0001493152-18-007070.txt : 20180515 0001493152-18-007070.hdr.sgml : 20180515 20180515161633 ACCESSION NUMBER: 0001493152-18-007070 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 47 CONFORMED PERIOD OF REPORT: 20180331 FILED AS OF DATE: 20180515 DATE AS OF CHANGE: 20180515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Integrity Applications, Inc. CENTRAL INDEX KEY: 0001506983 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 980668934 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-54785 FILM NUMBER: 18836717 BUSINESS ADDRESS: STREET 1: 19 HA'YAHALOMIM ST STREET 2: P.O. BOX 12163 CITY: ASHDOD STATE: L3 ZIP: L3 7760049 BUSINESS PHONE: 972 (8) 675-7878 MAIL ADDRESS: STREET 1: 19 HA'YAHALOMIM ST STREET 2: P.O. BOX 12163 CITY: ASHDOD STATE: L3 ZIP: L3 7760049 10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended March 31, 2018
     
    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

 

INTEGRITY APPLICATIONS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   98-0668934

(State or other jurisdiction of

incorporation or organization)

 

(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)

 

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 [X] 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 [X] 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 [  ] (Do not check if a smaller reporting company) Smaller reporting company [X]
  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 [X]

 

As of May 15, 2018, 7,584,492 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 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 26
Item 4. Controls and Procedures. 26
PART II - OTHER INFORMATION 27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
Item 6. Exhibits. 28
SIGNATURES 29
EXHIBIT INDEX

 

 2 

 

 

INTEGRITY APPLICATIONS, INC.

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   US dollars (except share data) 
   March 31,   December 31, 
   2018   2017 
   (unaudited)     
A S S E T S          
Current Assets          
Cash and cash equivalents   314,387    53,782 
Accounts receivable, net   147,378    121,782 
Inventories   934,239    957,349 
Other current assets   87,907    94,137 
Total current assets   1,483,911    1,227,050 
           
Property and Equipment, Net   198,839    216,746 
           
Long-Term Restricted Cash   39,033    39,562 
           
Funds in Respect of Employee Rights Upon Retirement   183,088    185,570 
Total assets   1,904,871    1,668,928 
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ DEFICIT          
Current Liabilities          
Accounts payable   2,468,230    2,419,988 
Other current liabilities   1,123,436    1,265,954 
Total current liabilities   3,591,666    3,685,942 
           
Long-Term Liabilities          
Long-Term Loans from Stockholders   179,423    182,767 
Liability for Employee Rights Upon Retirement   183,088    185,570 
Warrants with down-round protection   815,899    768,249 
Total long-term liabilities   1,178,410    1,136,586 
           
Total liabilities   4,770,076    4,822,528 
Temporary Equity          
Convertible Preferred Stock of $ 0.001 par value (“Preferred Stock”):          
10,000,000 shares of Preferred Stock authorized as of March 31, 2018 and December 31, 2017          
376 shares of Series A Preferred Stock issued and outstanding as of March 31, 2018 and December 31, 2017   221,152    221,152 
15,031 shares of Series B Preferred Stock issued and outstanding as of March 31, 2018 and December 31, 2017   6,715,844    6,715,844 
12,004 shares of Series C Preferred Stock issued and outstanding as of March 31, 2018 and December 31, 2017          
    6,484,337    6,484,337 
Total temporary equity   13,421,333    13,421,333 
Stockholders’ Deficit          
Common Stock of $ 0.001 par value (“Common Stock”):          
40,000,000 shares authorized as of March 31, 2018 and December 31, 2017; 7,469,604 and 6,821,792 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively   7,532    6,824 
Additional paid in capital   33,312,949    30,676,180 
Accumulated other comprehensive income   117,979    110,675 
Accumulated deficit   (49,724,998)   (47,368,612)
Total stockholders’ deficit   (16,286,538)   (16,574,933)
Total liabilities, temporary equity and stockholders’ deficit   1,904,871    1,668,928 

 

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) 
   Three-month period ended March 31, 
   2018   2017 
   (unaudited) 
Revenues   28,209    96,237 
           
Research and development expenses   592,697    581,539 
Selling and marketing expenses   308,637    236,939 
General and administrative expenses   1,036,684    1,877,359 
Total operating expenses   1,938,018    2,695,837 
Operating loss   1,909,809    2,599,600 
Financing income, net   62,015    69,275 
Loss for the period   1,847,794    2,530,325 
Other comprehensive income:          
Foreign currency translation income   7,304    32,739 
           
Comprehensive loss for the period   1,840,490    2,497,586 
           
Loss per share (Basic and Diluted)   0.34    0.48 
Common shares used in computing loss per share (Basic and Diluted)   7,021,533    6,029,342 

 

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) 
   Common Stock   Additional   Accumulated other       Total 
   Number
of shares
   Amount   paid in capital   comprehensive income   Accumulated deficit   Stockholders’ deficit 
Balance as of January 1, 2018   6,821,792    6,824    30,676,180    110,675    (47,368,612)   (16,574,933)
Loss for the period of three months                       (1,847,794)   (1,847,794)
Other comprehensive loss   -    -    -    7,304    -    7,304 
Amounts allocated to Series D-1, D-2 and Series D-3 Warrants, net   -    -    716,093    -    -    716,093 
Stock dividend on Series C Preferred Stock   91,283    91    223,642    -    (223,733)   - 
Stock dividend on Series B Preferred Stock   114,304    114    280,045    -    (280,159)   - 
Cash dividend on Series A Preferred Stock   -    -    -    -    (4,700)   (4,700)
Amounts allocated to issuance of Common Stock from Series D offering   435,556    436    855,574    -    -    856,010 
Stock-based compensation   6,669    67    561,415    -    -    561,482 
Balance as of March 31, 2018   7,469,604    7,532    33,312,949    117,979    (49,724,998)   (16,286,538)

 

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 
   Three-month period ended March 31, 
   2018   2017 
   (unaudited) 
Cash flows from operating activities:          
Loss for the period   (1,847,794)   (2,530,325)
Adjustments to reconcile loss for the period to net cash used in operating activities:          
Depreciation   16,138    16,380 
Stock-based compensation   561,482    374,180 
Change in the fair value of Warrants with down-round protection   (77,947)   (84,099)
Linkage difference on principal of loans from stockholders   (911)   (1,367)
Changes in assets and liabilities:          
(Increase) decrease in accounts receivable   (27,585)   2,255 
Decrease in inventory   10,442    78,416 
Decrease in other current assets   5,128    190,590 
(Decrease) increase in accounts payable   66,355    (129,419)
Increase in other current liabilities   (132,176)   937,276 
Net cash used in operating activities   (1,426,868)   (1,146,113)
    -    - 
Cash flows from investing activities:          
Purchase of property and equipment   (931)   (1,477)
Net cash used in investing activities   (931)   (1,477)
           
Cash flows from financing activities          
Cash dividend on Series A Preferred Stock   -    - 
Proceeds allocated to Series C Preferred Stock, net of cash issuance expenses   -    1,738,259 
Proceeds allocated to Series C Warrants, net of cash issuance expenses   -    860,812 
Proceeds allocated to Common Stock from Series D offering, net of cash issuance expenses   924,398    - 
Proceeds allocated to Series D Warrants, net of cash issuance expenses   773,302    - 
Net cash provided by financing activities   1,697,700    2,599,071 
Effect of exchange rate changes on cash and cash equivalents   (9,296)   38,686 
Increase (decrease) in cash and cash equivalents   260,605    1,490,167 
Cash and cash equivalents at beginning of the period   53,782    148,836 
Cash and cash equivalents at end of the period   314,387    1,639,003 

 

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

 

 6 

 

 

INTEGRITY APPLICATIONS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (cont.)

 

Supplementary information on financing activities not involving cash flows:

 

During the three months ended March 31, 2018, $280,159 and $223,733, 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 March 31, 2018, 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 $503,892, 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 has not paid such dividends, plus interest at a rate of 9% per annum, as of the date of this filing.

 

During the three months ended March 31, 2018, $125,597 representing the fair value of warrants issued as consideration for placement agent services, this amount was accounted for as Warrants with down-round protection within long-term liabilities. Of these direct issuance expenses, $57,209 was allocated to the Series D-1, D-2 and Series D-3 Warrants and was recorded as a reduction of additional paid in capital, and $68,388 was allocated to the shares of common stock  issued in the Series D offering and was recorded as a reduction of additional paid in capital.

 

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

 

 7 

 

 

INTEGRITY APPLICATIONS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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 became 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.
     
