Agreement is terminable by the Company on 90 days written notice and by Mr. Podwalski on 30 days written notice.  The CCO Employment Agreement is immediately terminable by the Company for Cause (as defined in the CCO Employment Agreement) without the payment of severance.  The CCO Employment Agreement contains non-compete obligations applicable during the term of the agreement and for one year thereafter and confidentiality obligations that survive the termination of the agreement indefinitely.

15

INTEGRITY APPLICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (cont.)

NOTE 3    –    RECENT EVENTS (cont.)

Between April 2016 and December 31, 2016, and during the first six months of 2017, the Company received aggregate net proceeds of approximately $4.9 million and $4.5 million, respectively (net of related cash expenses), from the issuance and sale in a private placement transaction, at a price of $1,000 per unit, of 11,003.80 Series C Units.  As of June 30, 2017, the shares of Series C Preferred Stock comprising the Series C Units are convertible into an aggregate of 2,445,317 shares of Common Stock, and the Series C Warrants comprising the Series C Units are exercisable for an aggregate of 4,890,634 shares of Common Stock, in each case subject to adjustment in certain circumstances.

Pursuant to a placement agent agreement (the “Placement Agent Agreement”) with AGI, at the initial closing of the sale of the Series C Units, the Company paid AGI, as a commission, an amount equal to 6% of the aggregate sales price of the Series C Units, plus 4% of the aggregate sales price as a management fee plus a non-accountable expense allowance equal to 3% of the aggregate sales price of the Series C Units.  At the end of the second, third, fourth, fifth, sixth, seventh, eighth, ninth, tenth and eleventh closings of the sale of the Series C Units, the Company paid AGI, as a commission, an amount equal to 10% of the aggregate sales price of the Series C Units sold in such closing, plus a non-accountable expense allowance equal to 3% of the aggregate sales price of the Series C Units sold in such closing.  In addition, pursuant to the Placement Agent Agreement, the Company is required to issue to AGI: (a) 5-year warrants to purchase up to 489,064 shares of Common Stock at an exercise price of $4.50 per share and (b) 5 year warrants to purchase up to 244,531 shares of Common Stock at an exercise price of $7.75 per share.  The terms of such warrants are substantially similar to the Series C Warrants except that the warrants issued to AGI are exercisable on a cashless basis and include full ratchet anti-dilution protection.

Following below is a summary of the entire series C issuances:

	Year ended December 31, 2016		Six month period ended June 30, 2017
	Thousands of U.S. $ (except units sold) (unaudited)
Number of units sold		5,828.9		5,174.9
Gross amount		5,829		5,175
Net of related cash expenses		4,951		4,520
Net amount		4,642		4,246

Subject to certain ownership limitations described below, the Series C Preferred Stock are convertible at the option of the holder at any time and from time to time into shares of Common Stock at a conversion price of $4.50 per share (calculated by dividing the stated value per share of Preferred Stock, which is initially $1,000, by the conversion price per share).  The conversion price of the Series C Preferred Stock is subject to adjustment for certain issuances of Common Stock or other securities of the Company at an effective price per share that is lower than the conversion price then in effect, as well as for stock splits, stock dividends, combinations of shares, similar recapitalization transactions and certain pro-rata distributions to common stockholders.  In addition, the holders of Preferred Stock will be entitled to receive any securities or rights to acquire securities or property granted or issued by the Company pro rata to the holders of Common Stock to the same extent as if such holders had converted all of their shares of Series C Preferred Stock prior to such distribution.  In the event of a fundamental transaction, such as a merger, consolidation, sale of substantially all assets and similar reorganizations or recapitalizations of the Company, the holders of Series C Preferred Stock will be entitled to receive, upon conversion of their shares of Series C Preferred Stock, any securities or other consideration received by the holders of the Common Stock pursuant to the fundamental transaction.

16

INTEGRITY APPLICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (cont.)

NOTE 3    –    RECENT EVENTS (cont.)

Holders of Series C Preferred Stock are entitled to receive cumulative dividends at a rate of 5.5% per annum, based on the stated value per share of Series C Preferred Stock.  Dividends on the Series C Preferred Stock are payable quarterly on March 31, June 30, September 30 and December 31 of each year, beginning on June 30, 2016, and on each conversion date (with respect to the shares of Preferred Stock being converted).  For so long as required under the terms of the certificate of designations for the Company’s outstanding Series A Preferred Stock or Series B Preferred Stock, dividends will be payable only in shares of Common Stock.  Thereafter, dividends on the Series C Preferred Stock will be payable, at the option of the Company, in cash and/or, if certain conditions are satisfied, shares of Common Stock or a combination of both.  Shares of Common Stock issued as payment of dividends will be valued at the lower of (a) the then current conversion price of the Series C Preferred Stock or (b) the average of the volume weighted average price for the Common Stock on the principal trading market therefor for the 10 trading days immediately prior to the applicable dividend payment date.  The Company will incur a late fee of 9% per annum, payable in cash, on dividends that are not paid within three trading days of the applicable dividend payment date.

Subject to any limitations under the terms of the certificate of designations for the Company’s outstanding Series A Preferred Stock or Series B Preferred Stock, the Company may become obligated to redeem the Series C Preferred Stock in cash upon the occurrence of certain triggering events, including, among others, a material breach by the Company of certain contractual obligations to the holders of the Series C Preferred Stock, the occurrence of a change in control of the Company, the occurrence of certain insolvency events relating to the Company, or the failure of the Common Stock to continue to be listed or quoted for trading on one or more specified United States securities exchanges or a regulated quotation service.  In addition, upon the occurrence of certain triggering events, each holder of Series C Preferred Stock will have the option to require the Company to redeem such holder’s shares of Preferred Stock for a redemption price payable in shares of Common Stock or receive an increased dividend rate of 9% on all of such holder’s outstanding Series C Preferred Stock.

Subject to certain conditions contained in the Certificate of Designations, Preferences and Rights relating to the Series C Preferred Stock (the “Certificate of Designations”), the Company will have the option to force the conversion of the Series C Preferred Stock (in whole or in part) if (a) the volume weighted average price for the Common Stock on its principal trading market exceeds $7.00 for each of any 20 trading days during any 30 consecutive trading day period and the average daily dollar trading value for the Common Stock during such 30 day period exceeds $50,000 or (b) the Company receives approval to list the Common Stock on a national securities exchange.

Subject to certain exceptions contained in the Certificate of Designations, if the Company fails to timely deliver certificates for shares of Common Stock issuable upon conversion of the Series C Preferred Stock (the “Conversion Shares”) and, as a result, the holder is required by its brokerage firm to purchase shares of Common Stock to deliver in satisfaction of a sale by such holder of the Conversion Shares (a “Buy-In”), the Company will be required to:  (a) pay the converting holder in cash an amount equal to the amount, if any, by which such holder’s total purchase price (including any brokerage commissions) for the shares of Common Stock so purchased exceeds the product of (i) the aggregate number of Conversion Shares due to the holder, multiplied by (ii) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions); and (b) at the option of such holder, either reissue (if surrendered) the shares of Series C Preferred Stock equal to the number of shares of Series C Preferred Stock submitted for conversion (in which case, such conversion will be deemed rescinded) or deliver to such holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements.  In addition, the Company will be required to pay partial liquidated damages of $10 for each $1,000 of stated value of any shares of Series C Preferred Stock which have been converted by a holder and in respect of which the Company fails to deliver Conversion Shares by the fifth trading day following the applicable conversion date and the Company will continue to pay such partial liquidated damages for each trading day after such eighth trading day until such certificates are delivered or the holder rescinds such conversion.

As long as at least 35% of the originally issued shares of Series C Preferred Stock are outstanding, without the written consent of the holders of a majority in stated value of the outstanding Series C Preferred Stock, the Company will not be permitted to, among other things, incur indebtedness or liens not permitted under the Certificate of Designations; repay, repurchase, pay dividends on or otherwise make distributions in respect of any shares of Common Stock or other securities junior to the Series C Preferred Stock; enter into certain transactions with affiliates of the Company; or enter into any agreement with respect to the foregoing.

17

INTEGRITY APPLICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (cont.)

NOTE 3    –    RECENT EVENTS (cont.)

Subject to the beneficial ownership limitation described below, holders of Series C Preferred Stock will vote together with the holders of Common Stock, Series A Preferred Stock and Series B Preferred Stock on an as‑converted basis.  Holders will not be permitted to convert their Series C Preferred Stock if such conversion would cause such holder to beneficially own more than 4.99% of the outstanding Common Stock (subject to increase to 9.99%, at the option of the holder, upon no less than 61 days prior written notice to the Company) (the “Beneficial Ownership Limitation”).  In addition, no holder may vote any shares of Series C Preferred Stock (on an as-converted to Common Stock basis) in excess of the Beneficial Ownership Limitation.

Subject to certain limitations, so long as any purchaser holds any shares of Series C Preferred Stock, if (a) the Company sells any shares of Common Stock or other securities convertible into, or rights to acquire, Common Stock and (b) a purchaser then holding Series C Preferred Stock, Warrants, Conversion Shares or Warrant Shares (defined below) reasonably believes that any of the terms and conditions appurtenant to such issuance or sale are more favorable to the purchaser in such subsequent sale of securities than are the terms and conditions granted to such purchaser after taking into account all of the terms and conditions of the terms granted to the purchasers under the purchase agreement relating to the issuance and sale of the Series C Units and the terms granted in such subsequent issuance or sale, including all of the components of the Series C Units and of the securities or units involved in such subsequent issuance or sale, then the purchaser will be permitted to require the Company to amend the terms of this transaction (only with respect to such purchaser) so as to match the terms of the subsequent issuance (including, for the avoidance of doubt, any terms and provisions that are or may be less favorable to such purchaser).

The Series C Warrants have a five-year term commencing on their respective issuance dates.  Until the end of the applicable term, each Series C Warrant will be exercisable at any time and from time to time at an exercise price of $4.50 per share (with respect to the Series C-1 Warrants) or $7.75 per share (with respect to the Series C-2 Warrants).  The Series C Warrants contain adjustment provisions substantially similar to those to the adjustment provisions of the Series C Preferred Stock as described above, except that the Series C Warrants do not include dilution protection for issuances of securities at an effective price per share lower than the conversion price of such Series C Warrants.  In addition, the Series C Warrants provide for protection for a Buy-In on substantially the same terms as described above with respect to the Series C Preferred Stock.  No holder may exercise its Series C Warrants in excess of the Beneficial Ownership Limitation.

Based on the terms of the purchase agreements relating to the issuance and sale of the Series A Units and the Series B Units, respectively, so long as any initial purchaser of Series A Units or Series B Units, as applicable, holds any shares of Series A Preferred Stock or Series B Preferred Stock, respectively, if (a) the Company sells any shares of Common Stock or other securities convertible into, or rights to acquire, Common Stock and (b) a purchaser then holding Series A or Series B Preferred Stock or Warrants reasonably believes that any of the terms and conditions appurtenant to such issuance or sale are more favorable to the purchaser in such subsequent sale of securities than are the terms and conditions granted to such purchaser, then the purchaser will be permitted to require the Company to amend the terms of this transaction (only with respect to such purchaser) so as to match the terms of the subsequent issuance (including, for the avoidance of doubt, any terms and provisions that are or may be less favorable to such purchaser).

Pursuant to the purchase agreements relating to the issuance and sale of the Series A Units and the Series B Units, the Company was required to and did notify the holders of the Series A Preferred Stock and Series B Preferred Stock of the closing of the sale of the Series C Units, and following receipt thereof such holders of Series A Preferred Stock and Series B Preferred Stock will be entitled, pursuant to the “most favored nation” provisions contained in their respective purchase agreements (as described above), to elect to amend the terms of their purchase of Series A Units and Series B Units, respectively, to match the terms of the Series C Units.  The Company is obligated to amend the terms of any of Series A Units or Series B Units who timely makes such election and tenders its Series A Units or Series B Units for exchange.

18

INTEGRITY APPLICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (cont.)

NOTE 3    –    RECENT EVENTS (cont.)

As of June 30, 2017, none of the Series A or B Unit holders asked the company to amend the terms of their Units.

Upon their initial recognition, the Series C Preferred Stock issued together with detachable Series C Warrants (classified as equity) were measured based on the relative fair value basis and were presented net of the direct issuance expenses that were allocated to them.

The Company has determined that, due to the economic characteristics and risks of the Series C Preferred Stock, based on their stated or implied substantive terms and features, such Preferred Stock are considered as more akin to equity than debt.  Accordingly, it was determined that the economic characteristics and the risks of the embedded conversion option to Common Stock and those of the Series C Preferred Stock themselves (the ‘host contract’) are clearly and closely related.  As a result, the embedded conversion feature was not required to be bifurcated.

Since at each of the issuances dates of the Series C Preferred Stock the exercise price of the conversion feature (based on the effective conversion rate of the Series C Preferred Stock into Common Stock) was higher than the estimated fair value of the Company’s Common Stock, it was determined that given the current market price, conversion at the conversion price was not a beneficial transaction.  Also, due to the liquidation preference and certain redemption rights for the benefit of the holders of the Series C Preferred Stock, upon the occurrence of certain contingent events, which are not considered as solely within the Company’s control management determined that the Series C Preferred Stock were to be presented as temporary equity.  On each balance sheet date, the Company’s management assesses the probability of redemption of the outstanding Preferred Stock.  In the event that management determines such redemption to be probable as of an applicable balance sheet date, the Company will reclassify the amount allocated to the preferred stock from temporary equity to liability. In addition, upon such determination, the difference between the amount that was allocated to the Preferred Stock (after deduction of issuance expenses) and the aggregate redemption amount of the Preferred Stock will be accreted over the period beginning on the date that it becomes probable that the instrument will become redeemable and ending on the earliest redemption date.

NOTE 4    –    INVENTORIES

	US dollars
	June 30, 2017		December 31, 2016
	(unaudited)
Raw materials		705,810		735,201
Work in process		794,582		633,132
Finished products		7,920		51,271
		1,508,312		1,419,604

NOTE 5   –    OTHER CURRENT LIABILITIES

	US dollars
	June 30, 2017		December 31, 2016
	(unaudited)
Employees and related institutions		353,250		363,738
Accrued expenses		588,338		261,651
Other current liabilities		15,848		88,160
		957,436		713,549

19

INTEGRITY APPLICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (cont.)

NOTE 6  –   FINANCING INCOME, NET

	US dollars						US dollars
	Six month period ended June 30,						Three month period ended June 30,
	2017			2016			2017			2016
	(unaudited)						(unaudited)
Israeli CPI linkage difference on principal of loans from stockholders		26			(639	)		1,393			825
Exchange rate differences		17,194			24,211			6,720			19,296
Change in fair value of Warrants with down-round protection		(191,075	)		(64,212	)		(106,976	)		(20,702	)
Interest expenses on credit from banks and other		13,687			8,575			7,970			6,149
		(160,168	)		(32,065	)		(90,893	)		5,568

NOTE 7  –   LOSS PER SHARE

In periods of net loss, basic loss per share is computed by dividing net loss for the period after consideration of the effect of dividends on preferred stock by the weighted average number of shares outstanding during the period.

The loss and the weighted average number of shares used in computing basic and diluted loss per share for the six and three month periods ended June 30, 2017 and 2016 are as follows:

	US dollars						US dollars
	Six month period ended June 30,						Three month period ended June 30,
	2017			2016			2017			2016
	(unaudited)						(unaudited)
Loss for the period		(5,087,526	)		(2,815,762	)		(2,557,201	)		(1,588,998	)
Cash dividend on Series A Preferred Stock		(6,714	)		(9,453	)		(2,014	)		(4,753	)
Stock dividend on Series B Preferred Stock		(491,668	)		(254,101	)		(245,637	)		(131,281	)
Stock dividend on Series C Preferred Stock		(276,574	)		(20,355	)		(160,588	)		(20,355	)
Loss for the period attributable to common stockholders		(5,862,482	)		(3,099,671	)		(2,965,440	)		(1,745,387	)

	Number of shares				Number of shares
	Six month period ended June 30,				Three month period ended June 30,
	2017		2016		2017		2016
Number of shares:
Common shares used in computing basic income (loss) per share		6,116,366		5,716,566		6,205,104		5,742,468
Common shares used in computing diluted income (loss) per share		6,116,366		5,716,566		6,203,104		5,742,468
Total weighted average number of common shares related to outstanding convertible Preferred Stock, options and warrants excluded from the calculations of diluted income (loss) per share (*)		19,868,112		11,220,345		21,001,400		12,210,613

(*) All outstanding convertible Preferred Stock, stock options and warrants have been excluded from the calculation of the diluted net loss per share for all the reported periods, because the effect of the common shares issuable as a result of the exercise or conversion of these instruments was determined to be anti-dilutive.

20

INTEGRITY APPLICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (cont.)

NOTE 8   –  SUBSEQUENT EVENTS

On July 31, 2017, the Company, entered into a Securities Purchase Agreement with certain accredited investors pursuant to which, the Company issued to the Purchasers an aggregate of 1,000 Series C Units.  The shares of Preferred Stock comprising the Units are convertible into an aggregate of 222,236 shares of Common Stock, and the Warrants comprising the Units are exercisable for an aggregate of 444,472 shares of Common Stock, in each case subject to certain adjustments.  The Company received aggregate gross proceeds of $1,000,000 from the sale of the Units.

The sale of the Units pursuant to the securities purchase agreement was the twelfth closing of an offering of Units by the Company.  The first, second, third, fourth, fifth, sixth, seventh, eighth, ninth, tenth  and eleventh closings, involving the sale by the Company of an aggregate of 1,133 Units, 1,351 Units, 890.5 Units, 1,050.65 Units, 540 Units, 357.75 Units, 506 Units, 403.9 Units, 2,560 Units, 1,551 Units and 660 Units, respectively (collectively, the “Prior Issuances”), were disclosed by the Company in Current Reports on Form 8-K filed by the Company with the Securities and Exchange Commission (the “SEC”) on April 14, 2016, May 4, 2016, June 6, 2016, July 7, 2016, September 7, 2016, October 7, 2016, December 5, 2016, January 5, 2017, March 14, 2017, May 3, 2017 and June 23, 2017, respectively (collectively, the “Prior 8-Ks”), each of which is incorporated herein by reference.  The terms of the Preferred Stock and the Warrants are the same as the terms of the Preferred Stock and Warrants issued in the Prior Issuances, as described in the Prior 8-Ks.

Pursuant to the Placement Agent Agreement, at the closing of the sale of the Units the Company paid AGI, as a commission, an amount (payable in cash and Common Stock) equal to 10% of the aggregate sales price of the Units, plus a non-accountable expense allowance equal to 3% of the aggregate sales price of the Units.  In addition, pursuant to the AGI Agreement, the Company is required to issue to AGI: (a) 5 year warrants to purchase up to 44,445 shares of Common Stock at an exercise price of $4.50 per share and (b) 5 year warrants to purchase up to 22,223 shares of Common Stock at an exercise price of $7.75 per share.  The terms of these warrants will be substantially similar to the Warrants except that the AGI warrants will also be exercisable on a cashless basis and will include full ratchet anti-dilution protection.

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Item 2.          Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements.  These forward looking statements include statements about our expectations, beliefs or intentions regarding our product development efforts, business, financial condition, results of operations, strategies and prospects.  All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q, including statements regarding our future activities, events or developments, including such things as future revenues, capital raising and financing, product development, clinical trials, regulatory approval, market acceptance, responses from competitors, capital expenditures (including the amount and nature thereof), business strategy and measures to implement strategy, competitive strengths, goals, expansion and growth of our business and operations, plans, references to future success, projected performance and trends, and other such matters, are forward-looking statements.  The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “plan,” “may,” “will,” “could,” “would,” “should” and other similar words and phrases, are intended to identify forward-looking statements.  The forward-looking statements made in this Quarterly Report on Form 10-Q are based on certain historical trends, current conditions and expected future developments as well as other factors we believe are appropriate in the circumstances.  These statements relate only to events as of the date on which the statements are made and we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.  All of the forward-looking statements made in this Quarterly Report on Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to or effects on us or our business or operations.  Whether actual results will conform to our expectations and predictions is subject to a number of risks and uncertainties that may cause actual results to differ materially.  Risks and uncertainties, the occurrence of which could adversely affect our business, include the risks identified under the caption “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2016.  The following discussion should be read in conjunction with the condensed consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q.

Operational Highlights

Regulatory Progress

· Approval for Glucotrack DF-F as a medical device in China is advancing. CFDA (the local regulatory body in China) approval is expected in 2017.

· U.S. Food and Drug Administration (“FDA”) approval activities are moving forward, with the required clinical trial expected to start before the end of 2017. We are in discussions with U.S. clinical and regulatory advisors and trial centers. Study start date is dependent on funding.

· Further EU member state approvals are progressing and may broaden our market entry opportunities.

Commercial Progress

· U.S. pre-launch commercial leadership in place.

· New clinical data presented at the American Diabetes Association Congress on June 12, 2017.

· We plan to be present and present at the European Association for the Study of Diabetes Congress (EASD) in September 2017

· Glucotrack DF-F European launch and commercial strategy re-defined.

Strengthened Intellectual Property

· 3^rd U.S. patent issued on July 27^th, 2017, following issuances in China, South Korea and Israel.

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Lifecycle Management

· Future generations of Glucotrack devices defined and undergoing feasibility studies; including wireless ear-clip, consumer oriented devices, digital health applications, smartphone, tablet and cloud connectivity.

Partnering

· Partnering discussions underway with a number of potential strategic partners in Europe and Asia.

Management Appointments

· David Podwalski appointed Chief Commercial Officer.

Overview

Integrity is a medical device company focused on the design, development and commercialization of non‑invasive glucose monitoring devices for use by people with diabetes and pre-diabetics.  Integrity Israel was founded in 2001 with a mission to develop, produce and market non-invasive glucose monitors for home use by diabetics.  We have developed a non-invasive glucose monitor, the GlucoTrack® model DF-F glucose monitoring device, which is designed to help people with diabetes and individuals with pre-diabetics obtain glucose level readings without the pain, inconvenience, cost and difficulty of conventional (invasive) spot finger stick devices.  The GlucoTrack® model DF-F utilizes a patented combination of ultrasound, electromagnetic and thermal technologies to obtain glucose measurements in less than one minute via a small sensor that is clipped onto one’s earlobe and connected to a small, handheld control and display unit, all without drawing blood or interstitial fluid.

In June 2013, we received initial CE Mark (marking the Company’s declaration that the product meets the requirements of the applicable European Union directives) approval for the GlucoTrack® model DF-F non-invasive glucose monitoring device from DEKRA Certification B.V., our European notified body (the “Notified Body”).  This original approval required that the device be re-calibrated every 30 days, with each such re- calibration taking between 2.5 and 3 hours to complete.  In March 2014, we received CE Mark approval for six months’ calibration validity of the same device.  This approval eliminates the need for monthly re-calibrations, and enables the calibration process to be conducted only when the sensor is replaced, once every 6 months.  We believe that this is a significant feature of the GlucoTrack® model DF-F.  Receipt of the CE Mark allows us to market and sell the GlucoTrack® model DF-F glucose monitoring device in European Union (“EU”) member countries that have adopted the European Medical Device Directive (the “MDD”) without being subject to additional national regulations with regard to demonstration of performance and safety.  However, although the MDD is applicable throughout the EU, in practice it does not ensure uniform regulation throughout the EU.  Accordingly, member countries may apply and enforce the MDD’s terms differently, and certain EU member countries may request or require performance and/or safety data in addition to the MDD’s requirements from time to time, on a case-by-case basis.  The CE Mark also permits the sale in countries that have an MDD Mutual Recognition Agreement with the EU.

