| Summary of Significant Accounting Policies | NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP).
A. 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.
B. Functional currency
The functional currency of the Company is the US dollar, which is the currency of the primary economic environment in which it operates. In accordance with ASC 830, “Foreign Currency Matters” (ASC 830), balances denominated in or linked to foreign currency are stated on the basis of the exchange rates prevailing at the applicable balance sheet date. For foreign currency transactions included in the statement of operations, the exchange rates applicable on the relevant transaction dates are used. Gains or losses arising from changes in the exchange rates used in the translation of such transactions are carried as financing income or expenses. The functional currency of Integrity Israel is the New Israeli Shekel (“NIS”) and its financial statements are included in consolidation, based on translation into US dollars. Accordingly, assets and liabilities were translated from NIS to US dollars using year-end exchange rates, and income and expense items were translated at average exchange rates during the year. Gains or losses resulting from translation adjustments are reflected in stockholders’ deficit, under “accumulated other comprehensive income (loss)”.
2020 2019
Official exchange rate of NIS 1 to US dollar 0.311 0.290
Increase (decrease) of the Official exchange rate of NIS 1 to US dollar during the year:
2020 7.2 %
2019 8.4 %
C. Principles of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiary. All intercompany balances and transactions have been eliminated in consolidation.
D. Cash and cash equivalents
The Group considers all short-term investments, which are highly liquid investments with original maturities of three months or less at the date of purchase, to be cash equivalents.
E. Inventories
Inventories are stated at the lower of cost or net realizable value.
Cost is determined as follows:
With respect to raw materials, the Group calculates cost using the average cost method.
With respect to work in process and finished products, the Group calculates the cost on the basis of the average direct manufacturing costs, including materials, labor, subcontracting costs and other direct manufacturing costs.
Management evaluates whether inventory reserve for slow-moving or obsolete items is required.
F. Property and equipment, net
1. Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. When an asset is retired or otherwise disposed of, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition is reflected in the statements of operations.
2. Rates of depreciation:
%
Computers 33
Furniture and office equipment 7-15
Leasehold improvements Shorter of lease term
G. Impairment of long-lived assets
The Group’s long-lived assets are reviewed for impairment in accordance with ASC 360, “Property, Plant and Equipment”, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. To date the Group did not incur any material impairment losses related to long lived assets.
H. Long-term restricted cash
Restricted cash is invested in certificates of deposit,
which are used to secure Integrity Israel’s obligations in respect of its headquarters (See Note 9B) lease and credit card. For presentation of statement of cash flows purposes,
restrict cash balances are included with cash and cash equivalents, when reconciling the reported period total amounts.
December 31 December 31
2020 2019
Cash and cash equivalents $ 9,823 $ 419
Restricted cash 62 57
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows $ 9,885 $ 476
I. Income tax
The Group accounts for income taxes in accordance with ASC 740, “Income Taxes”. Accordingly, deferred income taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and the tax bases of assets and liabilities under the applicable tax law. Deferred tax balances are computed using the enacted tax rates expected to be in effect when these differences reverse. Valuation allowances in respect of deferred tax assets are provided for, if necessary, to reduce deferred tax assets to amounts more likely than not to be realized.
The Group accounts for uncertain tax positions in accordance with ASC Topic 740-10, which prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. According to ASC Topic 740-10, tax positions must meet a more- likely-than-not recognition threshold. The Group’s accounting policy is to classify interest and penalties relating to uncertain tax positions under income taxes, however the Group did not recognize such items in its fiscal 2020 and 2019 financial statements and did not recognize any liability with respect to unrecognized tax position in its balance sheet.
J. Liability for employee rights upon retirement
Integrity Israel’s liability for employee rights upon retirement with respect to its Israeli employees is calculated pursuant to the Israeli Severance Pay Law, based on the most recent salary of each employee multiplied by the number of years of employment of each such employee as of the balance sheet date. Employees are entitled to one month’s salary for each year of employment, or ratable portion thereof for periods less than one year. Integrity Israel makes monthly deposits to insurance policies and severance pay funds.
The deposited funds may be withdrawn upon the fulfillment of Integrity Israel’s severance obligations pursuant to Israeli severance pay laws or labor agreements with its employees. The value of the deposited funds is based on the cash surrender value of these policies, and includes immaterial profits or losses.
Commencing in 2011, Integrity Israel’s agreements with its Israeli employees are in accordance with Section 14 of the Severance Pay Law. Payments in accordance with Section 14 release the employer from any future severance payments in respect of those employees. Related obligations and liabilities under Section 14 are not recorded as an asset or as a liability in the Company’s balance sheet.
