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Common Stock, and Warrants With-Down Round Protection | 12 Months Ended
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Dec. 31, 2019
Equity [Abstract] |
Common Stock, and Warrants With-Down Round Protection |
NOTE 10 – | COMMON STOCK, AND WARRANTS WITH-DOWN ROUND PROTECTION
| A. | 1. | Description of the rights attached to the Common Stock
|  |  | Each share of Common Stock entitles the holder to one vote, either in person or by proxy, on each matter submitted to the approval of the Company’s stockholders. The holders of Common Stock are not permitted to vote their shares cumulatively.
| A. | 2. | Description of the rights attached to the Series D units
|  |  | Holders of the Series D Units of the Company (each a “Unit” and, collectively, the “Units”), each consisted of (a) one share (collectively, the “Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), (b) a five year warrant to purchase, at an exercise price of $4.50 per share, one share of Common Stock (collectively, the “Series D-1 Warrants”), (c) a five year warrant to purchase, at an exercise price of $5.75 per share, one share of Common Stock (collectively, the “Series D-2 Warrants”), and (d) a five year warrant to purchase, at an exercise price of $7.75 per share, one share of Common Stock (collectively, the “Series D-3 Warrants”, and together with the Series D-1 Warrants and Series D-2 Warrants, the “Warrants”). As a result of the Forced Conversion which occurred on December 31, 2018, the Series D units were exchanged and the Company issued (i) 23,852,721 shares of Common Stock to the holders of the Series D Common Stock, par value $0.001 per share, (ii) a five year warrant to purchase, at an exercise price of $1.80 per share, 1,367,556 of shares of our common stock (iii) a five year warrant to purchase, at an exercise price of $3.60 per share, 1,367,556 of shares of our common stock and (iv) a five year warrant to purchase, at an exercise price of $5.40 per share, 1,367,556 of shares of our common stock.
|  |  | Placement Agent Compensation
|  |  | Pursuant to a placement agent agreement (the “Placement Agent Agreement”) with the placement agent for the Offering (the “Placement Agent”), at the closing of the sale of the Units the Company paid the Placement Agent, as a commission, a cash amount equal to 7% of the aggregate sales price of the Units, plus 3% of the aggregate sales price as a management fee plus a non-accountable expense allowance equal to 3% of the aggregate sales price of the Units. In addition, pursuant to the placement agent agreement, we are required to issue to the Placement Agent warrants to purchase up to such number of shares of Common Stock equal to 10% of the aggregate Shares sold in the Offering plus warrants equal to 10% of the total number of the Warrants issued to the Purchasers in the Offering (collectively, the “Placement Agent Warrants”). The terms of the Placement Agent Warrants will be substantially similar to the Warrants except that the Placement Agent Warrants will also be exercisable on a cashless basis and will include full ratchet anti-dilution protection.
| C. | Warrants with down round protection
|  | On December 31, 2018 as a result of the Forced Conversion all of the outstanding warrants with down round protection were exchanged. As of December 31, 2018, the number of warrants with down round protection was 51,001,332 at an exercise price of $0.258 with a total fair value of approximately $6.6 million. As of December 31, 2019, the 51,001,332 warrants were exchanged for warrants with no down round protection, that have the same terms as the warrants issued in the Series D round.
|  | The Company has determined its derivative warrant liability to be a Level 3 fair value measurement and has used the Black and Scholes pricing model to calculate its fair value. Because the warrants contained a price 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 were as follows (in US dollars):
|  | Warrants with Down- Round Protection |
|  | December 31, |
|  | 2019 |  |  | 2018 |
Balance, Beginning of the year |  |  | - |  |  |  | 768,249 |
Warrants issued as consideration for placement services |  |  | - |  |  |  | - |
Stock based compensation to financial advisor |  |  | - |  |  |  | - |
Change in fair value of Warrants with Down-Round Protection |  |  | - |  |  |  | - |
Reclassification to stockholder’s deficit (*) |  |  | - |  |  |  | (768,249 | )
Balance, End of year |  |  | - |  |  |  | - |
| (*) | As a result of the early adoption of ASU 2017-11, during the year ended December 31, 2018, the Company reclassified all the warrants with down round protection to stockholder’s deficit. (See also Note 2W1).