  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 March 31, 2018, the Group has incurred accumulated deficit of $49,724,998, stockholder’s deficit of $16,286,538 negative operating cash flows and negative working capital. 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. During the three months ended March 31, 2018, the Company raised funds in an aggregate amount of approximately $1,697,700 (net of related cash expenses) through the issuance of 435,556 units (the “Series D Units”) each consisting of a) one share of Common Stock, Par Value $0.001 b) a five year warrant to purchase, at an exercise price of $4.50 per share, one share of Common Stock; c) a five year warrant to purchase, at an exercise price of $5.75 per share, one share of Common Stock; and d) a five year warrant to purchase, at an exercise price of $7.75 per share, one share of Common Stock.
     
    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.

 

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INTEGRITY APPLICATIONS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)

 

NOTE 1 – GENERAL (cont.)

 

  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 D Units, (iii) the going concern assumptions, (iv) measurement of stock based compensation, and (v) determination of net realizable value of inventory.

 

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, 2017, filed with the Securities and Exchange Commission (“SEC”) on March 30, 2018. The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the 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 months ended March 31, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018 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.

 

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INTEGRITY APPLICATIONS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)

 

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

 

  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 its placement agent as part of the series A Unit offering, the series B Unit offering, the series C Unit offering and the series D 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 
   March 31, 
   2018   2017 
   (unaudited) 
         
Balance, Beginning of the period   768,249    681,970 
Warrants issued as consideration for placement services   125,597    156,732 
Change in fair value Warrants with Down-Round Protection   (77,947)   (84,099)
           
Balance, End of period   815,899    754,603 

 

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

 

   March 31, 
   2018   2017 
Dividend yield (%)   -    - 
Expected volatility (%) (*)   56.59    56.59 
Risk free interest rate (%)   1.31    0.92 
Expected term of options (years)   1.75-4.92    0.95-4.94 
Exercise price (US dollars)   4.50-7.75    4.50, 7.75 
Share price (US dollars) (**)   2.45    2.38 
Fair value (US dollars) (***)   0.09-0.81    0.11-0.74 

 

  (*) Due to the low trading volume of the Company’s Common Stock, the expected volatility was based on a sample of 254 companies operating in the Healthcare Products industry.
  (**) The Common Stock price, per share reflects the Company’s management’s estimation of the fair value per share of Common Stock as of March 31, 2018 and 2017. 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 and the Series D Units, as applicable to each reporting period (See Note 3).
  (***) The below chart reflects the Fair Value for each of the Warrants with down-round Protection that were outstanding as of March 31, 2018 in US dollars.

 

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INTEGRITY APPLICATIONS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)

 

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

 

   Andrew Garrett, Inc., (“AGI”) - Series A   AGI - Series B   AGI - Series C   Placement Agent -
Series D
 
Total quantity   364,071    566,897    844,605    212,000 
Exercise price   4.5    4.5, 7.75    4.5, 7.75    4.5, 5.75, 7.75 
Fair value   0.27    0.09 – 0.29    0.25 – 0.73    0.47 – 0.81 

 

  C. Revenue recognition

 

The company recognize revenues from sales of the GlucoTrack® model DF-F and personal ear-clips (“PECs”) when control is transferred to the customer and collectability is probable.

 

  D. Recently issued accounting pronouncements

 

  1. Accounting Standard Update 2014-09, “Revenue from Contracts with Customers”
     
    Commencing January 1, 2018 the Company adopted Accounting Standard 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 Standard 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.

 

   

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

 

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INTEGRITY APPLICATIONS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

 

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

 

  2. 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.

 

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INTEGRITY APPLICATIONS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)

 

NOTE 3 – RECENT EVENTS

 

During the first quarter of 2018, we received aggregate net proceeds of approximately $1.7 million (net of related cash expenses), from the issuance and sale in a private placement transaction of 435,556 Series D Units. As of March 31, 2018, the Series D Warrants (issued on December 1, 2017 and on the first quarter of 2018) are exercisable for an aggregate of 1,590,000 shares of Common Stock, in each case subject to adjustment in certain circumstances.

 

Pursuant to a placement agent agreement (the “Placement Agent Agreement”) with the placement agent, the Company paid the placement agent, as a commission, an amount equal to 10% of the aggregate sales price of the Series D Units sold in each closing, plus a non-accountable expense allowance equal to 3% of the aggregate sales price of the Series D Units sold in such closing. In addition, pursuant to the Placement Agent Agreement, in connection with the closings in the first quarter of 2018, the Company is required to issue to the placement agent: (a) 5-year warrants to purchase up to 106,000 shares of Common Stock at an exercise price of $4.50 per share, (b) 5-year warrants to purchase up to 53,000 shares of Common Stock at an exercise price of $5.75 per share, and (c) 5-year warrants to purchase up to 53,000 shares of Common Stock at an exercise price of $7.75 per share. The terms of such warrants are substantially similar to the Series D Warrants except that the warrants issued to the placement agent are exercisable on a cashless basis and include full ratchet anti-dilution protection.

 

On February 15, 2018, we issued a ten-year non-qualified stock option to various employees, for the purchase of 767,500 shares of Common Stock at an exercise price of $4.50 per share, with three-year quarterly vesting commencing on the first quarter after the effective date.

 

NOTE 4 – INVENTORIES

 

    US dollars  
    March 31, 2018     December 31, 2017  
    (unaudited)        
             
Raw materials     14,504       12,734  
Work in process     1,590,283       1,556,256  
Finished products     85,586       144,493  
                 
      1,690,373       1,713,483  
Less – provision for slow moving inventory     (756,134 )     (756,134 )
                 
      934,239       957,349  

 

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INTEGRITY APPLICATIONS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)

 

NOTE 5 – OTHER CURRENT LIABILITIES

 

   US dollars 
   March 31, 2018   December 31, 2017 
   (unaudited)     
         
Employees and related institutions   245,003    336,783 
Accrued expenses and other   878,433    929,171 
           
    1,123,436    1,265,954 

 

NOTE 6 – FINANCING INCOME, NET

 

   US dollars 
   Three-month period
ended March 31,
 
   2018   2017 
   (unaudited) 
Israeli CPI linkage difference on principal of loans from stockholders   911    1,367 
Exchange rate differences   (13,627)   (10,474)
Change in fair value of Warrants with down round protection   77,947    84,099 
Other   (3,216)   (5,717)
    62,015    69,275 

 

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 three-month periods ended March 31, 2018 and 2017 are as follows:

 

    US dollars  
    Three-month period
ended March 31,
 
    2018     2017  
    (unaudited)  
Loss for the period     1,847,794       2,530,325  
Cash dividend on Series A Preferred Stock     4,700       4,700  
Stock dividend on Series B Preferred Stock     280,159       246,031  
Stock dividend on Series C Preferred Stock     223,733       115,986  
Loss for the period attributable to common stockholders     2,356,386       2,897,042  

 

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INTEGRITY APPLICATIONS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)

 

NOTE 7 – LOSS PER SHARE (cont.)

 

   Number of shares 
   Three-month period ended March 31, 
   2018   2017 
   (unaudited) 
Number of shares:          
Weighted average number of shares used in the computation of basic and diluted earnings per share   7,021,533    6,029,342 
           
Total weighted average number of common shares related to outstanding convertible preferred stock, options and warrants excluded from the calculations of diluted loss per share (*)   25,524,332    16,056,013 

 

  (*) 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.

 

NOTE 8 – SUBSEQUENT EVENTS

 

On May 10, 2018, the Company received aggregate gross proceeds of $517,000 in the fifth closing of the private placement of its securities from seven accredited investors. The Company issued to the investors an aggregate of 114,888 units of the Company (each a “Series D Unit”), each consisting of (a) one share of the Company’s Common Stock, (b) a five year warrant to purchase, at an exercise price of $4.50 per share, one share of Common Stock, (c) a five year warrant to purchase, at an exercise price of $5.75 per share, one share of Common Stock, and (d) a five year warrant to purchase, at an exercise price of $7.75 per share, one share of Common Stock.

 

 15 

 

 

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, 2017. 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.

 

Overview

 

Incorporated in Delaware in May 2010, we are 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. 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 received 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.

 

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 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 the initial Conformité Européene (CE) Mark (indicating the conformity of the Company’s product with health, safety, and environmental protection standards for products sold within the European Economic Area) approval for the GlucoTrack® model DF-F non-invasive glucose monitoring device from DEKRA Certification B.V., our European notified body (the “Notified Body”), which is an entity that has been accredited by a member state of the European Union (“EU”) to assess whether a product to be placed on the market meets certain preordained standards.

 

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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. On August 31, 2015, we received a further approval from the Notified Body for improvements to the GlucoTrack® model DF-F to simplify and shorten the initial calibration process for the device (from approximately 2.5 hours to approximately half an hour). All these improvements enhance the competitiveness of the device and its commercial viability. 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, 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. As a result of these incremental, but important, enhancements to the performance of the device we believe that the product is ready for commercial launch in specific market segments.