On August 31, 2015, we received approval from the Notified Body for improvements to the GlucoTrack® model DF-F to simplify and shorten (from approximately 2.5 hours to approximately half an hour) the initial calibration process for the device.  These improvements are intended to reduce the backlog created as purchasers of the device await calibration.  In addition, we received approval from the Notified Body on the updated intended use for the device, which expands the intended user population to include not only Type 2 diabetics, but also people suffering from pre-diabetes conditions as well, which we believe represents a material expansion of the potential market for the device.  In December 2015, we received approval from the Notified Body for further improvements to the GlucoTrack® model DF-F that increase the accuracy and efficacy of the device.  On February 19, 2016, we received an extension of our ISO 13485:2003 certificate and Annex II certification from the EU.  The ISO 13485:2003 certification signifies that we have met the standards required for company-wide implementation of device quality management system(s).  The scope of the certification is design, development, manufacture and service of non-invasive glucose monitoring systems for home use.  Annex II also addresses quality control systems.  The certification allows us to self-certify certain modifications and changes and simplifies some of the reporting to and review by the relevant Notified Body.  This can shorten the CE-mark review process of future GlucoTrack® model DF-F enhancements or revisions, including software updates and other improvements of the device that do not affect the intended use and/or safety performance.  Without an Annex II certification, each new device enhancement or modified version would be subject to the full EU CE-mark review process.  The ISO 13485:2003 and Annex II certifications enable us to potentially reduce the time to market for product sales on new, enhanced or modified GlucoTrack® model DF-F devices.

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The GlucoTrack® model DF-F has not yet been approved for commercial sale in the United States.  On August 10, 2015, we submitted pre-submission documents to the FDA in connection with our proposed future application for FDA approval of our U.S. clinical trial protocol.  The pre‑submission documentation was submitted to the FDA in order to obtain the FDA’s guidance regarding the U.S. regulatory pathway for the GlucoTrack® model DF-F, the proper approach to refining the trial protocol and preparing the pre-marketing application.  On October 19, 2015, we met with the FDA to discuss the pre-submission documents, including the approach to and details of the clinical trial protocol for the GlucoTrack® model DF-F.  On May 10, 2016, we submitted a pre-submission supplement (including clinical trial protocol) to the FDA which reflects the feedback received from the FDA at our October 2015 meeting.  On July 18, 2016, we completed a teleconference with the FDA to further discuss our pre-submission supplement.  At the end of this discussion, we received verbal confirmation from the FDA that clinical trials of the GlucoTrack® model DF-F constitute non‑significant risk device studies, which allows the trials to proceed without an Investigational Device Exemption (IDE) application.  Such trials are assessed by the FDA and not considered to present a potential for serious risk to the health, safety or the welfare of subjects.  We have identified and are currently negotiating agreements with two diabetes and endocrinology institutions in the United States, as well as prominent endocrinologists to conduct the clinical trials as primary investigators.  Subject to finalizing these agreements and raising adequate financing to do so, we expect to begin clinical trials in the United States in the second half of 2017.

We are continuing to work to improve certain features of the GlucoTrack® model DF-F, such as further simplifying the calibration process and improving the accuracy of the device.  Clinical trials conducted in Germany by Pfutzner Science & Health Institute, GmbH, headed by Prof. Dr. Andreas Pfutzner, on subjects with Type 2 diabetes and pre-diabetics, as well as at Soroka University Medical Center, Beer-Sheva, Israel, demonstrated favorable results, which were presented on November 10, 2016 by the Company at the 16th annual Diabetes Technology Meeting (DTM), Bethesda, MD in an invited presentation.  Most notably, the presentation included data validating that GlucoTrack’s accuracy has increased significantly.  Results from the trials show 99.7% of the study data points within the clinically accepted A and B zones of the Consensus Error Grid (Type 2), 99.3% of the study data points were within the clinically accepted A and B zones of the Clarke Error Grid, 17.0% Mean Absolute Relative Difference, and 12.9% Median Absolute Relative Difference.  In addition, the German trial concluded that the data confirms the performance of the GlucoTrack® among its intended users, including pre-diabetic patients.

In addition, we are developing a wireless module (“WLM”) with embedded Bluetooth Low-Energy (BLE) and Wi-Fi technologies, which we expect will enable transmission of measurement data captured by the GlucoTrack® model DF-F to a cloud based server.  We expect this module and the related applications, if successfully developed, to facilitate sharing, viewing and analysis of GlucoTrack® model DF-F glucose measurements and profile by clinicians and others.

Since receiving CE Mark approval for our GlucoTrack® model DF-F glucose monitoring device, we have expanded our primary focus to include, in addition to research and development activities, preparation for anticipated future mass-production and distribution of the GlucoTrack® model DF-F in EU member countries and other countries that have an MDD Mutual Recognition Agreement with the EU, as well as other countries which consider the CE Mark as a reference for their regulatory or registration requirements.  We have entered into exclusive distribution agreements with more than 15 distributors, and we are continuing negotiations with distributors in additional territories.  The effectiveness of these agreements, in many cases, is subject to the receipt of local regulatory approval or registration, if required, for the commencement of sales of the GlucoTrack® model DF-F in the subject territory.  We cannot provide any assurance that we will receive the required local regulatory approvals in any of the countries in which such approvals are required, and therefore we may never be permitted to commence commercial sales of our products in such territories.  Additional discussions with other potential distributors are also in progress.  Among other jurisdictions, we are in the process of seeking regulatory approval for the GlucoTrack® model DF-F in China where we have a distribution agreement in place and are awaiting local regulatory approval.

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On May 4, 2016 we received regulatory approval from the Korean Ministry of Food and Drug Safety (KMFDS, formerly KFDA) for the GlucoTrack® model DF-F.  In October 2016, we received the final approval from South Korea, which enables us to commence sales of the GlucoTrack® model DF-F in South Korea.  Following the official approval, our local distributor placed an initial order for 100 units of GlucoTrack® model DF‑F, which were fully paid for and delivered during the fourth quarter of 2016.  In South Korea, the GlucoTrack® device is sold with 2 personal ear-clips (“PECs”), so the consumer does not need to incur further expenses to use the device in the first year.  This marketing model may be adopted by other distributors as well.

Based on input from our local distributors and regulatory consultants, we estimate that we could complete the local regulatory approval review process in China during 2017. 

The territories covered by our signed distribution agreements currently represent a potential market opportunity of up to approximately 141 million diagnosed diabetics (inclusive of both Type 1 and Type 2 diabetes patients).  This represents approximately 34% of the potential worldwide market of approximately 414 million people, based on estimates included in the International Diabetes Federation’s (IDF) Diabetes Atlas, 7th edition, 2015.  Of these territories, the territories in which the GlucoTrack® model DF-F has been approved for sale currently represent a potential market opportunity of up to approximately 23 million diagnosed diabetics (inclusive of both Type 1 and Type 2 diabetes patients), or 5.6% of the potential worldwide market.  While we do not have reliable statistics that bifurcate the market opportunity among Type 1 and Type 2 diabetics, we believe that on average approximately 87% of all people suffering from diabetes have Type 2 diabetes.  Apart from the diagnosed patients, approximately 192 million people are estimated to suffer from diabetes that has not yet been diagnosed.  Based on estimates included in the International Diabetes Federation’s (IDF) Diabetes Atlas, 7th edition, 2015, the market opportunity for undiagnosed diabetics is 71 million people in the territories covered by our signed distribution agreements, of which 11 million people are in the territories in which the GlucoTrack® model DF-F has been approved for sale.  Based on the IDF Diabetes Atlas, 7^th edition, 2015, the world prevalence of pre-diabetics was 6.4% of the worldwide population, while the prevalence of diagnosed people with diabetes was 7.7%.

We do not own commercial manufacturing facilities and do not intend to build commercial manufacturing facilities of our own in the foreseeable future.  We currently utilize a third-party manufacturer in Israel to manufacture the GlucoTrack® model DF-F.  In July 2014, we entered into a manufacturing agreement with Wistron Corp. (“Wistron”), a Taiwanese entity and the manufacturing arm of Acer Inc.  Pursuant to such agreement, Wistron has agreed to mass produce and service, on a non-exclusive basis, the GlucoTrack® model DF-F and any future products, if any, introduced by us.  Pursuant to such agreement, Wistron has also agreed to provide full turn-key manufacturing services for the GlucoTrack® model DF- F, including components procurement, unit assembly, device integration, testing, packaging and delivery to customers (distributors).  In November 2015, we sent a delegation to Wistron’s main production facility in Taiwan to, among other things, inspect the readiness of Wistron’s production line for the GlucoTrack® model DF-F.  Wistron has produced a small pilot batch and recently produced a second pilot batch of the GlucoTrack® model DF-F device.  A GMP (Good Manufacturing Practice) audit by the local regulatory authorities in Taiwan was conducted in September 2016 and successfully completed.  The production line for the GlucoTrack® model DF-F is now ready and we expect to receive an official clearance from the Taiwanese authorities shortly.  We intend to utilize the services of both Wistron and the Israeli third-party manufacturer to produce the GlucoTrack® model DF-F.

In support of the commercialization effort, we intend to conduct further post-market clinical trials, as well as publish scientific and clinical studies, case studies, and white papers.  To that end, we have engaged with a leading clinic in Germany, Pfutzner Science & Health Institute, GmbH, headed by Prof. Dr. Andreas Pfutzner, to conduct additional clinical trials on subjects with Type 2 diabetes and pre-diabetics.  We are in negotiations with another site in Israel and anticipate adding additional sites in Europe.

The Company is also seeking and is already engaged in discussions with potential strategic partners, to assist in expanding the Company’s presence and penetration in various markets throughout the world.  In connection with the foregoing, we have approached certain leading companies in the field of diabetes and glucose monitoring, as well as other relevant companies that may have an interest in expanding their fields of interest.  We cannot guarantee that such activities will conclude in positive results to the Company, if any.

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In addition to the improvements to the GlucoTrack® model DF-F described previously, we have also continued to work on additional incremental improvements to the device and the development of new devices and, subject to our raising sufficient funds to do so, intend to continue these efforts throughout 2017.

As part of our commercialization activities, in September 2016, we had a booth at the EASD (European Association for Study of Diabetes) 52nd annual conference in Munich.

In December 2016, we had a poster at the 9th Annual World Congress on Prevention of Diabetes and its Complications (WCPD, Atlanta, GA).  This Congress provided the Company with an opportunity to showcase GlucoTrack® model DF-F as a tool to fight diabetes and its complications, as well as using GlucoTrack® model DF-F as a tool to assist pre-diabetics.

In February 2017, the Company presented at the 10th International Conference on Advanced Technologies & Treatments for Diabetes (ATTD 2017) in Paris, France.  The Company presented key findings including (1) the latest generation GlucoTrack® algorithm, which compensates for the tissue-lagging effect relative to blood glucose changes post-meal intake, significantly improves GlucoTrack® accuracy at different post-prandial (post- meal) states, and equalizes accuracy for pre- and post-meal glucose readings; (2) GlucoTrack® clinical accuracy as measured by Consensus Error Grid (CEG) showed 100% of the pre-prandial readings in the A+B zones, and 98.2% of the post-prandial readings in the A+B zones; (3) GlucoTrack® Model DF-F demonstrates consistent glucose measurement repeatability between different GlucoTrack® devices and on each earlobe of the same subject; (4) the repeatability of different GlucoTrack® devices is similar at all tested glucose ranges and post-prandial time periods; and (5) the GlucoTrack® mean precision absolute relative difference (PARD) of 8.2% is equivalent or better than the independently reported PARD values of commercially available continuous glucose monitoring systems.

On June 12, 2017, we announced new data demonstrating the clinical performance of GlucoTrack®, further supporting its suitability for people with type 2 diabetes across various medication regimes.  The data was recently presented at the American Diabetes Association’s (ADA) 77^th Scientific Sessions in San Diego, CA.

The study evaluated GlucoTrack’s accuracy in 172 adults with type 2 diabetes who were prescribed one or more medications for major medical conditions associated with diabetes.  The experiment stratified participants into five medication groups, focusing on anti-cholesterolemia, anti-hypertension, anti-thrombotic, and anti-diabetic (prolonged duration and short and mixed duration) medications.

We were incorporated in Delaware in May 2010.  On July 15, 2010, we completed a reverse triangular merger with Integrity Israel and Integrity Acquisition Corp. Ltd., an Israeli corporation and a wholly owned subsidiary of ours, pursuant to which Integrity Acquisition Corp. Ltd. merged with and into Integrity Israel and all of the stockholders and option holders of Integrity Israel became entitled to receive shares and options in us in exchange for their shares and options in Integrity Israel (the “Reorganization”).  Following the Reorganization, the former equity holders of Integrity Israel were entitled to the same proportional ownership in us as they had in Integrity Israel prior to the Reorganization.  As a result of the Reorganization, Integrity Israel became a wholly owned subsidiary of ours.  We operate primarily through Integrity Israel.

Our principal offices are located at 19 Ha’Yahalomim St., Ashdod, Israel 7760049 and our telephone number is 972-8-675-7878.  Our website address is http://www.integrity-app.com; the reference to such website address does not constitute incorporation by reference of the information contained on the website and such information should not be considered part of this report.  There is no relationship between us and Integrity Applications, Incorporated, the engineering and software services company based in Chantilly, Virginia.

We have six members on our Board, four of whom are independent.  The Board of Directors has an Audit Committee, Compensation Committee and a Nominating and Corporate Governance Committee, each consisting solely of independent directors, except that Angela Strand, Chairman of the Nominating and Corporate Governance Committee, is not independent as she is an interim executive officer of the Company until September 30, 2017.  We are continuing to consider expansion of the Board of Directors and the establishment of additional appropriate Board of Directors committees to support the Company.

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During 2016 we expanded our advisory board to include renowned key opinion leaders, in order to support the Company’s global clinical, regulatory and commercialization efforts.  The advisory board now comprises seven experts:  Prof. Dr. Lutz Heinemann (Chairman):  CEO, Science & Co, Düsseldorf, Germany; Prof. Irl B. Hirsch:  University of Washington, School of Medicine, WA, USA; Prof. Dr. Michael Heise:  University of Applied Science of South-Westphalia, Iserlohn, Germany; Prof. Jan Bolinder:  Professor of Clinical Diabetes Research at the Department of Medicine, Huddinge, Sweden; Prof. Katharine Barnard:  Health Psychologist, Bournemouth University, Faculty of Health and Social Science, England; Dr. Barry H. Ginsberg:  Diabetes Consultant, DMTC, NJ, USA; and Avner Gal, co-founder and former CEO of the Company.

We have not yet generated any material revenues from our operations and, as of June 30, 2017, have incurred an accumulated deficit of $41,466,658, stockholders’ deficit of $13,366,077 and negative operating cash flows.  We currently have no material sources of recurring revenue and therefore are dependent upon external sources for financing our operations.  There can be no assurance that we will succeed in obtaining the necessary financing to continue our operations.  As a result, substantial doubt exists regarding our ability to continue as a going concern.

Recent Developments

On April 7, 2017, the Board of Directors of the Company (the “Board”) approved an amendment to the 2010 Incentive Compensation Plan of the Company (the “Plan”) to increase the number of shares of the Company’s Common Stock reserved for issuance under the Plan from 1,000,000 shares to 5,625,000 shares.

Effective April 7, 2017 (the “Gal Effective Date”), the Company and Integrity Israel entered into a letter agreement with Avner Gal whereby Mr. Gal separated from his employment and directorship at the Company to act as a part time consultant to the Company (the “Gal Agreement”).  Pursuant to the terms of the Gal Agreement, and as consideration for Mr. Gal’s separation from employment and services as a consultant, the Company agreed, among other things, to (a) pay Mr. Gal an amount equal to his Salary (as defined in the Gal Employment Agreement) and other financial benefits Mr. Gal was entitled to receive under the Employment Agreement entered into by and between Integrity Israel and Mr. Gal in October 2010 (the “Gal Employment Agreement”), that would have been paid to Mr. Gal during the Notice Period (as defined in the Gal Employment Agreement), in lieu of such prior notice; (b) modify the Adjustment Period, pursuant to section 19 of the Gal Employment Agreement, to 24 Salaries (as defined in the Gal Employment Agreement), including all the benefits mentioned in the Gal Employment Agreement, provided Mr. Gal does not work or provide services to a company in direct competition with the Company; (c) accelerate the vesting of 88,259 outstanding unvested options to purchase Common Stock, at an exercise price per share equal to $6.25, held by Mr. Gal as of the Gal Effective Date (since the original performance conditions were not expected to be satisfied as of the date of the modification of the terms, the fair value of such grant was measured based on the fair value of the modified award at the modification date; such amount was measured as approximately $51,000);  (d) extend the term of all outstanding options (vested and unvested) held by Mr. Gal to be exercisable for five years from the Gal Effective Date (with respect to all vested options, at the modification date the company recognized compensation cost in an amount equal to the excess amount of the fair value of the modified award as of the modification date over the fair value of the original award immediately); and (e) grant Mr. Gal an option to purchase up to 300,000 shares of Common Stock of the Company having an exercise price per share equal to $4.50 and an option to purchase up to an additional 50,000 shares of common stock of the Company having an exercise price per share equal to $7.75.  These options vest monthly over a 24 months period following the date of grant.

Effective April 7, 2017, the Company entered into an amendment to the employment agreement (the “Graham Employment Amendment”) with John Graham, whom the Company appointed as Chief Executive Officer on March 20, 2017, to modify the base compensation provision and the equity compensation provision under that certain Employment Agreement, dated March 20, 2017 (the “Graham Effective Date”), by and between the Company and Mr. Graham.

Pursuant to the terms of the Graham Employment Amendment, (a) Mr. Graham’s base compensation was modified such that he receives a base salary of $500,000 per year, as well as a one-time payment of $375,000 paid to Mr. Graham upon commencement of Mr. Graham’s employment with the Company which amount was recognized as an expense as of the employment commencement date, and (b) the vesting periods of Mr. Graham’s options to purchase Common Stock were modified whereby (1) 307,754 shares of Common Stock underlying Mr. Graham’s option to purchase Common Stock at an exercise price of $4.50 per share (the “$4.50 Options”) vested immediately, (2) 923,262 of the $4.50 Options vest on the six month anniversary of the Graham Effective Date, and (3) the remaining 442,980 of the $4.50 Options as well as Mr. Graham’s remaining unvested options granted pursuant to the Graham Employment Amendment vest on the two (2) year anniversary of the Graham Effective Date.

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Effective April 7, 2017, Integrity Israel entered into an amended and restated personal employment agreement (the “Malka Employment Agreement”) with David Malka for his continued service as Vice President of Operations of the Company and Integrity Israel, effective as of March 20, 2017 (the “Malka Effective Date”).  Pursuant to the terms of the Malka Employment Agreement, Mr. Malka (a) receives a base monthly salary of NIS 20,000 (approximately $5,508 based on an exchange rate of 3.63 NIS / 1 USD in effect on August 8, 2017), which may increase to NIS 35,000 per month (approximately $9,639 using the same exchange rate) in the event certain performance milestones are met (the “Malka Base Salary”); (b) is eligible to earn an annual performance bonus between 420-864% of the Malka Base Salary, subject to certain performance criteria to be established by the Board of Directors within the first ninety (90) days of each fiscal year; (c) is eligible to earn a retention bonus equal to 60% of the aggregate Malka Base Salary earned through the one-year anniversary of the Malka Effective Date, payable thirty days following the one-year anniversary of the Malka Effective Date and provided that Mr. Malka remains employed with Integrity Israel through and on the one-year anniversary of the Malka Effective Date; (d) received a modification to the terms of his option to purchase Common Stock at an exercise price per share equal to $6.25 whereby the unvested portion of such options will accelerate and will be immediately exercisable, effective as of the Malka Effective Date (since the original performance conditions were not expected to be satisfied as of the date of the modification of the terms, the fair value of such grant was measured based on the fair value of the modified award at the modification date);  and (e) received certain additional equity awards (pursuant to the Plan) under the terms and conditions as set forth in the Malka Employment Agreement.  In addition, the Malka Employment Agreement provides for the payment of certain social benefits and the use of a company car.  The Malka Employment Agreement is terminable by Integrity Israel and Mr. Malka on 90 days’ prior written notice (the “Malka Notice Period”), without Cause, or immediately by Integrity Israel for Cause (as defined in the Malka Employment Agreement).  Integrity Israel may terminate Mr. Malka’s employment without Cause prior to the expiration of the Malka Notice Period, but will be required to pay Mr. Malka a severance fee equal to the Malka Base Salary plus the financial value of all other benefits Mr. Malka would have been entitled to receive in respect of the portion of the Malka Notice Period which was forfeited.

On May 23, 2017, the Board approved the salary increase to NIS 35,000 per month pursuant to the Malka Employment Agreement, notwithstanding the foregoing performance goal requirement, as consideration for Mr. Malka’s continued service as Vice President of Operations of the Company and Integrity Israel.

On May 4, 2017, the Board of Directors unanimously voted to appoint Angela Strand, a member of the Board of Directors, as the interim Chief Strategy Officer of the Company, effective as of May 1, 2017 through September 30, 2017. On May 5, 2017, the Company entered into a letter agreement (the “Strand Employment Agreement”) with Ms. Angela Strand confirming her appointment as interim Chief Strategy Officer of the Company.  Pursuant to the terms of the Strand Employment Agreement, Ms. Strand receives aggregate compensation of $150,000 for her service during the term of employment, paid monthly on the schedule mutually agreed upon by the parties.

On May 23, 2017, the Board approved the following compensation for all non-employee directors and interim officers serving on the Board:

· an annual cash payment to each non-employee director and interim officer of the Company in the amount of $35,000, payable in four equal quarterly installments of $8,750 each on the last day of each calendar quarter commencing with the fourth quarter of 2017, subject to their continued service as of each such date;

· an additional annual cash payment to each member of a Board committee who is not the Chairperson of that particular committee in the amount of $5,000, payable in four equal quarterly installments of $1,250 each on the last day of each calendar quarter commencing with the second quarter of 2017, subject to their continued service as of each such date;

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· an additional annual cash payment to the chairperson of a Board committee in the amount of $12,500, payable in four equal quarterly installments of $3,125 each on the last day of each calendar quarter commencing with the second quarter of 2017, subject to their continued service as of each such date;

· the grant to each non-employee director and each interim officer of the Company of a one-time award of options to purchase up to an aggregate of 14,894 shares of Common Stock, at an exercise price of $4.50, under and pursuant to the Plan, which options vest in 12 equal monthly increments commencing as of June 1, 2017 (subject to their continued service as of each such date) and have a term of 10 years;

· the grant to each non-employee director and each interim officer of the Company of an award of Restricted Stock Units (“RSUs”), to be granted on June 1, 2017 and vesting on June 1, 2018, with a fair value of $45,000 based on the 30-day volume weighted average price of the Company’s Common Stock on June 1, 2017, subject to their continued service on and through such date; and

· an additional annual fair value payment to the vice chairperson of the Board in the amount of $20,000, payable in RSUs under the same vesting terms.

On May 23, 2017, the Board appointed Michael Hauck to serve as a director of the Company, effective on that date.  The Board further appointed Mr. Hauck to serve as a member of the Nominating and Corporate Governance Committee of the Board as well as on the Compensation Committee of the Board.

There are no arrangements or understandings between Mr. Hauck and any other person pursuant to which Mr. Hauck was selected as a director.  There are no relationships between Mr. Hauck and the Company that would require disclosure under Item 404(a) of Regulation S-K of the Securities Exchange Act of 1934, as amended.

On May 23, 2017, the Board established an Audit Committee of the Board and appointed each of Leslie Seff and Revan Schwartz to serve as members of the committee.  Mr. Schwartz will serve as chairperson of the committee. The Board determined that each of the members of the Audit Committee designated above is independent pursuant to the required standards set forth in Rule 10A-3(b) of the Securities Exchange Act of 1934, as amended, based on an evaluation of the relationships between the Company and each of the members.

On June 7, 2017, the Board appointed David Podwalski as the Chief Commercial Officer of the Company, effective as of June 26, 2017 (the “Podwalski Effective Date”).

On June 7, 2017, the Company entered into an employment agreement (the “CCO Employment Agreement”) with Mr. Podwalski to serve as Chief Commercial Officer of the Company.  Under the CCO Employment Agreement, Mr. Podwalski (1) receives a base salary of $240,000 per year (“Base Salary”); (2) receives a sign-on bonus of $25,000, payable on the six month anniversary of the Podwalski Effective Date, subject to his continued employment through and on such payment date; (3) is eligible to receive an annual performance bonus, having a minimum bonus opportunity equal to 20% of his current Base Salary based upon 80% achievement of performance criteria (the “Minimum Performance Goal”), a target bonus opportunity equal to 25% of his current Base Salary based upon 100% achievement of performance criteria, and a maximum bonus opportunity equal to 37.5% of his current Base Salary based upon 150% achievement of performance criteria (the “Maximum Performance Goal”), provided, however, that such performance bonus will be determined using straight-line interpolation of the level of achievement between the Minimum Performance Goal and the Maximum Performance Goal; and (4)  receive an initial stock option grant to purchase shares of Common Stock equal to 1% of the total fully diluted shares of Common Stock as of the Podwalski Effective Date, with an exercise price of $4.50 per share or the fair market value of a share of Common Stock on the grant date, whichever is greater, vesting monthly over a three year period commencing on the Podwalski Effective Date, subject to his continued employment through and on each such vesting date (the total fair value of the grant as of the Podwalski Effective Date is approximately $270,000).