| D. | Stock-based compensation
|  | 1. | Grants to non-employees
| a. | In connection with the 2017 Offering, the Company is required to issue to the Placement Agent (a) 5-year warrants to purchase up to 13,815,322 shares of Common Stock at an exercise price of $0.258 per share, (b) 5-year warrants to purchase up to 108,305 shares of Common Stock at an exercise price of $1.80 per share.(c) 5-year warrants to purchase up to 108,305 shares of Common Stock at an exercise price of $3.60 per share, and (d) 5-year warrants to purchase up to 108,305 shares of Common Stock at an exercise price of $5.40 per share. The terms of the Placement Agent warrants are substantially similar to the terms of the Series D Warrants except that the Placement Agent warrants may also be exercisable on a cashless basis at all times.
|  | As a result of the early adoption of ASU 2017-11 the company reclassified all the warrants with down round protection (warrants held by the placement agent) from long term liabilities to stockholder’s deficit
|  | On December 31, 2018 as a result of the Forced Conversion all of the outstanding warrants with down round protection (approximately 2,787,323) were exchanged. As of December 31, 2018, the number of warrants with down round protection is 51,001,332 at an exercise price of $0.258.
|  | As of December 31, 2019, and 2018, the key inputs used in the fair value calculations of the warrant that were affected by the down-round protection were as follows:
Fair value calculations – Warrant |  | 31-Dec-19 |  |  | 31-Dec-18 |
Dividend yield (%) |  |  | - |  |  |  | - |
Expected volatility (%) |  |  | 56.32 |  |  |  | 56.32 |
Risk free interest rate (%) |  |  | 2.5 |  |  |  | 2.5 |
Expected term of options (years) |  |  | 5 |  |  |  | 5 |
Exercise price (US dollars) |  |  | 0.258-5.400 |  |  |  | 0.258 |
Share price (US dollars) |  |  | 0.258 |  |  |  | 0.258 |
Fair value (US dollars) |  |  | 0.003-0.134 |  |  |  | 0.13 |
|  | 2. | Grants to employees
|  |  | In August 2007, Integrity Israel’s Board of Directors (“Integrity Israel’s Board”) approved a stock option plan (“Integrity Israel’s plan”) for the grant, without consideration of options exercisable into ordinary shares of NIS 0.01 par value of Integrity Israel to employees, officers and directors of Integrity Israel. The exercise price and vesting period for each grantee of options was determined by Integrity Israel’s Board and specified in such grantee’s option agreement. The options vested over a period of 1-12 quarters based on each grantee’s option agreements. Any option not exercised within 10 years after the date of grant thereof will expire.
|  |  | In July 2010, following the merger with Integrity Israel, the Company adopted the 2010 Share Incentive Plan (the “2010 Share Incentive Plan”), pursuant to which the Company’s Board of Directors is authorized to grant options exercisable into Common Stock of the Company.
|  |  | The purpose of the 2010 Share Incentive Plan is to offer an incentive to employees, directors, officers, consultants, advisors, suppliers and any other person or entity whose services are considered valuable to the Company, as well as to replace the Integrity Israel Plan and to replace all options granted in the past by Integrity Israel.
|  |  | On February 15, 2018 and April 15, 2018, we issued ten-year non-qualified stock options to various employees, for the purchase of 767,500 and 15,000 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. The total fair value of the stock options is $762,210 and $14,897, respectively.
|  |  | On June 1, 2018, the Company granted each one of its five director’s options to purchase up to an aggregate of 3,111 shares of the Company’s Common Stock, at an exercise price of $4.50 per share. Each director’s option grant will vest in equal monthly installments over one-year period (subject to the director’s continued service as of each such date) commencing on June 1, 2018.