 

Receipt of the CE Mark allows us to market and sell the GlucoTrack® model DF-F glucose monitoring device in 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. This would include some countries in South East Asia as well as Latin America opening new potential markets for Integrity on a global basis.

 

Safety and quality are non-negotiables in the medical devices industry. Regulatory requirements are increasingly stringent throughout every step of a product’s life cycle, including service and delivery. More and more, organizations in the industry are expected to demonstrate their quality management processes and ensure best practice in everything they do. ISO 13485, is an internationally agreed standard that sets out the requirements for a quality management system specific to the medical devices industry. 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. 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 U.S. Food and Drug Administration (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 expect that the regulatory pathway would be that of a de novo 510k, requiring a clinical trial design based on feedback from the agency. The initiation of clinical trials in the USA is subject to raising adequate financing to fund the clinical program through completion. If we are unable to raise additional capital of at least $10 million, we do not expect to commence such clinical trials.

 

Clinical trials conducted recently 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 (which is a new tool for evaluating the accuracy of a blood glucose meter) (Type 2), 99.3% of the study data points were within the clinically accepted A and B zones of the Clarke Error Grid (which is a tool used to quantify the clinical accuracy of blood glucose estimates generated by meters as compared to a reference value), 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 the second half of 2017 we conducted a strategic review of our previous commercial activities. We established a cross-functional task force with the goal of reviewing the current commercial performance in all countries and identifying the critical success factors (CSF’s) necessary for successful commercialization. The CSF’s that were determined to be most important to our future commercial success include: 1) selecting the right distribution partners within countries that have knowledge and experience in diabetes, the appropriate capabilities and proven performance in the sales, marketing, and customer service in support of medical devices, and a commitment to investing the appropriate resources required for a successful launch and building of the business; 2) segmenting and targeting the right customers including key opinion leaders, treating physicians, and diabetes nurses within the healthcare provider communities as well as those patient groups that will benefit most from the use of a non-invasive device; 3) revising the cost structure for GlucoTrack® so that it will be more affordable on a monthly basis for patients; and 4) working with government authorities and health insurance companies to achieve full or partial reimbursement for GlucoTrack® within covered medical plans.

 

We have started the implementation of this new commercial program by selecting two countries where we will pilot this approach as our proof-of-concept; the Netherlands and Israel. These countries were chosen based on the relatively smaller size of these marketplaces that will allow us to be able to rapidly assess our performance and make adjustments as necessary. On December 22, 2017 we signed an exclusive distribution agreement with a new partner in the Netherlands (MediReva B.V.) and are underway with launch preparations for the second quarter of 2018. We have been working closely with our new distributor and have accomplished: product and disease area training across the organization; segmentation of the local target audiences including key opinion leaders, treating physicians, and diabetes nurses; and discussions with the majority of health insurance companies.

 

We are also in negotiations with a new partner for Israel with the goal of launching in the third quarter of 2018. As soon as these two pilots demonstrate that our new strategic approach is successful, we plan to rapidly rollout this approach across prioritized European countries in the last quarter of 2018 and throughout 2019.

 

In the meantime, we have assessed the performance of all of our current distributors in Europe and Asia. A number of these agreements have been terminated given that they did not perform in the past and had minimal or no sales over the course of 2017. We are also initiating discussions with our distributors in the remaining countries to focus on changes needed to address the CSF’s for future success with implementation foreseen in the second half of 2018.

 

18
 

 

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. Moreover, 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. Following the receipt of an official clearance from the Taiwanese authorities on January 11, 2017 and the successful completion of a GMP (Good Manufacturing Practice) audit by the local regulatory authorities in July 2017, the production line for the GlucoTrack® model DF-F is now operational. 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 anticipate adding additional sites in Europe.

 

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

 

In December 2016, we had a poster at the 9th Annual World Congress on Prevention of Diabetes and its Complications (WCPD, in 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) 77th Scientific Sessions in San Diego, CA.

 

In September 2017, we presented key findings at the European Association for the Study of Diabetes Congress (EASD) in Lisbon, Portugal. 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. The study demonstrated that the use of these common concomitant medications in diabetes had no effect on the performance of GlucoTrack®. We also had a display booth at this conference that was well attended by hundreds of treating physicians and diabetes nurses.

 

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We have not yet generated any material revenues from our operations and, as of March 31, 2018, have incurred an accumulated deficit of $49,724,998, stockholders’ deficit of $16,286,538 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

 

During the first quarter of 2018, we received aggregate net proceeds of approximately $1.7 million (net of related cash expenses), from the issuance and sale in a private placement transaction of 435,556 Series D Units. As of March 31, 2018, the Series D Warrants (issued on December 1, 2017 and on the first quarter of 2018) are exercisable for an aggregate of 1,590,000 shares of Common Stock, in each case subject to adjustment in certain circumstances.

 

Pursuant to a placement agent agreement (the “Placement Agent Agreement”) with the placement agent, the Company paid the placement agent, as a commission, an amount equal to 10% of the aggregate sales price of the Series D Units sold in each closing, plus a non-accountable expense allowance equal to 3% of the aggregate sales price of the Series D Units sold in such closing. In addition, pursuant to the Placement Agent Agreement, in connection with the closings in the first quarter of 2018, the Company is required to issue to the placement agent: (a) 5-year warrants to purchase up to 87,112 shares of Common Stock at an exercise price of $4.50 per share, (b) 5-year warrants to purchase up to 43,556 shares of Common Stock at an exercise price of $5.75 per share, and (c) 5-year warrants to purchase up to 43,556 shares of Common Stock at an exercise price of $7.75 per share. The terms of such warrants are substantially similar to the Series D Warrants except that the warrants issued to the placement agent are exercisable on a cashless basis and include full ratchet anti-dilution protection

 

On March 23, 2018, the Company held its 2018 Special Meeting of Stockholders. At the Meeting, the Company’s stockholders voted on the proposal to approve and ratify the increase of the total number of shares authorized for issuance under the Company’s Compensation Plan to 7,000,000 shares, including an amendment to the Incentive Plan on April 7, 2017 to increase from 1,000,000 shares to 5,625,000 shares and another amendment on February 15, 2018 to increase from 5,625,000 shares to 7,000,000 shares.

 

We recently laid out our strategic priorities in terms of product enhancements and a future generation of products. As a result of the review of our corporate strategy, we have decided to concentrate our R&D activities around 4 main strategic pillars;

 

1.Wireless Connectivity

 

We have developed a wireless module (“WLM”) with embedded Bluetooth Low-Energy (BLE) and Wi-Fi technologies, which enables the transmission of measurement data captured by the GlucoTrack® model DF-F to a cloud-based server or a smart device. We expect this module and the related applications to facilitate viewing of glucose related data and correlate it closely with lifestyle choices made by the users, be that dietary choices or activity-based choices, among other things. The wireless module will also facilitate sharing, viewing and analysis of GlucoTrack® measurements and profile by clinicians and others caregivers.

 

2.Digital Health Applications

 

We intend to develop smart device applications (“Apps”) to facilitate the interaction of users with Glucotrack and the glucose data collected. We intend to develop Apps that support the management of Type 2 diabetics and pre-diabetic patients by provided immediate feedback and insights as to the glucose measurements. The goal is to provide relevant information to guide patients to change behavior and improve the management of their condition. The Apps are expected to have a user-directed capability to connect with third party healthcare providers (physicians, dieticians, and nurse practitioners), in order to receive professional guidance based on the accumulated information ultimately leading to improved management of the condition and better disease outcomes.

3.Accuracy

 

While the accuracy of the Glucotrack DF-F is sufficient for the management of Type 2 diabetics and pre-diabetic patients (and approved as such by the EU authorities) we strive to further improve the product in future iterations and maximize it’s potential by expanding the addressable market, e.g. into Type 1 diabetes. The research projects include further improving the algorithms involved in computing our glucose measurement data, as well as deeper research on the existing sensing technologies to improve sensitivity. The ultimate goal being to eventually commercialize a non-invasive device for all types of diabetics.

 

4.Miniaturization

 

The objective of this project is to reduce the existing device to a simple, aesthetically designed, wireless ear-clip which would measure glucose and communicate the results seamlessly to any other platform whether through a wireless connection to the cloud or a Bluetooth connection to a smart device such as a smartphone, tablet or computer. As a result, the current handheld display would be eliminated completely. The result would be a user- friendly, inconspicuous measuring device for the management of diabetes and pre-diabetes. With a significantly cheaper cost to manufacture than our current device.