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The CCO Employment Agreement is terminable by the Company on 90 days written notice and by Mr. Podwalski on 30 days written notice.  The CCO Employment Agreement is immediately terminable by the Company for Cause (as defined in the CCO Employment Agreement) without the payment of severance.  The CCO Employment Agreement contains non-compete obligations applicable during the term of the agreement and for one year thereafter and confidentiality obligations that survive the termination of the agreement indefinitely.

During the six-month period ended June 30, 2017 we raised funds in an aggregate amount of approximately $4.5 million (net of related cash expenses) from the issuance in four separate closings of 5,174.90 units (the “Series C Units”), each consisting of (a) one share of our newly designated Series C 5.5% Convertible Preferred Stock, par value $0.001 per share (the “Series C Preferred Stock”), convertible into shares of our common stock, par value $0.001 per share (“Common Stock”), at an initial conversion price of $4.50 per share, (b) a five year warrant to purchase, at an exercise price of $4.50 per share, up to such number of shares of Common Stock issuable upon conversion of such share of Series C Preferred Stock (each a “Series C-1 Warrant”) and (c) a five year warrant to purchase, at an exercise price of $7.75 per share, up to such number of shares of Common Stock issuable upon conversion of such share of Series C Preferred Stock (each a “Series C-2 Warrant” and, together with the Series C-1 Warrants, collectively, the “Series C Warrants”). During the period between April 2016 and June 2017, the Company raised funds in an aggregate amount of approximately $9.47 million (net of related cash expenses) through the issuance of 11,003.8 Series C Units in eleven separate closings.  As of June 30, 2017, the shares of Series C Preferred Stock comprising the Series C Units are convertible into an aggregate of 2,445,317 shares of Common Stock, and the Series C Warrants comprising the Series C Units are exercisable for an aggregate of 4,890,634 shares of Common Stock, in each case subject to adjustments in certain circumstances.

Pursuant to a placement agent agreement (the “Placement Agent Agreement”) with Andrew Garrett, Inc. (“AGI”), the placement agent for the offering of the Series C Units, at the initial closing of the sale of the Series C Units we paid AGI, as a commission, an amount equal to 6% of the aggregate sales price of the Series C Units, plus 4% of the aggregate sales price as a management fee plus a non-accountable expense allowance equal to 3% of the aggregate sales price of the Series C Units.  At each of the second, third, fourth, fifth, sixth, seventh, eighth, ninth, tenth and eleventh closings of the sale of the Series C Units, we paid AGI, as a commission, an amount equal to 10% of the aggregate sales price of the Series C Units sold in such closing, plus a non-accountable expense allowance equal to 3% of the aggregate sales price of the Series C Units sold in such closing.  In addition, pursuant to the Placement Agent Agreement, we are required to issue to AGI :  (a) 5 year warrants to purchase up to 489,064 shares of Common Stock at an exercise price of $4.50 per share and (b) 5 year warrants to purchase up to 244,531 shares of Common Stock at an exercise price of $7.75 per share.

As a result of the initial issuance and sale of the Series C Units, pursuant to the terms of the warrants issued by us to purchasers of units consisting of shares of its Series A 5% Convertible Preferred Stock (the “Series A Preferred Stock”) and warrants to purchase shares of Common Stock (the “Series A Warrants”), on April 8, 2016, the exercise price per share of the Series A Warrants decreased from $5.80 per share to $4.50 per share and the number of shares of Common Stock issuable upon exercise of each of the Series A Warrants, in the aggregate, increased such that the aggregate exercise price payable thereunder, after taking into account the decrease in the exercise price, will be equal to the aggregate exercise price prior to such adjustment.  Also as a result of the initial issuance and sale of the Series C Units, pursuant to the terms of the certificates of designations for our Series A Preferred Stock and Series B 5.5% Convertible Preferred Stock (the “Series B Preferred Stock”), on April 8, 2016, the conversion price per share of Series A Preferred Stock and Series B Preferred Stock decreased to $4.50 per share.

Significant Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).  In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures.  We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared.  On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with U.S. GAAP.  However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

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Our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies, of the Notes to the Consolidated Financial Statements appearing in our Annual Report on Form 10-K for the year ended December 31, 2016.  Our management believes that, as for the financial statements for the interim periods included in this report, the estimates and assumptions relating to (i) the fair value estimate of the Warrants with down-round protection, (ii) the allocation of the proceeds and the related issuance costs of the Series C Units, and (iii) the going concern assumption are considered critical accounting policies.  However, due to the early stage of operations of the Company, there are no other accounting policies that are considered to be critical accounting policies by management.

Going Concern Uncertainty

The development and commercialization of our product will require substantial expenditures.  We have not yet generated material revenues and have incurred a substantial accumulated deficit and negative operating cash flows.  We currently have no sources of recurring revenue and are therefore dependent upon external sources for financing our operations.  There can be no assurance that we will succeed in obtaining the necessary financing to continue our operations.  Management’s plans concerning these matters are described in Note 1B to our Annual Report on Form 10-K for the year ended December 31, 2016 (see also Note 1B to our interim financial statements for the period ended June 30, 2017). As a result, our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Recently Issued Accounting Pronouncements

1.          Accounting Standards Update 2014-09, “Revenue from Contracts with Customers”

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”).

ASU 2014-09 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.  ASU 2014-09 also requires entities to disclose sufficient information, both quantitative and qualitative, to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

An entity should apply the amendments in ASU 2014-09 using one of the following two methods:  1. Retrospectively to each prior reporting period presented with a possibility to elect certain practical expedients, or, 2. Retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application.  If an entity elects the latter transition method, it also should provide certain additional disclosures.

During 2016, the FASB issued several Accounting Standards Updates (“ASUs”) that focus on certain implementation issues of the new revenue recognition guidance including Narrow-Scope Improvements, Practical Expedients and technical corrections.

In accordance with an amendment to ASU 2014-09, introduced by Accounting Standard 2015-14, “Revenue from contracts with Customers – Deferral of the Effective Date”, for a public entity, the amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period (the first quarter of fiscal year 2018 for the Company).  Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.

The Company intends to adopt ASU 2014-09 as of January 1, 2018.

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The Company is in the process of evaluating the impact of ASU 2014-09 on its revenue streams and selling contracts, if any, and on its financial reporting and disclosures.  Management is expecting to complete the evaluation of the impact of the accounting and disclosure changes on the business processes, controls and systems during 2017.

Since the company did not report significant revenues, management believes that the adoption of ASU 2014-09 will not have a significant impact on its consolidated financial statements.

2.          Accounting Standards Update 2015-11, “Simplifying the Measurement of Inventory”

Effective January 1, 2017, the Group adopted ASU No. 2015-11, Simplifying the Measurement of Inventory (Topic 330) (“ASU 2015- 11”).

ASU 2015-11 outlines that inventory within the scope of its guidance be measured at the lower of cost and net realizable value.  Inventory measured using last-in, first-out (LIFO) and the retail inventory method (RIM) are not impacted by the new guidance.  Prior to the issuance of ASU 2015-11, inventory was measured at the lower of cost or market (where market was defined as replacement cost, with a ceiling of net realizable value and floor of net realizable value less a normal profit margin).

The adoption of ASU 2015-11 did not have a significant effect on the consolidated financial statements.

3.          Accounting Standard Update (ASU) No. 2017-11, “Earnings Per Share”

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480);Derivatives and Hedging (Topic 815):  (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”).

Among others, Part I of ASU 2017-11 simplifies the accounting for certain financial instruments with down round features, which is a provision in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment of the current exercise price based on the price of future equity offerings.  Current accounting guidance creates cost and complexity for organizations that issue financial instruments with down round features by requiring, on an ongoing basis, fair value measurement of the entire instrument or conversion option.

ASU 2017-11 require companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification.  Companies that provide earnings per share (EPS) data will adjust their basic EPS calculation for the effect of the feature when triggered (i.e., when the exercise price of the related equity-linked financial instrument is adjusted downward because of the down round feature) and will also recognize the effect of the trigger within equity.

ASU 2017-11 also addresses navigational concerns within the FASB Accounting Standards Codification related to an indefinite deferral available to private companies.

The provisions of the new ASU related to down rounds are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 (fiscal 2019 for the Company).  Early adoption is permitted for all entities.

The Company is evaluating the impact of ASU 2017-11 on its financial statements.  Although this process has not been completed, managements believes that its provisions might impact the accounting of the financial instruments issued by the Company that include down-round protection.

Results of Operations

The following discussion of our operating results explains material changes in our results of operations for the six-month period ended June 30, 2017 compared with the same period ended June 30, 2016.  The discussion should be read in conjunction with the financial statements and related notes included elsewhere in this report.

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Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016

Revenues

During the six-month period ended June 30, 2017, we had revenues of $104,981 from orders for our GlucoTrack® model DF-F glucose monitoring device and personal ear-clip (“PEC”) that are replaced every six months, as compared with $470,878for the prior-year period.  The decrease in revenues is due primarily to the fact that during the six-month period ended June 30, 2016 we had revenues which resulted from the approval of the Notified Body in late 2015.

We recognize revenues from sales of the GlucoTrack® model DF-F and PECs when delivery has occurred, persuasive evidence of an agreement exists, the fee is fixed and determinable, collectability is reasonably assured and no further obligations exist.

Research and development expenses

Research and development expenses were $1,198,363 for the six-month period ended June 30, 2017, as compared to $1,531,396 for the prior-year period.  The decrease is attributable primarily to the decrease in our cost of revenues, which is in line with the decrease in revenues.

Research and development expenses consist primarily of salaries and other personnel-related expenses, including materials, travel expenses, clinical trials and other expenses.  Subject to the receipt of additional funds to finance our operations (of which there can be no assurance), we expect research and development expenses to increase during the remainder of 2017 and beyond, primarily due to hiring additional personnel and developing our product line, as well as improvement of the GlucoTrack® model DF-F; however, we may adjust or allocate the level of our research and development expenses based on available financial resources and based on our commercial needs including the FDA registration process, specific requirements from customers, development of new GlucoTrack® models and others.

Selling and marketing expenses

Selling and marketing expenses were $598,234 for the six-month period ended June 30, 2017, as compared to $614,121 for the prior-year period.  The decrease is attributable to higher professional fees incurred during 2016 primarily due to the engagement during the second quarter of 2015 of the marketing firm Ogilvy CommonHealth (Paris).  This engagement ended during the fourth quarter of 2016.

Selling and marketing expenses consist primarily of salaries, travel expenses and other related expenses.  Subject to the receipt of additional funds to finance our operations (of which there can be no assurance), we expect selling and marketing expenses to increase during the remainder of 2017 and beyond as we continue our focus on marketing and sales of the GlucoTrack® model DF-F; however, we may adjust or allocate the level of our marketing based on available financial resources and based on our commercial needs including the FDA registration process, specific requirements from customers, development of new GlucoTrack® models and others.

General and administrative expenses

General and administrative expenses were $3,556,078 for the six-month period ended June 30, 2017, as compared to $1,173,188 for the prior-year period.  The increase is primarily attributable to severance paid to our former Chairman and CEO of approximately $162,000 as well as stock-based compensation in the amount of $152,000.  In addition, the increase is attributable to a one time signing bonus of $412,500 including employer payroll taxes and stock-based compensation in the amount of approximately $868,000 paid to our new Chairman and CEO, recruiting fees of $195,000 and the related professional fees associated with the changes in management.  The company also incurred approximately $182,000 related to stock-based compensation and fees paid to our Board members.

 General and administrative expenses consist primarily of professional services, salaries, travel expenses and other related expenses for executive, finance and administrative personnel, including stock-based compensation expenses.  Other general and administrative costs and expenses include facility-related costs not otherwise included in research and development costs and expenses, and professional fees for legal and accounting services.  Subject to the receipt of additional funds to finance our operations (of which there can be no assurance), we expect selling, general and administrative expenses to increase during the remainder of 2017 and beyond.

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Financing income, net

Financing income, net was $160,168 for the six-month period ended June 30, 2017, as compared to $32,065 for the prior-year period.  The change is primarily attributable to changes in fair market value adjustments relating to our Warrants with down-round protection.  In accordance with U.S. GAAP, we mark the warrants to market on a quarterly basis based on the fair value estimate derived by using a binomial pricing model, with the changes in fair value recognized as finance expense or income, as applicable, in our consolidated statement of operations.  The decrease in the estimated fair value of our Warrants with down-round protection during the six-month period ended June 30, 2017 and 2016 amounted to $191,075 and $64,212, respectively, resulting primarily from the decrease in the expected term of Warrants and the changes in the estimated expected volatility.

Net Loss

Net loss was $5,087,526 for the six-month period ended June 30, 2017, as compared to $2,815,762 for the prior-year period.  The increase in net loss is attributable primarily to the increase in our general and administrative expenses, as described above.

Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016

Revenues

During the three-month period ended June 30, 2017, we had revenues of $8,744 from orders for our GlucoTrack® model DF-F glucose monitoring device and PECs that are replaced every six months, as compared with $381,731for the prior-year period.  The decrease in revenues is due primarily to the fact that during the three-month period ended June 30, 2016 we had revenues which resulted from the approval of the Notified Body in late 2015.

We recognize revenues from sales of the GlucoTrack® model DF-F and PECs when delivery has occurred, persuasive evidence of an agreement exists, the fee is fixed and determinable, collectability is reasonably assured and no further obligations exist.

Research and development expenses

Research and development expenses were $616,824 for the three-month period ended June 30, 2017, as compared to $880,696 for the prior-year period.  The decrease is attributable to the decrease in our cost of revenues which is in line with the decrease in revenues.

Research and development expenses consist primarily of salaries and other personnel-related expenses, including materials, travel expenses, clinical trials and other expenses.  Subject to the receipt of additional funds to finance our operations (of which there can be no assurance), we expect research and development expenses to increase during the remainder of 2017 and beyond, primarily due to hiring additional personnel and developing our product line, as well as improvement of the GlucoTrack® model DF-F; however, we may adjust or allocate the level of our research and development expenses based on available financial resources and based on our commercial needs including the FDA registration process, specific requirements from customers, development of new GlucoTrack® models and others.

Selling and marketing expenses

Selling and marketing expenses were $361,295 for the three-month period ended June 30, 2017, as compared to $349,804 for the prior-year period.  The change is not material.

Selling and marketing expenses consist primarily of salaries, travel expenses and other related expenses.  Subject to the receipt of additional funds to finance our operations (of which there can be no assurance), we expect selling and marketing expenses to increase during the remainder of 2017 and beyond as we continue our focus on marketing and sales of the GlucoTrack® model DF-F; however, we may adjust or allocate the level of our marketing based on available financial resources and based on our commercial needs including the FDA registration process, specific requirements from customers, development of new GlucoTrack® models and others.

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General and administrative expenses

General and administrative expenses were $1,678,719 for the three-month period ended June 30, 2017, as compared to $734,661 for the prior-year period.  The increase is primarily attributable to stock-based compensation paid to our current Chairman and CEO and our former Chairman and CEO of approximately $565,000 and $152,000, respectively.  In addition, the company also incurred approximately $81,000 related to stock-based compensation and fees paid to our Board members.

 General and administrative expenses consist primarily of professional services, salaries, travel expenses and other related expenses for executive, finance and administrative personnel, including stock-based compensation expenses.  Other general and administrative costs and expenses include facility-related costs not otherwise included in research and development costs and expenses, and professional fees for legal and accounting services.  Subject to the receipt of additional funds to finance our operations (of which there can be no assurance), we expect selling, general and administrative expenses to increase during the remainder of 2017 and beyond.

Financing income.net

Financing income, net was $90,893 for the three-month period ended June 30, 2017, as compared to a loss of $5,568 for the prior-year period.  The change is primarily attributable to changes in fair market value adjustments relating to our Warrants with down-round protection.  In accordance with U.S. GAAP, we mark the warrants to market on a quarterly basis based on the fair value estimate derived by using a binomial pricing model, with the changes in fair value recognized as finance expense or income, as applicable, in our consolidated statement of operations.  The decrease in the estimated fair value of our Warrants with down-round protection during the three-month period ended June 30, 2017 and 2016 amounted to $106,976 and $20,702, respectively, resulting primarily from the decrease in the expected term of Warrants and the changes in the estimated expected volatility.

Net Loss

Net loss was $2,557,201 for the three-month period ended June 30, 2017, as compared to $1,588,998 for the prior-year period.  The increase in net loss is attributable primarily to the increase in our general and administrative expenses, as described above.

Liquidity and Capital Resources

As of June 30, 2017, cash on hand was approximately $1,133,000.  During the first six months of 2017 we received aggregate net proceeds of approximately $4.5 million (net of related cash expenses) from the issuance and sale of Series C Units.  During the first six months of 2017, we did not collect a material amount in cash proceeds from the fulfillment of orders for our improved GlucoTrack® model DF-F.  While we expect to generate additional cash from sales, we do not anticipate that our income from operations will be sufficient to sustain our operations in the next 12 months.  Based on our current cash burn rate, strategy and operating plan, we believe that our cash and cash equivalents will enable us to operate for a period of less than three months from the date of this report.  In order to fund our anticipated liquidity needs beyond such period (or possibly earlier if our current cash burn rate, strategy or operating plan change in a way that accelerates or increases our liquidity needs), we will need to raise additional capital.

We have a credit line with Bank HaPoalim of NIS 150,000 (approximately $42,906 based on the exchange rate of 3.496 NIS/dollar as of June 30, 2017).  Borrowings under the line of credit are secured by our funds on deposit with the bank at the time of borrowing, which generally must be sufficient to cover the principal amount of the borrowings in full.

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Messrs. Avner Gal and Zvi Cohen collectively loaned Integrity Israel NIS 176,000 ($50,343 based on the same exchange rate) on May 15, 2002 pursuant to Board approval. Messrs. Nir Tarlovsky, Yitzhak Fisher and Asher Kugler loaned Integrity Israel NIS 336,300 ($96,196 based on the same exchange rate) on March 16, 2004.  These loans are not required to be repaid until the first year in which we realize profits in our annual statement of operations (accounting profit).  At such time, the loans are to be repaid on a quarterly basis in an amount equal to 10% of our total sales in the relevant quarter, beginning on the quarter following the first year in which we realize profits in our annual statement of operations.  The total amount to be repaid by us to each lender shall be an amount equal to the aggregate principal amount loaned by such lender to us, plus an amount equal to the product of the amount of each payment made by us in respect of such loan multiplied by the percentage difference between the Israeli Consumer Price Index on the date on which the loan was made and the Israeli Consumer Price Index on the date of such payment.  However, notwithstanding the above-mentioned mechanism, we will not be required to repay the loans during any time when such repayment would cause a deficit in our working capital.  Our Board is entitled to modify the repayment terms of these loans, so long as such modification does not discriminate against any particular lender, and provided that all payments must be allocated among the lenders on a pro-rata basis.

Integrity Israel is required to pay royalties to the Office of the Chief Scientist of the Ministry of Industry, Trade and Labor of the State of Israel at a rate ranging between 3-5% of the proceeds from the sale of the Company’s products arising from the development plan up to an amount equal to $93,300, plus interest at LIBOR from the date of grant.  As of June 30, 2017, the contingent liability with respect to royalty payment on future sales equaled approximately $53,639, excluding interest.

Net Cash Used in Operating Activities for the Six-Month Periods Ended June 30, 2017 and June 30, 2016

Net cash used in operating activities was $3,606,014 and $2,887,167 for the six-month periods ended June 30, 2017 and 2016, respectively. Net cash used in operating activities primarily reflects the net loss for those periods of $5,087,526and $2,815,762, respectively, increased by non-cash changes in fair value of Warrants with down‑round protection of $191,075 and $64,212, respectively and partially offset by the decrease of $1,208,246 related to stock-based compensation as described above in general and administrative expenses. Net cash used in operating activities was also partially offset by changes in operating assets and liabilities in the aggregate amounts of $431,291 and $279,908, respectively.

Net Cash Used in Investing Activities for the Six-Month Periods Ended June 30, 2017 and June 30, 2016

Net cash used in investing activities was $4,489 and $46,397 for the six-month periods ended June 30, 2017, and 2016, respectively, and was used to purchase equipment (such as computers, R&D and office equipment).

Net Cash Provided by Financing Activities for the Six-Month Periods Ended June 30, 2017 and June 30, 2016

Net cash provided by financing activities was $4,520,229 and $3,745,726 for the six-month period ended June 30, 2017 and 2016, respectively.  Cash provided by financing activities for the six-month period ended June 30, 2017 and 2016 reflected net capital raised from the issuance of Series C Units.

Off-Balance Sheet Arrangements

As of June 30, 2017, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

Not required for smaller reporting companies.

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Item 4.   Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2017.  The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”).  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Based on the evaluation of our disclosure controls and procedures as of June 30, 2017, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 6.          Exhibits.

Exhibit No.	Description
3.1	Certificate of Incorporation of Integrity Applications, Inc. (1)
3.2	Certificate of Amendment to Certificate of Incorporation of Integrity Applications, Inc. (1)
3.3	Bylaws of Integrity Applications, Inc. (1)
3.4	Certificate of Designation of Preferences and Rights of Series A 5% Convertible Preferred Stock (2)
3.5	Certificate of Designation of Preferences and Rights of Series B 5.5% Convertible Preferred Stock (3)
3.6	Certificate of Designation of Preferences and Rights of Series C 5.5% Convertible Preferred Stock (4)
4.1	Form of Securities Purchase Agreement (4)
4.2	Form of Series C-1 Common Stock Purchase Warrant (4)
4.3	Form of Series C-2 Common Stock Purchase Warrant (4)
4.4	Form of Registration Rights Agreement (4)
10.1 *	Letter Agreement, effective as of April 7, 2017, among Integrity Applications, Inc., A.D. Integrity Applications Ltd., and Avner Gal (6)
10.2 *	First Amendment to Employment Agreement, effective as of April 7, 2017, between Integrity Applications, Inc. and John Graham (6)
10.3 *	Amended and Restated Personal Employment Agreement, effective as of April 7, 2017, between A.D. Integrity Applications Ltd. and David Malka (6)
10.4 *	Amendment No. 2 to Integrity Applications, Inc. 2010 Incentive Compensation Plan (6)
10.5*	Letter Agreement, effective as of April 7, 2017, among Integrity Applications, Inc. and Angela Strand
10.6*	Personal Employment Agreement between Integrity Applications, Inc. and David Podwalski
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document (7)
101.SCH	XBRL Schema Document (7)
101.CAL	XBRL Calculation Linkbase Document (7)
101.LAB	XBRL Label Linkbase Document (7)
101.PRE	XBRL Presentation Linkbase Document (7)
101.DEF	XBRL Definition Linkbase Document (7)

(1) Previously filed as an exhibit to the Company’s Registration Statement on Form S-1, as filed with the SEC on August 22, 2011, which exhibit is incorporated herein by reference.

(2) Previously filed as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on March 18, 2013, which exhibit is incorporated herein by reference.

(3) Previously filed as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on September 5, 2014, which exhibit is incorporated herein by reference.

(4) Previously filed as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on April 14, 2016, which exhibit is incorporated herein by reference.

(5) Previously filed as an exhibit to the Company’s Annual Report on Form 10-K, as filed with the SEC on March 31, 2017, which exhibit is incorporated herein by reference.

(6) Previously filed as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on April 13, 2017, which exhibit is incorporated herein by reference.

(7) Pursuant to Rule 406T of Regulation S-T, the interactive files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

* Compensation Plan or Arrangement or Management Contract.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated:  August 14, 2017

INTEGRITY APPLICATIONS, INC.