Severance expenses for the year ended December 31, 2020, and 2019 amounted to $24 and $79 thousand respectively.
K. Revenue recognition
The Company derives most of its revenues from sales of its GlucoTrack® glucose monitoring device to distributors. The Company’s products sold through agreements with distributors are generally non-exchangeable, non-refundable and non-returnable and, to date, the Company has not granted to any of its distributors any rights of price protection or stock rotation. Accordingly, the Company considers its distributors as end-users for revenue recognition purposes.
On January 1, 2018, the Company adopted ASC Topic
606, Revenue from Contracts with Customers (“ASC 606”). In accordance with ASC 606, The Company determines revenue recognition
through the following five steps: ● Identification of the contract, or contracts,
with a customer; ● Identification of the performance obligations
in the contract; ● Determination of the transaction price; ● Allocation of the transaction price to the
performance obligations in the contract; and ● Recognition of revenue when, or as, the Company
satisfies a performance obligation. A contract with a customer exists when all of the
following criteria are met: the parties to the contract have approved it (in writing, orally, or in accordance with other customary business
practices) and are committed to perform their respective obligations, the Company can identify each party’s rights regarding the
distinct goods or services to be transferred (“performance obligations”), the Company can determine the transaction price
for the goods or services to be transferred, the contract has commercial substance and it is probable that the Company will collect substantially
all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. Revenues are recognized when, or as, control of services
or products is transferred to the customers at a point in time or over time, as applicable to each performance obligation. Revenues are recorded in the amount of consideration
to which the Company expects to be entitled in exchange for performance obligations upon transfer of control to the customer, excluding
amounts collected on behalf of other third parties and sales taxes. Revenues from sales of GlucoTrack devices are recognized
when the control of the product passed to the customer (usually upon delivery).
L. Research and development expenses
Research and development expenses are charged to operations as incurred.
M. Royalty-bearing grants
Royalty-bearing grants from the OCS to fund approved research and development projects are recognized at the time Integrity Israel is entitled to such grants, on the basis of the costs incurred and reduce research and development costs. The cumulative research and development grants received by Integrity Israel from inception through December 2004 amounted to $93 thousand. Integrity Israel has not received any research and development grants since December 2004.
N. Warranty
The Group provides a 24-month warranty for its products at no cost. The Group estimates the costs that may be incurred during the warranty period and records a liability for the amounts of such costs at the time revenues are recognized. For the year ended December 31, 2020 and 2019 warranty expenses were clearly insignificant.
O. Basic and diluted income (loss) per share
Basic income (loss) per share is computed by dividing
the income (loss) for the period applicable for Common Stockholders by the weighted average number of shares of Common Stock outstanding
during the period. Securities that may participate in dividends with the Common Stock are considered in the computation of basic income
per share using the two-class method. However, in periods of net loss, such participating securities are not included since the holders
of such securities do not have a contractual obligation to share the losses of the Company. During the reported period, there were no such participating
securities.
In computing, diluted loss per share, basic earnings per share are adjusted to reflect the potential dilution that could occur upon the exercise of options or warrants issued or granted using the “treasury stock method” and upon the conversion of Preferred Stock using the “if-converted method”, if the effect of each of such financial instruments is dilutive.
P. Stock-based compensation
The Group measures and recognizes the compensation expense for all equity-based payments to employees based on their estimated fair values in accordance with ASC 718, “Compensation-Stock Compensation”. Share-based payments including grants of stock options are recognized in the statement of operations as an operating expense based on the fair value of the award at the date of grant. The fair value of stock options granted is estimated using the Black-Scholes option-pricing model. The Group has expensed compensation costs, net of estimated forfeitures, applying the accelerated vesting method, over the requisite service period or over the implicit service period when a performance condition affects the vesting, and it is considered probable that the performance condition will be achieved.
Until December 31, 2018 the Company applied ASC 505-50, “ Equity-Based Payments to Non-Employees
Q. Fair value of financial instruments
ASC Topic 825-10, “Financial Instruments” defines financial instruments and requires disclosure of the fair value of financial instruments held by the Group. The Group considers the carrying amount of cash and cash equivalents, restricted cash, accounts receivable, other current assets, accounts payable and other current liabilities balances, to approximate their fair values due to the short-term maturities of such financial instruments. ASC Topic 825-10, establishes the following fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1 - Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2 - Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3 - Unobservable inputs are used when little or no market data is available. Level 3 inputs are considered as the lowest priority under the fair value hierarchy.
The Group did not estimate the fair value of the long-term loans from stockholders since their repayment schedule has not yet been determined.