|  |  | 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
|  |  | The aggregate intrinsic value of the awards outstanding as of December 31, 2019 and 2018 was $0, and $0, respectively. Such amount represents the total intrinsic value based on the Company’s management estimation of the fair value per share of Common Stock based among other things, a valuation prepared by a third-party valuation firm following the issuance of the Series D Units, as applicable.
|  |  | The following tables present a summary of the status of the grants to employees, officers and directors as of December 31, 2019 and 2018:
Grants to Employees |  | Number |  |  | Weighted average exercise price (US$) |
Balance outstanding as of December 31,2017 |  |  | 5,236,967 |  |  | $ | 5.28 |
Balance exercisable of December 31,2017 |  |  | 2,428,716 |  |  | $ | 5.28 |
Granted during 2018 |  |  | 798,056 |  |  | $ | 4.5 |
Forfeited during 2018 |  |  | (2,042,413 | ) |  | $ | 6.12 |
Balance outstanding as of December 31,2018 |  |  | 3,992,610 |  |  | $ | 4.7 |
Balance exercisable of December 31,2018 |  |  | 2,721,587 |  |  | $ | 4.63 |
Granted during 2019 (1) |  |  | 75,000 |  |  | $ | 4.5 |
Forfeited during 2019 |  |  | (2,039,525 | ) |  | $ | 4.51 |
Balance outstanding as of December 31,2019 |  |  | 2,028,085 |  |  | $ | 4.88 |
Balance exercisable of December 31,2019 |  |  | 1,724,194 |  |  | $ | 4.63 |
| (1) | On January 1, 2019, we issued a ten-year non-qualified stock option to our former President, for the purchase of 75,000 shares of Common Stock at an exercise price of $4.50 per share, with three-year quarterly vesting commencing on the first quarter after the effective date.
The following tables summarize information about options outstanding at December 31, 2019:
Exercise price (US$) |  |  | Outstanding at December 31, 2019 |  |  | Exercisable at December 31, 2019 |  |  | Weighted average remaining contractual life (years) |
| 4.50 |  |  |  | 1,631,873 |  |  |  | 1,327,982 |  |  |  | 7.51 |
| 6.25 |  |  |  | 344,212 |  |  |  | 344,212 |  |  |  | 2.19 |
| 7.00 |  |  |  | 2,000 |  |  |  | 2,000 |  |  |  | 4.50 |
| 7.75 |  |  |  | 50,000 |  |  |  | 50,000 |  |  |  | 7.26 |
|  |  |  |  | 2,028,085 |  |  |  | 1,724,194 |  |  |  |  |
As of December 31, 2019, approximately $62,415 of unrecognized compensation costs are expected to be recognized during the year ending December 31, 2020, 2021 and 2022.
|  |  | The fair value of options granted to employees during the years ended on December 31, 2019 and 2018 was estimated at the dates of grant using the Black-Scholes option model. The following are the data and assumptions used:
|  | 2019 |  |  | 2018 |
Dividend yield (%) |  |  | - |  |  |  | - |
Expected volatility (%) (*) |  |  | 56.32 |  |  |  | 56.59 |
Risk free interest rate (%) |  |  | 2.5 |  |  |  | 1.31 |
Expected term of options (years) |  |  | 5 |  |  |  | 5.5 - 6.5 |
Exercise price (US dollars) |  |  | 0.258 |  |  |  | 4.5 |
Stock price (US dollars) (**) |  |  | 0.258 |  |  |  | 2.45 |
Fair value (US dollars) |  |  | 0.0137 |  |  |  | 0.88-0.99 |
| (*) | Due to the low trading volume of the Company’s Common Stock, the expected volatility for 2019 and 2018 grant was based on a sample of 248 and 254 companies operating in the Healthcare Products industry, respectively.
| (**) | The Common Stock price, per share for the year ended December 31, 2019 and 2018 reflects the Company’s management’s estimation of the fair value per share of Common Stock. In reaching its estimation for December 31, 2018, management considered, among other things, a valuation prepared by a third-party valuation firm following the issuance of the Series D Units.

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