By:          /s/ John Graham          

Name:     John Graham

Title:       Chairman of the Board and Chief Executive Officer

                (Principal Executive Officer)

By:          /s/ John Graham          

Name:     John Graham

Title:       Chairman of the Board and Chief Executive Officer (Principal Executive Officer)

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EXHIBIT INDEX

Exhibit No.	Description
3.1	Certificate of Incorporation of Integrity Applications, Inc. (1)
3.2	Certificate of Amendment to Certificate of Incorporation of Integrity Applications, Inc. (1)
3.3	Bylaws of Integrity Applications, Inc. (1)
3.4	Certificate of Designation of Preferences and Rights of Series A 5% Convertible Preferred Stock (2)
3.5	Certificate of Designation of Preferences and Rights of Series B 5.5% Convertible Preferred Stock (3)
3.6	Certificate of Designation of Preferences and Rights of Series C 5.5% Convertible Preferred Stock (4)
4.1	Form of Securities Purchase Agreement (4)
4.2	Form of Series C-1 Common Stock Purchase Warrant (4)
4.3	Form of Series C-2 Common Stock Purchase Warrant (4)
4.4	Form of Registration Rights Agreement (4)
10.1 *	Letter Agreement, effective as of April 7, 2017, among Integrity Applications, Inc., A.D. Integrity Applications Ltd., and Avner Gal (6)
10.2 *	First Amendment to Employment Agreement, effective as of April 7, 2017, between Integrity Applications, Inc. and John Graham (6)
10.3 *	Amended and Restated Personal Employment Agreement, effective as of April 7, 2017, between A.D. Integrity Applications Ltd. and David Malka (6)
10.4 *	Amendment No. 2 to Integrity Applications, Inc. 2010 Incentive Compensation Plan (6)
10.5*	Letter Agreement, effective as of April 7, 2017, among Integrity Applications, Inc. and Angela Strand
10.6*	Personal Employment Agreement between Integrity Applications, Inc. and David Podwalski
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document (7)
101.SCH	XBRL Schema Document (7)
101.CAL	XBRL Calculation Linkbase Document (7)
101.LAB	XBRL Label Linkbase Document (7)
101.PRE	XBRL Presentation Linkbase Document (7)
101.DEF	XBRL Definition Linkbase Document (7)

(1) Previously filed as an exhibit to the Company’s Registration Statement on Form S-1, as filed with the SEC on August 22, 2011, which exhibit is incorporated herein by reference.

(2) Previously filed as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on March 18, 2013, which exhibit is incorporated herein by reference.

(3) Previously filed as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on September 5, 2014, which exhibit is incorporated herein by reference.

(4) Previously filed as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on April 14, 2016, which exhibit is incorporated herein by reference.

(5) Previously filed as an exhibit to the Company’s Annual Report on Form 10-K, as filed with the SEC on March 31, 2017, which exhibit is incorporated herein by reference.

(6) Previously filed as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on April 13, 2017, which exhibit is incorporated herein by reference.

(7) Pursuant to Rule 406T of Regulation S-T, the interactive files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

* Compensation Plan or Arrangement or Management Contract.

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EX-10.5

Exhibit 10.5

May 1, 2017

John Graham

Chairman and CEO

Integrity Applications

19 Ha’Yahalomim St. Ashdod

ISRAEL

Dear Angela:

This letter confirms your appointment as Integrity Application’s interim Chief Strategy Officer, effective May 1^st, 2017 through September 30^th, 2017. As we discussed, your primary responsibilities include leading the company’s Strategy and Innovation group, as well as identifying and managing external advisors and consultants to deliver a three-year strategy, plan, and financial model. In addition, you will work with me to support fundraising, partnering and investor relations efforts.

Your compensation for the period will be $150,000, paid monthly on the schedule that we have mutually agreed upon. Out of pocket travel expenses will be paid separately on a pre-approved basis.

I look forward to continuing our work together.

Sincerely,

John Graham

CEO and Chairman

Integrity Applications, Inc.

__________________

Angela Strand

EX-10.6

Exhibit 10.6

EMPLOYMENT AGREEMENT

This Employment Agreement (“Agreement”) is made and entered into on this 26^th day of June, 2017 (the “Effective Date”) by and between Integrity Applications, Inc., a Delaware corporation (the “Company”), and David Podwalski (hereinafter, the “Executive”).

W I T N E S S E T H:

WHEREAS, the Company is in the business of development and commercialization of a noninvasive glucose monitoring device and related products; and

WHEREAS, the Company and Executive desire to enter into this Agreement to establish certain terms of Executive’s employment with the Company.

NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are mutually acknowledged, the Company and the Executive hereby agree as follows:

1.             Definitions.  When used in this Agreement, the following terms shall have the following meanings:

(a)           “Accrued Obligations” means:

(i)          all accrued but unpaid Base Salary through the end of the Term of Employment;

(ii)          any unpaid or unreimbursed expenses incurred in accordance with Company policy, including amounts due under Section 5(a) hereof, to the extent incurred during the Term of Employment;

(iii)          any accrued but unpaid benefits provided under the Company’s employee benefit plans, subject to and in accordance with the terms of those plans; and

(iv)          rights to indemnification by virtue of the Executive’s position as an officer or director of the Company or its subsidiaries and the benefits under any directors’ and officers’ liability insurance policy maintained by the Company, in accordance with its terms thereof.

(b)          “Affiliate” means any entity that controls, is controlled by, or is under common control with, the Company.

(c)          “Base Salary” means the salary provided for in Section 4(a) hereof or any increased salary granted to Executive pursuant to Section 4(a) hereof.

(d)          “Board” means the Board of Directors of the Company.

(e)          “Cause” means the good faith and reasonable determination of the Board that the Executive has:

(i)          been grossly negligent or engaged in willful misconduct, fraud, embezzlement, acts of dishonesty or a conflict of interest (to the extent such conflict of interest materially harms the Company), in each case, relating to the affairs of the Company; provided, that “Cause” shall not be deemed to exist under this clause (A) unless Executive has been given written notice specifying the act or omission constituting Cause and Executive has failed to cure such act or omission within thirty (30) days after receiving such notice; provided further, that such notice and cure right shall not be required to be given if the act or omission giving rise to the determination that Cause exists is not, in the reasonable determination of the Board, susceptible of cure;

(ii)          been convicted of or pleaded nolo contendere to any felony crime or been involved in the commission of any act (i) involving (A) misuse or misappropriation of money or other property of Company or (B) repeated use of illegal substances; or (ii) which disparages the business integrity of the Company, its directors, employees or customers, and materially and adversely affects the business reputation of Company; or

(iii)          engaged in a willful violation of any federal or state securities laws.

(f)          “Code” means the Internal Revenue Code of 1986, as amended.

(g)          “Disability” has the meaning set forth in the Company’s long-term disability plan as in effect as of the date on which a “Disability” is claimed hereunder.

(h)          “Good Reason” means

(i)          a material diminution in Executive’s title or responsibilities not otherwise agreed to in writing by Executive;

(ii)          a material reduction in Executive’s Base Salary not otherwise agreed to in writing by Executive;

(iii)          the Company’s failure to satisfy any payment obligation under this Agreement; or

(iv)          a material breach by the Company of this Agreement (other than a failure to satisfy any payment obligation).

A termination for Good Reason hereunder shall not be effective until Executive has first given the Company written notice specifying such act or omission giving rise to the alleged Good Reason event and the Company has failed to cure such act or omission within thirty (30) days after receiving such notice. Executive shall provide the Company with such written notice detailing the specific circumstances alleged to constitute Good Reason within ninety (90) days after the first occurrence of such circumstances, otherwise, any claim of such circumstances as “Good Reason” shall be deemed irrevocably waived by Executive.

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(i)          “Severance Amount” shall mean 50% of the Executive’s Base Salary.

(j)          “Severance Term” means the six month period following the date on which the Term of Employment ends.

(k)          “Term of Employment” means the period during which the Executive shall be employed by the Company pursuant to the terms of this Agreement.

(l)          “Termination Date” means the date on which the Term of Employment ends.

2.             Employment.

(a)           Employment and Term.  The Company hereby agrees to employ the Executive and the Executive hereby agrees to serve the Company during the Term of Employment on the terms and conditions set forth herein.  Executive’s services shall be performed from Executive’s home-based office until such time that the location of the Company's U.S. headquarters has been established.

(b)          Duties of Executive.  During the Term of Employment, the Executive shall be employed and serve as the Chief Commercial Officer of the Company, and shall have such duties typically associated with such title, including, without limitation creating, managing and implementing a successful commercial strategy for the Company on a global level. The Executive shall faithfully and diligently perform all services as may be assigned to him by the Chief Executive Officer (the “CEO”) of the Company or the Board, and shall exercise such power and authority as may from time to time be delegated to him by the CEO or the Board.  The Executive shall devote his full business time, attention and efforts to the performance of his duties under this Agreement, render such services to the best of his ability, and use his reasonable best efforts to promote the interests of the Company.  The Executive shall not engage in any other business or occupation during the Term of Employment, including, without limitation, any activity that (i) conflicts with the interests of the Company or its subsidiaries, (ii) interferes with the proper and efficient performance of his duties for the Company, or (iii) interferes with the exercise of his judgment in the Company’s best interests.  Notwithstanding the foregoing or any other provision of this Agreement, it shall not be a breach or violation of this Agreement for the Executive to (x) serve on corporate, civic or charitable boards or committees, (y) deliver lectures, fulfill speaking engagements or teach at educational institutions, or (z) manage personal investments, so long as such activities do not significantly interfere with or significantly detract from the performance of the Executive’s responsibilities to the Company in accordance with this Agreement.

3.              Term.  The Term of Employment under this Agreement, and the employment of the Executive hereunder, shall commence on June 26, 2017 and shall continue until it is terminated pursuant to the terms set forth herein.

4.             Compensation.

(a)           Base Salary.  The Executive shall receive a Base Salary at the annual rate of Two Hundred Forty Thousand Dollars ($240,000) during the Term of Employment, with such Base Salary payable in installments consistent with the Company’s normal payroll schedule, subject to applicable withholding and other taxes.  The Base Salary shall be reviewed, at least annually, for merit increases and may, by action and in the discretion of the Compensation Committee of the Board, be increased at any time or from time to time.

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(b)           Bonuses and Equity Awards.

(i)          During the Term of Employment, Executive shall be eligible to earn an annual performance bonus (the “Performance Bonus”), having a minimum bonus opportunity equal to 20% of his current Base Salary based upon 80% achievement of performance criteria (the “Minimum Performance Goal”), a target bonus opportunity equal to 25% of his current Base Salary based upon 100% achievement of performance criteria (the “Target Performance Goal”), and a maximum bonus opportunity equal to 37.5% of his current Base Salary based upon 150% achievement of performance criteria (the “Maximum Performance Goal”); provided, however, the Performance Bonus shall be determined using straight-line interpolation if the level of achievement is between the Minimum Performance Goal and the Target Performance Goal, or between the Target Performance Goal and the Maximum Performance Goal.  The performance criteria shall be established by the Board or the Compensation Committee of the Board within the first ninety (90) days of each fiscal year that begins during the Term of Employment.  Payment of any Performance Bonus shall be made based on the Board’s (or the Board’s Compensation Committee’s), as applicable, determination regarding Executive’s satisfaction of the criteria applicable to such Performance Bonus.  If the level of achievement for any fiscal year is less than the Minimum Performance Goal, the Board (or the Board’s Compensation Committee) may elect to pay the Executive such other bonus amount in its sole discretion.  Any payment in respect of a Performance Bonus shall be paid within thirty (30) days following the final determination of the amount of the Performance Bonus to be paid and during the immediately following calendar year to which the Performance Bonus related and provided that the Term of Employment continues through and on such payment date, except as otherwise required herein.

(ii)          Executive is eligible for a Twenty-five Thousand Dollars ($25,000) signing bonus, minus applicable deductions and withholdings, payable on the six-month anniversary of the Effective Date, provided that the Term of Employment continues through and on such payment date.

(iii)          Effective as of the Effective Date, the Company shall grant to Executive options to purchase up to One Percent (1%) of the fully diluted common stock, par value $0.001 per share, of the Company (“Common Stock”) as of the Effective Date, with a per share exercise price equal to the greater of (A) $4.50 per share or (B) the fair market value of a share of Common Stock on the Effective Date, which shall vest in equal monthly installments over a three year period following the Effective Date, subject to the Term of Employment continuing through and on each such vesting date and subject to the terms and conditions set forth in the Stock Option Agreement attached as Exhibit A hereto and made a part hereof, and the provisions of the Company’s Incentive Compensation Plan.

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5.             Expense Reimbursement and Other Benefits.

(a)           Reimbursement of Expenses. Upon the submission of proper substantiation by the Executive, and subject to such rules and guidelines as the Company may from time to time adopt with respect to the reimbursement of expenses of executive personnel, the Company shall reimburse the Executive for all reasonable expenses actually paid or incurred by the Executive during the Term of Employment in the course of and pursuant to the business of the Company.  The Executive shall account to the Company in writing for all expenses for which reimbursement is sought and shall supply to the Company copies of all relevant invoices, receipts or other evidence reasonably requested by the Company.

(b)           Compensation/Benefit Programs.  During the Term of Employment, the Executive shall be entitled to participate in all medical, dental, hospitalization, accidental death and dismemberment, disability, travel and life insurance plans, and any and all other plans as are presently and hereinafter offered by the Company to its personnel, including savings, pension, profit-sharing and deferred compensation plans, subject to the general eligibility and participation provisions set forth in such plans. Until such time as the Company has obtained health insurance coverage, AD&D, and executive level Short and Long Term Disability insurance for its U.S. employees generally, the Company shall reimburse Executive for his out-of-pocket costs to maintain such coverage up to Two Thousand Eighty-three Dollars ($2,083) per month, in accordance with Section 5(a) hereof, and provided that such reimbursement would not cause the Company to incur any penalties under any applicable law (including without limitation, pursuant to Section 2716 of the Public Health Service Act or the Patient Protection and Affordable Care Act).

(c)           Working Facilities.  During the Term of Employment, the Company shall furnish the Executive with an office, secretarial help and such other facilities and services suitable to his position and adequate for the performance of his duties hereunder.

(d)           Other Benefits.  The Executive shall be entitled to twenty-five (25) days of paid vacation each calendar year during the Term of Employment, to be taken at such times as the Executive and the Company shall mutually determine and provided that no vacation time shall significantly interfere with the duties required to be rendered by the Executive hereunder.  Any vacation time not taken by Executive during any calendar year may not be carried forward into any succeeding calendar year, except as may be agreed to in writing by the Chief Executive Officer of the Company in his sole discretion.  The Executive shall receive such additional benefits, if any, as the Board shall from time to time determine.

6.             Termination.

(a)          General.  The Term of Employment shall terminate upon the earliest to occur of (i) the Executive’s death, (ii) a termination by the Company by reason of the Executive’s Disability, (iii) a termination by the Company with or without Cause, or (iv) a termination by Executive with or without Good Reason.  Upon any termination of Executive’s employment for any reason, except as may otherwise be requested by the Company in writing and agreed upon in writing by Executive, the Executive shall resign from any and all directorships, committee memberships or any other positions Executive holds with the Company or any of its subsidiaries.

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(b)          Termination By Company for Cause.  The Company shall at all times have the right, upon written notice to the Executive, to terminate the Term of Employment, for Cause.  In the event that the Term of Employment is terminated by the Company for Cause, Executive shall be entitled only to the Accrued Obligations, payable as and when those amounts would have been payable had the Term of Employment not ended.

(c)          Disability.  The Company shall have the option, in accordance with applicable law, to terminate the Term of Employment upon written notice to the Executive, at any time during which the Executive is suffering from a Disability.  In the event that the Term of Employment is terminated due to the Executive’s Disability, the Executive shall be entitled only to the Accrued Obligations, payable as and when those amounts would have been payable had the Term of Employment not ended.

(d)          Death.  In the event that the Term of Employment is terminated due to the Executive’s death, the Executive shall be entitled only to the Accrued Obligations, payable as and when those amounts would have been payable had the Term of Employment not ended.

(e)          Termination Without Cause.  The Company may terminate the Term of Employment at any time without Cause, by written notice to the Executive not less than ninety (90) days prior to the effective date of such termination.  In the event that the Term of Employment is terminated by the Company without Cause (other than due to the Executive’s death or Disability) the Executive shall be entitled to:

(i)          The Accrued Obligations, payable as and when those amounts would have been payable had the Term of Employment not ended;

(ii)           The Severance Amount, payable for the Severance Term.

(f)          Termination by Executive for Good Reason.  The Executive may terminate the Term of Employment for Good Reason and the Executive shall be entitled to the same payments and benefits as provided in Section 6(e) above for a termination without Cause.

(g)          Termination by Executive Without Good Reason.  The Executive may terminate his employment without Good Reason by providing the Company thirty (30) days’ written notice of such termination.  In the event of a termination of employment by the Executive under this Section 6(g), the Executive shall be entitled only to the Accrued Obligations.  In the event of termination of the Executive’s employment under this Section 6(g), the Company may, in its sole and absolute discretion, by written notice, accelerate such date of termination and still have it treated as a termination without Good Reason.

                (h)          Release.  Any payments due to Executive under this Section 6 (other than the Accrued Obligations) shall be conditioned upon Executive’s execution of a general release of claims in the form attached hereto as Exhibit A (subject to such modifications as the Company reasonably may request) that becomes irrevocable within sixty (60) days of the Termination Date.  Payment of any amounts subject to the Executive’s release shall be delayed until the 61^st day following the Termination Date (the “Payment Commencement Date”) and any payments that are so delayed shall be paid on the Payment Commencement Date.  All payments and benefits provided under Section 6 (other than the Accrued Obligations) shall be forfeited if the Executive does not timely execute (or subsequently revokes) the release within the aforementioned sixty (60) day period.

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(i)          Cooperation.  Following the Term of Employment, the Executive shall give his assistance and cooperation willingly, upon reasonable advance notice with due consideration for his other business or personal commitments, in any matter relating to his position with the Company, or his expertise or experience as the Company may reasonably request, including his attendance and truthful testimony where deemed appropriate by the Company, with respect to any investigation or the Company’s defense or prosecution of any existing or future claims or litigations or other proceedings relating to matters in which he was involved or potentially had knowledge by virtue of his employment with the Company.  In no event shall his cooperation materially interfere with his services for a subsequent employer or other similar service recipient.  To the extent permitted by law, the Company agrees that (i) it shall promptly reimburse the Executive for his reasonable and documented expenses in connection with his rendering assistance and/or cooperation under this Section 6(i) upon his presentation of documentation for such expenses and (ii) the Executive shall be reasonably compensated for any continued material services as required under this Section 6(i).

(j)          Return of Company Property.  Following the Termination Date, the Executive or his personal representative shall return all Company property in his possession, including but not limited to all computer equipment (hardware and software), telephones, facsimile machines, palm pilots and other communication devices, credit cards, office keys, security access cards, badges, identification cards and all copies (including drafts) of any documentation or information (however stored) relating to the business of the Company, its customers and clients or its prospective customers and clients (provided that the Executive may retain a copy the addresses contained in his rolodex, palm pilot, PDA or similar device).

(k)          Compliance with Section 409A.

(i)          General.It is the intention of both the Company and the Executive that the benefits and rights to which the Executive could be entitled pursuant to this Agreement comply with Section 409A of the Code and the Treasury Regulations and other guidance promulgated or issued thereunder (“Section 409A”), to the extent that the requirements of Section 409A are applicable thereto, and the provisions of this Agreement shall be construed in a manner consistent with that intention.  If the Executive or the Company believes, at any time, that any such benefit or right that is subject to Section 409A does not so comply, it shall promptly advise the other and shall negotiate reasonably and in good faith to amend the terms of such benefits and rights such that they comply with Section 409A (with the most limited possible economic effect on the Executive and on the Company).

(ii)          Distributions on Account of Separation from Service.  If and to the extent required to comply with Section 409A, no payment or benefit required to be paid under this Agreement on account of termination of the Executive’s employment shall be made unless and until the Executive incurs a “separation from service” within the meaning of Section 409A.

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(iii)          6 Month Delay for Specified Employees.

(A)          If the Executive is a “specified employee”, then no payment or benefit that is payable on account of the Executive’s “separation from service”, as that term is defined for purposes of Section 409A, shall be made before the date that is six months after the Executive’s “separation from service” (or, if earlier, the date of the Executive’s death) if and to the extent that such payment or benefit constitutes deferred compensation (or may be nonqualified deferred compensation) under Section 409A and such deferral is required to comply with the requirements of Section 409A.  Any payment or benefit delayed by reason of the prior sentence shall be paid out or provided in a single lump sum at the end of such required delay period in order to catch up to the original payment schedule.

(B)          For purposes of this provision, the Executive shall be considered to be a “specified employee” if, at the time of his or her separation from service, the Executive is a “key employee”, within the meaning of Section 416(i) of the Code, of the Company (or any person or entity with whom the Company would be considered a single employer under Section 414(b) or Section 414(c) of the Code) any stock in which is publicly traded on an established securities market or otherwise.

(iv)          No Acceleration of Payments.  Neither the Company nor the Executive, individually or in combination, may accelerate any payment or benefit that is subject to Section 409A, except in compliance with Section 409A and the provisions of this Agreement, and no amount that is subject to Section 409A shall be paid prior to the earliest date on which it may be paid without violating Section 409A.

(v)          Treatment of Each Installment as a Separate Payment. For purposes of applying the provisions of Section 409A to this Agreement, each separately identified amount to which the Executive is entitled under this Agreement shall be treated as a separate payment.  In addition, to the extent permissible under Section 409A, any series of installment payments under this Agreement shall be treated as a right to a series of separate payments.

(vi)          Taxable Reimbursements and In-Kind Benefits.

(A)          Any reimbursements by the Company to the Executive of any eligible expenses under this Agreement that are not excludable from the Executive’s income for Federal income tax purposes (the “Taxable Reimbursements”) shall be made by no later than the last day of the taxable year of the Executive following the year in which the expense was incurred.

(B)          The amount of any Taxable Reimbursements, and the value of any in-kind benefits to be provided to the Executive, during any taxable year of the Executive shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year of the Executive.

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(C)          The right to Taxable Reimbursements, or in-kind benefits, shall not be subject to liquidation or exchange for another benefit.

(vii)          No Guaranty of 409A Compliance.  Notwithstanding the foregoing, the Company does not make any representation to the Executive that the payments or benefits provided under this Agreement are exempt from, or satisfy, the requirements of Section 409A, and the Company shall have no liability or other obligation to indemnify or hold harmless the Executive or any beneficiary of the Executive for any tax, additional tax, interest or penalties that the Executive or any beneficiary of the Executive may incur in the event that any provision of this Agreement, or any amendment or modification thereof, or any other action taken with respect thereto, is deemed to violate any of the requirements of Section 409A.

7.             Restrictive Covenants.

(a)          Noncompetition; Non-solicitation.

(i)          Executive acknowledges that the Company is engaged in a highly competitive business on a world-wide scale and that, by virtue of the position in which Executive is employed, his engaging in or working for or with any business which is directly competitive with the Company would cause the Company great and irreparable harm.  Executive also acknowledges that, by virtue of his/her employment, he has gained or will gain knowledge of the identity, characteristics, and preferences of the Company’s customers, suppliers and other business partners, among other Confidential Information, and that Executive would inevitably have to draw on such Confidential Information if he were to solicit or service the Company’s customers, suppliers and other business partners on behalf of a competing business enterprise.

(ii)          Executive agrees that “Restricted Business” at any date means the goods, products, and/or services of the type provided, marketed, sold, produced and/or developed by the Company during the twelve (12) month period ending on that date for or concerning the development and commercialization of glucose monitoring devices or any technology or software that measures or monitors glucose levels.  The “Territory” for the purposes of this Section 7 shall be anywhere in (x) the World.

(iii)          Accordingly, Executive agrees that during Executive’s employment with Company, whether or not under this Agreement, and thereafter for a period of twelve (12) months (the “Noncompetition Period”), he will not within the Territory:

(A)          directly or indirectly, engage or invest in, own, manage, operate, finance, control or participate in the ownership, management, operation, financing, or control of or be employed by, associated with or in any manner connected with any entity or organization engaged in Restricted Business;

(B)          directly or indirectly approach, advise, solicit or deal with, in competition with the Company, any entity or organization engaged in Restricted Business;

(C)          provide technical, commercial or professional advice to any business or concern engaged in Restricted Business; or

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(D)          interfere or seek to interfere with the supply of any components, materials, goods or services to the Company (or with the terms of any such supply).

