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Item 9A. Controls and Procedures

2021-04-13 compared with 2020-04-14 · 699 added, 1519 removed, 414 unchanged (84% of the section changed)

1 unchanged sentence

of Disclosure Controls and Procedures

management, with the participation of our President and our Chief Financial Officer, evaluated the effectiveness of our disclosure

controls and procedures as of December 31, 2019.

management, with the participation of our General Manager and our Chief Financial Officer, evaluated the effectiveness

of our disclosure controls and procedures as of December 31, 2020.

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 SEC’s rules and forms.

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

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 SEC’s rules and forms.

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

16 unchanged sentences

has concluded that, as of December 31, 2020, its internal control over financial reporting was effective based on these criteria.

management, including our President and Chief Financial Officer, does not expect that our disclosure controls and procedures or

our internal control over financial reporting will prevent all errors and all fraud.

A control system, no matter how well conceived

and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be

considered relative to their costs.

Because of the inherent limitations in all control systems, no evaluation of controls can

provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.

management, including our General Manager and Chief Financial Officer, does not expect that our disclosure controls and

procedures or our internal control over financial reporting will prevent all errors and all fraud.

A control system, no matter

how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system

Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of

controls must be considered relative to their costs.

Because of the inherent limitations in all control systems, no evaluation

of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been

in Internal Control over Financial Reporting

11 unchanged sentences

Directors, Executive Officers, and Corporate Governance.

table below sets forth (1) the names and ages of our Directors as of the date of this Annual Report, (2) all positions with the

Company presently held by each such person and (3) the positions held by, and principal areas of responsibility of, each such

person during the last five years.

Robert Fischell

Member of the Audit Committee and Nominating, Governance and Compensation Committee

member of the Nominating, Governance and Compensation Committee

Chair of the Audit Committee

Chair of the Nominating, Governance and Compensation Committee

Danzig has served on our Board since October 31, 2019 and is the Chair of our Nominating, Governance and Compensation

Danzig most recently served as Vice President, Assistant General Counsel and Assistant Secretary of L3Harris Technologies,

Inc., a global aerospace and defense technology contractor, with $17 billion in annual revenue.

Prior to its merger with Harris

Corporation in June 2019, Mr.

Danzig served as Vice President, Assistant General Counsel and Assistant Secretary at L3 Technologies,

where he had been employed since 2006.

Prior to his employment at L3, Mr.

Danzig served in management positions with Celanese

Corporation, a global chemical and specialty materials company, and The Hertz Corporation, one of the world’s largest vehicle

and equipment rental companies.

He received his undergraduate degree from Adelphi University and law degree from Pace University

School of Law and is a member of the New York State Bar.

The Board has determined that Mr.

Danzig is suited to serve due to his

extensive legal and corporate governance experience.

Robert Fischell has served as one of Integrity’s directors since 2010.

He also serves on Integrity’s Nominating,

Governance and Compensation Committee.

Fischell is an inventor and serial entrepreneur with over 160 issued U.S.

Starting in 1959, Dr.

Fischell spent over 30 years with the Johns Hopkins University Applied Physics Laboratory, which resulted

in 53 patents in both aerospace and biomedical technology.

His interests at Johns Hopkins then turned to the invention of new

medical devices such as pacemakers and implantable heart defibrillators.

Starting in 1969, Dr.

Fischell began the formation of

14 private companies that licensed his patents on medical devices.

These companies include Pacesetter Systems, Inc.

by Siemens and now part of St.

Jude Medical, Inc.), IsoStent, Inc.

(merged with Cordis Company, a Johnson and Johnson Company),

NeuroPace, Inc., Neuralieve, Inc., Angel Medical Systems, Inc., and Svelte Medical Systems, Inc.

As it relates to diabetes management

devices, he was the inventor of the first implantable insulin pump (which became Minimed, which was sold to Medtronic).

Fischell’s

honors include Inventor of the Year for the USA in 1984, election to the National Academy of Engineering in 1989, the Distinguished

Physics Alumnus Award of the University of Maryland, and several medals for distinguished accomplishments in science, engineering

and innovation.

In 2004, Discover magazine gave Dr.

Fischell their annual Technology for Humanity award.

received the honorary degree of Doctor of Humane Letters from the Johns Hopkins University in recognition of his many lifesaving

From June 2009 until March 2011, Dr.

Fischell was a director of InspireMD, Inc.

NSPR), a medical device company

focusing on the development and commercialization of its proprietary stent system, MGuard.

Fischell received his BSME degree

from Duke University and MS and Sc.D.

degrees from the University of Maryland.

At the White House on May 16, 2016, President Obama

presented to Dr.

Fischell the National Medical of Technology and Innovation, the highest award in the USA for achievements in

innovative technology.

The Board has determined that Dr.

Fischell is suited to serve due to his extensive diabetes and medical

device experience.

Rapps was appointed as a Director of the Company on July 31, 2019.

He is also Chair of Integrity’s Audit Committee.

Rapps serves as Head of Investment Banking at Andrew Garrett, Inc., a full-service investment bank providing wealth management

and corporate advisory services, where he has been employed since early 2005.

In this role, he oversees all of Andrew Garrett’s

corporate finance, investment banking and corporate advisory activities.

His experience spans equity and debt financings, mergers

and acquisitions, private placements and IPO’s.

He has extensive expertise with both public and private, emerging growth

and middle market companies, and regularly advises CEO’s, CFO’s and Boards of Directors on matters of corporate governance

and strategy.

He holds the Series 7, 24, 63, and 66 licenses and is a Certified Public Accountant.

The Board has determined that

Rapps is suited to serve due to his extensive investment banking and public company experience.

Sycoff has served as a Director of the Company since July 8, 2019, and is a member of the Nominating, Governance and Compensation

Committee Mr.

Sycoff is the founder, Chief Executive Officer and Chairman of the Board of Andrew Garrett, Inc., a full-service

investment bank providing wealth management and corporate advisory services, for which he has served as CEO and Chairman continuously

Client sectors include high net worth individuals and early to middle market stage companies.

Sycoff holds Series

7 and 24 licenses.

Sycoff has been actively investing in and advising companies for over 25 years and has extensive experience

in the areas of securities brokerage, Capital Markets, Corporate Advisory and Mergers & Acquisitions.

Sycoff previously

served on the board of Brokerage America and Paragon Industries Corp., an electronics contract manufacturer.

The Board has determined

Sycoff is suited to serve due to his extensive investment banking and public company experience.

EXECUTIVE OFFICERS

table below sets forth the names and ages of our executive officers as of the date of this Registration Statement and all positions

with the Company presently held by each such person.

Immediately following the table is biographical information for each of our

executive officers (other than John Graham, our Chairman and Chief Executive Officer, who resigned effective October 31, 2018),

including the positions held by, and principal areas of responsibility of, each such person during the last five years.

information for Mr.

Podwalski is included above under the caption “Our Directors.”

Chief Financial Officer

President of Research and Development

Malka had served as Integrity’s Vice President of Operations since March 2012 until his promotion to President in

November 2019.

From 2003 to 2012, Mr.

Malka was a director and Integrity’s Vice President of Operations.

Prior to joining

Malka served as a vice president of operations for Solid Systems from 2000 to 2003.

From 1994 to 2000, Mr.

as a manager of production and purchasing at Kollmorgen-Servotronix, an Israeli company specializing in the design, development

and manufacture of digital servo control systems.

From 1991 to 1993, Mr.

Malka was a production design and inspection worker at

TFL Time & Frequency Systems Ltd.

Malka has a degree in practical engineering - industrial management from the Institute

of Work & Production Productivity, Tel-Aviv and a Bachelor of Arts degree in management from the Open University in Israel.

Kahn, who was named Interim Chief Financial Officer in August 2019, has an extensive background in corporate finance and

corporate and securities law.

She has been the proprietor of Jolie Kahn, Esq.

Kahn has also acted in various corporate

finance roles, including extensive involvement of preparation of period filings and financial statements and playing an integral

part in public company audits.

She also works with companies and hedge funds in complex transactions involving the structuring

and negotiation of multi-million-dollar debt and equity financings, mergers, and acquisitions.

Kahn has practiced law in the

areas of corporate finance, mergers & acquisitions, reverse mergers, and general corporate, banking, and real estate matters.

She represents both public and private companies, hedge funds, and other institutional investors in their role as investors in

public companies.

Kahn holds a BA from Cornell University and a J.D.

magna cum laude from the Benjamin N.

Cardozo School

Eugene Naidis has served as Integrity’s Vice President of Research and Development since 2010 and has an extensive experience in software development and management of R&D projects.

Over the past 15 years, he has lead complex projects in the field of industrial and medical measurement devices and applications.

Naidis was involved (software development and management) in the invention of a symbiotic approach, revolutionary vibration-based percussion technology to determine the presence of content inside pipes;

electromagnetic based, high-precision thickness measurement system;

a system for non-contact, continuous measurement of liquid and solid levels in storage containers, based on ultrasonic technology.

Naidis holds BSc.

in Metallurgy Engineering and Masters of Science in Metallurgy and Computer Engineering.

16(a) Beneficial Ownership Reporting Compliance

16(a) of the Exchange Act and regulations of the SEC thereunder requires our officers and

directors, and persons who own more than 10% of a registered class of our equity securities to file reports of ownership and changes

of ownership with the SEC.

The Company is not reporting on this compliance in this Schedule 14A.

of Business Conduct and Ethics

has adopted a code of ethics that applies to its Chief Executive Officer and its senior financial officers (currently consisting

only of the Chief Financial Officer).

This code of ethics is available on Integrity’s website at www.integrity-app.com .