 

Simultaneously we will be working to further simplify the calibration process eventually enabling self-calibration

 

After months of protracted negotiations with our China distributor we finally reached an impasse on several critical issues and decided that it would be in the best interests of the Company to terminate the existing agreements with such distributor due to various breaches of the distributor. On May 14, 2018, the Company sent notices to the distributor regarding the Company’s intention to terminate the agreement unless the breaches are cured within 30 days. The distributor plays a critical role in assisting the Company to obtain regulatory approval by the China Food and Drug Administration (“CFDA”) for the GlucoTrack® model DF-F. If the breaches are not cured within the given timeframe and the relationship is terminated, and as previously reported, the registration of GlucoTrack® in China will be delayed significantly while we seek new partnering options with the intent to re-submit the dossier at a later date. If we were unable to partner with another distributor in China on terms mutually agreed upon by us, we would not have the ability to distribute our products in China or obtain regulatory approve from the CFDA.

 

20
 

 

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.

 

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, 2017. Our management believes that, as for the financial statements for the periods included in this report, the going concern assessment 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 D Units, is a critical accounting policy, (iii) measurement of stock based compensation, and (iv) determination of net realizable value of inventory. 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.

 

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Going Concern Uncertainty

 

The development and commercialization of our product will require substantial expenditures. We have not yet generated any 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, 2017. (See also Note 1B to our interim financial statements for the period ended March 31, 2018). As a result, our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern in our Annual Report on Form 10-K for year ended December 31, 2017. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Recently Issued Accounting Pronouncements

 

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

 

commencing January 1, 2018, the company adopted Accounting Standard 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 Standard 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.

 

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

 

22
 

 

2. 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.

 

23
 

 

Results of Operations

 

The following discussion of our operating results explains material changes in our results of operations for the three-month period ended March 31, 2018 compared with the same period ended March 31, 2017. The discussion should be read in conjunction with the financial statements and related notes included elsewhere in this report.

 

Revenues

 

During the three-month period ended March 31, 2018, we had revenues of $28,209 from orders for our GlucoTrack® model DF-F glucose monitoring device and PECs that are replaced every six months, as compared with $96,237 for the prior-year period. During the first quarter of 2017 we received an initial order from a customer in Hong Kong.

 

We recognize revenues from sales of the GlucoTrack® model DF-F and PECs when control is transferred to the customer and collectability is probable.

 

Research and development expenses

 

Research and development expenses were $592,697 for the three-month period ended March 31, 2018, as compared to $581,539 for the prior-year period. There was no material change in research and development expenses between the two periods.

 

Research and development expenses consist primarily of salaries and other personnel-related expenses, including stock-based compensation expenses, 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 2018 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 $308,637 for the three-month period ended March 31, 2018, as compared to $236,939 for the prior-year period. The increase is attributable the hiring of a new Chief Commercialization Officer during the second quarter of 2017.

 

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 2018 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 $1,036,684 for the three-month period ended March 31, 2018, as compared to $1,877,359 for the prior-year period. The decrease is primarily attributable to severance paid to our former Chairman and CEO and former CFO of approximately $162,000 during the first quarter of 2017. In addition, the decrease is attributable to a one time signing bonus of $412,500 including employer payroll taxes and stock-based compensation in the amount of approximately $303,000 paid to our new Chairman and CEO, recruiting fees of $295,000 and the related professional fees associated with the changes in management, which occurred during the first quarter of 2017.

 

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 general and administrative expenses to increase during the remainder of 2018 and beyond.

 

24
 

 

Financing income, net

 

Financing income, net was $62,015 for the three-month period ended March 31, 2018, as compared to $69,275 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 March 31, 2018 and 2017 amounted to $77,947 and $84,099, 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 $1,847,794 for the three-month period ended March 31, 2018, as compared to $2,530,325 for the prior-year period. The decrease in net loss is attributable primarily to the decrease in our general and administrative expenses, as described above.

 

Liquidity and Capital Resources

 

As of March 31, 2018, cash on hand was approximately $314,000. During the first quarter of 2018, we received aggregate net proceeds of approximately $1.7 million (net of related cash expenses), from the issuance and sale in a private placement transaction of 435,556 Series D Units. 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 one month 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 $42,686 based on the exchange rate of 3.514 NIS/dollar as of March 31, 2018). 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.

 

Messrs. Avner Gal and Zvi Cohen collectively loaned Integrity Israel NIS 176,000 ($50,085 based on the same exchange rate) on May 15, 2002 pursuant to a board approval. Messrs. Nir Tarlovsky, Yitzhak Fisher and Asher Kugler loaned Integrity Israel NIS 336,300 ($95,703 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 of Directors 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 March 31, 2018, the contingent liability with respect to royalty payment on future sales equaled approximately $34,717, excluding interest.

 

25
 

 

Net Cash Used in Operating Activities for the Three-Month Periods Ended March 31, 2018 and March 31, 2017

 

Net cash used in operating activities was $1,426,868 and $1,146,113 for the three-month periods ended March 31, 2018 and 2017, respectively. Net cash used in operating activities primarily reflects the net loss for those periods of $1,847,794 and $2,530,325, respectively, increased by non-cash changes in fair value of Warrants with down-round protection of $77,947 and $84,099, respectively and partially offset by the increase of $187,302 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 amounts of $283,276 and $873,678, respectively. The decrease in operating assets and liabilities during the three-month period ended March 31, 2018 resulted primarily from decrease in our current liabilities as a result of deferral of the payment of the one-time signing bonus to our new Chairman and CEO which was paid during the second quarter of 2017.

 

Net Cash Used in Investing Activities for the Three-Month Periods Ended March 31, 2018 and March 31, 2017

 

Net cash used in investing activities was $931 and $1,477 for the three-month periods ended March 31, 2018, and 2017, respectively, and was used to purchase equipment (such as computers, R&D and office equipment).

 

Net Cash Provided by Financing Activities for the Three-Month Periods Ended March 31, 2018 and March 31, 2017

 

Net cash provided by financing activities was $1,697,700 and $2,599,071 for the three-month period ended March 31, 2018 and 2017, respectively. Cash provided by financing activities for the three-month period ended March 31, 2018 reflected net capital raised from the issuance of Series D Units. Cash used in financing activities for the three-month period ended March 31, 2017 reflected net capital raised from the issuance of Series C Units.

 

Off-Balance Sheet Arrangements

 

As of March 31, 2018, 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.

 

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 March 31, 2018. 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 March 31, 2018, 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.

 

26
 

 

PART II - OTHER INFORMATION

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

Offering of Series D Units

 

On May 10, 2018, the Company received aggregate gross proceeds of $517,000 in the fifth closing of the private placement of its securities from seven accredited investors. The Company issued to the investors an aggregate of 114,888 units of the Company (each a “Series D Unit”), each consisting of (a) one share of the Company’s Common Stock, (b) a five year warrant to purchase, at an exercise price of $4.50 per share, one share of Common Stock, (c) a five year warrant to purchase, at an exercise price of $5.75 per share, one share of Common Stock, and (d) a five year warrant to purchase, at an exercise price of $7.75 per share, one share of Common Stock.

 

Issuance of Non-Qualified Stock Options to Employees

 

On February 15, 2018, we issued a ten-year non-qualified stock option to various employees, for the purchase of 767,500 shares of Common Stock at an exercise price of $4.50 per share, with three-year quarterly vesting commencing on the first quarter after the effective date.

 

27
 

 

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)
4.1   Form of Series D Securities Purchase Agreement (2)
4.2   Form of Series D-1 Common Stock Purchase Warrant (2)
4.3   Form of Series D-2 Common Stock Purchase Warrant (2)
4.4   Form of Series D-3 Common Stock Purchase Warrant (2)
4.5   Form of Series D Registration Rights Agreement (2)
10.1 *   Amendment No. 3 to Integrity Applications, Inc. 2010 Incentive Compensation Plan (3)
31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
31.2   Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
32.1   Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Furnished herewith)
32.2   Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Furnished herewith)
101.INS   XBRL Instance Document (4)
101.SCH   XBRL Schema Document (4)
101.CAL   XBRL Calculation Linkbase Document (4)
101.LAB   XBRL Label Linkbase Document (4)
101.PRE   XBRL Presentation Linkbase Document (4)
101.DEF   XBRL Definition Linkbase Document (4)

 

 

(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 7, 2018, 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 March 23, 2018, which exhibit is incorporated herein by reference.
(4) Pursuant to Rule 402 of Regulation S-T, the interactive files on Exhibit 101 hereto are deemed not filed for purposes of Section 11 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, or otherwise subject to liability under those sections, and are not part of any registration statement to which they relate.
* Compensation Plan or Arrangement or Management Contract.

 

28
 

 

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: May 15, 2018

 

  INTEGRITY APPLICATIONS, INC.
     