(iv)          Executive agrees that during Executive’s employment with Company, whether or not under this Agreement, and thereafter for a period of twenty-four (24) months, he will not within the Territory, directly or indirectly, for the purpose of competing with the Company:

(A)          induce or procure or attempt to induce or procure any person who is on, or was during the twenty-four (24) months preceding, the date of the termination of Executive’s employment with the Company, an officer or key employee of, consultant for or other person under contract to provide services to the Company, to leave his/her/her employment or service with the Company (whether or not that person would commit any breach of his/her or her employment or appointment by reason of leaving the service of the Company); or

(B)          accept into employment or otherwise engage or use the services of any person who is on, or was during the twenty-four (24) months preceding, the date of the termination of Executive’s employment with the Company, an officer or key employee of, consultant for or other person under contract to provide services to the Company.

(v)          Executive agrees that during Executive’s employment with Company and for all time thereafter, he will not disparage the Company, its directors, officers, employees, the Company brand or its products and services.

(b)          Intellectual Property.

(i)          Executive shall disclose promptly to the Company all ideas, inventions, discoveries, improvements, designs, formulae, processes, production methods and technological innovations (which, together with all intellectual property rights that might be available therein including, without limitation, patents, copyrights and trade secrets, shall hereinafter be referred to as “Intellectual Property”), whether or not patentable, which Executive may conceive or make, alone or with others, in connection with his/her employment with the Company from and after the date of this Agreement, whether or not during working hours, and which: (A) relate specifically to the business of the Company; (B) are based on or derived from Executive’s knowledge of the actual or planned business activities of the Company; or (C) are developed using existing Intellectual Property belonging to the Company.

(ii)          Executive shall assign, and does hereby assign, to the Company (and to bind his/her heirs, executors and administrators, to assign to the Company) all Intellectual Property covered by Section 7(b)(i) hereof (collectively, “Company Intellectual Property”).

(iii)          Without further compensation but at the Company’s expense, Executive agrees to give all testimony and execute all patent applications, rights of priority, assignments and other documents, and in general do all lawful things reasonably requested of Executive by the Company to enable the Company to obtain, maintain and enforce its rights to such Company Intellectual Property.

10

(iv)          All of Executive’s work product during his/her employment hereunder and all parts thereof shall be “work made for hire” for the Company within the meaning of the United States Copyright Act of 1976, as amended from time to time, and for all other purposes, and Executive hereby quitclaims and assigns to the Company any and all other rights he may have or acquire therein.  Accordingly, all right, title and interest in any and all materials, or other property, including, without limitation, trademarks, service marks and related rights, whether or not copyrightable, created, developed, adapted, formulated or improved by Executive (whether alone or in conjunction with any other person or employee), constituting Company Intellectual Property shall be owned exclusively by the Company.  Executive will not have or claim to have under this Agreement, or otherwise, any right title or interest of any kind or nature whatsoever in any Company Intellectual Property.

(c)           Confidential Relationship and Confidential Information.

(i)          Confidential Information.  Executive acknowledges that, during the course of his/her employment, he will have access to information relating to the Company’s business that provides the Company with a competitive advantage, that is not generally known by persons not employed by or providing services for the Company and that could not easily be determined or learned by someone outside the Company (“Confidential Information”).  Such Confidential Information includes both written information and information not reduced to writing and includes, without limitation:  (i) the identity of the Company’s customers, suppliers and other business partners and prospective customers, suppliers and other business partners, including names, addresses and phone numbers, the characteristics, preferences and investment strategies of those parties, the types of services provided to and ordered by those third parties; (ii) the Company’s internal corporate policies related to those services, price lists, fee arrangements and terms of dealings with such third parties; (iii) the identity of the Company’s sources in the field and off-site consultants and the terms and conditions on which the Company transacts business with those sources and consultants; (iv) financial and sales information, including the Company’s financial condition and performance and the compensation paid to other employees of the Company; (v) information relating to inventions, discoveries and formulas, records, research and development data, trade secrets, processes, other methods of doing business, forecasts and business and marketing plans of the Company and (vi) all Company Intellectual Property (as hereinafter defined).  Executive acknowledges that the Company has gathered such information at great cost and over time and that such information is not generally known and cannot easily be obtained from publicly available sources.

(ii)          Notwithstanding the foregoing, the term “Confidential Information” shall not include, and Executive shall not have any obligations under this Section 7 with respect to, any information which (i) is or becomes publicly known through no unlawful or other wrongful act or omission by Executive or any other person or entity; (ii) becomes known to Executive from a third party having the legal right to make an unrestricted disclosure without a breach of any obligation of confidentiality to the Company by Executive or such third party; (iii) is  voluntarily disclosed to the public or competitors of the Company by the Company (except where such public disclosure has been made by Executive or another without authorization); or (iv) has been independently developed and disclosed by others, or that otherwise enters the public domain through lawful means.

11

(iii)          Restriction on Use and Disclosure of Confidential Information.  Executive shall, both during and after his/her employment by Company, hold all Confidential Information in a fiduciary capacity.  Executive shall not directly or indirectly use or disclose such Confidential Information except as is (i) necessary for the good faith performance of his/her services for Company, (ii) reasonably necessary, in the opinion of counsel to the Company (or, in respect of claims by the Company against Executive, counsel to Executive), to respond to or defend any claim(s) against Executive or the Company or (iii) required to be disclosed by court order, governmental action, legal process or by applicable law; provided, however, that if disclosure is required under this clause (iii), Executive shall first give written notice thereof to the Company and shall fully cooperate (at the Company’s cost and expense) in the Company’s attempt to obtain a protective order or other waiver or exclusion from the court or other applicable governmental or other authority.

(iv)          Ownership of Confidential Information.  Executive acknowledges that any documents received or created by him during the course of his/her employment with the Company that contains or pertains to Confidential Information are and will remain the sole property of the Company.  Such documents include, without limitation, files, memoranda, correspondence, reports, client records, contact lists and compilations of information, however such information may be recorded and whether on hard copy or on a computer disk, magnetic disk,  CD-ROM, flash drive, or other electronic storage device.  Executive shall return all such documents (including all copies) promptly upon the termination of his/her employment and shall not, during and after his/her employment, disclose those documents to anyone outside the Company or use those documents for any purpose other than the advancement of the Company’s interests, or as reasonably necessary, in the opinion of counsel to the Company (or, in respect of claims by the Company against Executive, counsel to Executive), to respond to or defend any claim(s) against Executive or the Company.

(d)          Release.  Executive acknowledges that the Company may use the image, likeness, voice, or other characteristics of Executive in the services, materials, computer programs, marketing and advertising and other deliverables created or used or distributed by or on behalf of the Company in the course of its business.  Executive hereby consents to the use of such characteristics of Executive by the Company and releases the Company, its directors, officers, employees, agents, contractors, licensees and assigns from any claims which Executive has or may have for invasion of privacy, right of publicity, defamation, copyright infringement, or any other causes of action arising out of the use, adaptation, reproduction, distribution, broadcast, or exhibition of such characteristics.

(e)          Acknowledgment by Executive. The Executive acknowledges and confirms that the restrictive covenants contained in this Section 7 are fair, reasonable, and necessary for the protection of the legitimate business interests of the Company and that the Company will suffer irreparable harm in the event of an actual or threatened breach of any such provision by Executive.  Executive therefore consents to the entry of a restraining order, preliminary injunction, or other court order to enforce such provisions and expressly waives any security that might otherwise be required in connection with such relief.  Executive also agrees that any request for such relief by the Company shall be in addition and without prejudice to any claim for monetary damages which the Company might elect to assert.  Executive agrees that the terms of this Section 7 are in addition to, and not in limitation of, any other restrictive covenants agreed to by Executive with respect to the Company.  For all purposes of this Section 7, the term “Company” means the Company and each of its now existing or hereafter created or acquired or affiliated companies, subsidiaries and parent companies, and their respective successors and assigns.

12

(f)          Reformation by Court.  In the event that a court of competent jurisdiction shall determine that any provision of this Section 7 is invalid or more restrictive than permitted under the governing law of such jurisdiction, then only as to enforcement of this Section 7 within the jurisdiction of such court, such provision shall be interpreted or reformed and enforced as if it provided for the maximum restriction permitted under such governing law.

(g)          Extension of Time.  If the Executive shall be in violation of any provision of this Section 7, then each time limitation set forth in this Section 7 shall be extended for a period of time equal to the period of time during which such violation or violations occur.  If the Company or any its Affiliates seeks injunctive relief from such violation in any court, then the covenants set forth in this Section 7 shall be extended for a period of time equal to the pendency of such proceeding including all appeals by the Executive.

(h)          Injunction.  It is recognized and hereby acknowledged by the parties hereto that a breach by the Executive of any of the covenants contained in Section 7 of this Agreement will cause irreparable harm and damage to the Company, and its Affiliates, the monetary amount of which may be virtually impossible to ascertain.  As a result, the Executive recognizes and hereby acknowledges that the Company and its Affiliates shall be entitled to an injunction from any court of competent jurisdiction enjoining and restraining any violation of any or all of the covenants contained in Section 7 of this Agreement by the Executive or any of his affiliates, associates, partners or agents, either directly or indirectly, and that such right to injunction shall be cumulative and in addition to whatever other remedies the Company may possess.

8.             Representations and Warranties of Executive.  The Executive represents and warrants to the Company that:

(a)          The Executive’s employment will not conflict with or result in his breach of any agreement to which he is a party or otherwise may be bound;

(b)          The Executive has not violated, and in connection with his employment with the Company will not violate, any non-solicitation, non-competition or other similar covenant or agreement of a prior employer by which he is or may be bound; and

(c)          In connection with Executive’s employment with the Company, he will not use any confidential or proprietary information that he may have obtained in connection with employment with any prior employer.

9.             Taxes.  Anything in this Agreement to the contrary notwithstanding, all payments required to be made by the Company hereunder to the Executive or his estate or beneficiaries shall be subject to the withholding of such amounts relating to taxes as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation.  In lieu of withholding such amounts, in whole or in part, the Company may, in its sole discretion, accept other provisions for payment of taxes and withholding as required by law, provided it is satisfied that all requirements of law affecting its responsibilities to withhold have been satisfied.

13

10.          Assignment.  The Company shall have the right to assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any corporation or other entity with or into which the Company may hereafter merge or consolidate or to which the Company may transfer all or substantially all of its assets, if in any such case said corporation or other entity shall by operation of law or expressly in writing assume all obligations of the Company hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Agreement or its rights and obligations hereunder.  The Executive may not assign or transfer this Agreement or any rights or obligations hereunder.

11.          Governing Law.  This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to principles of conflict of laws.

12.          Jurisdiction and Venue.  Each of the parties irrevocably and unconditionally (i) agrees that any suit, action or legal proceeding arising out of or relating to this Agreement which is expressly permitted by the terms of this Agreement to be brought in a court of law, shall be brought in the courts of record of the State of New York in New York County or the federal courts sitting in New York, New York; (ii) consents to the jurisdiction of each such court in any such suit, action or proceeding; (iii) waives any objection which it or he may have to the laying of venue of any such suit, action or proceeding in any of such courts; and (iv) agrees that service of any court papers may be effected on such party by mail, as provided in this Agreement, or in such other manner as may be provided under applicable laws or court rules in such courts.

13.          Entire Agreement.  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and, upon its effectiveness, shall supersede all prior agreements, understandings and arrangements, both oral and written, between the Executive and the Company (or any of its affiliates) with respect to such subject matter.  This Agreement may not be modified in any way unless by a written instrument signed by both the Company and the Executive.

14.          Survival.  The respective rights and obligations of the parties hereunder shall survive any termination of the Executive’s employment hereunder, including without limitation, the Company’s obligations under Section 6 and the Executive’s obligations under Section 7 above, and the expiration of the Term of Employment, to the extent necessary to the intended preservation of such rights and obligations.

15.          Notices.  All notices required or permitted to be given hereunder shall be in writing and shall be personally delivered by courier, sent by registered or certified mail, return receipt requested or sent by confirmed facsimile transmission addressed as set forth herein.  Notices personally delivered, sent by facsimile or sent by overnight courier shall be deemed given on the date of delivery and notices mailed in accordance with the foregoing shall be deemed given upon the earlier of receipt by the addressee, as evidenced by the return receipt thereof, or three (3) days after deposit in the U.S. mail.  Notice shall be sent (i) if to the Company, addressed to Integrity Applications, Inc., Chairman of the Board – John Graham, 19 Ha'Yahalomim Street, P.O. Box 12163, Ashdod, Israel, and (ii) if to the Executive, to his address as reflected on the payroll records of the Company, or to such other address as either party shall request by notice to the other in accordance with this provision.

14

16.          Benefits; Binding Effect.  This Agreement shall be for the benefit of and binding upon the parties hereto and their respective heirs, personal representatives, legal representatives, successors and, where permitted and applicable, assigns, including, without limitation, any successor to the Company, whether by merger, consolidation, sale of stock, sale of assets or otherwise.

17.          Right to Consult with Counsel; No Drafting Party.  The Executive acknowledges having read and considered all of the provisions of this Agreement carefully, and having had the opportunity to consult with counsel of his own choosing, and, given this, the Executive agrees that the obligations created hereby are not unreasonable.  The Executive acknowledges that he has had an opportunity to negotiate any and all of these provisions and no rule of construction shall be used that would interpret any provision in favor of or against a party on the basis of who drafted the Agreement.

18.          Severability.  The invalidity of any one or more of the words, phrases, sentences, clauses, provisions, sections or articles contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being valid in law, and, in the event that any one or more of the words, phrases, sentences, clauses, provisions, sections or articles contained in this Agreement shall be declared invalid, this Agreement shall be construed as if such invalid word or words, phrase or phrases, sentence or sentences, clause or clauses, provisions or provisions,  section or sections or article or articles had not been inserted.  If such invalidity is caused by length of time or size of area, or both, the otherwise invalid provision will be considered to be reduced to a period or area which would cure such invalidity.

19.          Waivers.  The waiver by either party hereto of a breach or violation of any term or provision of this Agreement shall not operate nor be construed as a waiver of any subsequent breach or violation.

20.          Damages; Attorneys Fees.  Nothing contained herein shall be construed to prevent the Company or the Executive from seeking and recovering from the other damages sustained by either or both of them as a result of its or his breach of any term or provision of this Agreement. In the event that either party hereto seeks to collect any damages resulting from, or the injunction of any action constituting, a breach of any of the terms or provisions of this Agreement, then the party found to be at fault shall pay all reasonable costs and attorneys’ fees of the other.

21.          Waiver of Jury Trial.  THE EXECUTIVE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THAT THE EXECUTIVE MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY AGREEMENT, DOCUMENT OR INSTRUMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO.

15

22.          Section Headings.  The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

23.          No Third Party Beneficiary.  Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the Company, the parties hereto and their respective heirs, personal representatives, legal representatives, successors and permitted assigns, any rights or remedies under or by reason of this Agreement.

24.          Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument and agreement.

16

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

COMPANY:

By: _______________________________      

Name: _____________________________          

Title: ______________________________         

EXECUTIVE:

__________________________________

17

EXHIBIT A FORM OF RELEASE

GENERAL RELEASE OF CLAIMS

1.          _______________ (“Executive”), for himself and his family, heirs, executors, administrators, legal representatives and their respective successors and assigns, in exchange for the consideration received pursuant to Section 6 (other than the Accrued Obligations) of the Employment Agreement to which this release is attached as Exhibit A (the “Employment Agreement”), does hereby release and forever discharge _____________________ (the “Company”), its subsidiaries, affiliated companies, successors and assigns, and its current or former directors, officers, employees, shareholders or agents in such capacities (collectively with the Company, the “Released Parties”) from any and all actions, causes of action, suits, controversies, claims and demands whatsoever, for or by reason of any matter, cause or thing whatsoever, whether known or unknown including, but not limited to, all claims under any applicable laws arising under or in connection with Executive’s employment or termination thereof, whether for tort, breach of express or implied employment contract, wrongful discharge, intentional infliction of emotional distress, or defamation or injuries incurred on the job or incurred as a result of loss of employment.  Executive acknowledges that the Company encouraged him to consult with an attorney of his choosing, and through this General Release of Claims encourages him to consult with his attorney with respect to possible claims under the Age Discrimination in Employment Act (“ADEA”) and that he understands that the ADEA is a Federal statute that, among other things, prohibits discrimination on the basis of age in employment and employee benefits and benefit plans.  Without limiting the generality of the release provided above, Executive expressly waives any and all claims under ADEA that he may have as of the date hereof.  Executive further understands that by signing this General Release of Claims he is in fact waiving, releasing and forever giving up any claim under the ADEA as well as all other laws within the scope of this paragraph 1 that may have existed on or prior to the date hereof.  Notwithstanding anything in this paragraph 1 to the contrary, this General Release of Claims shall not apply to (i) any rights to receive any payments or benefits pursuant to Section 6 of the Employment Agreement, (ii) any rights or claims that may arise as a result of events occurring after the date this General Release of Claims is executed, (iii) any indemnification rights Executive may have as a former officer or director of the Company or its subsidiaries or affiliated companies, (iv) any claims for benefits under any directors’ and officers’ liability policy maintained by the Company or its subsidiaries or affiliated companies in accordance with the terms of such policy, and (v) any rights as a holder of equity securities of the Company.

2.          Executive represents that he has not filed against the Released Parties any complaints, charges, or lawsuits arising out of his employment, or any other matter arising on or prior to the date of this General Release of Claims, and covenants and agrees that he will never individually or with any person file, or commence the filing of, any charges, lawsuits, complaints or proceedings with any governmental agency, or against the Released Parties with respect to any of the matters released by Executive pursuant to paragraph 1 hereof (a “Proceeding”); provided, however, Executive shall not have relinquished his right to commence a Proceeding to challenge whether Executive knowingly and voluntarily waived his rights under ADEA.

3.          Executive hereby acknowledges that the Company has informed him that he has up to twenty-one (21) days to sign this General Release of Claims and he may knowingly and voluntarily waive that twenty-one (21) day period by signing this General Release of Claims earlier.  Executive also understands that he shall have seven (7) days following the date on which he signs this General Release of Claims within which to revoke it by providing a written notice of his revocation to the Company.

4.          Executive acknowledges that this General Release of Claims will be governed by and construed and enforced in accordance with the internal laws of the State of Delaware applicable to contracts made and to be performed entirely within such State.

5.          Executive acknowledges that he has read this General Release of Claims, that he has been advised that he should consult with an attorney before he executes this general release of claims, and that he understands all of its terms and executes it voluntarily and with full knowledge of its significance and the consequences thereof.

6.          This General Release of Claims shall take effect on the eighth day following Executive’s execution of this General Release of Claims unless Executive’s written revocation is delivered to the Company within seven (7) days after such execution.

________________________________________

_______________, 20__

A- 2

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OFTHE SECURITIES EXCHANGE ACT OF 1934,AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John Graham, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2017 of Integrity Applications, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:  August 14, 2017

By:          /s/ John Graham          

Name:     John Graham

Title:       Chairman of the Board and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OFTHE SECURITIES EXCHANGE ACT OF 1934,AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Sami Sassoun, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2017 of Integrity Applications, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:  August 14, 2017

By:          /s/ Sami Sassoun          

Name:     Sami Sassoun

Title:       Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Integrity Applications, Inc. (the “Company”) for the six‑month period ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John Graham, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:          /s/ John Graham          

Name:     John Graham

Title:       Chairman of the Board and Chief Executive Officer

Dated:     August 14, 2017

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Integrity Applications, Inc. (the “Company”) for the six‑month period ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sami Sassoun, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:         /s/ Sami Sassoun          

Name:     Sami Sassoun

Title:       Chief Financial Officer

Dated:     August 14, 2017

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Aug. 15, 2017
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2017
Entity Registrant Name	Integrity Applications, Inc.
Entity Central Index Key	0001506983
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		6,381,149

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Current Assets
Cash and cash equivalents	$ 1,132,622	$ 148,836
Accounts receivable, net	130,296	92,061
Inventories	1,508,312	1,419,604
Other current assets	157,868	356,994
Total current assets	2,929,098	2,017,495
Property and Equipment, Net	235,230	240,452
Long-Term Restricted Cash	39,234	35,673
Funds in Respect of Employee Rights Upon Retirement	184,031	167,326
Total assets	3,387,593	2,460,946
Current Liabilities
Accounts payable	1,789,026	1,634,642
Other current liabilities	957,436	713,549
Total current liabilities	2,746,462	2,348,191
Long-Term Liabilities
Long-Term Loans from Stockholders	178,186	162,034
Liability for Employee Rights Upon Retirement	184,030	176,719
Warrants with down-round protection	764,545	681,970
Total long-term liabilities	1,126,761	1,020,723
Total liabilities	3,873,223	3,368,914
Temporary Equity
Total Temporary Equity	12,880,447	10,041,462
Stockholders' Deficit
Common Stock of $ 0.001 par value ("Common Stock"): 40,000,000 shares authorized as of June 30, 2017 and December 31, 2016; 6,381,149 and 6,026,527 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively	6,384	6,028
Additional paid in capital	27,967,185	24,586,142
Accumulated other comprehensive income	127,012	62,576
Accumulated deficit	(41,466,658)	(35,604,176)
Total stockholders' deficit	(13,366,077)	(10,949,430)
Total liabilities, temporary equity and stockholders' deficit	3,387,593	2,460,946
Series A Preferred Stock [Member]
Temporary Equity
Convertible Preferred Stock of $ 0.001 par value ("Preferred Stock")	221,152	221,152
Series B Preferred Stock [Member]
Temporary Equity
Convertible Preferred Stock of $ 0.001 par value ("Preferred Stock")	6,715,844	6,715,844
Series C Preferred Stock [Member]
Temporary Equity
Convertible Preferred Stock of $ 0.001 par value ("Preferred Stock")	$ 5,943,451	$ 3,104,466

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2017	Dec. 31, 2016
Temporary Equity
Common Stock, par value per share	$ 0.001	$ 0.001
Common Stock, shares authorized	40,000,000	40,000,000
Common Stock, shares issued	6,381,149	6,026,527
Common Stock, shares outstanding	6,381,149	6,026,527
Preferred Stock [Member]
Temporary Equity
Convertible Preferred Stock, par value per share	$ 0.001	$ 0.001
Convertible Preferred Stock, shares authorized	10,000,000	10,000,000
Series A Preferred Stock [Member]
Temporary Equity
Convertible Preferred Stock, shares issued	376	376
Convertible Preferred Stock, shares outstanding	376	376
Series B Preferred Stock [Member]
Temporary Equity
Convertible Preferred Stock, shares issued	15,031	15,031
Convertible Preferred Stock, shares outstanding	15,031	15,031
Series C Preferred Stock [Member]
Temporary Equity
Convertible Preferred Stock, shares issued	11,004	5,829
Convertible Preferred Stock, shares outstanding	11,004	5,829

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Income Statement [Abstract]
Revenues	$ 8,744	$ 381,731	$ 104,981	$ 470,878
Research and development expenses	616,824	880,696	1,198,363	1,531,396
Selling and marketing expenses	361,295	349,804	598,234	614,121
General and administrative expenses	1,678,719	734,661	3,556,078	1,173,188
Total operating expenses	2,656,838	1,965,161	5,352,675	3,318,705
Operating loss	2,648,094	1,583,430	5,247,694	2,847,827
Financing income (expenses), net	90,893	(5,568)	160,168	32,065
Loss for the period	2,557,201	1,588,998	5,087,526	2,815,762
Other comprehensive (income) loss:
Foreign currency translation loss (income)	(31,697)	8,063	(64,436)	30,039
Comprehensive loss for the period	$ 2,525,504	$ 1,597,061	$ 5,023,090	$ 2,845,801
Loss per share (Basic and Diluted)	$ (0.48)	$ (0.30)	$ (0.96)	$ (0.54)
Common shares used in computing loss per share (Basic and Diluted)	6,205,104	5,742,468	6,116,366	5,716,566