If Integrity makes any substantive amendments to the code or grants any waiver, including any implicit waiver, from a provision

of the code to its principal executive, financial or accounting officer, it will disclose the nature of the amendment or waiver

on its website or in a report on a Current Report on Form 8-K filed in accordance with the rules and regulations of the SEC.

Company will provide to any person without charge, upon five days’

written request, a copy of the code of ethics.

and Nominating and Corporate Governance Committee

members of the Nominating, Governance and Compensation Committee of the Board are Mr.

Allen Danzig (Chairman), Mr.

Andrew Sycoff

Robert Fischell.

Our Board has determined that these directors (except for Mr.

Sycoff) are “independent”

defined by the rules of the SEC.

The purposes and powers of the Nominating and Corporate Governance Committee include (i) identifying

potential qualified nominees for director and recommend to the Board for nomination candidates for the Board, (ii) developing

the Company’s corporate governance guidelines and additional corporate governance policies, and (iii) exercising such other

powers and authority as shall from time to time be assigned thereto by resolution of the Board.

The Nominating and Corporate Governance

Committee adopted the Nominating and Corporate Governance Committee charter on July 5, 2016, which sets forth the duties and responsibilities

of the Nominating and Corporate Governance Committee.

Committee and Audit Committee Financial Expert

members of the Audit Committee of the Board are Mr.

Shimon Rapps (Chairman), Dr.

Fischell and Mr.

Our Board has determined

that all three of these directors are “independent”

as defined by the rules of the SEC.

The primary role of the Committee

is to oversee the financial reporting and disclosure process.

To fulfill this obligation, the Committee relies on:

for the preparation and accuracy of the Company’s financial statements;

both management and the Company’s internal

audit department/management for establishing effective internal controls and procedures to ensure the Company’s compliance

with accounting standards, financial reporting procedures and applicable laws and regulations;

and the Company’s independent

auditors for an unbiased, diligent audit or review, as applicable, of the functions of the audit committee are performed by the

Each member of the Committee shall be independent in accordance with the requirements of Rule 10A-3 of the Exchange

Act and the NASDAQ Listing Rules.

No member of the Committee can have participated in the preparation of the Company’s or

any of its subsidiaries’

financial statements at any time during the past three years.

Board has determined that Mr.

Rapps is an “Audit Committee Financial Expert”

as that term is defined in Item 407(d)(5)(ii)

of Regulation S-K.

Compensation Table

following table summarizes compensation of our named executive officers, as of December 31, 2019 and 2018.

Name and Principal Position

Option Awards

All other Compensation

Total Compensation

David Podwalski

Former President

$ 69,922 (10)

Eugene Naidis

Vice President of R&D

$15,246 in health benefits, $ 3,251 in life insurance premiums and $1,803 cellular telephone expenses.

based on the average exchange rate for the year of New Israeli Shekels to U.S.

Dollars of NIS 3.604 = U.S.

$22,501 in automobile expenses paid by Integrity, including leasing costs, insurance premiums, gasoline and/or repairs incurred

in connection with the executive’s automobile, $333 in cellular communications expenses paid by Integrity, representing

the estimated costs of our cellular communications expenses attributable to the executive, $17,770 in tax gross-up payments,

and contributions to the (a) Severance Pay- Fund, (b) retirement plan feature of Managers’

Insurance (Kupat Gemel),

(c) disability insurance (Ovdan Kosher Avoda) and (d) statutory national insurance (Bituach Leumi) in the aggregate total

amount of $27,528.

$12,749 in automobile expenses paid by Integrity, including leasing costs, insurance premiums, gasoline and/or repairs incurred

in connection with the executive’s automobile, $333 in cellular communications expenses paid by Integrity, representing

the estimated costs of our cellular communications expenses attributable to the executive, $14,357 in tax gross-up payments,

and contributions to the (a) Severance Pay- Fund, (b) retirement plan feature of Managers’

Insurance (Kupat Gemel),

(c) disability insurance (Ovdan Kosher Avoda) and (d) statutory national insurance (Bituach Leumi) in the aggregate total

amount of $22,758.

$25,000 in Company common stock at $0.50 per share and reimbursement for costs of health and life insurance in the amount

based on the average exchange rate for the year of New Israeli Shekels to U.S.

Dollars of NIS 3.576 = U.S.

contributions to the (a) Severance Pay- Fund, (b) retirement plan feature of Managers’

Insurance (Kupat Gemel), (c)

disability insurance (Ovdan Kosher Avoda) and (d) statutory national insurance (Bituach Leumi).

contributions to the (a) Severance Pay- Fund, (b) retirement plan feature of Managers’

Insurance (Kupat Gemel), (c)

disability insurance (Ovdan Kosher Avoda) and (d) statutory national insurance (Bituach Leumi).

a sign-on bonus received by Mr., Podwalski as part of the terms of his June 26, 2017 employment contract.

a retention bonus received by Mr.

Malka as part of the terms in his April 7, 2017 employment agreement.

forth below are summaries of the material terms of the employment agreements of our current named executive officers.

Malka entered into an employment agreement with Integrity Israel in July 2010 pursuant to which Mr.

Malka agreed to continue to

serve as the Vice President of Operations of Integrity Israel.

Malka’s employment agreement provides for an annual salary

of NIS 240,000, or approximately $68,985 based on the exchange rate of 3.479 NIS / $1.00 USD in effect on March 21, 2018, and

an annual bonus to be determined by the Board of Directors and an additional sum provided that Mr.

Malka reaches certain milestones

approved by the Board of Directors, as well as the payment of certain social and insurance benefits and the use of a company car.

The agreement also provides that Mr.

Malka’s annual salary shall be subject to increase from time to time at the discretion

of the Board of Directors.

We expect that Mr.

Malka’s bonus formula, as previously determined by the Board of Directors,

will be renegotiated once Integrity Israel has begun commercialization of its products.

The agreement is terminable by either

party on 90 days’

notice, immediately by Integrity Israel with the payment of an amount equal to 90 days of annual salary,

or immediately by Integrity Israel for cause (as defined in the agreement) without the payment of severance.

Malka’s

employment agreement contains non-compete and confidentiality provisions effective during the term of the agreement and for one

year thereafter.

to his employment agreement, in March 2012, Mr.

Malka was granted options to purchase 79,434 shares of Common Stock at an exercise

price per share $6.25 per share.

Malka’s options vested (or in the case of clause (iii) below, will vest) in one-third

increments upon (i) submission of clinical trials’

results to the Notified Body;

(ii) the receipt of CE mark approval;

(iii) the receipt of FDA approval, subject to immediate vesting in the event of a change of control.

April 7, 2017, Integrity Israel entered into an amended and restated personal employment agreement (the “Malka Employment

Agreement”) with David Malka for his continued service as Vice President of Operations of the Company and Integrity Israel,

effective as of March 20, 2017 (the “Malka Effective Date”).

Pursuant to the terms of the Malka Employment Agreement,

Malka (a) receives a monthly base salary of NIS 20,000 (approximately $5,749 based on an exchange rate of 3.

479 NIS / 1 USD

in effect on March 21, 2018), which may increase to NIS 35,000 per month (approximately $10,060 using the same exchange rate)

in the event certain performance milestones are met;

(b) is eligible to earn an annual performance bonus between 420-864% of his

base salary, subject to certain performance criteria to be established by the Board of Directors within the first ninety (90)

days of each fiscal year;

one-year anniversary of the Malka Effective Date, payable thirty days following the one-year anniversary of the Malka Effective

Date and provided that Mr.

Malka remains employed with Integrity Israel through and on the one-year anniversary of the Malka Effective

(d) received a modification to the terms of his options to purchase 79,434 shares of Common Stock at an exercise price per

share equal to $6.25 whereby the unvested portion of such options will accelerate and will be immediately exercisable, effective

as of the Malka Effective Date (since the original performance conditions were not expected to be satisfied as of the date of

the modification of the terms, the fair value of such grant was measured based on the fair value of the modified award at the

modification date);

and (e) received options to purchase 361,875 shares of Common

Stock, granted under the Plan, with an exercise price $4.50 per share, which shall vest

over a three-year period .

In addition, the Malka Employment Agreement provides for the payment of certain social benefits

and the use of a company car.

The Malka Employment Agreement is terminable by Integrity Israel and Mr.

Malka on 90 days’

prior written notice, without cause, or immediately by Integrity Israel for cause as defined in the Malka Employment Agreement.

Integrity Israel may terminate Mr.

Malka’s employment without cause prior to the expiration of the 90-day notice period,

but will be required to pay Mr.

Malka a severance fee equal to his base salary plus the financial value of all other benefits

Malka would have been entitled to receive in respect of the portion of the notice period which was forfeited.

Naidis entered into an employment agreement with Integrity Israel in July 2010 pursuant to which Mr.

Naidis agreed to continue

to serve as the Vice President of Research and Development of Integrity Israel.

Naidis’s employment agreement provides

for an annual salary of NIS 276,000, or approximately $79,333 based on the exchange rate of 3.479 NIS / $1.00 USD in effect on

March 21, 2018, as well as the payment of certain social and insurance benefits and the use of a company car.

The agreement also

provides that Mr.

Naidis’s annual salary shall be subject to increase from time to time at the discretion of the Board of

We expect that Mr.

Naidis’s bonus formula, as previously determined by the Board of Directors, will be renegotiated

once Integrity Israel has begun commercialization of its products.

The agreement is terminable by either party on 90 days’

notice, immediately by Integrity Israel with the payment of an amount equal to 90 days of annual salary, or immediately by Integrity

Israel for cause (as defined in the agreement) without the payment of severance.