  By: /s/ John Graham
  Name: John Graham
  Title Chairman of the Board and Chief Executive Officer
    (Principal Executive Officer)
     
  By: /s/ Sami Sassoun
  Name: Sami Sassoun
  Title Chief Financial Officer
    (Principal Accounting Officer)

 

29
 

EX-31.1 2 ex31-1.htm

 

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF

THE 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 March 31, 2018 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.

 

Date: May 15, 2018 By: /s/ John Graham
    John Graham
    Chairman of the Board and Chief Executive Officer
    (Principal Executive Officer)

 

   

 

 

EX-31.2 3 ex31-2.htm

 

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF

THE 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 March 31, 2018 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.

 

Date: May 15, 2018 By: /s/ Sami Sassoun
    Sami Sassoun
    Chief Financial Officer
    (Principal Accounting Officer)

 

   

 

 

EX-32.1 4 ex32-1.htm

 

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 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 three-month period ended March 31, 2018, 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
    John Graham
    Chairman of the Board and Chief Executive Officer
    (Principal Executive Officer)
     
  Dated: May 15, 2018

 

   

 

 

EX-32.2 5 ex32-2.htm

 

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 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 three-month period ended March 31, 2018, 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
    Sami Sassoun
    Chief Financial Officer
    (Principal Accounting Officer)
     
  Dated: May 15, 2018

 

   

 

 

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Document and Entity Information - shares
3 Months Ended
Mar. 31, 2018
May 15, 2018
Document And Entity Information    
Entity Registrant Name Integrity Applications, Inc.  
Entity Central Index Key 0001506983  
Document Type 10-Q  
Document Period End Date Mar. 31, 2018  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   7,584,492
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2018  
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Condensed Consolidated Balance Sheets - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Current Assets    
Cash and cash equivalents $ 314,387 $ 53,782
Accounts receivable, net 147,378 121,782
Inventories 934,239 957,349
Other current assets 87,907 94,137
Total current assets 1,483,911 1,227,050
Property and Equipment, Net 198,839 216,746
Long-Term Restricted Cash 39,033 39,562
Funds in Respect of Employee Rights Upon Retirement 183,088 185,570
Total assets 1,904,871 1,668,928
Current Liabilities    
Accounts payable 2,468,230 2,419,988
Other current liabilities 1,123,436 1,265,954
Total current liabilities 3,591,666 3,685,942
Long-Term Liabilities    
Long-Term Loans from Stockholders 179,423 182,767
Liability for Employee Rights Upon Retirement 183,088 185,570
Warrants with down-round protection 815,899 768,249
Total long-term liabilities 1,178,410 1,136,586
Total liabilities 4,770,076 4,822,528
Temporary Equity    
Total temporary equity 13,421,333 13,421,333
Stockholders’ Deficit    
Common Stock of $ 0.001 par value (“Common Stock”): 40,000,000 shares authorized as of March 31, 2018 and December 31, 2017; 7,469,604 and 6,821,792 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively 7,532 6,824
Additional paid in capital 33,312,949 30,676,180
Accumulated other comprehensive income 117,979 110,675
Accumulated deficit (49,724,998) (47,368,612)
Total stockholders’ deficit (16,286,538) (16,574,933)
Total liabilities, temporary equity and stockholders’ deficit 1,904,871 1,668,928
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”): $ 6,484,337 $ 6,484,337
XML 14 R3.htm IDEA: XBRL DOCUMENT v3.8.0.1
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 2018
Dec. 31, 2017
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 40,000,000 40,000,000
Common stock, shares issued 7,469,604 6,821,792
Common stock, shares outstanding 7,469,604 6,821,792
Series A Preferred Stock [Member]    
Convertible preferred stock, shares issued 376 376
Convertible preferred stock, shares outstanding 376 376
Series B Preferred Stock [Member]    
Convertible preferred stock, shares issued 15,031 15,031
Convertible preferred stock, shares outstanding 15,031 15,031
Series C Preferred Stock [Member]    
Convertible preferred stock, shares issued 12,004 12,004
Convertible preferred stock, shares outstanding 12,004 12,004
Preferred Stock [Member]    
Convertible preferred stock, par value $ 0.001 $ 0.001
Convertible preferred stock, shares authorized 10,000,000 10,000,000
XML 15 R4.htm IDEA: XBRL DOCUMENT v3.8.0.1
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($)
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Income Statement [Abstract]    
Revenues $ 28,209 $ 96,237
Research and development expenses 592,697 581,539
Selling and marketing expenses 308,637 236,939
General and administrative expenses 1,036,684 1,877,359
Total operating expenses 1,938,018 2,695,837
Operating loss 1,909,809 2,599,600
Financing income, net 62,015 69,275
Loss for the period 1,847,794 2,530,325
Other comprehensive income:    
Foreign currency translation income 7,304 32,739
Comprehensive loss for the period $ 1,840,490 $ 2,497,586
Loss per share (Basic and Diluted) $ 0.34 $ 0.48
Common shares used in computing loss per share (Basic and Diluted) 7,021,533 6,029,342
XML 16 R5.htm IDEA: XBRL DOCUMENT v3.8.0.1
Condensed Consolidated Statement of Changes in Stockholders' Deficit (Unaudited) - 3 months ended Mar. 31, 2018 - USD ($)
Common Stock [Member]
Additional Paid-In Capital [Member]
Accumulated Other Comprehensive Income [Member]
Accumulated Deficit [Member]
Total
Balance at Dec. 31, 2017 $ 6,824 $ 30,676,180 $ 110,675 $ (47,368,612) $ (16,574,933)
Balance, shares at Dec. 31, 2017 6,821,792        
Loss for the period of three months (1,847,794) (1,847,794)
Other comprehensive income 7,304 7,304
Amounts allocated to Series D-1, D-2 and Series D-3 Warrants, net 716,093 716,093
Stock dividend on Series C Preferred Stock $ 91 223,642 (223,733)
Stock dividend on Series C Preferred Stock, shares 91,283        
Stock dividend on Series B Preferred Stock $ 114 280,045 (280,159)
Stock dividend on Series B Preferred Stock, shares 114,304        
Cash dividend on Series A Preferred Stock (4,700) (4,700)
Amounts allocated to issuance of Common Stock from Series D offering $ 436 855,574 856,010
Amounts allocated to issuance of Common Stock from Series D offering, shares 435,556        
Stock-based compensation $ 67 561,415 561,482
Stock-based compensation, shares 6,669        
Balance at Mar. 31, 2018 $ 7,532 $ 33,312,949 $ 117,979 $ (49,724,998) $ (16,286,538)
Balance, shares at Mar. 31, 2018 7,469,604        
XML 17 R6.htm IDEA: XBRL DOCUMENT v3.8.0.1
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Cash flows from operating activities:    
Loss for the period $ (1,847,794) $ (2,530,325)
Adjustments to reconcile loss for the period to net cash used in operating activities:    
Depreciation 16,138 16,380
Stock-based compensation 561,482 374,180
Change in the fair value of Warrants with down-round protection (77,947) (84,099)
Linkage difference on principal of loans from stockholders (911) (1,367)
Changes in assets and liabilities:    
(Increase) decrease in accounts receivable (27,585) 2,255
Decrease in inventory 10,442 78,416
Decrease in other current assets 5,128 190,590
(Decrease) increase in accounts payable 66,355 (129,419)
Increase in other current liabilities (132,176) 937,276
Net cash used in operating activities (1,426,868) (1,146,113)
Cash flows from investing activities:    
Purchase of property and equipment (931) (1,477)
Net cash used in investing activities (931) (1,477)
Cash flows from financing activities    
Cash dividend on Series A Preferred Stock
Proceeds allocated to Series C Preferred Stock, net of cash issuance expenses 1,738,259
Proceeds allocated to Series C Warrants, net of cash issuance expenses 860,812
Proceeds allocated to Common Stock from Series D offering, net of cash issuance expenses 924,398
Proceeds allocated to Series D Warrants, net of cash issuance expenses 773,302
Net cash provided by financing activities 1,697,700 2,599,071
Effect of exchange rate changes on cash and cash equivalents (9,296) 38,686
Increase (decrease) in cash and cash equivalents 260,605 1,490,167
Cash and cash equivalents at beginning of the period 53,782 148,836
Cash and cash equivalents at end of the period $ 314,387 $ 1,639,003
XML 18 R7.htm IDEA: XBRL DOCUMENT v3.8.0.1
Condensed Consolidated Statements of Cash Flows (Unaudited) (Parenthetical)
3 Months Ended
Mar. 31, 2018
USD ($)
Cash dividend $ (4,700)
Fair value of warrants issued as consideration for placement agent services 125,597
Series B Preferred Stock [Member]  
Fair value of common stock shares issued 280,159
Series C Preferred Stock [Member]  
Fair value of common stock shares issued 223,733
Series A Preferred Stock [Member]  
Cash dividend 4,700
Series B and C Preferred Stock [Member]  
Stock dividend $ 503,892
Preferred stock interest rate percentage 9.00%
Series D-1,D-2 and D-3 Warrants [Member]  
Direct issuance expenses $ 57,209
Common Stock [Member]  
Cash dividend
Reduction of additional paid in capital $ 68,388
XML 19 R8.htm IDEA: XBRL DOCUMENT v3.8.0.1
General
3 Months Ended
Mar. 31, 2018
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 became 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.
     