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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT - 6 months ended Jun. 30, 2017 - USD ($)	Common Stock [Member]	Additional paid in capital [Member]	Accumulated other comprehensive income [Member]	Accumulated deficit [Member]	Total
Balance at Dec. 31, 2016	$ 6,028	$ 24,586,142	$ 62,576	$ (35,604,176)	$ (10,949,430)
Balance, shares at Dec. 31, 2016	6,026,527				6,026,527
Loss for the period of six months				(5,087,526)	$ (5,087,526)
Other comprehensive income			64,436		64,436
Amounts allocated to Series C-1 and Series C-2 Warrants, net		1,404,911			1,404,911
Stock dividend on Series C Preferred Stock	$ 117	276,457		(276,574)
Stock dividend on Series C Preferred Stock, shares	116,354
Stock dividend on Series B Preferred Stock	$ 207	491,461		(491,668)
Stock dividend on Series B Preferred Stock, shares	206,844
Cash dividend on Series A Preferred Stock				(6,714)	(6,714)
Stock-based compensation, shares	32
Stock-based compensation	$ 31,424	1,208,214			1,208,246
Balance at Jun. 30, 2017	$ 6,384	$ 27,967,185	$ 127,012	$ (41,466,658)	$ (13,366,077)
Balance, shares at Jun. 30, 2017	6,381,149				6,381,149

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Cash flows from operating activities:
Loss for the period	$ (5,087,526)	$ (2,815,762)
Adjustments to reconcile loss for the period to net cash used in operating activities:
Depreciation	33,024	27,980
Stock-based compensation	1,208,246	34,297
Remeasurement adjustment of warrants issued to placement agent		211,077
Change in the fair value of Warrants with down-round protection	(191,075)	(64,212)
Linkage difference on principal of loans from stockholders	26	(639)
Changes in assets and liabilities:
(Increase) in accounts receivable	(28,615)	(51,053)
Decrease in inventory	49,255	130,203
Decrease in other current assets	222,952	147,697
(Decrease) increase in accounts payable	26,829	(638,908)
Increase in other current liabilities	171,018	132,153
Decrease in liability for employee rights upon retirement	(10,148)
Net cash used in operating activities	(3,606,014)	(2,887,167)
Cash flows from investing activities:
Purchase of property and equipment	(4,849)	(46,397)
Net cash used in investing activities	(4,849)	(46,397)
Cash flows from financing activities
Cash dividend on Series A Preferred Stock	2,686	(4,753)
Proceeds allocated to Series C Preferred Stock, net of cash issuance expenses	3,022,002	2,508,321
Proceeds allocated to Series C Warrants, net of cash issuance expenses	1,495,541	1,242,158
Net cash provided by financing activities	4,520,229	3,745,726
Effect of exchange rate changes on cash and cash equivalents	74,420	(15,329)
Increase in cash and cash equivalents	983,786	796,833
Cash and cash equivalents at beginning of the period	148,836	608,701
Cash and cash equivalents at end of the period	$ 1,132,622	$ 1,405,534

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2017
Cash dividend	$ 2,014	$ 6,714
Warrants issued as consideration for placement agent services		273,650
Amount of direct issuance expense allocated to Series C-1 and Series C-2 Warrants and recorded as a reduction of additional paid in capital		90,633
Amount of direct issuance expense allocated to Series C Preferred Stock and recorded as a reduction of temporary equity		183,017
Series B Preferred Stock [Member]
Stock dividend		491,668
Series C Preferred Stock [Member]
Stock dividend		$ 276,574
Series A Preferred Stock [Member]
Cash dividend	4,700
Series B and C Preferred Stock [Member]
Stock dividend	$ 406,225
Interest rate	9.00%

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GENERAL

6 Months Ended

Jun. 30, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

GENERAL

NOTE 1   –          GENERAL

A. Integrity Applications, Inc. (the “Company”) was incorporated on May 18, 2010 under the laws of the State of Delaware.  On July 15, 2010, Integrity Acquisition Corp. Ltd. (hereinafter:  “Integrity Acquisition”), a wholly owned Israeli subsidiary of the Company, which was established on May 23, 2010, completed a merger with A.D. Integrity Applications Ltd. (hereinafter:  “Integrity Israel”), an Israeli corporation that was previously held by the stockholders of the Company.  Pursuant to the merger, all equity holders of Integrity Israel received the same proportional ownership in the Company as they had in Integrity Israel prior to the merger.  Following the merger, Integrity Israel remained a wholly-owned subsidiary of the Company.  As the merger transaction constituted a structural reorganization, the merger has been accounted for at historical cost in a manner similar to a pooling of interests.  Integrity Israel was incorporated in 2001 and commenced its operations in 2002.  Integrity Israel, a medical device company, focuses on the design, development and commercialization of non-invasive glucose monitoring devices for use by people with diabetes and pre-diabetes.

B. Going concern uncertainty

Since its incorporation, the Company did not conduct any material operations other than those carried out by Integrity Israel.  The development and commercialization of Integrity Israel’s product is expected to require substantial expenditures.  Integrity Israel and the Company (collectively, the “Group”) have not yet generated significant revenues from operations, and therefore they are dependent upon external sources for financing their operations.  As of June 30, 2017, the Group has incurred an accumulated deficit of $41,466,658, a stockholder’s deficit of $13,366,077 and negative operating cash flows.  Management considered the significance of such conditions in relation to the Group’s ability to meet its current and future obligations and determined that these conditions raise substantial doubt about the Group’s ability to continue as a going concern.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.  To fund its operations the Company has raised funds through the issuance of (a) Series A units (the “Series A Units”) consisting of shares of the Company’s Series A Convertible Preferred Stock (the “Series A Preferred Stock”) and detachable warrants to purchase shares of the Company’s Common Stock (the “Series A Warrants” or “Warrants with down-round protection”) and (b) Series B units (the “Series B Units”), each consisting of (i) one share of the Company’s designated Series B 5.5% Convertible Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”), convertible into Common Stock at an initial conversion price of $5.80 per share, (ii) a five year warrant to purchase, at an exercise price of $5.80 per share, up to such number of shares of Common Stock issuable upon conversion of such share of Series B Preferred Stock (each a “Series B-1 Warrant”) and (iii) a five year warrant to purchase, at an exercise price of $10.00 per share, up to such number of shares of Common Stock issuable upon conversion of such share of Series B Preferred Stock (each a “Series B-2 Warrant” and, together with the Series B-1 Warrants, collectively, the “Series B Warrants”).  Additionally, during the period between April 2016 and June 2017, the Company raised funds in an aggregate amount of approximately $9.47 million (of which amount of approximately $4.52 million was raised during the six-month period ended June 30, 2017) (net of related cash expenses) through the issuance of 11,003.80 units (the “Series C Units”).  Each of the Series C Units consists of (a) one share of the Company’s designated Series C 5.5% Convertible Preferred Stock, par value $0.001 per share (the “Series C Preferred Stock”), convertible into Common Stock at an initial conversion price of $4.50 per share, (b) a five‑year warrant to purchase, at an exercise price of $4.50 per share, up to such number of shares of Common Stock issuable upon conversion of such share of Series C Preferred Stock (each a “Series C-1 Warrant”) and (c) a five-year warrant to purchase, at an exercise price of $7.75 per share, up to such number of shares of Common Stock issuable upon conversion of such share of Series C Preferred Stock (each a “Series C-2 Warrant” and, together with the Series C-1 Warrants, collectively, the “Series C Warrants”), as described in further detail in Note 3.  See also Note 8 regarding issuance of additional Series C Units subsequent to the balance sheet date.

Until such time as the Group generates sufficient revenue to fund its operations (if ever), the Group plans to finance its operations through the sale of equity or equity-linked securities and/or debt securities and, to the extent available, short term and long-term loans.  There can be no assurance that the Group will succeed in obtaining the necessary financing to continue its operations as a going concern.

C. Risk factors

As described in Note 1A and Note 1B above, the Group has a limited operating history and faces a number of risks and uncertainties, including risks and uncertainties regarding continuation of the development process, demand and market acceptance of the Group’s products, the effects of technological changes, competition and the development of products by competitors.  Additionally, other risk factors also exist, such as the ability to manage growth and the effect of planned expansion of operations on the Group’s future results and the availability of necessary financing.  In addition, the Group expects to continue incurring significant operating costs and losses in connection with the development of its products and marketing efforts.  The Group has not yet generated material revenues from its operations to fund its activities and therefore is dependent on the receipt of additional funding from its stockholders and/ or new investors in order to continue its operations.

D. Use of estimates in the preparation of financial statements

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.  As applicable to these consolidated financial statements, the most significant estimates and assumptions relate to (i) the fair value estimate of the Warrants with down-round protection, (ii) the allocation of the proceeds and the related issuance costs of the Series C Units, and (iii) the going concern assumptions.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2    –          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Basis of presentation

Accounting Principles

The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with our consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.  The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) related to interim financial statements.  As permitted under those rules, certain information and footnote disclosures normally required or included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.  The financial information contained herein is unaudited; however, management believes all adjustments have been made that are considered necessary to present fairly the results of the Company’s financial position and operating results for the interim periods.  All such adjustments are of a normal recurring nature.

The results for the three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017 or for any other interim period or for any future period.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiary.  Significant intercompany balances and transactions have been eliminated in consolidation.

B. Warrants with down-round protection

The Company has determined its derivative warrant liability with respect to the remaining Series A Warrants and warrants issued to Andrew Garrett, Inc., (“AGI”) as part of the Series A Unit offering, the Series B Unit offering and the Series C Unit offering to be a Level 3 fair value measurement and has used the Binomial pricing model to calculate its fair value.  Because the warrants contain a down round protection feature, the probability that the exercise price of the warrants would decrease as the stock price decreased was incorporated into the valuation calculations.

The changes in the fair value of the Level 3 liability are as follows (in US dollars):

	Warrants with down-round ProtectionJune 30,
	2017			2016
	(unaudited)
Balance, Beginning of the period		681,970			321,695
Warrants issued as consideration for placement services		273,650			234,008
Amount classified out of stockholders’ deficit and presented as Warrants with down-round protection		-			341,662
Change in fair value Warrants with down-round protection		(191,075	)		(64,212	)
Balance, End of period		764,545			833,153

The key inputs used in the fair value calculations were as follows:

	June 30,
	2017		2016
Dividend yield (%)		-		-
Expected volatility (%) (*)		56.59		62.16
Risk free interest rate (%)		0.92		0.72-1.11
Expected term of options (years)		0.70-4.98		1.70-5.00
Exercise price (US dollars)		4.50, 7.75		4.50, 7.75
Share price (US dollars) (**)		2.38		2.38
Fair value (US dollars)		0.06-0.76		0.61

(*) Due to the low trading volume of the Company’s Common Stock, the expected volatility was based on the historical volatility of the share price of other public companies that operate in the same industry sector as the Company.

(**) The Common Stock price, per share reflects the Company’s management’s estimation of the fair value per share of Common Stock as of June 30, 2017 and 2016.  In reaching its estimation for such periods, management considered, among other things, a valuation prepared by a third-party valuation firm following the issuance of the Series C Units (See Note 3).

C. Recently issued accounting pronouncements

1. Accounting Standards Update 2014-09, “Revenue from Contracts with Customers”

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”).

ASU 2014-09 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.  ASU 2014-09 also requires entities to disclose sufficient information, both quantitative and qualitative, to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

An entity should apply the amendments in ASU 2014-09 using one of the following two methods:  1. Retrospectively to each prior reporting period presented with a possibility to elect certain practical expedients, or, 2. Retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application.  If an entity elects the latter transition method, it also should provide certain additional disclosures.

During 2016, the FASB issued several Accounting Standards Updates (“ASUs”) that focus on certain implementation issues of the new revenue recognition guidance including Narrow-Scope Improvements, Practical Expedients and technical corrections.

In accordance with an amendment to ASU 2014-09, introduced by Accounting Standard 2015-14, “Revenue from contracts with Customers – Deferral of the Effective Date”, for a public entity, the amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period (the first quarter of fiscal year 2018 for the Company).  Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.

The Company intends to adopt ASU 2014-09 as of January 1, 2018.

The Company is in the process of evaluating the impact of ASU 2014-09 on its revenue streams and selling contracts, if any, and on its financial reporting and disclosures.  Management is expecting to complete the evaluation of the impact of the accounting and disclosure changes on the business processes, controls and systems during 2017.

Since the company did not report significant revenues, management believes that the adoption of ASU 2014-09 will not have a significant impact on its consolidated financial statements.

2. Accounting Standards Update 2015-11, “Simplifying the Measurement of Inventory”

Effective January 1, 2017, the Group adopted ASU No. 2015-11, Simplifying the Measurement of Inventory (Topic 330) (“ASU 2015- 11”).

ASU 2015-11 outlines that inventory within the scope of its guidance be measured at the lower of cost and net realizable value.  Inventory measured using last-in, first-out (LIFO) and the retail inventory method (RIM) are not impacted by the new guidance.  Prior to the issuance of ASU 2015-11, inventory was measured at the lower of cost or market (where market was defined as replacement cost, with a ceiling of net realizable value and floor of net realizable value less a normal profit margin).

The adoption of ASU 2015-11 did not have a significant effect on the consolidated financial statements.

3. Accounting Standard Update (ASU) No. 2017-11, “Earnings Per Share”

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815):  (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”).

Among others, Part I of ASU 2017-11 simplifies the accounting for certain financial instruments with down round features, which is a provision in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment of the current exercise price based on the price of future equity offerings.  Current accounting guidance creates cost and complexity for organizations that issue financial instruments with down round features by requiring, on an ongoing basis, fair value measurement of the entire instrument or conversion option.

ASU 2017-11 require companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification.  Companies that provide earnings per share (EPS) data will adjust their basic EPS calculation for the effect of the feature when triggered (i.e., when the exercise price of the related equity-linked financial instrument is adjusted downward because of the down round feature) and will also recognize the effect of the trigger within equity.

ASU 2017-11 also addresses navigational concerns within the FASB Accounting Standards Codification related to an indefinite deferral available to private companies.

The provisions of the new ASU related to down rounds are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 (fiscal 2019 for the Company).  Early adoption is permitted for all entities.

The Company is evaluating the impact of ASU 2017-11 on its financial statements.  Although this process has not been completed, managements believes that its provisions might impact the accounting of the financial instruments issued by the Company that include down-round protection.

D. Reclassified Amounts

Certain prior year amounts have been reclassified for consistency with the current year presentation.  These reclassifications did not have material effect on the reported results of operations, shareholder’s deficit or cash flows.

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RECENT EVENTS

6 Months Ended

Jun. 30, 2017

EVENTS DURING THE REPORTED PERIOD [Abstract]

RECENT EVENTS

NOTE 3    –    RECENT EVENTS

1. On April 7, 2017, the Board of Directors of the Company (the “Board”) approved an amendment to the 2010 Incentive Compensation Plan of the Company (the “Plan”) to increase the number of shares of the Company’s Common Stock reserved for issuance under the Plan from 1,000,000 shares to 5,625,000 shares.

2. Effective April 7, 2017 (the “Gal Effective Date”), the Company and Integrity Israel entered into a letter agreement with Avner Gal whereby Mr. Gal separated from his employment and directorship at the Company to act as a part time consultant to the Company (the “Gal Agreement”).  Pursuant to the terms of the Gal Agreement, and as consideration for Mr. Gal’s separation from employment and services as a consultant, the Company agreed, among other things, to (a) pay Mr. Gal an amount equal to his Salary (as defined in the Gal Employment Agreement) and other financial benefits Mr. Gal was entitled to receive under the Employment Agreement entered into by and between Integrity Israel and Mr. Gal in October 2010 (the “Gal Employment Agreement”), that would have been paid to Mr. Gal during the Notice Period (as defined in the Gal Employment Agreement), in lieu of such prior notice; (b) modify the Adjustment Period, pursuant to section 19 of the Gal Employment Agreement, to 24 Salaries (as defined in the Gal Employment Agreement), including all the benefits mentioned in the Gal Employment Agreement, provided Mr. Gal does not work or provide services to a company in direct competition with the Company; (c) accelerate the vesting of 88,259 outstanding unvested options to purchase Common Stock, at an exercise price per share equal to $6.25, held by Mr. Gal as of the Gal Effective Date (since the original performance conditions were not expected to be satisfied as of the date of the modification of the terms, the fair value of such grant was measured based on the fair value of the modified award at the modification date; such amount was measured as approximately $51,000);  (d) extend the term of all outstanding options (vested and unvested) held by Mr. Gal to be exercisable for five years from the Gal Effective Date (with respect to all vested options, at the modification date the company recognized compensation cost in an amount equal to the excess amount of the fair value of the modified award as of the modification date over the fair value of the original award immediately); and (e) grant Mr. Gal an option to purchase up to 300,000 shares of Common Stock of the Company having an exercise price per share equal to $4.50 and an option to purchase up to an additional 50,000 shares of common stock of the Company having an exercise price per share equal to $7.75.  These options vest monthly over a 24 months period following the date of grant.

3. Effective April 7, 2017, the Company entered into an amendment to the employment agreement (the “Graham Employment Amendment”) with John Graham, whom the Company appointed as Chief Executive Officer on March 20, 2017, to modify the base compensation provision and the equity compensation provision under that certain Employment Agreement, dated March 20, 2017 (the “Graham Effective Date”), by and between the Company and Mr. Graham.

4. Pursuant to the terms of the Graham Employment Amendment, (a) Mr. Graham’s base compensation was modified such that he receives a base salary of $500,000 per year, as well as a one-time payment of $375,000 paid to Mr. Graham upon commencement of Mr. Graham’s employment with the Company which amount was recognized as an expense as of the employment commencement date, and (b) the vesting periods of Mr. Graham’s options to purchase Common Stock were modified whereby (1) 307,754 shares of Common Stock underlying Mr. Graham’s option to purchase Common Stock at an exercise price of $4.50 per share (the “$4.50 Options”) vested immediately, (2) 923,262 of the $4.50 Options vest on the six month anniversary of the Graham Effective Date, and (3) the remaining 442,980 of the $4.50 Options as well as Mr. Graham’s remaining unvested options granted pursuant to the Graham Employment Amendment vest on the two (2) year anniversary of the Graham Effective Date.

5. Effective April 7, 2017, Integrity Israel entered into an amended and restated personal employment agreement (the “Malka Employment Agreement”) with David Malka for his continued service as Vice President of Operations of the Company and Integrity Israel, effective as of March 20, 2017 (the “Malka Effective Date”).  Pursuant to the terms of the Malka Employment Agreement, Mr. Malka (a) receives a base monthly salary of NIS 20,000 (approximately $5,508 based on an exchange rate of 3.63 NIS / 1 USD in effect on August 8, 2017), which may increase to NIS 35,000 per month (approximately $9.639 using the same exchange rate) in the event certain performance milestones are met (the “Malka Base Salary”); (b) is eligible to earn an annual performance bonus between 420-864% of the Malka Base Salary, subject to certain performance criteria to be established by the Board within the first ninety (90) days of each fiscal year; (c) is eligible to earn a retention bonus equal to 60% of the aggregate Malka Base Salary earned through the one-year anniversary of the Malka Effective Date, payable thirty days following the one-year anniversary of the Malka Effective Date and provided that Mr. Malka remains employed with Integrity Israel through and on the one-year anniversary of the Malka Effective Date; (d) received a modification to the terms of his option to purchase Common Stock at an exercise price per share equal to $6.25 whereby the unvested portion of such options will accelerate and will be immediately exercisable, effective as of the Malka Effective Date (since the original performance conditions were not expected to be satisfied as of the date of the modification of the terms, the fair value of such grant was measured based on the fair value of the modified award at the modification date);  and (e) received certain additional equity awards (pursuant to the Plan) under the terms and conditions as set forth in the Malka Employment Agreement.  In addition, the Malka Employment Agreement provides for the payment of certain social benefits and the use of a company car.  The Malka Employment Agreement is terminable by Integrity Israel and Mr. Malka on 90 days’ prior written notice (the “Malka Notice Period”), without Cause, or immediately by Integrity Israel for Cause (as defined in the Malka Employment Agreement).  Integrity Israel may terminate Mr. Malka’s employment without Cause prior to the expiration of the Malka Notice Period, but will be required to pay Mr. Malka a severance fee equal to the Malka Base Salary plus the financial value of all other benefits Mr. Malka would have been entitled to receive in respect of the portion of the Malka Notice Period which was forfeited.

On May 23, 2017, the Board approved the salary increase to NIS 35,000 per month pursuant to the Malka Employment Agreement, notwithstanding the foregoing performance goal requirement, as consideration for Mr. Malka’s continued service as Vice President of Operations of the Company and Integrity Israel.

6. On May 4, 2017, the Board unanimously voted to appoint Angela Strand, a member of the Board, as the interim Chief Strategy Officer of the Company, effective as of May 1, 2017 through September 30, 2017. On May 5, 2017, the Company entered into a letter agreement (the “Strand Employment Agreement”) with Ms. Angela Strand confirming her appointment as interim Chief Strategy Officer of the Company.  Pursuant to the terms of the Strand Employment Agreement, Ms. Strand receives aggregate compensation of $150,000 for her service during the term of employment, paid monthly on the schedule mutually agreed upon by the parties.

7. On May 23, 2017, the Board approved the following compensation for all non-employee directors and interim officers serving on the Board:

a. an annual cash payment to each non-employee director and interim officer of the Company in the amount of $35,000, payable in four equal quarterly installments of $8,750 each on the last day of each calendar quarter commencing with the fourth quarter of 2017, subject to their continued service as of each such date;

b. an additional annual cash payment to each member of a Board committee who is not the Chairperson of that particular committee in the amount of $5,000, payable in four equal quarterly installments of $1,250 each on the last day of each calendar quarter commencing with the second quarter of 2017, subject to their continued service as of each such date;

c. an additional annual cash payment to the chairperson of a Board committee in the amount of $12,500, payable in four equal quarterly installments of $3,125 each on the last day of each calendar quarter commencing with the second quarter of 2017, subject to their continued service as of each such date;

d. the grant to each non-employee director and each interim officer of the Company of a one-time award of options to purchase up to an aggregate of 14,894 shares of Common Stock, at an exercise price of $4.50, under and pursuant to the Plan, which options vest in 12 equal monthly increments commencing as of June 1, 2017 (subject to their continued service as of each such date) and have a term of 10 years;

e. the grant to each non-employee director and each interim officer of the Company of an award of Restricted Stock Units (“RSUs”), to be granted on June 1, 2017 and vesting on June 1, 2018, with a fair value of $45,000 based on the 30-day volume weighted average price of the Company’s Common Stock on June 1, 2017, subject to their continued service on and through such date; and

f. an additional annual fair value payment to the vice chairperson of the Board in the amount of $20,000, payable in RSUs under the same vesting terms.

8. On May 23, 2017, the Board appointed Michael Hauck to serve as a director of the Company, effective on that date.  The Board further appointed Mr. Hauck to serve as a member of the Nominating and Corporate Governance Committee of the Board as well as on the Compensation Committee of the Board.

There are no arrangements or understandings between Mr. Hauck and any other person pursuant to which Mr. Hauck was selected as a director.  There are no relationships between Mr. Hauck and the Company that would require disclosure under Item 404(a) of Regulation S-K of the Securities Exchange Act of 1934, as amended.

9. On May 23, 2017, the Board established an Audit Committee of the Board and appointed each of Leslie Seff and Revan Schwartz to serve as members of the committee.  Mr. Schwartz will serve as chairperson of the committee. The Board determined that each of the members of the Audit Committee designated above is independent pursuant to the required standards set forth in Rule 10A-3(b) of the Securities Exchange Act of 1934, as amended, based on an evaluation of the relationships between the Company and each of the members.

10. On June 7, 2017, the Board appointed David Podwalski as the Chief Commercial Officer of the Company, effective as of June 26, 2017 (the “Podwalski Effective Date”).