Naidis’s employment agreement contains

non-compete and confidentiality provisions effective during the term of the agreement and for one year thereafter.

September 2017, the Compensation Committee and the Board of Directors approved an increase of Mr.

Naidis’s base salary to

NIS 43,200 (US$147,660 annually), which shall only start to take effect after the Company has completed the next round of financing

and has sufficient funds to finance operations.

The Compensation Committee and the Board of Directors also approved certain on-target

performance bonus at 35% Mr.

Naidis’s annual base salary and grant of stock options (pursuant to the Company’s 2010

Incentive Compensation Plan, as amended) equating to 1% of the fully diluted number of shares of the Company after the closing

of the offering of Series C Units, with a strike price of US$4.50, with three-year monthly vesting commencing on the first month

after the effective date.

Company also entered into a Consulting Agreement with Ms.

Kahn for her services as Interim CFO.

She is compensated $10,000 per

month for her services.

The Agreement was for an initial term of six months which expired on January 31, 2020 and was renewed

by the Company on February 5, 2020 for an additional six month term and may be further extended for successive six-month terms

and may be terminated by either party on 30 days’

Equity Awards as of December 31, 2019

following table sets forth for each of Integrity’s named executive officers certain information regarding unexercised options

as of December 31, 2019:

of Securities Underlying Unexercised Options (#) Exercisable

of Securities Underlying Unexercised Options (#) Unexercisable

Exercise Price ($)

Expiration Date

Malka, Vice president of Operations

Naidis, Vice President of Research and Development

Malka’s options to purchase 79,434 shares of Common Stock at an exercise price per share equal to $6.25 all vested as

of April 3, 2017, pursuant to an amendment to his employment agreement.

361,875 of Mr.

Malka’s options vested or will

vest in 12 equal quarterly installments beginning April 7, 2017.

Naidis’s options vested or will vest in 12 equal quarterly installments beginning September 15, 2017.

following table sets forth information with respect to the compensation of our directors as of December 31, 2019:

Common Shares (1)

Angela Strand

Robert Fischell

Andrew Sycoff

Revan Schwartz

Michael Hauck

The Board agreed to take all compensation for 2019 in stock calculated at the end of each calendar quarter based upon a 10 day

volume weighted average price formula as follows:

Company’s Board fee schedule is as follows:

Committee Member

Committee Chair

OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

following table sets forth certain information regarding the ownership of our Common Stock within 60 days of April 10,

person known to us to be the beneficial owner of more than 5% of our outstanding shares of common stock;

of our named executive officers and our current directors;

of our executive officers and directors as a group.

as otherwise indicated below, the address of each beneficial owner listed in the table is c/o Integrity Application Inc., 19 Ha’Yahlomim

Street, Ashdod Israel.

have determined beneficial ownership in accordance with the rules of the SEC.

Except as indicated by the footnotes below, we believe,

based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment

power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.

percentage ownership is based on 199,358,436 shares of common stock outstanding on March 31, 2020.

In computing the number of

shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed as outstanding shares

of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of April

We did not deem these exercisable shares outstanding, however, for the purpose of computing the percentage ownership

of any other person.

The applicable footnotes are an integral part of the table and should be carefully read in order to understand

the actual ownership of our securities, particularly by the 5% stockholders listed in the table.

of Beneficial Owner

of Shares Beneficially Held

of Preferred, Options and Warrants Exercisable within 60 days

Shares Beneficially

Robert Fischell

Executive Officers and Directors as a group (9 persons)

A Ballantyne Rev Trust 08/01/2017

The number of shares beneficially owned does not include 992,892 shares of common stock to be issued after the approval of a reverse

stock split or increase in authorized shares, both of which were approved by our shareholders.

605,205 shares of common

stock to be issued to the Company’s board of directors for accrued 2019 fees to be issued in lieu of cash payment and 387,596

shares common stock to be issued to Andrew Garrett, Inc.

for accrued 2019 advisory fees.

All the options to purchase an aggregate of 41,560 shares of Common Stock granted to Dr.

Fischell under the Incentive Plan, will be deemed vested within 60 days of April 10, 2020.

In addition to vested options,

this number also includes 222,677 shares of Common Stock owned by Dr.

All the options to purchase an aggregate of 41,560 shares of Common Stock granted to Ms.

Strand under the Incentive Plan, will be deemed vested within 60 days of April 10, 2020.

In addition to vested options,

this number also includes 223,599 shares of Common Stock owned by Ms.

Ownership without regard to the 4.99% Blocker limitation includes:

SDR Diversified Holdings, LLC owns 46,511 shares of common

stock and 14,820,222 warrants.

Leah Rapps, wife of Shimon Rapps, has voting control and investment power over SDR Diversified

Holdings, LLC.

Rapps also owns 27,285 shares in her personal name.

Rapps disclaims beneficial ownership in the shares

and warrants held by SDR Diversified Holdings, LLC.

Of the options to purchase an aggregate of 41,560 shares of Common Stock granted to Mr.

Schwartz under the Incentive Plan, of

which 38,602 options will be deemed vested within 60 of April 10, 2020.

In addition to vested options, this number also

includes 10,000 shares of Common Stock owned by Mr.

Options deemed vested within 60 days of April 10, 2020.

In addition to vested options,

this number also includes 239,975 shares of Common Stock owned by Mr.

Options deemed vested within 60 days of April 10, 2020.

In addition to vested options,

this number also includes 63,627 shares of Common Stock owned by Mr.

In addition, the John A.

Ballantyne Revocable Trust 08/01/2017 owns additional shares of common stock acquirable within 60 days,

each of which is subject to a Blocker Limitation.

However, the percentage ownership by the John A.

Ballantyne Revocable Trust

08/01/2017 is currently in excess of such Blocker Limitations, and as a result, such Blocker Securities have been excluded from

These Blocker Securities consist of the following:

4,923,336 warrants.

Ballantyne owns 17,408 shares in his personal

name and 66,284,003 shares in the Trust.

The address of John A.

Ballantyne Rev Trust 08/01/2017 is 1101 28th Avenue, South Fargo,

Ballantyne has voting and investment control over the shares held by John A.

Ballantyne Rev Trust 08/01/2017.

Ownership, without regard to the 4.99% Blocker Limitation includes:

(i) 977,510 shares of common stock;

and (ii) 36,548,244 shares

of common stock issuable upon the exercise of warrants, both owned by Alma Diversified Holdings, LLC, and (iii) 1,846,914 warrants

owned by Andrew Garrett, Inc.

The address of Andrew Garrett, Inc.

is 52 Vanderbilt Avenue, 5 th floor, New York, NY

Sycoff has voting power and investment control over the shares of common stock held by Andrew Garrett, Inc.

Sycoff is the husband of Sharon Sycoff who has voting power and investment control over the shares held by Alma Diversified Holdings

Sycoff disclaims beneficial ownership in the shares held by Alma Diversified Holdings LLC.

are no arrangements known to the Company the operation of which may at a subsequent date result in a change in control of the

Certain Relationships and Related Transactions, and Director Independence.

as set forth below, Integrity is not aware of any transactions since the beginning of its last fiscal year or any proposed transactions

in which Integrity was or is a party, in which (1) the amount involved exceeded the lesser of $120,000 or 1% of the average of

Integrity’s total assets at year-end for the last two completed fiscal years and (2) in which a director, director nominee,

executive officer, holder of more than 5% of Integrity’s Common Stock or Preferred Stock or any member of the immediate

family of any of the foregoing persons had or will have a direct or indirect material interest.

Garrett, Inc., which is controlled by one of our directors, Andrew Sycoff, received cash

of $833,557 ($633,557 for Placement Agent fees and $200,000 for Advisory fees) and 2,213,881 warrants for Placement Agent fees

in 2019 from us.

is not currently listed on any national securities exchange.

As a result, Integrity is not subject to the requirements of any

securities exchange providing that a majority of the Board of Directors must be comprised of independent directors.

Nevertheless,

the Board has applied the independence rules of the NYSE American (formerly NYSE MKT) to determine the independence of its directors.

The independence rules of the NYSE American include a series of objective tests, including that an “independent”

will not be employed by Integrity and will not be engaged in various types of business dealings with Integrity.

Applying these

rules and based on representations from the directors with respect to their independence thereunder, the Board has determined

that each of the current members of Integrity’s Board of Directors is independent, except for Mr.

Sycoff, and, therefore,

a majority of the members of the Board are independent directors.

Accounting Fees and Services.

for services rendered by Fahn Kanne & Co.

(“Fahn Kanne”) for professional services rendered for the 2019 and 2018

audit of our annual financial statements, review of financial statements included in quarterly reports on Form 10-Q in 2019 and

2018 and out of pocket expenses, totaled approximately $60,000 and $58,070 for 2019 and 2018, respectively.

did not pay Fahn Kanne any fees in 2019 or 2018 for assurance and related services reasonably related to the performance of the

audit or review of the Integrity’s financial statements.

did not pay any other fees to Fahn Kanne in 2019 or 2018.

on Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors

Board is solely responsible for the pre-approval of all audit and non-audit services to be provided by the independent accountants.

The Board approved all of the fees paid to Fahn Kanne for the years ended December 31, 2019 and 2018.

Except for the information about our Code

of Ethics below, the information required by this Item 10 is incorporated by reference from our definitive proxy statement for

our 2021 Annual Meeting of Stockholders (the “Proxy Statement”).

The definitive Proxy Statement will be filed with

the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Annual Report on Form

We maintain a Code of Business Conduct

and Ethics (Code) that applies to all employees, including our principal executive officer, principal financial officer, principal

accounting officer, controller and persons performing similar functions, and including our independent directors, who are not

employees of the Company, with regard to their Integrity-related activities.