  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 March 31, 2018, the Group has incurred accumulated deficit of $49,724,998, stockholder’s deficit of $16,286,538 negative operating cash flows and negative working capital. 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. During the three months ended March 31, 2018, the Company raised funds in an aggregate amount of approximately $1,697,700 (net of related cash expenses) through the issuance of 435,556 units (the “Series D Units”) each consisting of a) one share of Common Stock, Par Value $0.001 b) a five year warrant to purchase, at an exercise price of $4.50 per share, one share of Common Stock; c) a five year warrant to purchase, at an exercise price of $5.75 per share, one share of Common Stock; and d) a five year warrant to purchase, at an exercise price of $7.75 per share, one share of Common Stock.
     
    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 D Units, (iii) the going concern assumptions, (iv) measurement of stock based compensation, and (v) determination of net realizable value of inventory.

XML 20 R9.htm IDEA: XBRL DOCUMENT v3.8.0.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2018
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, 2017, filed with the Securities and Exchange Commission (“SEC”) on March 30, 2018. The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the 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 months ended March 31, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018 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 its placement agent as part of the series A Unit offering, the series B Unit offering, the series C Unit offering and the series D 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  
    March 31,  
    2018     2017  
    (unaudited)  
             
Balance, Beginning of the period     768,249       681,970  
Warrants issued as consideration for placement services     125,597       156,732  
Change in fair value Warrants with Down-Round Protection     (77,947 )     (84,099 )
                 
Balance, End of period     815,899       754,603  

 

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

 

    March 31,  
    2018     2017  
Dividend yield (%)     -       -  
Expected volatility (%) (*)     56.59       56.59  
Risk free interest rate (%)     1.31       0.92  
Expected term of options (years)     1.75-4.92       0.95-4.94  
Exercise price (US dollars)     4.50-7.75       4.50, 7.75  
Share price (US dollars) (**)     2.45       2.38  
Fair value (US dollars) (***)     0.09-0.81       0.11-0.74  

 

  (*) Due to the low trading volume of the Company’s Common Stock, the expected volatility was based on a sample of 254 companies operating in the Healthcare Products industry.
  (**) The Common Stock price, per share reflects the Company’s management’s estimation of the fair value per share of Common Stock as of March 31, 2018 and 2017. 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 and the Series D Units, as applicable to each reporting period (See Note 3).
  (***) The below chart reflects the Fair Value for each of the Warrants with down-round Protection that were outstanding as of March 31, 2018 in US dollars.

  

    Andrew Garrett, Inc., (“AGI”) - Series A     AGI - Series B     AGI - Series C     Placement Agent -
Series D
 
Total quantity     364,071       566,897       844,605       212,000  
Exercise price     4.5       4.5, 7.75       4.5, 7.75       4.5, 5.75, 7.75  
Fair value     0.27       0.09 – 0.29       0.25 – 0.73       0.47 – 0.81  

 

  C. Revenue recognition

 

The company recognize revenues from sales of the GlucoTrack® model DF-F and personal ear-clips (“PECs”) when control is transferred to the customer and collectability is probable.

 

  D. Recently issued accounting pronouncements

 

  1. Accounting Standard Update 2014-09, “Revenue from Contracts with Customers”
     
    Commencing January 1, 2018 the Company adopted Accounting Standard 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 Standard 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.

 

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

 

  2. 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.

XML 21 R10.htm IDEA: XBRL DOCUMENT v3.8.0.1
Recent Events
3 Months Ended
Mar. 31, 2018
Recent Events  
Recent Events

NOTE 3 – RECENT EVENTS

 

During the first quarter of 2018, we received aggregate net proceeds of approximately $1.7 million (net of related cash expenses), from the issuance and sale in a private placement transaction of 435,556 Series D Units. As of March 31, 2018, the Series D Warrants (issued on December 1, 2017 and on the first quarter of 2018) are exercisable for an aggregate of 1,590,000 shares of Common Stock, in each case subject to adjustment in certain circumstances.

 

Pursuant to a placement agent agreement (the “Placement Agent Agreement”) with the placement agent, the Company paid the placement agent, as a commission, an amount equal to 10% of the aggregate sales price of the Series D Units sold in each closing, plus a non-accountable expense allowance equal to 3% of the aggregate sales price of the Series D Units sold in such closing. In addition, pursuant to the Placement Agent Agreement, in connection with the closings in the first quarter of 2018, the Company is required to issue to the placement agent: (a) 5-year warrants to purchase up to 106,000 shares of Common Stock at an exercise price of $4.50 per share, (b) 5-year warrants to purchase up to 53,000 shares of Common Stock at an exercise price of $5.75 per share, and (c) 5-year warrants to purchase up to 53,000 shares of Common Stock at an exercise price of $7.75 per share. The terms of such warrants are substantially similar to the Series D Warrants except that the warrants issued to the placement agent are exercisable on a cashless basis and include full ratchet anti-dilution protection.

 

On February 15, 2018, we issued a ten-year non-qualified stock option to various employees, for the purchase of 767,500 shares of Common Stock at an exercise price of $4.50 per share, with three-year quarterly vesting commencing on the first quarter after the effective date.

XML 22 R11.htm IDEA: XBRL DOCUMENT v3.8.0.1
Inventories
3 Months Ended
Mar. 31, 2018
Inventory Disclosure [Abstract]  
Inventories

NOTE 4 – INVENTORIES

 

    US dollars  
    March 31, 2018     December 31, 2017  
    (unaudited)        
             
Raw materials     14,504       12,734  
Work in process     1,590,283       1,556,256  
Finished products     85,586       144,493  
                 
      1,690,373       1,713,483  
Less – provision for slow moving inventory     (756,134 )     (756,134 )
                 
      934,239       957,349  

XML 23 R12.htm IDEA: XBRL DOCUMENT v3.8.0.1
Other Current Liabilities
3 Months Ended
Mar. 31, 2018
Other Liabilities Disclosure [Abstract]  
Other Current Liabilities

NOTE 5 – OTHER CURRENT LIABILITIES

 

    US dollars  
    March 31, 2018     December 31, 2017  
    (unaudited)        
             
Employees and related institutions     245,003       336,783  
Accrued expenses and other     878,433       929,171  
                 
      1,123,436       1,265,954  

XML 24 R13.htm IDEA: XBRL DOCUMENT v3.8.0.1
Financing Income, Net
3 Months Ended
Mar. 31, 2018
Other Income and Expenses [Abstract]  
Finance Income, Net

NOTE 6 – FINANCING INCOME, NET

 

    US dollars  
    Three-month period
ended March 31,
 
    2018     2017  
    (unaudited)  
Israeli CPI linkage difference on principal of loans from stockholders     911       1,367  
Exchange rate differences     (13,627 )     (10,474 )
Change in fair value of Warrants with down round protection     77,947       84,099  
Other     (3,216 )     (5,717 )
      62,015       69,275  

XML 25 R14.htm IDEA: XBRL DOCUMENT v3.8.0.1
Loss Per Share
3 Months Ended
Mar. 31, 2018
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 three-month periods ended March 31, 2018 and 2017 are as follows:

 

    US dollars  
    Three-month period
ended March 31,
 
    2018     2017  
    (unaudited)  
Loss for the period     1,847,794       2,530,325  
Cash dividend on Series A Preferred Stock     4,700       4,700  
Stock dividend on Series B Preferred Stock     280,159       246,031  
Stock dividend on Series C Preferred Stock     223,733       115,986  
Loss for the period attributable to common stockholders     2,356,386       2,897,042  

  

    Number of shares  
    Three-month period ended March 31,  
    2018     2017  
    (unaudited)  
Number of shares:                
Weighted average number of shares used in the computation of basic and diluted earnings per share     7,021,533       6,029,342  
                 
Total weighted average number of common shares related to outstanding convertible preferred stock, options and warrants excluded from the calculations of diluted loss per share (*)     25,524,332       16,056,013  

 

  (*) 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.