On June 7, 2017, the Company entered into an employment agreement (the “CCO Employment Agreement”) with Mr. Podwalski to serve as Chief Commercial Officer of the Company.  Under the CCO Employment Agreement, Mr. Podwalski (1) receives a base salary of $240,000 per year (“Base Salary”); (2) receives a sign-on bonus of $25,000, payable on the six month anniversary of the Podwalski Effective Date, subject to his continued employment through and on such payment date; (3) is eligible to receive an annual performance bonus, having a minimum bonus opportunity equal to 20% of his current Base Salary based upon 80% achievement of performance criteria (the “Minimum Performance Goal”), a target bonus opportunity equal to 25% of his current Base Salary based upon 100% achievement of performance criteria, and a maximum bonus opportunity equal to 37.5% of his current Base Salary based upon 150% achievement of performance criteria (the “Maximum Performance Goal”), provided, however, that such performance bonus will be determined using straight-line interpolation of the level of achievement between the Minimum Performance Goal and the Maximum Performance Goal; and (4) receive an initial stock option grant to purchase shares of Common Stock equal to 1% of the total fully diluted shares of Common Stock as of the Podwalski Effective Date, with an exercise price of $4.50 per share or the fair market value of a share of Common Stock on the grant date, whichever is greater, vesting monthly over a three year period commencing on the Podwalski Effective Date, subject to his continued employment through and on each such vesting date (the total fair value of the grant as of the Podwalski Effective Date is approximately $270,000).

The CCO Employment Agreement is terminable by the Company on 90 days written notice and by Mr. Podwalski on 30 days written notice.  The CCO Employment Agreement is immediately terminable by the Company for Cause (as defined in the CCO Employment Agreement) without the payment of severance.  The CCO Employment Agreement contains non-compete obligations applicable during the term of the agreement and for one year thereafter and confidentiality obligations that survive the termination of the agreement indefinitely.

Between April 2016 and December 31, 2016, and during the first six months of 2017, the Company received aggregate net proceeds of approximately $4.9 million and $4.5 million, respectively (net of related cash expenses), from the issuance and sale in a private placement transaction, at a price of $1,000 per unit, of 11,003.80 Series C Units.  As of June 30, 2017, the shares of Series C Preferred Stock comprising the Series C Units are convertible into an aggregate of 2,445,317 shares of Common Stock, and the Series C Warrants comprising the Series C Units are exercisable for an aggregate of 4,890,634 shares of Common Stock, in each case subject to adjustment in certain circumstances.

Pursuant to a placement agent agreement (the “Placement Agent Agreement”) with AGI, at the initial closing of the sale of the Series C Units, the Company paid AGI, as a commission, an amount equal to 6% of the aggregate sales price of the Series C Units, plus 4% of the aggregate sales price as a management fee plus a non-accountable expense allowance equal to 3% of the aggregate sales price of the Series C Units.  At the end of the second, third, fourth, fifth, sixth, seventh, eighth, ninth, tenth and eleventh closings of the sale of the Series C Units, the Company paid AGI, as a commission, an amount equal to 10% of the aggregate sales price of the Series C Units sold in such closing, plus a non-accountable expense allowance equal to 3% of the aggregate sales price of the Series C Units sold in such closing.  In addition, pursuant to the Placement Agent Agreement, the Company is required to issue to AGI: (a) 5-year warrants to purchase up to 489,064 shares of Common Stock at an exercise price of $4.50 per share and (b) 5 year warrants to purchase up to 244,531 shares of Common Stock at an exercise price of $7.75 per share.  The terms of such warrants are substantially similar to the Series C Warrants except that the warrants issued to AGI are exercisable on a cashless basis and include full ratchet anti-dilution protection.

Following below is a summary of the entire series C issuances:

	Year ended December 31, 2016		Six month period ended June 30, 2017
	Thousands of U.S. $ (except units sold) (unaudited)
Number of units sold		5,828.9		5,174.9
Gross amount		5,829		5,175
Net of related cash expenses		4,951		4,520
Net amount		4,642		4,246

Subject to certain ownership limitations described below, the Series C Preferred Stock are convertible at the option of the holder at any time and from time to time into shares of Common Stock at a conversion price of $4.50 per share (calculated by dividing the stated value per share of Preferred Stock, which is initially $1,000, by the conversion price per share).  The conversion price of the Series C Preferred Stock is subject to adjustment for certain issuances of Common Stock or other securities of the Company at an effective price per share that is lower than the conversion price then in effect, as well as for stock splits, stock dividends, combinations of shares, similar recapitalization transactions and certain pro-rata distributions to common stockholders.  In addition, the holders of Preferred Stock will be entitled to receive any securities or rights to acquire securities or property granted or issued by the Company pro rata to the holders of Common Stock to the same extent as if such holders had converted all of their shares of Series C Preferred Stock prior to such distribution.  In the event of a fundamental transaction, such as a merger, consolidation, sale of substantially all assets and similar reorganizations or recapitalizations of the Company, the holders of Series C Preferred Stock will be entitled to receive, upon conversion of their shares of Series C Preferred Stock, any securities or other consideration received by the holders of the Common Stock pursuant to the fundamental transaction.

Holders of Series C Preferred Stock are entitled to receive cumulative dividends at a rate of 5.5% per annum, based on the stated value per share of Series C Preferred Stock.  Dividends on the Series C Preferred Stock are payable quarterly on March 31, June 30, September 30 and December 31 of each year, beginning on June 30, 2016, and on each conversion date (with respect to the shares of Preferred Stock being converted).  For so long as required under the terms of the certificate of designations for the Company’s outstanding Series A Preferred Stock or Series B Preferred Stock, dividends will be payable only in shares of Common Stock.  Thereafter, dividends on the Series C Preferred Stock will be payable, at the option of the Company, in cash and/or, if certain conditions are satisfied, shares of Common Stock or a combination of both.  Shares of Common Stock issued as payment of dividends will be valued at the lower of (a) the then current conversion price of the Series C Preferred Stock or (b) the average of the volume weighted average price for the Common Stock on the principal trading market therefor for the 10 trading days immediately prior to the applicable dividend payment date.  The Company will incur a late fee of 9% per annum, payable in cash, on dividends that are not paid within three trading days of the applicable dividend payment date.

Subject to any limitations under the terms of the certificate of designations for the Company’s outstanding Series A Preferred Stock or Series B Preferred Stock, the Company may become obligated to redeem the Series C Preferred Stock in cash upon the occurrence of certain triggering events, including, among others, a material breach by the Company of certain contractual obligations to the holders of the Series C Preferred Stock, the occurrence of a change in control of the Company, the occurrence of certain insolvency events relating to the Company, or the failure of the Common Stock to continue to be listed or quoted for trading on one or more specified United States securities exchanges or a regulated quotation service.  In addition, upon the occurrence of certain triggering events, each holder of Series C Preferred Stock will have the option to require the Company to redeem such holder’s shares of Preferred Stock for a redemption price payable in shares of Common Stock or receive an increased dividend rate of 9% on all of such holder’s outstanding Series C Preferred Stock.

Subject to certain conditions contained in the Certificate of Designations, Preferences and Rights relating to the Series C Preferred Stock (the “Certificate of Designations”), the Company will have the option to force the conversion of the Series C Preferred Stock (in whole or in part) if (a) the volume weighted average price for the Common Stock on its principal trading market exceeds $7.00 for each of any 20 trading days during any 30 consecutive trading day period and the average daily dollar trading value for the Common Stock during such 30 day period exceeds $50,000 or (b) the Company receives approval to list the Common Stock on a national securities exchange.

Subject to certain exceptions contained in the Certificate of Designations, if the Company fails to timely deliver certificates for shares of Common Stock issuable upon conversion of the Series C Preferred Stock (the “Conversion Shares”) and, as a result, the holder is required by its brokerage firm to purchase shares of Common Stock to deliver in satisfaction of a sale by such holder of the Conversion Shares (a “Buy-In”), the Company will be required to:  (a) pay the converting holder in cash an amount equal to the amount, if any, by which such holder’s total purchase price (including any brokerage commissions) for the shares of Common Stock so purchased exceeds the product of (i) the aggregate number of Conversion Shares due to the holder, multiplied by (ii) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions); and (b) at the option of such holder, either reissue (if surrendered) the shares of Series C Preferred Stock equal to the number of shares of Series C Preferred Stock submitted for conversion (in which case, such conversion will be deemed rescinded) or deliver to such holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements.  In addition, the Company will be required to pay partial liquidated damages of $10 for each $1,000 of stated value of any shares of Series C Preferred Stock which have been converted by a holder and in respect of which the Company fails to deliver Conversion Shares by the fifth trading day following the applicable conversion date and the Company will continue to pay such partial liquidated damages for each trading day after such eighth trading day until such certificates are delivered or the holder rescinds such conversion.

As long as at least 35% of the originally issued shares of Series C Preferred Stock are outstanding, without the written consent of the holders of a majority in stated value of the outstanding Series C Preferred Stock, the Company will not be permitted to, among other things, incur indebtedness or liens not permitted under the Certificate of Designations; repay, repurchase, pay dividends on or otherwise make distributions in respect of any shares of Common Stock or other securities junior to the Series C Preferred Stock; enter into certain transactions with affiliates of the Company; or enter into any agreement with respect to the foregoing.

Subject to the beneficial ownership limitation described below, holders of Series C Preferred Stock will vote together with the holders of Common Stock, Series A Preferred Stock and Series B Preferred Stock on an as‑converted basis.  Holders will not be permitted to convert their Series C Preferred Stock if such conversion would cause such holder to beneficially own more than 4.99% of the outstanding Common Stock (subject to increase to 9.99%, at the option of the holder, upon no less than 61 days prior written notice to the Company) (the “Beneficial Ownership Limitation”).  In addition, no holder may vote any shares of Series C Preferred Stock (on an as-converted to Common Stock basis) in excess of the Beneficial Ownership Limitation.

Subject to certain limitations, so long as any purchaser holds any shares of Series C Preferred Stock, if (a) the Company sells any shares of Common Stock or other securities convertible into, or rights to acquire, Common Stock and (b) a purchaser then holding Series C Preferred Stock, Warrants, Conversion Shares or Warrant Shares (defined below) reasonably believes that any of the terms and conditions appurtenant to such issuance or sale are more favorable to the purchaser in such subsequent sale of securities than are the terms and conditions granted to such purchaser after taking into account all of the terms and conditions of the terms granted to the purchasers under the purchase agreement relating to the issuance and sale of the Series C Units and the terms granted in such subsequent issuance or sale, including all of the components of the Series C Units and of the securities or units involved in such subsequent issuance or sale, then the purchaser will be permitted to require the Company to amend the terms of this transaction (only with respect to such purchaser) so as to match the terms of the subsequent issuance (including, for the avoidance of doubt, any terms and provisions that are or may be less favorable to such purchaser).

The Series C Warrants have a five-year term commencing on their respective issuance dates.  Until the end of the applicable term, each Series C Warrant will be exercisable at any time and from time to time at an exercise price of $4.50 per share (with respect to the Series C-1 Warrants) or $7.75 per share (with respect to the Series C-2 Warrants).  The Series C Warrants contain adjustment provisions substantially similar to those to the adjustment provisions of the Series C Preferred Stock as described above, except that the Series C Warrants do not include dilution protection for issuances of securities at an effective price per share lower than the conversion price of such Series C Warrants.  In addition, the Series C Warrants provide for protection for a Buy-In on substantially the same terms as described above with respect to the Series C Preferred Stock.  No holder may exercise its Series C Warrants in excess of the Beneficial Ownership Limitation.

Based on the terms of the purchase agreements relating to the issuance and sale of the Series A Units and the Series B Units, respectively, so long as any initial purchaser of Series A Units or Series B Units, as applicable, holds any shares of Series A Preferred Stock or Series B Preferred Stock, respectively, if (a) the Company sells any shares of Common Stock or other securities convertible into, or rights to acquire, Common Stock and (b) a purchaser then holding Series A or Series B Preferred Stock or Warrants reasonably believes that any of the terms and conditions appurtenant to such issuance or sale are more favorable to the purchaser in such subsequent sale of securities than are the terms and conditions granted to such purchaser, then the purchaser will be permitted to require the Company to amend the terms of this transaction (only with respect to such purchaser) so as to match the terms of the subsequent issuance (including, for the avoidance of doubt, any terms and provisions that are or may be less favorable to such purchaser).

Pursuant to the purchase agreements relating to the issuance and sale of the Series A Units and the Series B Units, the Company was required to and did notify the holders of the Series A Preferred Stock and Series B Preferred Stock of the closing of the sale of the Series C Units, and following receipt thereof such holders of Series A Preferred Stock and Series B Preferred Stock will be entitled, pursuant to the “most favored nation” provisions contained in their respective purchase agreements (as described above), to elect to amend the terms of their purchase of Series A Units and Series B Units, respectively, to match the terms of the Series C Units.  The Company is obligated to amend the terms of any of Series A Units or Series B Units who timely makes such election and tenders its Series A Units or Series B Units for exchange.

As of June 30, 2017, none of the Series A or B Unit holders asked the company to amend the terms of their Units.

Upon their initial recognition, the Series C Preferred Stock issued together with detachable Series C Warrants (classified as equity) were measured based on the relative fair value basis and were presented net of the direct issuance expenses that were allocated to them.

The Company has determined that, due to the economic characteristics and risks of the Series C Preferred Stock, based on their stated or implied substantive terms and features, such Preferred Stock are considered as more akin to equity than debt.  Accordingly, it was determined that the economic characteristics and the risks of the embedded conversion option to Common Stock and those of the Series C Preferred Stock themselves (the ‘host contract’) are clearly and closely related.  As a result, the embedded conversion feature was not required to be bifurcated.

Since at each of the issuances dates of the Series C Preferred Stock the exercise price of the conversion feature (based on the effective conversion rate of the Series C Preferred Stock into Common Stock) was higher than the estimated fair value of the Company’s Common Stock, it was determined that given the current market price, conversion at the conversion price was not a beneficial transaction.  Also, due to the liquidation preference and certain redemption rights for the benefit of the holders of the Series C Preferred Stock, upon the occurrence of certain contingent events, which are not considered as solely within the Company’s control management determined that the Series C Preferred Stock were to be presented as temporary equity.  On each balance sheet date, the Company’s management assesses the probability of redemption of the outstanding Preferred Stock.  In the event that management determines such redemption to be probable as of an applicable balance sheet date, the Company will reclassify the amount allocated to the preferred stock from temporary equity to liability. In addition, upon such determination, the difference between the amount that was allocated to the Preferred Stock (after deduction of issuance expenses) and the aggregate redemption amount of the Preferred Stock will be accreted over the period beginning on the date that it becomes probable that the instrument will become redeemable and ending on the earliest redemption date.

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INVENTORIES

6 Months Ended

Jun. 30, 2017

Inventory Disclosure [Abstract]

INVENTORIES

NOTE 4    –    INVENTORIES

	US dollars
	June 30,2017		December 31, 2016
	(unaudited)
Raw materials		705,810		735,201
Work in process		794,582		633,132
Finished products		7,920		51,271
		1,508,312		1,419,604

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OTHER CURRENT LIABILITIES

6 Months Ended

Jun. 30, 2017

Payables and Accruals [Abstract]

OTHER CURRENT LIABILITIES

NOTE 5   –    OTHER CURRENT LIABILITIES

	US dollars
	June 30,2017		December 31, 2016
	(unaudited)
Employees and related institutions		353,250		363,738
Accrued expenses		588,338		261,651
Other current liabilities		15,848		88,160
		957,436		713,549

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FINANCING INCOME, NET

6 Months Ended

Jun. 30, 2017

Other Income and Expenses [Abstract]

FINANCING INCOME, NET

NOTE 6  –   FINANCING INCOME, NET

	US dollars						US dollars
	Six month period ended June 30,						Three month period ended June 30,
	2017			2016			2017			2016
	(unaudited)						(unaudited)
Israeli CPI linkage difference on principal of loans from stockholders		26			(639	)		1,393			825
Exchange rate differences		17,194			24,211			6,720			19,296
Change in fair value of Warrants with down-round protection		(191,075	)		(64,212	)		(106,976	)		(20,702	)
Interest expenses on credit from banks and other		13,687			8,575			7,970			6,149
		(160,168	)		(32,065	)		(90,893	)		5,568

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LOSS PER SHARE

6 Months Ended

Jun. 30, 2017

Earnings Per Share [Abstract]

LOSS PER SHARE

NOTE 7  –   LOSS PER SHARE

In periods of net loss, basic loss per share is computed by dividing net loss for the period after consideration of the effect of dividends on preferred stock by the weighted average number of shares outstanding during the period.

The loss and the weighted average number of shares used in computing basic and diluted loss per share for the six and three month periods ended June 30, 2017 and 2016 are as follows:

	US dollars						US dollars
	Six month period ended June 30,						Three month period ended June 30,
	2017			2016			2017			2016
	(unaudited)						(unaudited)
Loss for the period		(5,087,526	)		(2,815,762	)		(2,557,201	)		(1,588,998	)
Cash dividend on Series A Preferred Stock		(6,714	)		(9,453	)		(2,014	)		(4,753	)
Stock dividend on Series B Preferred Stock		(491,668	)		(254,101	)		(245,637	)		(131,281	)
Stock dividend on Series C Preferred Stock		(276,574	)		(20,355	)		(160,588	)		(20,355	)
Loss for the period attributable to common stockholders		(5,862,482	)		(3,099,671	)		(2,965,440	)		(1,745,387	)

	Number of shares				Number of shares
	Six month period ended June 30,				Three month period ended June 30,
	2017		2016		2017		2016
Number of shares:
Common shares used in computing basic income (loss) per share		6,116,366		5,716,566		6,205,104		5,742,468
Common shares used in computing diluted income (loss) per share		6,116,366		5,716,566		6,203,104		5,742,468
Total weighted average number of common shares related to outstanding convertible Preferred Stock, options and warrants excluded from the calculations of diluted income (loss) per share (*)		19,868,112		11,220,345		21,001,400		12,210,613

(*) All outstanding convertible Preferred Stock, stock options and warrants have been excluded from the calculation of the diluted net loss per share for all the reported periods, because the effect of the common shares issuable as a result of the exercise or conversion of these instruments was determined to be anti-dilutive.

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SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2017

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 8   –  SUBSEQUENT EVENTS

On July 31, 2017, the Company, entered into a Securities Purchase Agreement with certain accredited investors pursuant to which, the Company issued to the Purchasers an aggregate of 1,000 Series C Units.  The shares of Preferred Stock comprising the Units are convertible into an aggregate of 222,236 shares of Common Stock, and the Warrants comprising the Units are exercisable for an aggregate of 444,472 shares of Common Stock, in each case subject to certain adjustments.  The Company received aggregate gross proceeds of $1,000,000 from the sale of the Units.

The sale of the Units pursuant to the securities purchase agreement was the twelfth closing of an offering of Units by the Company.  The first, second, third, fourth, fifth, sixth, seventh, eighth, ninth, tenth  and eleventh closings, involving the sale by the Company of an aggregate of 1,133 Units, 1,351 Units, 890.5 Units, 1,050.65 Units, 540 Units, 357.75 Units, 506 Units, 403.9 Units, 2,560 Units, 1,551 Units and 660 Units, respectively (collectively, the “Prior Issuances”), were disclosed by the Company in Current Reports on Form 8-K filed by the Company with the Securities and Exchange Commission (the “SEC”) on April 14, 2016, May 4, 2016, June 6, 2016, July 7, 2016, September 7, 2016, October 7, 2016, December 5, 2016, January 5, 2017, March 14, 2017, May 3, 2017 and June 23, 2017, respectively (collectively, the “Prior 8-Ks”), each of which is incorporated herein by reference.  The terms of the Preferred Stock and the Warrants are the same as the terms of the Preferred Stock and Warrants issued in the Prior Issuances, as described in the Prior 8-Ks.

Pursuant to the Placement Agent Agreement, at the closing of the sale of the Units the Company paid AGI, as a commission, an amount (payable in cash and Common Stock) equal to 10% of the aggregate sales price of the Units, plus a non-accountable expense allowance equal to 3% of the aggregate sales price of the Units.  In addition, pursuant to the AGI Agreement, the Company is required to issue to AGI: (a) 5 year warrants to purchase up to 44,445 shares of Common Stock at an exercise price of $4.50 per share and (b) 5 year warrants to purchase up to 22,223 shares of Common Stock at an exercise price of $7.75 per share.  The terms of these warrants will be substantially similar to the Warrants except that the AGI warrants will also be exercisable on a cashless basis and will include full ratchet anti-dilution protection.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Basis of presentation

A. Basis of presentation

Accounting Principles

The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with our consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.  The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) related to interim financial statements.  As permitted under those rules, certain information and footnote disclosures normally required or included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.  The financial information contained herein is unaudited; however, management believes all adjustments have been made that are considered necessary to present fairly the results of the Company’s financial position and operating results for the interim periods.  All such adjustments are of a normal recurring nature.

The results for the three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017 or for any other interim period or for any future period.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiary.  Significant intercompany balances and transactions have been eliminated in consolidation.

Warrants with down-round protection

B. Warrants with down-round protection

The Company has determined its derivative warrant liability with respect to the remaining Series A Warrants and warrants issued to Andrew Garrett, Inc., (“AGI”) as part of the Series A Unit offering, the Series B Unit offering and the Series C Unit offering to be a Level 3 fair value measurement and has used the Binomial pricing model to calculate its fair value.  Because the warrants contain a down round protection feature, the probability that the exercise price of the warrants would decrease as the stock price decreased was incorporated into the valuation calculations.

The changes in the fair value of the Level 3 liability are as follows (in US dollars):

	Warrants with down-round ProtectionJune 30,
	2017			2016
	(unaudited)
Balance, Beginning of the period		681,970			321,695
Warrants issued as consideration for placement services		273,650			234,008
Amount classified out of stockholders’ deficit and presented as Warrants with down-round protection		-			341,662
Change in fair value Warrants with down-round protection		(191,075	)		(64,212	)
Balance, End of period		764,545			833,153

The key inputs used in the fair value calculations were as follows:

	June 30,
	2017		2016
Dividend yield (%)		-		-
Expected volatility (%) (*)		56.59		62.16
Risk free interest rate (%)		0.92		0.72-1.11
Expected term of options (years)		0.70-4.98		1.70-5.00
Exercise price (US dollars)		4.50, 7.75		4.50, 7.75
Share price (US dollars) (**)		2.38		2.38
Fair value (US dollars)		0.06-0.76		0.61

(*) Due to the low trading volume of the Company’s Common Stock, the expected volatility was based on the historical volatility of the share price of other public companies that operate in the same industry sector as the Company.

(**) The Common Stock price, per share reflects the Company’s management’s estimation of the fair value per share of Common Stock as of June 30, 2017 and 2016.  In reaching its estimation for such periods, management considered, among other things, a valuation prepared by a third-party valuation firm following the issuance of the Series C Units (See Note 3).

Recently issued accounting pronouncements

C. Recently issued accounting pronouncements

1. Accounting Standards Update 2014-09, “Revenue from Contracts with Customers”

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”).

ASU 2014-09 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.  ASU 2014-09 also requires entities to disclose sufficient information, both quantitative and qualitative, to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

An entity should apply the amendments in ASU 2014-09 using one of the following two methods:  1. Retrospectively to each prior reporting period presented with a possibility to elect certain practical expedients, or, 2. Retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application.  If an entity elects the latter transition method, it also should provide certain additional disclosures.

During 2016, the FASB issued several Accounting Standards Updates (“ASUs”) that focus on certain implementation issues of the new revenue recognition guidance including Narrow-Scope Improvements, Practical Expedients and technical corrections.

In accordance with an amendment to ASU 2014-09, introduced by Accounting Standard 2015-14, “Revenue from contracts with Customers – Deferral of the Effective Date”, for a public entity, the amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period (the first quarter of fiscal year 2018 for the Company).  Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.

The Company intends to adopt ASU 2014-09 as of January 1, 2018.

The Company is in the process of evaluating the impact of ASU 2014-09 on its revenue streams and selling contracts, if any, and on its financial reporting and disclosures.  Management is expecting to complete the evaluation of the impact of the accounting and disclosure changes on the business processes, controls and systems during 2017.

Since the company did not report significant revenues, management believes that the adoption of ASU 2014-09 will not have a significant impact on its consolidated financial statements.

2. Accounting Standards Update 2015-11, “Simplifying the Measurement of Inventory”

Effective January 1, 2017, the Group adopted ASU No. 2015-11, Simplifying the Measurement of Inventory (Topic 330) (“ASU 2015- 11”).

ASU 2015-11 outlines that inventory within the scope of its guidance be measured at the lower of cost and net realizable value.  Inventory measured using last-in, first-out (LIFO) and the retail inventory method (RIM) are not impacted by the new guidance.  Prior to the issuance of ASU 2015-11, inventory was measured at the lower of cost or market (where market was defined as replacement cost, with a ceiling of net realizable value and floor of net realizable value less a normal profit margin).