The Code incorporates guidelines designed to deter

wrongdoing and to promote honest and ethical conduct and compliance with applicable laws, rules and regulations.

The Code also

incorporates our expectations of our employees that enable us to provide accurate and timely disclosure in our filings with the

SEC and other public communications.

In addition, the Code incorporates guidelines pertaining to topics such as complying with

applicable laws, rules, and regulations;

insider trading;

reporting Code violations;

and maintaining accountability for adherence

The full text of our Code is published on our web site at http://www.integrity-app.com/investor-relations/corporate-governance/

and is incorporated by reference herein.

We intend to disclose future amendments to certain provisions of our Code, or waivers

of such provisions granted to our principal executive officer, principal financial officer, principal accounting officer or controller

and persons performing similar functions on our web site.

Except as expressly stated herein, the information contained on our

website does not constitute a part of this Annual Report on Form 10-K and is not incorporated by reference herein.

Executive Compensation.

The information required for this Item

is incorporated by reference from our Proxy Statement.

Security Ownership of Certain

Beneficial Owners and Management and Related Stockholder Matters.

The information required for this Item

is incorporated by reference from our Proxy Statement.

Certain Relationships and Related

Transactions, and Director Independence.

The information required for this Item

is incorporated by reference from our Proxy Statement.

Principal Accountant Fees and

The information required for this Item

is incorporated by reference from our Proxy Statement.

Exhibits, Financial Statement Schedules.

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Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002 **

XBRL Instance Document

XBRL Schema Document

XBRL Calculation

Linkbase Document **

XBRL Taxonomy Extension

Calculation Linkbase **

XBRL Label Linkbase

PRE XBRL Presentation

Linkbase Document **

Previously filed

as an exhibit to the Company’s Registration Statement on Form S-1, as filed with the SEC on August 22, 2011.

Previously filed

as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on March 18, 2013.

Previously filed

as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on September 5, 2014.

Previously filed

as an exhibit to Amendment No.

1 to the Company’s Registration Statement on Form S-1, as filed with the SEC on October

Previously filed

as an exhibit to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2017, as filed with the SEC

on August 18, 2017.

Previously filed

as an exhibit to Amendment No.

3 to the Company’s Registration Statement on Form S-1, as filed with the SEC on November

Previously filed

as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as filed with

the SEC on March 27, 2014.

Previously filed

as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on April 15, 2016.

Previously filed

as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with

the SEC on March 31, 2017.

Instance Document **

Schema Document **

Calculation Linkbase Document **

Taxonomy Extension Calculation Linkbase **

Label Linkbase Document **

XBRL Presentation Linkbase Document **

filed as an exhibit to the Company’s Registration Statement on Form S-1, as filed with the SEC on August 22, 2011.

filed as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on March 18, 2013.

filed as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on September 5, 2014.

filed as an exhibit to Amendment No.

1 to the Company’s Registration Statement on Form S-1, as filed with the SEC on

October 7, 2011.

filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2017, as filed with

the SEC on August 18, 2017.

filed as an exhibit to Amendment No.

3 to the Company’s Registration Statement on Form S-1, as filed with the SEC on

November 10, 2011.

filed as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as filed

with the SEC on March 27, 2014.

filed as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on April 15, 2016.

filed as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed

with the SEC on March 31, 2017.

filed as an exhibit to the Company’s Registration Statement on Form S-1, as filed with the SEC on November 7, 2017.

Previously filed

as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on April 15, 2017

Previously filed

as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on March 7, 2018.

Previously filed

as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on March 23, 2016.

Compensation Plan

or Arrangement or Management Contract.

Filed herewith.

to the requirements of Section 13 or 15(d) 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 as of this 1st day of April 14, 2020.

INTEGRITY APPLICATIONS, INC.

filed as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on April 15, 2017

filed as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on March 7, 2018.

filed as an exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on March 23, 2016.

Plan or Arrangement or Management Contract.

to the requirements of Section 13 or 15(d) 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 as of April 13, 2021.

APPLICATIONS, INC.

Financial Officer (Principal Executive and Financial Officer)

to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf

of the registrant and in the capacities and on the dates indicated.

April 14, 2020

(Principal Executive

Chief Financial

April 14, 2020

(Principal Financial

Officer and Principal Accounting Officer)

Financial Officer

Executive and Financial Officer and Principal Accounting Officer)

Robert Fischell

5 unchanged sentences

April 13, 2021

Andrew Sycoff

April 13, 2021

APPLICATIONS, INC.

2 unchanged sentences

Report of Independent Registered Public Accounting Firm

Consolidated Financial Statements

Financial Statements

Balance Sheets

1 unchanged sentence

Statements of Changes in Stockholders’

Equity (Deficit)

Statements of Cash Flows

Notes to Consolidated Financial Statements

Fahn Kanne & Co.

Hamasger Street

Tel-Aviv 6721118, ISRAEL

PO Box 36172, 6136101

T +972 3 7106666

F +972 3 7106660

6721118, ISRAEL

Box 36172, 6136101

+972 3 7106666

+972 3 7106660

www.gtfk.co.il

6 unchanged sentences

31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, changes in stockholders’

and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to

as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects,

the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for

each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the

United States of America.

(deficit) and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively

referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material

respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash

flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted

in the United States of America.

financial statements are the responsibility of the Company’s management.

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BALANCE SHEETS

US dollars (except share data)

In thousand of US dollars

(except share data)

December 31, 2020

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Accounts receivable, net

Inventory (Note 3)

Other current assets

Total current assets

Operating lease right-of-use assets, net

Property and equipment, net

Long-Term Restricted Cash

Funds in Respect of Employee Rights Upon Retirement

Operating lease right-of-use assets, net (Note 4)

Property and equipment, net (Note 5)

Non-current Restricted Cash

LIABILITIES AND STOCKHOLDERS’

EQUITY (DEFICIT)

Current Liabilities

Accounts payable

Operating lease liabilities, current

Other current liabilities

Operating lease liabilities, current (Note 4)

Other current liabilities (Note 6)

Total Current Liabilities

Long Term Liabilities

Long-Term Loans from Stockholders

Operating lease liabilities, non-current

Liability from Employee Rights Upon Retirement

Total long-term liabilities

Non-current Liabilities

Long-Term Loans from Stockholders (Note 8)

Operating lease liabilities, non-current (Note 4)

Total Non-current liabilities

Total Liabilities

Stockholders’

Equity (Deficit)

Common Stock of $ 0.001 par value (“Common Stock”):

500,000,000 shares authorized;

162,834,875 and 141,634,700 shares

issued and outstanding as of December 31, 2019 and 2018, respectively

200,781,064 and 161,858,436 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively

Additional paid-in capital

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Accumulated deficit

(90,702,929 )

(87,186,783 )

Total Stockholders’

equity (deficit)

TOTAL LIABILITIES AND STOCKHOLDERS’

accompanying notes are an integral part of the consolidated financial statements.

EQUITY (DEFICIT)

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

APPLICATIONS, INC.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Research and development

Selling and marketing expenses

General and administrative

In thousand of US dollars

Research and development expenses (Note 11)

Selling and Marketing (Note 12)

General and administrative expenses (Note 13)

Total operating expenses

Operating loss

Finance Expense

Financing income (expense), net

Loss for the period

Other comprehensive income:

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Comprehensive Loss for the period

Net Loss per Common Share

Common shares used in computing Basic and Diluted Loss per share

Loss per share (Basic) (Note 15)

Loss per share (Diluted) (Note 15)

Common shares used in computing Basic and Diluted Loss per share (Note 15)

accompanying notes are an integral part of the consolidated financial statements.

1 unchanged sentence

OF CHANGES IN STOCKHOLDERS’

Dollars ( except share data)

Comprehensive

EQUITY (DEFICIT)

thousand of US dollars (except share data)

Stockholders’

at January 1, 2018

(47,368,612 )

(16,574,933 )

comprehensive

Balance as of January 1, 2019

Loss for the period

Other comprehensive

Conversion of preferred

Shares into common

(13,989,596 )

Conversion of Dividends

Conversion of late dividend

fee into Common

Additional Shares issued

to Series D holders on Conversion

Conversion of warrants

Stock dividend on Series

C Preferred Stock

Stock dividend on Series

B Preferred Stock

Cash dividend on Series

A Preferred Stock

Issuance of Common Stock

from Series D offering

Other comprehensive loss

Amounts allocated to Series D-1, D-2 and Series D-3 Warrants, net

Amounts allocated to issuance of Common Stock from Series D offering

Issuance of shares as settlement of financial liabilities

Warrants issued as consideration for placement services

Stock-based compensation

Amounts allocated to

Series D-1, D-2 and Series D-3 Warrants, net

Early adoption of ASU

Warrants issued as consideration

for placement agent services

Effect of down round

protection of warrants upon occurrence of trigger event

Issuance of shares

as settlement of financial liabilities

at December 31, 2018

(87,186,783 )

Balance at January

(87,186,783 )

Issuance of restricted shares as compensation

to the board of directors

Balance as of December 31, 2019

Balance as of January 1, 2020

Loss for the period

Other comprehensive

Amounts allocated to

Series D-1, D-2 and Series D-3 Warrants, net

Amounts allocated to

issuance of Common Stock from Series D offering

Issuance of shares as settlement of financial

Warrants issued as consideration

for placement services

Other comprehensive loss

Stock-based compensation

of shares to the board of directors as compensation

at December 31, 2019

(90,702,929 )

Issuance of Common Stock, net

Warrants issued as consideration for placement services

Issuance of restricted shares as compensation

to the board of directors

Balance as of December 31, 2020

Less than 1 thousand

accompanying notes are an integral part of the consolidated financial statements.