XML 26 R15.htm IDEA: XBRL DOCUMENT v3.8.0.1
Subsequent Events
3 Months Ended
Mar. 31, 2018
Subsequent Events [Abstract]  
Subsequent Events

NOTE 8 – SUBSEQUENT EVENTS

 

On May 10, 2018, the Company received aggregate gross proceeds of $517,000 in the fifth closing of the private placement of its securities from seven accredited investors. The Company issued to the investors an aggregate of 114,888 units of the Company (each a “Series D Unit”), each consisting of (a) one share of the Company’s Common Stock, (b) a five year warrant to purchase, at an exercise price of $4.50 per share, one share of Common Stock, (c) a five year warrant to purchase, at an exercise price of $5.75 per share, one share of Common Stock, and (d) a five year warrant to purchase, at an exercise price of $7.75 per share, one share of Common Stock.

XML 27 R16.htm IDEA: XBRL DOCUMENT v3.8.0.1
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2018
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, 2017, filed with the Securities and Exchange Commission (“SEC”) on March 30, 2018. The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the 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 months ended March 31, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018 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 its placement agent as part of the series A Unit offering, the series B Unit offering, the series C Unit offering and the series D 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  
    March 31,  
    2018     2017  
    (unaudited)  
             
Balance, Beginning of the period     768,249       681,970  
Warrants issued as consideration for placement services     125,597       156,732  
Change in fair value Warrants with Down-Round Protection     (77,947 )     (84,099 )
                 
Balance, End of period     815,899       754,603  

 

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

 

    March 31,  
    2018     2017  
Dividend yield (%)     -       -  
Expected volatility (%) (*)     56.59       56.59  
Risk free interest rate (%)     1.31       0.92  
Expected term of options (years)     1.75-4.92       0.95-4.94  
Exercise price (US dollars)     4.50-7.75       4.50, 7.75  
Share price (US dollars) (**)     2.45       2.38  
Fair value (US dollars) (***)     0.09-0.81       0.11-0.74  

 

  (*) Due to the low trading volume of the Company’s Common Stock, the expected volatility was based on a sample of 254 companies operating in the Healthcare Products industry.
  (**) The Common Stock price, per share reflects the Company’s management’s estimation of the fair value per share of Common Stock as of March 31, 2018 and 2017. 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 and the Series D Units, as applicable to each reporting period (See Note 3).
  (***) The below chart reflects the Fair Value for each of the Warrants with down-round Protection that were outstanding as of March 31, 2018 in US dollars.

  

    Andrew Garrett, Inc., (“AGI”) - Series A     AGI - Series B     AGI - Series C     Placement Agent -
Series D
 
Total quantity     364,071       566,897       844,605       212,000  
Exercise price     4.5       4.5, 7.75       4.5, 7.75       4.5, 5.75, 7.75  
Fair value     0.27       0.09 – 0.29       0.25 – 0.73       0.47 – 0.81  

Revenue Recognition

  C. Revenue recognition

 

The company recognize revenues from sales of the GlucoTrack® model DF-F and personal ear-clips (“PECs”) when control is transferred to the customer and collectability is probable.

Recently Issued Accounting Pronouncements

  D. Recently issued accounting pronouncements

 

  1. Accounting Standard Update 2014-09, “Revenue from Contracts with Customers”
     
    Commencing January 1, 2018 the Company adopted Accounting Standard 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 Standard 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.

 

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

 

  2. 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.

XML 28 R17.htm IDEA: XBRL DOCUMENT v3.8.0.1
Summary of Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2018
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 Protection  
    March 31,  
    2018     2017  
    (unaudited)  
             
Balance, Beginning of the period     768,249       681,970  
Warrants issued as consideration for placement services     125,597       156,732  
Change in fair value Warrants with Down-Round Protection     (77,947 )     (84,099 )
                 
Balance, End of period     815,899       754,603  

Schedule of Calculations of Fair Value Assumptions

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

 

    March 31,  
    2018     2017  
Dividend yield (%)     -       -  
Expected volatility (%) (*)     56.59       56.59  
Risk free interest rate (%)     1.31       0.92  
Expected term of options (years)     1.75-4.92       0.95-4.94  
Exercise price (US dollars)     4.50-7.75       4.50, 7.75  
Share price (US dollars) (**)     2.45       2.38  
Fair value (US dollars) (***)     0.09-0.81       0.11-0.74  

 

  (*) Due to the low trading volume of the Company’s Common Stock, the expected volatility was based on a sample of 254 companies operating in the Healthcare Products industry.
  (**) The Common Stock price, per share reflects the Company’s management’s estimation of the fair value per share of Common Stock as of March 31, 2018 and 2017. 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 and the Series D Units, as applicable to each reporting period (See Note 3).
  (***) The below chart reflects the Fair Value for each of the Warrants with down-round Protection that were outstanding as of March 31, 2018 in US dollars.

Schedule of Fair Value of Warrants with Down Round Protection

    Andrew Garrett, Inc., (“AGI”) - Series A     AGI - Series B     AGI - Series C     Placement Agent -
Series D
Total quantity     364,071       566,897       844,605       212,000
Exercise price     4.5       4.5, 7.75       4.5, 7.75       4.5, 5.75, 7.75
Fair value     0.27       0.09 – 0.29       0.25 – 0.73       0.47 – 0.81

XML 29 R18.htm IDEA: XBRL DOCUMENT v3.8.0.1
Inventories (Tables)
3 Months Ended
Mar. 31, 2018
Inventory Disclosure [Abstract]  
Schedule of Inventories

    US dollars  
    March 31, 2018     December 31, 2017  
    (unaudited)        
             
Raw materials     14,504       12,734  
Work in process     1,590,283       1,556,256  
Finished products     85,586       144,493  
                 
      1,690,373       1,713,483  
Less – provision for slow moving inventory     (756,134 )     (756,134 )
                 
      934,239       957,349  

XML 30 R19.htm IDEA: XBRL DOCUMENT v3.8.0.1
Other Current Liabilities (Tables)
3 Months Ended
Mar. 31, 2018
Other Liabilities Disclosure [Abstract]  
Schedule of Other Current Liabilities

    US dollars  
    March 31, 2018     December 31, 2017  
    (unaudited)        
             
Employees and related institutions     245,003       336,783  
Accrued expenses and other     878,433       929,171  
                 
      1,123,436       1,265,954  

XML 31 R20.htm IDEA: XBRL DOCUMENT v3.8.0.1
Financing Income, Net (Tables)
3 Months Ended
Mar. 31, 2018
Other Income and Expenses [Abstract]  
Schedule of Financing Income, Net

    US dollars  
    Three-month period
ended March 31,
 
    2018     2017  
    (unaudited)  
Israeli CPI linkage difference on principal of loans from stockholders     911       1,367  
Exchange rate differences     (13,627 )     (10,474 )
Change in fair value of Warrants with down round protection     77,947       84,099  
Other     (3,216 )     (5,717 )
      62,015       69,275  

XML 32 R21.htm IDEA: XBRL DOCUMENT v3.8.0.1
Loss Per Share (Tables)
3 Months Ended
Mar. 31, 2018
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 three-month periods ended March 31, 2018 and 2017 are as follows:

 

    US dollars  
    Three-month period
ended March 31,
 
    2018     2017  
    (unaudited)  
Loss for the period     1,847,794       2,530,325  
Cash dividend on Series A Preferred Stock     4,700       4,700  
Stock dividend on Series B Preferred Stock     280,159       246,031  
Stock dividend on Series C Preferred Stock     223,733       115,986  
Loss for the period attributable to common stockholders     2,356,386       2,897,042  

  

    Number of shares  
    Three-month period ended March 31,  
    2018     2017  
    (unaudited)  
Number of shares:                
Weighted average number of shares used in the computation of basic and diluted earnings per share     7,021,533       6,029,342  
                 
Total weighted average number of common shares related to outstanding convertible preferred stock, options and warrants excluded from the calculations of diluted loss per share (*)     25,524,332       16,056,013  

 

  (*) 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.