The adoption of ASU 2015-11 did not have a significant effect on the consolidated financial statements.

3. Accounting Standard Update (ASU) No. 2017-11, “Earnings Per Share”

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815):  (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”).

Among others, Part I of ASU 2017-11 simplifies the accounting for certain financial instruments with down round features, which is a provision in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment of the current exercise price based on the price of future equity offerings.  Current accounting guidance creates cost and complexity for organizations that issue financial instruments with down round features by requiring, on an ongoing basis, fair value measurement of the entire instrument or conversion option.

ASU 2017-11 require companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification.  Companies that provide earnings per share (EPS) data will adjust their basic EPS calculation for the effect of the feature when triggered (i.e., when the exercise price of the related equity-linked financial instrument is adjusted downward because of the down round feature) and will also recognize the effect of the trigger within equity.

ASU 2017-11 also addresses navigational concerns within the FASB Accounting Standards Codification related to an indefinite deferral available to private companies.

The provisions of the new ASU related to down rounds are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 (fiscal 2019 for the Company).  Early adoption is permitted for all entities.

The Company is evaluating the impact of ASU 2017-11 on its financial statements.  Although this process has not been completed, managements believes that its provisions might impact the accounting of the financial instruments issued by the Company that include down-round protection.

Reclassified amounts

D. Reclassified Amounts

Certain prior year amounts have been reclassified for consistency with the current year presentation.  These reclassifications did not have material effect on the reported results of operations, shareholder’s deficit or cash flows.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Schedule of Changes in Fair Value of Level 3 Liability

The changes in the fair value of the Level 3 liability are as follows (in US dollars):

	Warrants with down-round ProtectionJune 30,
	2017			2016
	(unaudited)
Balance, Beginning of the period		681,970			321,695
Warrants issued as consideration for placement services		273,650			234,008
Amount classified out of stockholders’ deficit and presented as Warrants with down-round protection		-			341,662
Change in fair value Warrants with down-round protection		(191,075	)		(64,212	)
Balance, End of period		764,545			833,153

Schedule of Warrant Inputs

The key inputs used in the fair value calculations were as follows:

	June 30,
	2017		2016
Dividend yield (%)		-		-
Expected volatility (%) (*)		56.59		62.16
Risk free interest rate (%)		0.92		0.72-1.11
Expected term of options (years)		0.70-4.98		1.70-5.00
Exercise price (US dollars)		4.50, 7.75		4.50, 7.75
Share price (US dollars) (**)		2.38		2.38
Fair value (US dollars)		0.06-0.76		0.61

(*) Due to the low trading volume of the Company’s Common Stock, the expected volatility was based on the historical volatility of the share price of other public companies that operate in the same industry sector as the Company.

(**) The Common Stock price, per share reflects the Company’s management’s estimation of the fair value per share of Common Stock as of June 30, 2017 and 2016.  In reaching its estimation for such periods, management considered, among other things, a valuation prepared by a third-party valuation firm following the issuance of the Series C Units (See Note 3).

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RECENT EVENTS (Tables)

6 Months Ended

Jun. 30, 2017

EVENTS DURING THE REPORTED PERIOD [Abstract]

Summary of Entire Series C Issuances

Following below is a summary of the entire series C issuances:

	Year ended December 31, 2016		Six month period ended June 30, 2017
	Thousands of U.S. $ (except units sold) (unaudited)
Number of units sold		5,828.9		5,174.9
Gross amount		5,829		5,175
Net of related cash expenses		4,951		4,520
Net amount		4,642		4,246

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INVENTORIES (Tables)

6 Months Ended

Jun. 30, 2017

Inventory Disclosure [Abstract]

Schedule of Inventory

	US dollars
	June 30,2017		December 31, 2016
	(unaudited)
Raw materials		705,810		735,201
Work in process		794,582		633,132
Finished products		7,920		51,271
		1,508,312		1,419,604

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OTHER CURRENT LIABILITIES (Tables)

6 Months Ended

Jun. 30, 2017

Payables and Accruals [Abstract]

Schedule of Other Current Liabilities

	US dollars
	June 30,2017		December 31, 2016
	(unaudited)
Employees and related institutions		353,250		363,738
Accrued expenses		588,338		261,651
Other current liabilities		15,848		88,160
		957,436		713,549

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FINANCING INCOME, NET (Tables)

6 Months Ended

Jun. 30, 2017

Other Income and Expenses [Abstract]

Schedule of Financing Income, Net

	US dollars						US dollars
	Six month period ended June 30,						Three month period ended June 30,
	2017			2016			2017			2016
	(unaudited)						(unaudited)
Israeli CPI linkage difference on principal of loans from stockholders		26			(639	)		1,393			825
Exchange rate differences		17,194			24,211			6,720			19,296
Change in fair value of Warrants with down-round protection		(191,075	)		(64,212	)		(106,976	)		(20,702	)
Interest expenses on credit from banks and other		13,687			8,575			7,970			6,149
		(160,168	)		(32,065	)		(90,893	)		5,568

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LOSS PER SHARE (Tables)

6 Months Ended

Jun. 30, 2017

Earnings Per Share [Abstract]

Schedule of Loss and Weighted Average Number of Shares

The loss and the weighted average number of shares used in computing basic and diluted loss per share for the six and three month periods ended June 30, 2017 and 2016 are as follows:

	US dollars						US dollars
	Six month period ended June 30,						Three month period ended June 30,
	2017			2016			2017			2016
	(unaudited)						(unaudited)
Loss for the period		(5,087,526	)		(2,815,762	)		(2,557,201	)		(1,588,998	)
Cash dividend on Series A Preferred Stock		(6,714	)		(9,453	)		(2,014	)		(4,753	)
Stock dividend on Series B Preferred Stock		(491,668	)		(254,101	)		(245,637	)		(131,281	)
Stock dividend on Series C Preferred Stock		(276,574	)		(20,355	)		(160,588	)		(20,355	)
Loss for the period attributable to common stockholders		(5,862,482	)		(3,099,671	)		(2,965,440	)		(1,745,387	)

	Number of shares				Number of shares
	Six month period ended June 30,				Three month period ended June 30,
	2017		2016		2017		2016
Number of shares:
Common shares used in computing basic income (loss) per share		6,116,366		5,716,566		6,205,104		5,742,468
Common shares used in computing diluted income (loss) per share		6,116,366		5,716,566		6,203,104		5,742,468
Total weighted average number of common shares related to outstanding convertible Preferred Stock, options and warrants excluded from the calculations of diluted income (loss) per share (*)		19,868,112		11,220,345		21,001,400		12,210,613

(*) All outstanding convertible Preferred Stock, stock options and warrants have been excluded from the calculation of the diluted net loss per share for all the reported periods, because the effect of the common shares issuable as a result of the exercise or conversion of these instruments was determined to be anti-dilutive.

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GENERAL (Details) - USD ($)	1 Months Ended	6 Months Ended	9 Months Ended	12 Months Ended		18 Months Ended
	Apr. 30, 2016	Jun. 30, 2017	Dec. 31, 2016	Jun. 30, 2017	Dec. 31, 2016	Jun. 30, 2017
Class of Stock [Line Items]
Accumulated deficit		$ 41,466,658	$ 35,604,176	$ 41,466,658	$ 35,604,176	$ 41,466,658
Stockholders' deficit		13,366,077	10,949,430	$ 13,366,077	$ 10,949,430	$ 13,366,077
Proceeds from convertible preferred stock and warrants	$ 9,470	$ 4,520
Number of units sold		5,174.90			5,828.90
Series C-2 Warrant [Member]
Class of Stock [Line Items]
Warrants term		5 years
Warrant exercise price		$ 7.75		$ 7.75		$ 7.75
Series C-1 Warrant [Member]
Class of Stock [Line Items]
Warrants term		5 years
Warrant exercise price		$ 4.50		4.50		4.50
Series B-1 Warrant [Member]
Class of Stock [Line Items]
Warrants term		5 years
Warrant exercise price		$ 10.00		10.00		10.00
Series C Preferred Stock [Member]
Class of Stock [Line Items]
Dividend rate		55.00%
Par value per share		$ 0.001		0.001		0.001
Conversion price		$ 4.50		$ 4.50		$ 4.50
Warrants term		5 years
Number of common shares that will be issued from conversion of units				2,445,317
Number of shares covered by warrants		4,890,634		4,890,634		4,890,634
Proceeds from issuance of Series C Units			$ 4,900,000			$ 4,500,000
Number of units sold		11,003.80		11,003.80
Series B Preferred Stock [Member]
Class of Stock [Line Items]
Par value per share		$ 0.001		$ 0.001		$ 0.001
Conversion price		$ 5.80		$ 5.80		$ 5.80
Percent of one share		5.50%		5.50%		5.50%

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Changes in Fair Value of Level 3 Liability) (Details) - USD ($)	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Accounting Policies [Abstract]
Balance, Beginning of the period	$ 681,970	$ 321,695
Warrants issued as consideration for placement services	273,650	234,008
Amount classified out of stockholders' deficit and presented as Warrants with down-round protection		341,662
Change in fair value Warrants with down-round protection	(191,075)	(64,212)
Balance, End of period	$ 764,545	$ 833,153

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Schedule of Warrant Inputs) (Details) - Warrant [Member] - $ / shares		6 Months Ended
		Jun. 30, 2017	Jun. 30, 2016
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Dividend yield (%)
Expected volatility (%)	[1]	56.59%	62.16%
Risk free interest rate (%)		0.92%
Share price (US dollars)	[2]	$ 2.38	$ 2.38
Minimum [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Risk free interest rate (%)			0.72%
Expected term of options (years)		8 months 12 days	1 year 8 months 12 days
Exercise price (US dollars)		$ 0.0450	$ 0.0450
Fair value (US dollars)		$ 0.0006
Maximum [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Risk free interest rate (%)			1.11%
Expected term of options (years)		4 years 11 months 23 days	5 years
Exercise price (US dollars)		$ 0.0775	$ 0.0775
Fair value (US dollars)		$ 0.0076	$ 0.0061

[1] Due to the low trading volume of the Company's Common Stock, the expected volatility was based on the historical volatility of the share price of other public companies that operate in the same industry sector as the Company.

[2] The Common Stock price, per share reflects the Company's management's estimation of the fair value per share of Common Stock as of June 30, 2017 and 2016. In reaching its estimation for such periods, management considered, among other things, a valuation prepared by a third-party valuation firm following the issuance of the Series B Units and the Series C Units (See Note 3).

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RECENT EVENTS (Details)					1 Months Ended		6 Months Ended	9 Months Ended	12 Months Ended		18 Months Ended
	Jun. 07, 2017 USD ($) $ / shares	May 05, 2017 USD ($)	Apr. 07, 2017 USD ($) $ / shares shares	Apr. 07, 2017 ILS (₪)	May 23, 2017 ILS (₪)	Apr. 30, 2016 $ / shares shares	Jun. 30, 2017 USD ($) $ / shares shares	Dec. 31, 2016 USD ($)	Jun. 30, 2017 USD ($) $ / shares shares	Dec. 31, 2016 shares	Jun. 30, 2017 USD ($) $ / shares shares	Jun. 23, 2017 shares	May 03, 2017 shares	Mar. 31, 2017 shares	Mar. 14, 2017 shares	Jan. 05, 2017 shares	Dec. 05, 2016 shares	Oct. 07, 2016 shares	Sep. 07, 2016 shares	Jul. 07, 2016 shares	Jun. 06, 2016 shares	May 04, 2016 shares	Apr. 14, 2016 shares
Class of Stock [Line Items]
Number of shares reserved for issuance under Plan | shares			5,625,000											1,000,000
Number of units sold | shares							5,174.90			5,828.90
Number of convertible preferred shares offered per unit sold | shares												660	1,551		2,560	403.9	506	357.75	540	1,050.65	890.5	1,351	1,133
Series C-1 Warrant [Member]
Class of Stock [Line Items]
Warrant exercise price | $ / shares							$ 4.50		$ 4.50		$ 4.50
Warrants term							5 years
Series C-2 Warrant [Member]
Class of Stock [Line Items]
Warrant exercise price | $ / shares							$ 7.75		$ 7.75		$ 7.75
Warrants term							5 years
Advisory Agreement with Andrew Garrett, Inc.[Member] | Placement Agent Warrants Tranche Two [Member]
Class of Stock [Line Items]
Conversion price | $ / shares						$ 4.50
Warrants term						5 years
Number of common stock shares callable by warrants | shares						489,064
Advisory Agreement with Andrew Garrett, Inc.[Member] | Placement Agent Warrants Tranche One [Member]
Class of Stock [Line Items]
Warrant exercise price | $ / shares						$ 7.75
Warrants term						5 years
Number of common stock shares callable by warrants | shares						244,531
Advisory Agreement with Andrew Garrett, Inc.[Member] | Initial Closing [Member]
Class of Stock [Line Items]
Commission fee to agent expressed as percentage of aggregate sales price of the Units						6.00%
Managment fee percentage commission to agent						4.00%
Non-accountable expense allowance fee to agent expressed as percentage of aggregate sales price of the Units						3.00%
Advisory Agreement with Andrew Garrett, Inc.[Member] | Second Closing [Member]
Class of Stock [Line Items]
Commission fee to agent expressed as percentage of aggregate sales price of the Units						10.00%
Non-accountable expense allowance fee to agent expressed as percentage of aggregate sales price of the Units						3.00%
Series C Preferred Stock [Member]
Class of Stock [Line Items]
Proceeds from issuance of Series C Units | $								$ 4,900,000			$ 4,500,000
Number of units sold | shares							11,003.80		11,003.80
Dividend rate							55.00%
Par value per share | $ / shares							$ 0.001		$ 0.001		$ 0.001
Conversion price | $ / shares							$ 4.50		$ 4.50		$ 4.50
Warrants term							5 years
Number of common shares that will be issued from conversion of units | shares									2,445,317
Number of common stock shares callable by warrants | shares							4,890,634		4,890,634		4,890,634
Volume weighted average trading price for forced conversion of Preferred Stock									7.00
Average daily dollar trading value for forced conversion of Preferred Stock | $									$ 50,000
Preferred stock, liquidating damages | $ / shares							$ 10		$ 10		$ 10
Convertible preferred stock, percentage outstanding which requires written consent of shareholders for Company to enter into certain transactions									35.00%
Convertible preferred stock, maximum beneficial ownership of Common Stock permitted to owners									4.99%
Convertible preferred stock, maximum beneficial ownership of Common Stock permitted to owners, after notice given to Company									9.99%
Series C Preferred Stock [Member] | April 2016 Offering [Member]
Class of Stock [Line Items]
Number of convertible preferred shares offered per unit sold | shares						1
Dividend rate						5.50%
Conversion price | $ / shares						$ 4.50
Avner Gal [Member]
Class of Stock [Line Items]
Options outstanding | shares			88,259
Weighted average exercise price | $ / shares			$ 6.25
Avner Gal [Member] | Options Granted [Member]
Class of Stock [Line Items]
Options outstanding | shares			300,000
Weighted average exercise price | $ / shares			$ 4.50
Avner Gal [Member] | Additional Options Granted [Member]
Class of Stock [Line Items]
Options outstanding | shares			50,000
Weighted average exercise price | $ / shares			$ 7.75
John Graham [Member]
Class of Stock [Line Items]
Base salary per year | $			$ 500,000
Vesting period			2 years	2 years
One-time payment | $			$ 375,000
John Graham [Member] | Vesting immediately [Member]
Class of Stock [Line Items]
Options outstanding | shares			307,754
Weighted average exercise price | $ / shares			$ 4.50
John Graham [Member] | Vesting on the six month anniversary [Member]
Class of Stock [Line Items]
Options outstanding | shares			923,262
Weighted average exercise price | $ / shares			$ 4.50
John Graham [Member] | Vesting in two years [Member]
Class of Stock [Line Items]
Options outstanding | shares			442,980
Weighted average exercise price | $ / shares			$ 4.50
David Malka [Member]
Class of Stock [Line Items]
Base salary per year | $			$ 5,508
Exchange rate			3.63
Weighted average exercise price | $ / shares			$ 6.25
David Malka [Member] | Maximum [Member]
Class of Stock [Line Items]
Base salary per year | $			$ 9,639
Annual performane bonus percentage			864.00%	864.00%
David Malka [Member] | Minimum [Member]
Class of Stock [Line Items]
Annual performane bonus percentage			420.00%	420.00%
David Malka [Member] | NIS [Member]
Class of Stock [Line Items]
Base salary per year | ₪				₪ 20,000
David Malka [Member] | NIS [Member] | Maximum [Member]
Class of Stock [Line Items]
Base salary per year | ₪				₪ 35,000	₪ 35,000
Chief Strategy Officer, Ms. Angela Strand [Member]
Class of Stock [Line Items]
Base salary per year | $		$ 150,000
Non-employee Director and Interim Officer [Member]
Class of Stock [Line Items]
Annual cash payment payable in four equal quarterly installments, subject to employee's continued service | $							$ 35,000		$ 35,000		$ 35,000
Amount to be paid each quarter for annual cash payment | $							$ 8,750		$ 8,750		$ 8,750
Warrant exercise price | $ / shares							$ 0.001		$ 0.001		$ 0.001
Each Member of Board Committee [Member]
Class of Stock [Line Items]
Amount of additional annual cash payment payable in four equal quarterly installments, subject to employee's continued service | $							$ 5,000		$ 5,000		$ 5,000
Amount to be paid each quarter for additional annual cash payment | $							1,250		1,250		1,250
Board of Directors - Chairman [Member]
Class of Stock [Line Items]
Amount of additional annual cash payment payable in four equal quarterly installments, subject to employee's continued service | $							12,500		12,500		12,500
Amount to be paid each quarter for additional annual cash payment | $							$ 3,125		3,125		3,125
Each Non-employee Director and Each Interim Officer [Member] | Stock Options [Member]
Class of Stock [Line Items]
One-time award of options granted | shares							14,894
One-time award of options granted, exercise price | $ / shares							$ 4.50
Stock options, expiration period							10 years
Each Non-employee Director and Each Interim Officer [Member] | Restricted Stock Units (RSUs) [Member]
Class of Stock [Line Items]
Cash value of Restricted Stock Units granted | $							$ 45,000
Vice President [Member] | Restricted Stock Units (RSUs) [Member]
Class of Stock [Line Items]
Amount of additional annual cash payment payable in four equal quarterly installments, subject to employee's continued service | $							$ 20,000		$ 20,000		$ 20,000
Mr. Podwalski [Member]
Class of Stock [Line Items]
Base salary per year | $	$ 240,000
Percentage of fully diluted shares of common stock	1.00%
Vesting period	3 years
Net grant fair value | $	$ 270,000
Weighted average exercise price | $ / shares	$ 4.50
Mr. Podwalski [Member] | Maximum [Member]
Class of Stock [Line Items]
Annual performane bonus percentage	80.00%
Mr. Podwalski [Member] | Maximum [Member] | Bonus [Member]
Class of Stock [Line Items]
Annual performane bonus percentage	37.50%
Mr. Podwalski [Member] | Minimum [Member]
Class of Stock [Line Items]
Annual performane bonus percentage	20.00%
Mr. Podwalski [Member] | Minimum [Member] | Bonus [Member]
Class of Stock [Line Items]
Annual performane bonus percentage	25.00%
Mr. Podwalski [Member] | Bonus [Member]
Class of Stock [Line Items]
Base salary per year | $	$ 25,000

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RECENT EVENTS (Summary of Entire Series C Issuances) (Details) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
EVENTS DURING THE REPORTED PERIOD [Abstract]
Number of units sold	5,174.90	5,828.90
Gross amount of Series C units sold	$ 5,175	$ 5,829
Net of related cash expenses	4,520	4,951
Net amount	$ 4,246	$ 4,642

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INVENTORIES (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Inventory Disclosure [Abstract]
Raw materials	$ 705,810	$ 735,201
Work in process	794,582	633,132
Finished products	7,920	51,271
Inventories	$ 1,508,312	$ 1,419,604

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OTHER CURRENT LIABILITIES (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Payables and Accruals [Abstract]
Employees and related institutions	$ 353,250	$ 363,738
Accrued expenses	588,338	261,651
Other current liabilities	15,848	88,160
Other current liabilities	$ 957,436	$ 713,549

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FINANCING INCOME, NET (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Other Income and Expenses [Abstract]
Israeli CPI linkage difference on principal of loans from stockholders	$ 1,393	$ 825	$ 26	$ (639)
Exchange rate differences	6,720	19,296	17,194	24,211
Change in fair value of Warrants with down round protection	(106,976)	(20,702)	(191,075)	(64,212)
Interest expenses on credit from banks and other	7,970	6,149	13,687	8,575
Financing income, net	$ (90,893)	$ 5,568	$ (160,168)	$ (32,065)

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LOSS PER SHARE (Details) - USD ($)		3 Months Ended		6 Months Ended
		Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Earnings Per Share [Abstract]
Loss for the period		$ (2,557,201)	$ (1,588,998)	$ (5,087,526)	$ (2,815,762)
Cash dividend on Series A Preferred Stock		(2,014)	(4,753)	(6,714)	(9,453)
Stock dividend on Series B Preferred Stock		(245,637)	(131,281)	(491,668)	(254,101)
Stock dividend on Series C Preferred Stock		(160,588)	(20,355)	(276,574)	(20,355)
Loss for the period attributable to common stockholders		$ (2,965,440)	$ (1,745,387)	$ (5,862,482)	$ (3,099,671)
Number of shares:
Common shares used in computing basic income (loss) per share		6,205,104	5,742,468	6,116,366	5,716,566
Common shares used in computing diluted income (loss) per share		6,205,104	5,742,468	6,116,366	5,716,566
Total weighted average number of common shares related to outstanding convertible Preferred Stock, options and warrants excluded from the calculations of diluted income (loss) per share (*)	[1]	21,001,400	12,210,613	19,868,112	11,220,345

[1] All outstanding convertible Preferred Stock, stock options and warrants have been excluded from the calculation of the diluted net loss per share for all the reported periods, because the effect of the common shares issuable as a result of the exercise or conversion of these instruments was anti-dilutive.

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SUBSEQUENT EVENTS (Details) - USD ($)	1 Months Ended	6 Months Ended	9 Months Ended	12 Months Ended		18 Months Ended
	Jul. 31, 2017	Jun. 30, 2017	Dec. 31, 2016	Jun. 30, 2017	Dec. 31, 2016	Jun. 30, 2017	Jun. 23, 2017	May 03, 2017	Mar. 14, 2017	Jan. 05, 2017	Dec. 05, 2016	Oct. 07, 2016	Sep. 07, 2016	Jul. 07, 2016	Jun. 06, 2016	May 04, 2016	Apr. 14, 2016
Subsequent Event [Line Items]
Number of units sold		5,174.90			5,828.90
Number of convertible preferred shares offered per unit sold							660	1,551	2,560	403.9	506	357.75	540	1,050.65	890.5	1,351	1,133
Series C Preferred Stock [Member]
Subsequent Event [Line Items]
Number of units sold		11,003.80		11,003.80
Number of common shares that will be issued from conversion of units				2,445,317
Number of shares covered by warrants		4,890,634		4,890,634		4,890,634
Proceeds from issuance of Series C Units			$ 4,900,000			$ 4,500,000
Conversion price		$ 4.50		$ 4.50		$ 4.50
Warrants term		5 years
Subsequent Event [Member]
Subsequent Event [Line Items]
Number of common shares that will be issued from conversion of units	222,236
Number of shares covered by warrants	444,472
Proceeds from issuance of Series C Units	$ 1,000,000
Percentage of aggregate sales price of units	10.00%
Percentage of non accountable expense allowance	3.00%
Subsequent Event [Member] | Series C Preferred Stock [Member]
Subsequent Event [Line Items]
Number of units sold	1,000
Subsequent Event [Member] | Placement Agent Warrants Tranche Two [Member]
Subsequent Event [Line Items]
Number of shares covered by warrants	22,223
Warrant exercise price	$ 7.75
Warrants term	5 years
Subsequent Event [Member] | Placement Agent Warrants Tranche One [Member]
Subsequent Event [Line Items]
Number of shares covered by warrants	44,445
Warrant exercise price	$ 4.50
Warrants term	5 years