2 unchanged sentences

Cash flows from operating activities:

Loss for the year

$ (3,516,146 )

$ (6,715,420 )

Adjustments to reconcile net loss to net cash used in operating activities:

Income (loss) for the year

Adjustments to reconcile income (loss) for the year to net cash used in operating activities:

Stock-based compensation

Issuance of shares as compensation to the board of directors

Issuance of restricted shares as compensation to the board of directors

Linkage difference on principal of loans from stockholders

2 unchanged sentences

Decrease (increase) in inventory

Decrease (increase) in other current assets

Increase in other current assets

Decrease in accounts payable

Increase (decrease) in other current liabilities

Decrease in other current liabilities

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Cash flows from investment activities:

Purchase of property and equipment

Net cash used in investing activities

Net cash used in investment activities

Cash flows from financing activities

Proceeds allocated to Series D Warrants, net of cash issuance expenses

Proceeds allocated to Common Stock from Series D offering, net of cash issuance expenses

Proceeds from issuance of Common Stock, net of cash issuance expenses

Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents, and restricted cash

Effect of exchange rate changes on cash and cash equivalents

Increase in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash at beginning of the period

Cash, cash equivalents, and restricted cash, end of period

cash, cash equivalents, and restricted cash at beginning of the year

cash, cash equivalents, and restricted cash at end of the year

Supplementary

1 unchanged sentence

the year ending December 31, 2019, the Company settled a portion of the outstanding board fees and management payroll obligations

in the amount of $463,223 through the issuance of 1,795,437 shares of common stock in total to seven board

members and three members of the senior management team.

the year ending December 31, 2019, $249,612 representing the fair value of warrants issued as consideration for placement agent

in the amount of $463 thousand through the issuance of 1,795,437 shares of common stock in total to seven board members and three

members of the senior management team.

the years ending December 31, 2020 and 2019, $756 and $249 thousand, respectively, representing the fair value of warrants issued

as consideration for placement agent services.

This amount was accounted for as Warrants with down-round protection.

Upon issuance, the fair value was recognized as

an increase in additional paid in capital.

Company calculates the Placement Agent Warrants fair value by using the Black Scholes model, the key inputs used

in the fair value calculations were as follows:

December 31, 2019

Dividend yield (%)

Expected volatility (%) (*)

Risk free interest rate (%)

Expected term of options (years)

Exercise price (US dollars)

0.258 –

Share price (US dollars) (**)

Fair value (US dollars)

to the low trading volume of the Company’s Common Stock, the expected volatility was based on a sample of 248 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 June 2019.

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 D Units at December 31, 2018.

Upon issuance, the

fair value was recognized as an increase in additional paid in capital.

accompanying notes are an integral part of the consolidated financial statements.

1 unchanged sentence

TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 –

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.

Applications, Inc.

(the “Company”) was incorporated on May 18, 2010 under the laws of the State of Delaware.

15, 2010, Integrity Acquisition Corp.

(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 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.

“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

Following the merger, Integrity Israel remained a wholly-owned subsidiary of the Company.

2 unchanged sentences

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

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 December

31, 2019, the Group has incurred accumulated deficit of $90,702,929, stockholder’s deficit of $1,411,602, negative operating

cash flows and negative working capital.

As of December 31, 2019, the Company had $418,621 in cash, which would not have

been sufficient to meet its capital needs for fiscal 2020;

however, on February 14, 2020, it closed on a $15 million private

placement of its common stock, for which it received net cash in excess of $12,979,270, which is sufficient to meet

its capital needs for at least 12 months from the date of issuance of these financial statements, thus it will be able to

operate as a going concern for at least 12 months from the date hereof.

See Note 20 –

Subsequent Events.

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.

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 December 31, 2020, the Group has incurred accumulated deficit

of $93,399 thousand, and negative operating cash flows.

As of December 31, 2020, the Company had $9,823 in cash, which is sufficient

to meet its capital needs for fiscal 2021 and for at least 12 months from the date of issuance of these financial statements, thus

it is expected that the company will be able to operate as a going concern for at least 12 months from the date hereof.

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 1 –

GENERAL (cont.)

Group has a limited operating history and faces a number of risks and uncertainties, including risks and uncertainties regarding

1 unchanged sentence

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.

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

Use of estimates

in the preparation of financial statements

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 (i) the measurement of the benefit to warrants with down round protection upon trigger event commencing January 1, 2018,

(ii) the going concern assumptions, (iii) measurement of stock-based compensation, and, (iv) determination of net realizable

value of inventory.

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.

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

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.

of the spread of the Coronavirus on the Company

December 2019, the Covid-19 epidemic erupted in China (hereinafter - the “Corona Virus”,

the “Event”

or the “Crisis”) and at the beginning of 2020, it spread

to additional countries across the globe.

In January 2020, the World Health Organization

declared the outbreak of Corona as a global health emergency and in March 2020, it declared

the Corona virus to be a global pandemic.

The spreading of the Corona Virus is an extraordinary

macroeconomic event in many countries worldwide.

As a result of the event, many countries,

including Israel, have taken significant steps in an attempt to stem the spreading of the

These steps include, inter alia, restriction of civilian movement and employment,

closure of businesses and malls, restrictions of gatherings and events, restriction of the

transportation of people and goods, closure of international border crossings, reduction

in the number of employees permitted to come to their workplaces, etc.

The event and the

steps being taken by the various countries, as mentioned above, have had a significant impact

on many global and local economies as well as on global capital markets, characterized by

sharp decreases and extreme volatility in the prices of many securities.

In addition, there

is an ever-increasing risk of a market recession.

a result of the COVID-19 pandemic, as near-term measures, we have transitioned some of our employees to remote working arrangements.

The transition has had little impact on our employee productivity.

Due to the uncertainty of COVID-19, we will continue to assess

the situation, including abiding by any government-imposed restrictions, market by market.

OF SIGNIFICANT ACCOUNTING POLICIES

consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States

of America (US GAAP).

of estimates in the preparation of financial statements

preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States

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.

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.

losses arising from changes in the exchange rates used in the translation of such transactions are carried as financing income

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

Gains or losses resulting from translation adjustments are reflected in stockholders’

deficit, under “accumulated

other comprehensive income (loss)”.

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)”.

Official exchange rate of NIS 1 to US dollar

2 unchanged sentences

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 2 –

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

Cash and cash

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.

Inventories are

stated at the lower of cost or net realizable value.

Cost is determined

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.

To date, the Group has recorded reserves with respect

to its inventory in the amount of approximately US$ 1,457 thousand.

equipment, net

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.

OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

of consolidation

consolidated financial statements include the accounts of the Company and its subsidiary.

All intercompany balances and transactions

have been eliminated in consolidation.

and cash equivalents

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.

are stated at the lower of cost or net realizable value.

is determined as follows:

respect to raw materials, the Group calculates cost using the average cost method.

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.

evaluates whether inventory reserve for slow-moving or obsolete items is required.

and equipment, net

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.

Rates of depreciation:

depreciation are removed from the respective accounts and the net difference less any amount realized from disposition is reflected

in the statements of operations.

of depreciation:

Furniture and office equipment

Leasehold improvements

Shorter of lease term and 10 years

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.

Shorter of lease term

of long-lived assets

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.

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 2 –

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Long-term 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.

presentation of statement of cash flows purposes, restrict cash balances are included with cash and cash equivalents,

when reconciling the reported period total amounts.

OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

restricted cash

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.

presentation of statement of cash flows purposes, restrict cash balances are included with cash and cash equivalents, when reconciling

the reported period total amounts.

Cash and cash equivalents

1 unchanged sentence

Total cash, cash equivalents, and restricted cash shown in the statement of cash flows

The Group accounts

for income taxes in accordance with ASC 740, “Income Taxes”.

Group accounts for income taxes in accordance with ASC 740, “Income Taxes”.

Accordingly, deferred income taxes are determined

1 unchanged sentence

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.

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.

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.

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 2019 and 2018 financial statements and did not

recognize any liability with respect to unrecognized tax position in its balance sheet.

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

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.

for employee rights upon retirement

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.

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.

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.

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, 2019, and 2018 amounted to $79,190 and $120,753, respectively.

Revenue recognition

The Company derives

most of its revenues from sales of its GlucoTrack®

model DF-F 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.

obligations and liabilities under Section 14 are not recorded as an asset or as a liability in the Company’s balance sheet.

expenses for the year ended December 31, 2020, and 2019 amounted to $24 and $79 thousand respectively.

Company derives most of its revenues from sales of its GlucoTrack®

glucose monitoring device to distributors.

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.

the Company considers its distributors as end-users for revenue recognition purposes.

Until December 31,

2017, revenues were recognized in accordance with ASC 605, “Revenue Recognition”

and SEC Staff Accounting Bulletin

(“SAB”) No.

104, “Revenue Recognition”, when delivery has occurred, persuasive evidence of an agreement

existed, the fee was fixed and determinable, collectability was reasonably assured and no further obligations existed.

were made at the time of revenue recognition for any applicable warranty cost expected to be incurred.

recognition accounting policy applied from January 1, 2018 (following the adoption of ASC Topic 606);

January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).

accordance with ASC 606, The Company determines revenue recognition through the following five steps:

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;

4 unchanged sentences

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

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.

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.

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.

are recorded in the amount of consideration to which the Company expects to be entitled in exchange for performance obligations

3 unchanged sentences

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 2 –

SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES (cont.)

development expenses

Research and development

expenses are charged to operations as incurred.

OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

and development expenses

and development expenses are charged to operations as incurred.