XML 33 R22.htm IDEA: XBRL DOCUMENT v3.8.0.1
General (Details Narrative) - USD ($)
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Dec. 31, 2017
Accumulated deficit $ 49,724,998   $ 47,368,612
Stockholder's deficit 16,286,538   $ 16,574,933
Proceeds from issuance of common stock, net of issuance expenses $ 773,302  
Common stock par value $ 0.001   $ 0.001
Series D Units [Member]      
Proceeds from issuance of common stock, net of issuance expenses $ 1,697,700    
Number of shares issued during period 435,556    
Common stock par value $ 0.001    
Series D Units [Member] | Exercise Price One [Member]      
Warrant term 5 years    
Warrant exercise price $ 4.50    
Series D Units [Member] | Exercise Price Two [Member]      
Warrant term 5 years    
Warrant exercise price $ 5.75    
Series D Units [Member] | Exercise Price Three [Member]      
Warrant term 5 years    
Warrant exercise price $ 7.75    
XML 34 R23.htm IDEA: XBRL DOCUMENT v3.8.0.1
Summary of Significant Accounting Policies - Schedule of Changes in Fair Value of Level 3 Liability (Details) - USD ($)
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Accounting Policies [Abstract]    
Balance, Beginning of the period $ 768,249 $ 681,970
Warrants issued as consideration for placement services 125,597 156,732
Change in fair value Warrants with Down-Round Protection (77,947) (84,099)
Balance, End of period $ 815,899 $ 754,603
XML 35 R24.htm IDEA: XBRL DOCUMENT v3.8.0.1
Summary of Significant Accounting Policies - Schedule of Calculations of Fair Value Assumptions (Details) - Valuation Technique, Option Pricing Model [Member] - $ / shares
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Dividend Yield [Member]    
Fair value assumptions, measurement input, percentages 0.00% 0.00%
Expected Volatility [Member]    
Fair value assumptions, measurement input, percentages [1] 56.59% 56.59%
Risk Free Interest Rate [Member]    
Fair value assumptions, measurement input, percentages 1.31% 0.92%
Expected Term of Options [Member] | Minimum [Member]    
Fair value assumptions, measurement input, term 1 year 9 months 11 months 12 days
Expected Term of Options [Member] | Maximum [Member]    
Fair value assumptions, measurement input, term 4 years 11 months 8 days 4 years 11 months 8 days
Exercise Price [Member] | Minimum [Member]    
Fair value assumptions, measurement input, per share $ 4.50 $ 4.50
Exercise Price [Member] | Maximum [Member]    
Fair value assumptions, measurement input, per share 7.75 7.75
Share Price [Member]    
Fair value assumptions, measurement input, per share [2] 2.45 2.38
Fair Value [Member] | Minimum [Member]    
Fair value assumptions, measurement input, per share [3] 0.09 0.11
Fair Value [Member] | Maximum [Member]    
Fair value assumptions, measurement input, per share [3] $ 0.81 $ 0.74
[1] Due to the low trading volume of the Company's Common Stock, the expected volatility was based on a sample of 254 companies operating in the Healthcare Products industry.
[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 March 31, 2018 and 2017. 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 and the Series D Units, as applicable to each reporting period (See Note 3).
[3] The below chart reflects the Fair Value for each of the Warrants with down-round Protection that were outstanding as of March 31, 2018 in US dollars.
XML 36 R25.htm IDEA: XBRL DOCUMENT v3.8.0.1
Summary of Significant Accounting Policies - Schedule of Fair Value of Warrants with Down Round Protection (Details)
Mar. 31, 2018
$ / shares
shares
Andrew Garrett Inc - Series A [Member]  
Total quantity | shares 364,071
Exercise price $ 4.5
Fair value $ 0.27
Andrew Garrett Inc - Series B [Member]  
Total quantity | shares 566,897
Andrew Garrett Inc - Series B [Member] | Minimum [Member]  
Fair value $ 0.09
Andrew Garrett Inc - Series B [Member] | Maximum [Member]  
Fair value 0.29
Andrew Garrett Inc - Series B [Member] | Exercise Price One [Member]  
Exercise price 4.5
Andrew Garrett Inc - Series B [Member] | Exercise Price Two [Member]  
Exercise price $ 7.75
Andrew Garrett Inc - Series C [Member]  
Total quantity | shares 844,605
Andrew Garrett Inc - Series C [Member] | Minimum [Member]  
Fair value $ 0.25
Andrew Garrett Inc - Series C [Member] | Maximum [Member]  
Fair value 0.73
Andrew Garrett Inc - Series C [Member] | Exercise Price One [Member]  
Exercise price 4.5
Andrew Garrett Inc - Series C [Member] | Exercise Price Two [Member]  
Exercise price $ 7.75
Placement Agent - Series D [Member]  
Total quantity | shares 212,000
Placement Agent - Series D [Member] | Minimum [Member]  
Fair value $ 0.47
Placement Agent - Series D [Member] | Maximum [Member]  
Fair value 0.81
Placement Agent - Series D [Member] | Exercise Price One [Member]  
Exercise price 4.5
Placement Agent - Series D [Member] | Exercise Price Two [Member]  
Exercise price 5.75
Placement Agent - Series D [Member] | Exercise Price Three [Member]  
Exercise price $ 7.75
XML 37 R26.htm IDEA: XBRL DOCUMENT v3.8.0.1
Recent Events (Details Narrative) - USD ($)
3 Months Ended
Feb. 18, 2018
Mar. 31, 2018
Mar. 31, 2017
Proceeds from issuance of Common Stock   $ 773,302
Series D Units [Member]      
Proceeds from issuance of Common Stock   $ 1,697,700  
Number of shares issued during period   435,556  
Warrants Units exercisable for an common stock   1,590,000  
Series D Units [Member] | Exercise Price One [Member]      
Warrant term   5 years  
Warrants to purchase common stock   106,000  
Warrant exercise price   $ 4.50  
Series D Units [Member] | Exercise Price Two [Member]      
Warrant term   5 years  
Warrants to purchase common stock   53,000  
Warrant exercise price   $ 5.75  
Series D Units [Member] | Exercise Price Three [Member]      
Warrant term   5 years  
Warrants to purchase common stock   53,000  
Warrant exercise price   $ 7.75  
Series D Units [Member] | Placement Agent Agreement [Member]      
Percentage of units sold   0.10  
Non-accountable expense allowance percentage   3.00%  
Non-qualified Stock Option [Member] | Employees [Member]      
Number of common stock options issued 767,500    
Stock option term 10 years    
Stock option exercise price $ 4.50    
XML 38 R27.htm IDEA: XBRL DOCUMENT v3.8.0.1
Inventories - Schedule of Inventories (Details) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Inventory Disclosure [Abstract]    
Raw materials $ 14,504 $ 12,734
Work in process 1,590,283 1,556,256
Finished products 85,586 144,493
Total 1,690,373 1,713,483
Less - provision for slow moving inventory (756,134) (756,134)
Inventory, net $ 934,239 $ 957,349
XML 39 R28.htm IDEA: XBRL DOCUMENT v3.8.0.1
Other Current Liabilities - Schedule of Other Current Liabilities (Details) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Other Liabilities Disclosure [Abstract]    
Employees and related institutions $ 245,003 $ 336,783
Accrued expenses and other 878,433 929,171
Total other current liabilities $ 1,123,436 $ 1,265,954
XML 40 R29.htm IDEA: XBRL DOCUMENT v3.8.0.1
Financing Income, Net - Schedule of Financing Income, Net (Details) - USD ($)
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Other Income and Expenses [Abstract]    
Israeli CPI linkage difference on principal of loans from stockholders $ 911 $ 1,367
Exchange rate differences (13,627) (10,474)
Change in fair value of Warrants with down round protection 77,947 84,099
Other (3,216) (5,717)
Financing expenses, net $ 62,015 $ 69,275
XML 41 R30.htm IDEA: XBRL DOCUMENT v3.8.0.1
Loss Per Share - Schedule of Loss and Weighted Average Number of Shares (Details) - USD ($)
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Loss for the period $ 1,847,794 $ 2,530,325
Loss for the period attributable to common stockholders $ 2,356,386 $ 2,897,042
Weighted average number of shares used in the computation of basic and diluted earnings per share 7,021,533 6,029,342
Total weighted average number of common shares related to outstanding convertible preferred stock, options and warrants excluded from the calculations of diluted loss per share [1] 25,524,332 16,056,013
Series A Preferred Stock [Member]    
Dividend on Preferred Stock $ 4,700 $ 4,700
Series B Preferred Stock [Member]    
Dividend on Preferred Stock 280,159 246,031
Series C Preferred Stock [Member]    
Dividend on Preferred Stock $ 223,733 $ 115,986
[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 determined to be anti-dilutive.
XML 42 R31.htm IDEA: XBRL DOCUMENT v3.8.0.1
Subsequent Events (Details Narrative) - Subsequent Event [Member]
May 10, 2018
$ / shares
shares
May 10, 2018
$ / shares
Common Stock [Member]    
Number of shares units issued | shares 1  
Warrant One [Member]    
Warrant term   5 years
Warrants exercise price per share $ 4.50 $ 4.50
Warrant Two [Member]    
Warrant term   5 years
Warrants exercise price per share 5.75 $ 5.75
Warrant Three [Member]    
Warrant term   5 years
Warrants exercise price per share $ 7.75 $ 7.75
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