| 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. As
applicable to the consolidated financial statements, the most significant estimates and assumptions relate to the going concern
assumptions.
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’ equity, under “accumulated other
comprehensive income (loss)”. SCHEDULE
OF OFFICIAL EXCHANGE RATE
2021 2020
Official exchange rate of NIS 1 to US dollar 0.321 0.311
Increase (decrease) of the official exchange rate of NIS 1 to US dollar during
the year:
2021 3.22 %
2020 7.2 % GLUCOTRACK
INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
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 evaluated
periodically whether inventory is required to be written-down due to slow-moving or obsolete items and recognize
inventory impairment, as applicable
. 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: SCHEDULE
OF PROPERTY AND EQUIPMENT, 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. GLUCOTRACK
INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) H.
Restricted cash
Restricted
cash is invested in certificates of deposit, which are used to secure Integrity Israel’s
obligations in respect of its headquarters lease and credit card (See also Note 8B). 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. SCHEDULE
OF RESTRICT CASH BALANCES ARE INCLUDED WITH CASH AND CASH EQUIVALENTS
In thousand of US dollars
December 31 December 31
2021 2020
Cash and cash equivalents $ 6,062 $ 9,823
Restricted cash $ 51 $ 62
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows $ 6,113 $ 9,885 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 2021 and 2020 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.
For the
year ended December 31, 2021, and 2020, severance expenses amounted to $ 43 24 GLUCOTRACK
INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) K.
Research and development expenses
Research
and development expenses are charged to operations as incurred. L.
Royalty-bearing grant
Royalty-bearing
grants from the Israeli Innovation Authority (IIA) 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. To date,
the cumulative research and development grants received by Integrity Israel from amounted to $ 93 M.
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, 2021 and 2020 warranty expenses were clearly insignificant. N. Basic and diluted loss per share
Basic loss per share is computed by dividing the loss for the period applicable
for Common Stockholders by the weighted average number of shares of Common Stock outstanding during the period.
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”, if the effect of each of such
financial instruments is dilutive.
In computing diluted loss per share, the average stock price for the
period is used in determining the number of common stock assumed to be purchased from the exercise of stock options or stock warrants.
Shares that will be issued upon exercise of all stock
options and stock warrants, have been excluded from the calculation of the diluted net loss per share for all the reported periods
for which net loss was reported because the effect of the common shares issuable as a result of the exercise or conversion of these
instruments was anti-dilutive
An amount of 6,404,238 6,446,920 O.
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.
Commencing
January 1, 2019, following the adoption of ASU 2018-07, which aligns the measurement and classification guidance for share-based
payments to nonemployees with the guidance for share-based payments to employees (with certain exceptions), share-based payments
to non-employees are accounted in accordance with ASC 718. GLUCOTRACK
INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) P.
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 loans from stockholders since their repayment schedule has not yet been determined. Q. Concentrations of credit risk
Financial
instruments that potentially subject the Group to concentrations of credit risk consist primarily of cash and cash equivalents, 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. R.
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. GLUCOTRACK
INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) S.
Warrants with Down-Round Protection
Following
the application 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. T. 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 of increase
of 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. U. Allowance for doubtful accounts
The allowance for doubtful accounts is determined with
respect to amounts the Company has determined to be doubtful of collection, in order to reflect the expected credit losses on accounts
receivable balances. Judgment is required in the estimation of the allowance for doubtful accounts and the Company evaluates the
collectability of its accounts receivable based on a combination of factors (including, among other things, the length of time that
the balance is past due and the customer’s current ability to pay. If it’s becomes aware of a customer’s inability to meet
its financial obligations, an allowance is recorded to reduce the net receivable to the amount reasonably believed to be collectible
from such customer
V. Operating Lease
The
Company entered into several non-cancelable lease agreements for vehicles for use in its operations, which are classified as operating
leases.
Commencing
January 1, 2019, the Company applies ASC Update 2016-02, Leases (Topic 842).
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 The
Company had no material capital leases throughout the reporting periods. See
note 4 for further discussion. GLUCOTRACK
INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) W. Reclassification
Certain
comparative figures have been reclassified to conform to the current year presentation. Such reclassifications did not have any significant
impact on the Company’s equity, net income or cash flows. X. Recent Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments” (“ASU 2016-13”), which changes the impairment model for most financial assets and certain other instruments.
For trade and other receivables, held-to-maturity debt securities, loans, and other instruments, entities will be required to use a new
forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. The
guidance also requires increased disclosures. For the Company, the amendments in the update were originally effective for fiscal years
beginning after December 15, 2019, including interim periods within those fiscal years. In November 2019, the FASB issued ASU No. 2019-10,
which delayed the effective date of ASU 2016-13 for smaller reporting companies (as defined by the SEC) and other non-SEC reporting entities
to fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. Early adoption is permitted.
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. The adoption of this standard is not expected to result in a material impact to the Company’s
financial statements. GLUCOTRACK
INC. (FORMERLY: INTEGRITY APPLICATIONS, INC.) NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) |