R. Concentrations of credit risk
Financial instruments that potentially subject the Group to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, and restricted cash. Cash and cash equivalents and restricted cash are deposited with major banks in Israel and the United States of America. Management believes that such financial institutions are financially sound, accordingly, minimal credit risk exists with respect to these financial instruments. The Group does not have any significant off-balance-sheet concentration of credit risk, such as foreign exchange contracts, option contracts or other foreign hedging arrangements.
As of December 31, 2020, the balances of accounts receivable was not material and accordingly such balances do not represent substantial concentration of credit risk.
S. Contingencies
The Group records accruals for loss contingencies arising from claims, litigation and other sources when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. Legal costs incurred in connection with loss contingencies are expensed as incurred.
T. Warrants with Down-Round Protection
Commencing January 1, 2018 and following the early
adoption of Accounting Standard Update (ASU) No. 2017-11, “Earnings Per Share” (ASU 2017-11), the Company disregard the down
round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification.
Based on its evaluation, management has determined that such warrants with Down-Round Protection are eligible for equity classification. In accordance with the provisions of ASU 2017-11,
upon the occurrence of an event that triggers a down round protection (i.e., when the exercise price of the warrants is adjusted downward
because of the down round feature), the effect is accounted for as a deemed dividend and as a reduction of income available to common
shareholders for purposes of basic earnings per share (EPS) calculation.
U. Modification of equity-classified contracts
The modification or exchange of equity-classified contracts, such as warrants that were classified as equity before the modification or exchange and remained eligible for equity classification after the modification, is accounted for in a similar manner to a modification of stock-based compensation. Accordingly, the incremental fair value from the modification or exchange (the change in the fair value of the instrument before and after the modification or exchange) is recognized as a reduction of, retained earnings (accumulated deficit) as a deemed dividend. Modifications or exchanges that result in a decrease in the fair value of an equity-classified share-based payment awards are not recognized. In addition, the amount of the deemed dividend is also recognized as an adjustment to earnings available to common shareholders for purposes of calculating earnings per share.
V. Operating Lease
The Company entered into several non-cancelable lease agreements for real estate, and vehicles for use in its operations, which are classified as operating leases.
Commencing January 1, 2019, the Company adopted ASC Update 2016-02, Leases (Topic 842).
The Company used the effective date as the date of initial application. Consequently, the effect of the adoption was reflected through a cumulative-effect adjustment. However, the adoption did not affect the financial statements.
The Company determines if an arrangement is a lease at inception. Under the new guidance, arrangements meeting the definition of a lease are classified as operating or financing leases. A classification of a lease is determined based on the following criteria:
1. The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
2. The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
3. The lease term is for the major part of the remaining economic life of the underlying asset (Generally, 75% or more of the remaining economic life of the underlying assets).
4. The present value of the sum of the lease payments and any residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset (Generally, 90% or more of the fair value of the underlying asset).
5. The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. If any of these five criteria is met, the
lease is classified as a finance lease. Otherwise, the lease is classified as an operating lease. Leases are recorded on the consolidated balance
sheet as both a right of use asset and a lease liability, calculated by discounting fixed lease payments over the lease term at the rate
implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments
each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the
amortization of the right of use asset results in straight-line rent expense over the lease term. Variable lease expenses, if any, are
recorded when incurred. The Company also elected the short-term lease
recognition exemption for all leases that qualify (leases with a term shorter than 12 months). For those leases, right-of-use assets or
lease liabilities are not recognized and rent expense is recognized on a straight-line basis over the lease term. The Company had no material capital leases
throughout the reporting periods. See note 4 for further discussion.
W. Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications did not have significant effect on the reported results of operations, shareholder’s deficit or cash flows.
X. Recently issued accounting pronouncements not yet adopted
Accounting Standards Update 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”
In June 2016, The FASB has issued Accounting Standards
Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
(“ASU 2016-13”). The ASU is intended to improve financial reporting
by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. ASU 2016-13 requires the measurement of all expected
credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable
forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss
estimates. Many of the loss estimation techniques applied today
are still permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations
will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. ASU 2016-13 requires enhanced disclosures to help
investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses,
as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and
quantitative requirements that provide additional information about the amounts recorded in the financial statements. In addition, ASU 2016-13 amends the accounting for
credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. On November 2019, the FASB issued ASC Update Financial
Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) – Effective dates, which,
among other provisions the effective date of ASU 2016-13 was amended as follows
3. Public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies (SRCs) as defined by the SEC, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.
4. All other entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. As the company is eligible to considered
as smaller reporting company ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within
those fiscal years, with early adoption permitted. The adoption of this standard is not expected
to result in a material impact to the Company’s financial statements. |