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 $93,300.

Integrity Israel

has not received any research and development grants since December 2004.

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.

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.

ended December 31, 2019 and 2018 warranty expenses were clearly insignificant.

($4,699 and, $1,173, respectively).

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 (such as the convertible Preferred Stock) are considered in the computation of basic income per share using the two-class

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.

In computing, diluted

income 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”

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.

and diluted income (loss) per share

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.

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.

the reported period, there were no such participating securities.

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.

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”.

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

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, “

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

December 31, 2018 the Company applied ASC 505-50, “

Equity-Based Payments to Non-Employees ”

(“ASC 505”) with respect to options and warrants

issued to non-employees, which required the use of option valuation models to measure the fair value of the options and warrants

at the measurement date.

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.

(“ASC 505”)

with respect to options and warrants issued to non-employees, which required the use of option valuation models to measure the fair

value of the options and warrants at the measurement date.

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.

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 2 –

SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES (cont.)

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.

OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

value of financial instruments

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.

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:

1 - Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

value hierarchy gives the highest priority to Level 1 inputs.

2 - Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

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.

Group did not estimate the fair value of the long-term loans from stockholders since their repayment schedule has not yet been determined.

Concentrations

of credit risk

Financial instruments

that potentially subject the Group to concentrations of credit risk consist primarily of cash and cash equivalents, accounts

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.

of December 31, 2019, the Group has recorded reserves with respect to its accounts receivable

in the amount of approximately US$99,888 relating to the risk of the potential collectability

from one customer.

As of December 31, 2019, the balances of accounts receivable was not

material and accordingly such balances do not represent substantial concentration of

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.

of December 31, 2020, the balances of accounts receivable was not material and accordingly such balances do not represent substantial

concentration of credit risk.

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.

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.

1 unchanged sentence

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 2 –

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Warrants with

Down-Round Protection

December 31, 2017, the Company considered the provisions of ASC 815-40, “Derivatives and Hedging:

Contracts in Entity’s

Own Equity”, with respect to the detachable Warrants that were issued to the Series A Unit Purchasers and to the

placement agent, as described in Note 10D, and determined that as a result of the “down-round”

that would adjust the number of Warrants and the exercise price of the Warrants based on the price at which the Company

subsequently issues shares or other equity-linked financial instruments, if that price is less than the original exercise

price of the Warrants, such Warrants cannot be considered as indexed to the Company’s own stock.

Accordingly, the

Warrants were recognized as derivative liability at their fair value on initial recognition.

In subsequent periods (and

throughout December 31, 2017), the Warrants were marked to market with the changes in fair value recognized as financing

expense or income in the consolidated statement of operations.

The direct issuance expenses that were allocated to the

detachable Warrants, were expensed as incurred.

OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

with Down-Round Protection

January 1, 2018 and following the early adoption of Accounting Standard Update (ASU) No.

2017-11, “Earnings Per

(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 updated evaluation, management

has determined that such warrants with Down-Round Protection are eligible for equity classification.

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.

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.

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)

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, was accounted for in a similar manner to a modification

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) was 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 award are not recognized.

In addition, the amount of the deemed dividend was also recognized as an adjustment

to earnings available to common shareholders for purposes of calculating earnings per share.

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 2 –

SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES (cont.)

Issued Accounting Pronouncements (cont.)

Accounting Standard Update (ASU) No.

2017-11, “

Earnings Per Share”

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”).

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.

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.

2017-11 also addresses navigational concerns within the FASB Accounting Standards Codification related to an indefinite deferral

available to private companies.

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

amendments in Part 1 of ASU 2017-11 should be applied in either retrospectively to outstanding financial instruments with a down

round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the fiscal

year of adoption (‘Modified retrospective approach’), or retrospectively to outstanding financial instruments with

a down round feature for each prior reporting period presented (‘Full Retrospective approach’) with a cumulative-effect

adjustment to the statement of financial position as of the beginning of the earliest fiscal year presented.

Company elected to early apply ASU 2017-11, using the Modified retrospective approach.

Accordingly, the Company recognized, a

cumulative-effect adjustment to the statement of financial position as of January 1, 2018.

The company reclassified to Additional

paid-in capital (APIC) the remaining balance related to outstanding warrants with down round that was presented as a derivative

liability at December 31, 2017 (in the amount of $768,249).

Further, the company recorded an increase to APIC in an amount of

2,505,723 and a decrease in the same amount to accumulated deficit, in order to reflect the amount that would have been reported

if ASU 2017-11 was in effect at the issuance and throughout the term of the financial instruments outstanding, that are subject

to the provisions of ASU 2017-11.

Such amount reflects the cancelation of the aggregate periodic changes in fair value of the

warrants with down-round protection that were previously recognized as financing expense or financing income and recognition of

the value of the effect of the round down feature when it was triggered.

the application approach applied by the Company, comparative periods were not required to be restated.

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

Accounting Standard

Update 2018-07, Compensation—Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting

In June 2018, the

FASB issued Accounting Standard Update 2018-07, Compensation—Stock Compensation (Topic 718):

Improvements to Nonemployee

Share-Based Payment Accounting (ASU 2018-07).

ASU 2018-07 aligns the measurement and classification guidance for share-based

payments to nonemployees with the guidance for share-based payments to employees, with certain exceptions.

Consistent with

the accounting requirement for employee share-based payment awards, awards within the scope of Topic 718 will be measured

at grant-date fair value of the equity instruments that an entity is obligated to issue when the good has been delivered or

the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been

Equity-classified nonemployee share-based payment awards will be measured at the grant date.

With respect to

awards with performance conditions ASU 2018-07 concludes that, consistent with the accounting for employee share-based payment

awards, an entity will consider the probability of satisfying performance conditions when nonemployee share-based payment

awards contain such conditions.

ASU 2018-07 also

requires that the classification of equity classified nonemployee share-based payment awards will continue to be subject to

the requirements of Topic 718 unless the award was modified after the good has been delivered, the service has been rendered,

any other conditions necessary to earn the right to benefit from the instruments have been satisfied, and the nonemployee

is no longer providing goods or services.

This eliminates the requirement to reassess classification of such awards upon vesting.

In addition, ASU

2018-07 includes certain Non-public Entity-Specific Amendments

ASU 2018-07 is effective

for Public entities in annual periods beginning after December 15, 2018, and interim periods within those years (first quarter

of 2019 for the company).

Early adoption is permitted, including in an interim period, but not before an entity adopts the

new revenue guidance (which was adopted by the Company in its interim financial statements for 2018).

An entity should

only remeasure liability-classified awards that have not been settled by the date of adoption and equity-classified awards

for which a measurement date has not been established through a cumulative-effect adjustment to retained earnings as of the

beginning of the fiscal year of adoption.

Upon transition, the entity is required to measure these nonemployee awards at fair

value as of the adoption date.

adoption of ASU 2018-07 did not have a significant impact on its consolidated financial

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.

Company entered into several non-cancelable lease agreements for real estate, and vehicles for use in its operations, which are classified

as operating leases.

January 1, 2019, the Company adopted ASC Update 2016-02, Leases (Topic 842).

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.

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:

lease transfers ownership of the underlying asset to the lessee by the end of the lease term.

lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.

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).

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).

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

any of these five criteria is met, the lease is classified as a finance lease.

Otherwise, the lease is classified as an operating lease.

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

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.

Company had no material capital leases throughout the reporting periods.

note 4 for further discussion.

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

Accounting Standards

Update 2016-02, “Leases”

February 2016, the FASB issued its new lease accounting guidance in Accounting Standards

Update (ASU) No.

2016-02, Leases (Topic 842).

the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term

leases) at the commencement date:

A lease liability, which is a lessee’s obligation to make lease payments arising

from a lease, measured on a discounted basis;

A right-of-use asset, which is an asset that represents the lessee’s

right to use, or control the use of, a specified asset for the lease term.

the new guidance, lessor accounting is largely unchanged.

Certain targeted improvements were made to align, where necessary,

lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.

The new lease

guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease

assets and lease liabilities.

Lessees will no longer be provided with a source of off-balance sheet financing.

business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including

interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year Company).

Early application is permitted

for all public business entities upon issuance.

Company applied the modified retrospective transition approach for leases existing at, or entered into after, the beginning

of the earliest comparative period presented in the financial statements.

The modified retrospective approach do not require

any transition accounting for leases that expired before the earliest comparative period presented.

Lessees and lessors

may not apply a full retrospective transition approach.

new standard also provides practical expedients for an entity’s ongoing accounting.

The company elected the short-term

lease recognition exemption for all leases with a term shorter than 12 months.

This means, for those leases, the company

does not recognize ROU assets or lease liabilities, including not recognizing ROU assets or lease liabilities for existing

short-term leases of those assets in transition.

In addition, the company also elected the transition expedient for short-term

Accordingly, the new guidance was not applied for leases that has a term of 12 or fewer months at commencement

and does not have a purchase option that the lessee is reasonably certain to exercise.

adoption, the company recognized total right of use (“ROU”) assets of $225 thousand, with corresponding liabilities

of $225 thousand on the condensed consolidated balance sheets.

The adoption did not impact our beginning retained earnings,

or our prior year condensed consolidated statements of income and statements of cash flows.

Topic 842, we determine if an arrangement is a lease at inception.

ROU assets and liabilities are recognized at commencement

date based on the present value of remaining lease payments over the lease term.

For this purpose, we consider only payments

that are fixed and determinable at the time of commencement.

As our leases do not provide an implicit rate, we use our incremental

borrowing rate based on the information available at commencement date in determining the present value of lease payments.

The incremented borrowing rate is the expected interest rate that the company would have to pay to borrow on a collateralized

basis on a similar term and amounts equal to the lease payment and under similar economic environment.

The ROU asset also

includes any lease payments made prior to commencement and is recorded net of any lease incentives received.

Our lease terms

may include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.

leases are included in operating lease right-of-use assets, operating lease liabilities, current and operating lease liabilities,

non-current on our condensed consolidated balance sheets.

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.

OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

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.

issued accounting pronouncements not yet adopted

Standards Update 2016-13, “Financial Instruments –

Credit Losses (Topic 326):

Measurement of Credit Losses on Financial

Instruments”

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”).

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.

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.

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.

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

These disclosures include qualitative and quantitative requirements that provide additional information about the

amounts recorded in the financial statements.

addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets

with credit deterioration.

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

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.

All other entities

for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

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.

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 3 –

In thousand of US dollars

December 31, 2020

December 31, 2019

Raw materials

1 unchanged sentence

Finished products

provision for slow moving inventory (*)

evaluates whether inventory reserve for slow-moving or obsolete items is required.

To date, as a result of low volume of revenues

generated from the sales of the GlucoTrack®

model DF-F glucose monitoring device the Group has recorded reserves with

respect to its inventory in the amount of approximately US$ 1,457 thousand.

(of which an amount of US$ 700 thousand was recognized

in the fourth quarter of 2018).

NOTE 4 –

OTHER CURRENT ASSETS

Other Current Assets

Prepaid expenses

Government Institution

NOTE 5 –

EQUIPMENT, NET

Company has entered into several non-cancellable operating lease agreements for the Company’s offices and three vehicles.

the Company’s

leases have original lease periods expiring between 2020 and 2023.

Payments due under such lease contracts include primarily fixed payments.

the Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably assured at

lease commencement.

the company’s lease agreements do not contain any material residual value guarantees or material restrictive

components of lease costs, lease term and discount rate are as follows:

In thousand of

Operating lease cost:

Remaining Lease Term

Weighted Average Discount Rate

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

LEASES (cont.)

following is a schedule, by years, of maturities of operating lease liabilities as of December 31, 2020:

In thousand of

December 31, 2020

Total operating lease payments

imputed interest

Present value of lease liabilities

AND EQUIPMENT, NET

Property and Equipment

In thousand of US dollars

December 31, 2020

December 31, 2019

Furniture and office equipment

1 unchanged sentence

accumulated depreciation

During the years

ended December 31, 2019 and 2018, depreciation expenses amounted to $50,590, and $58,789, respectively, and new equipment

purchases amounted to $23,432 and $5,371, respectively.

NOTE 6 –

OTHER CURRENT LIABILITIES

the years ended December 31, 2020 and 2019, depreciation expenses amounted to $47 and $51 thousand respectively, and new equipment

purchases amounted to $53 and $23 thousand, respectively.

CURRENT LIABILITIES

Other Current Liabilities

In thousand of US dollars

December 31, 2020

December 31, 2019

Employees and related institutions

2 unchanged sentences

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 7 –

LINE OF CREDIT

As of December 31,

2019, the Group did not have a credit line with any institution.

NOTE 8 –

LONG-TERM LOANS

FROM STOCKHOLDERS

of December 31, 2020, the Group did not have a credit line with any institution.

LOANS FROM STOCKHOLDERS

the years 2003-2004, Integrity Israel received loans from stockholders (four separate lenders) in a total amount of approximately

$400 thousand.

The loans are indexed to the Israeli Consumer Price Index from their origination date and bear no interest.

The Group will be

required to pay the loans, in quarterly installments, commencing on the first quarter following the first fiscal year in which

the Group reports net profit in its annual report.

However, following the repayment of the entire balance to creatio1n lender in 2015, the remaining balance as of December

31,2020 is approximately $197 thousand.

The loans are indexed to the Israeli consumer price index from their origination date and

near no insert.

Group will be required to pay the loans, in quarterly installments, commencing on the first quarter following the first fiscal year

in which the Group reports net profit in its annual report.

At such time, the Group will be required to make quarterly payments equal

to 10% of its total sales for each quarter until the loans have been repaid in full.

Notwithstanding the repayment mechanism,

the Group will not be required to repay the loans during any period in which such payment would cause a deficit in the Group’s

Notwithstanding the repayment mechanism, the

Group will not be required to repay the loans during any period in which such payment would cause a deficit in the Group’s

working capital.

2015, as part of an arbitration proceedings, the Company repaid a certain lender an amount of NIS 1,767,624

($439,939) as full repayment of its outstanding principal loan amount and NIS 316,100 ($81,870) as reimbursement of legal

As of December 31,

2019, the Group does not expect to make any additional material repayments during the following 12-month period, if any, and

accordingly the entire remaining balance of the loans from stockholders have been presented as long-term liabilities.

of December 31, 2020, the Group does not expect to make any additional material repayments during the following 12-month period,

if any, and accordingly the entire remaining balance of the loans from stockholders have been presented as long-term liabilities.

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 9 –

COMMITMENTS AND CONTINGENT LIABILITIES

On March 4, 2004,

the OCS provided Integrity Israel with a grant of approximately $93,300 (NIS 420,000), for its plan to develop a non-invasive

blood glucose monitor (the “Development Plan”).

Integrity Israel is required to pay royalties to the OCS at a

rate ranging between 3-5% of the proceeds from the sale of the Group’s products arising from the Development Plan up

to an amount equal to $93,300, plus interest at LIBOR from the date of grant.

AND CONTINGENT LIABILITIES

March 4, 2004, the OCS provided Integrity Israel with a grant of approximately $93 thousand (NIS 420 thousand), for its plan to develop

a non-invasive blood glucose monitor (the “Development Plan”).

Integrity Israel is required to pay royalties to the OCS

at a rate ranging between 3-5% of the proceeds from the sale of the Group’s products arising from the Development Plan up to

an amount equal to $93 thousand, plus interest at LIBOR from the date of grant.

As of December 31, 2020, the remaining contingent

liability with respect to royalty payment on future sales equals approximately $43,000, excluding interest.

liability with respect to royalty payment on future sales equals approximately $43 thousand, excluding interest.

Such contingent

obligation has no expiration date.

As of December 31,

2019, and 2018, the Group accrued royalties to the OCS in the amounts of $6,938 and $4,418, respectively.

of December 31, 2020, and 2019, the Group accrued royalties to the OCS in insignificant amounts.

Israel leases approximately 5,500 sq.

of office space in the city of Ashdod, Israel for its principal offices.

term began on December 1, 2015 for a period of 5 years which can be extended for an additional 5 years at the option of the

Monthly lease payments including maintenance approximate $10,000.

The lease term

began on December 1, 2015 for a period of 5 years which has been extended on august 2020 for an additional 1 year at the option of

Monthly lease payments including maintenance approximate $10 thousand.

The Company estimates that its minimal rent and

maintenance payments for the remaining original lease term, will approximate $110,000 per year only further over

each of the next 11 months.

In connection with the lease agreement, Integrity Israel provided the landlord a bank

guarantee in the amount of approximately $39,722 (NIS 137,280) that can be exercised by the landlord in the case Integrity

Israel fails to pay the monthly rent payments.

The guarantee is renewed on an annual basis for a period of 4 years and is

secured by funds on deposit with the bank, which generally must be sufficient to cover the principal amount guarantee.

August 1, 2017 the Company entered into an Advisory Agreement with AGI, pursuant to which the Company retained AGI on

a non-exclusive basis to provide certain advisory services to the Company for a period of 9 months which was subsequently

extended twice and is now in effect to October 31, 2019.

Company paid the Placement Agent $833,557 and $784,770 in cash during 2019 and 2018, which includes all amounts

for the above advisory service agreements, inclusive, and the offerings.

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 10 –

COMMON STOCK, AND WARRANTS WITH-DOWN ROUND PROTECTION

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.

holders of Common Stock are not permitted to vote their shares cumulatively.

maintenance payments for the remaining original lease term, will approximate $120 thousand Per year over each of the next 9 months.

In connection with the lease agreement, Integrity Israel provided the landlord a bank guarantee in the amount of approximately $43

(NIS 137 thousand.) that can be exercised by the landlord in the case Integrity Israel fails to pay the monthly rent payments.

The guarantee is renewed on an annual basis for a period of 4 years and is secured by funds on deposit with the bank, which generally

must be sufficient to cover the principal amount guarantee.

August 1, 2017 the Company entered into an Advisory Agreement with AGI, pursuant to which the Company retained AGI on a non-exclusive

basis to provide certain advisory services to the Company for a period of 9 months which was subsequently extended twice and was

in effect to October 31, 2019.

Company paid the Placement Agent approximately $2 million for placement services.

thousand for placement services and Advisory services (see above) in cash during 2020 and

addition, during the year ending December 31, 2020 and 2019, $756 and $249 thousand, respectively, representing the fair

value of warrants issued as consideration for placement agent services to AGI.

This amount was accounted for as Warrants with

down-round protection.

Upon issuance, the fair value was recognized as an increase in additional paid in capital.

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 10 –

COMMON STOCK,

PREFERRED STOCK AND WARRANTS WITH-DOWN ROUND PROTECTION (cont.)

Description of

the rights attached to the Series D units

STOCK, AND WARRANTS WITH-DOWN ROUND PROTECTION

of the rights attached to the Common Stock

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.

of the Series D units

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”).

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.

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”).

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 10 –

COMMON STOCK,

PREFERRED STOCK AND WARRANTS WITH-DOWN ROUND PROTECTION (cont.)

Description of

the rights attached to the Series D Units (cont.)

Placement Agent

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

STOCK, PREFERRED STOCK AND WARRANTS WITH-DOWN ROUND PROTECTION (cont.)

of the rights attached to the Series D Units (cont.)

Agent Compensation

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.

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

Warrants with

down round protection

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.

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 10 –

COMMON STOCK, PREFERRED STOCK AND WARRANTS

WITH-DOWN ROUND PROTECTION (cont.)

Warrants with

down round protection (cont.)

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

Balance, Beginning of the year

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 (*)

Balance, End of year

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).

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 10 –

COMMON STOCK, PREFERRED STOCK AND WARRANTS

WITH-DOWN ROUND PROTECTION (cont.)

Stock-based compensation

Grants to non-employees

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.

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

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, 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.

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:

the company is 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.

to non-employees

connection with the 2017 Offering, the Company has issued 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.

connection with February 2020 Offering, the Company has issued to the Placement Agent 5-year

warrants to purchase up to 3,750,000 shares of Common Stock at an exercise price of $0.4

the year ending December 31, 2020 and 2019, $756 and $249 thousand, respectively, representing the fair value of warrants issued

as consideration for placement agent services to AGI.

This amount was accounted for as Warrants with down-round protection.

issuance, the fair value was recognized as an increase in additional paid in capital

of December 31, 2020, and 2019, 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 –

6 unchanged sentences

Fair value (US dollars)

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.

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

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.

Any option not exercised within

10 years after the date of grant thereof will expire.

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 10 –

COMMON STOCK, PREFERRED STOCK AND WARRANTS

WITH-DOWN ROUND PROTECTION (cont.)

Stock-based compensation (cont.)

Grants to employees

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

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

STOCK, PREFERRED STOCK AND WARRANTS WITH-DOWN ROUND PROTECTION (cont.)

compensation (cont.)

to employees (cont.)

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.

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.

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 10 –

COMMON STOCK,

PREFERRED STOCK AND WARRANTS WITH-DOWN ROUND PROTECTION (cont.)

Stock-based compensation (cont.)

Grants to employees

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 10 –

COMMON STOCK, PREFERRED STOCK AND WARRANTS

WITH-DOWN ROUND PROTECTION (cont.)

Stock-based compensation (cont.)

Grants to employees

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:

January 1, 2019, the company issued a ten-year non-qualified stock option to our former President, for the purchase of 75

thousand 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.

June, 2020, Erez Ben-Zvi has joined the Company

as its Vice President of Product , Mr.

will lead all sales and marketing activities for Integrity and will serve on the Company’s

executive leadership team.

Company granted Mr.

Ben-Zvi annual award of NIS 210 thousand worth (approximately

$ 61 thousand) of restricted stock units (the “RSU”) effective as of the employee Start Date and on each one-year

anniversary following the employee Start Date subject to the approval of the board of directors (the “additional RSU”).

The RSU and each of the Additional RSU (if approved by the board of directors), as applicable, shall be based on the stock price

at actual the date of grant (and not lower than US$ 0.40 per share).

1/12 of the RSUs shall vest and become nonforfeitable three

months following the Start Date, and an additional 1/12 of the RSUs shall vest and become nonforfeitable at the end of every

3-months period thereafter, provided that the employee continues to be employed by the Company at the applicable date

The vesting schedule shall be also applied to each of the Additional RSUs granted, mutatis mutandis, such that the

vesting period of each of the respective Additional RSU shall commence from its actual date of grant

November, 2020, Mr.

Shalom Shushan has joined the Company as its Chief Technology Officer,

Shushan will lead all technology and research and development activities for Integrity

and will serve on the Company’s executive leadership team.

Company granted Mr.

Shushan annual award of NIS 90 thousand worth (approximately $27 thousand) of restricted stock units (the

“RSU”) effective as of the employee Start Date.

Furthermore, on each one-year anniversary following the employee

Start Date subject to the approval of the board of directors, Company shall grant the Employee with NIS 60 thousand worth of

restricted stock units (the “Additional RSU’’).

Both the RSU and each of the Additional RSU (if approved by

the board of directors), as applicable, shall be based on the stock price at actual the date of grant (and not lower than

US$ 0.40 per share).

1/12 of the RSUs shall vest and become nonforfeitable three months following the Start Date, and an additional

1/12 of the RSUs shall vest and become nonforfeitable at the end of every 3-months period thereafter, provided that the Employee

continues to be employed by the Company at the applicable date of vesting.

The vesting schedule shall be also applied to each

of the Additional RSUs granted to the Employee, mutatis mutandis, such that the vesting period of each of the respective Additional

RSU shall commence from its actual date of grant

Grants to Employees

Weighted average exercise price (US$)

Balance outstanding as of December 31,2017

Balance outstanding of December 31,2018

Balance exercisable of December 31,2018

7 unchanged sentences

Balance exercisable of December 31,2020

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.

following tables summarize information about options outstanding at December 31, 2020:

2 unchanged sentences

Weighted average remaining contractual life (years)

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.

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 10 –

COMMON STOCK, PREFERRED STOCK AND WARRANTS

WITH-DOWN ROUND PROTECTION (cont.)

Stock-based compensation (cont.)

Grants to employees (cont.)

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

STOCK, PREFERRED STOCK AND WARRANTS WITH-DOWN ROUND PROTECTION (cont.)

compensation (cont.)

to employees (cont.)

fair value of options granted to employees during the years ended on December 31, 2019 was estimated at the dates of grant using

the Black-Scholes option model.

The following are the data and assumptions used:

Fair value calculations - Warrant

December 31, 2019

Dividend yield (%)

3 unchanged sentences

Exercise price (US dollars)

Stock price (US dollars) (**)

Share price (US dollars) (**)

Fair value (US dollars)

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

to the low trading volume of the Company’s Common Stock, the expected volatility for 2019 grants was based on a sample of 248

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.

Common Stock price, per share for the year ended December 31, 2019 reflects the Company’s management’s estimation of

the fair value per share of Common Stock.

In reaching its estimation for December 31, 2019, management considered, among other things,

a valuation prepared by a third-party valuation firm following the issuance of the Series D Units.

NOTE 11 –

RESEARCH AND DEVELOPMENT EXPENSES

In thousand of US dollars

December 31, 2020

December 31, 2019

Salaries and related expenses

1 unchanged sentence

Regulations related

Bad Debt Expense

Travel expenses

Vehicle maintenance

of effect of reversal of SBC expenses due to forfeiture.

Includes a reserve

for slow moving inventory in the amount of approximately $700 thousand.

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 12 –

SELLING AND MARKETING EXPENSES

AND MARKETING EXPENSES

Selling and Marketing

December 31, 2020

December 31, 2019

Salaries and related expenses

3 unchanged sentences

AND ADMINISTRATIVE EXPENSES

In thousand of US dollars

General and Administrative

December 31, 2020

December 31, 2019

Salaries and related expenses

2 unchanged sentences

Vehicle maintenance

(INCOME) EXPENSES, NET

CPI linkage difference on principal of loans from stockholders

Exchange rate differences

Interest expenses

on credit from banks and other

fee on dividends

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 15 –

Measurement of

results for tax purposes under the Israeli Income Tax (Inflationary Adjustments) Law, 1985 (the “Inflationary Adjustment

Commencing January

1, 2008, the results of operations of Integrity Israel for tax purposes have been measured on a nominal basis.

Tax assessments

For federal, state

and local income tax purposes the Company remains open for examination by the tax authorities for the tax years from 2016

of results for tax purposes under the Israeli Income Tax (Inflationary Adjustments) Law, 1985 (the “Inflationary Adjustment

January 1, 2008, the results of operations of Integrity Israel for tax purposes have been measured on a nominal basis.

federal, state and local income tax purposes the Company remains open for examination by the tax authorities for the tax years from

2017 through 2020 under the general statute of limitations.

Notwithstanding,

pursuant and subject to the provisions of article 145 of the Income Tax Ordinance, Integrity Israel’s tax returns that

were filed with the tax authority up to and including 2016 are considered final.

As of December 31, 2019, the Company had cumulative

net operating losses (NOL) for US federal purposes of approximately $9.3 million.

$2.5 million of the federal net operating

loss can be carried forward indefinitely and $6.8 million of the federal net operating loss can be offset against taxable

income for 20 years that will expire between the years 2030-2037.

Integrity Israel has losses carry forward balances for Israeli

income tax purposes of approximately $34.1 million to offset against future taxable income for an indefinite

period of time.

The following is

a reconciliation between the theoretical tax on pre-tax income, at the tax rate applicable to the Company (federal tax rate)

and the tax expense reported in the financial statements:

pursuant and subject to the provisions of article 145 of the Income Tax Ordinance, Integrity Israel’s tax returns that were

filed with the tax authority up to and including 2016 are considered final.

of December 31, 2020, the Company had cumulative net operating losses (NOL) for US federal purposes of approximately $9.3 million.

$2.5 million of the federal net operating loss can be carried forward indefinitely and $6.8 million of the federal net operating

loss can be offset against taxable income for 20 years that will expire between the years 2030-2037.

Integrity Israel has losses

carry forward balances for Israeli income tax purposes of approximately $38.9 million to offset against future taxable income for

an indefinite period of time.

following is a reconciliation between the theoretical tax on pre-tax income, at the tax rate applicable to the Company (federal tax

rate) and the tax expense reported in the financial statements:

Pretax income (loss)

5 unchanged sentences

Return to Provision

Losses and timing differences in respect of which no deferred taxes

assets were recognized

Losses and timing differences in respect of which no deferred taxes assets were recognized

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 15 –

INCOME TAX (cont.)

taxes result principally from temporary differences in the recognition of certain revenue and expense items for financial and

income tax reporting purposes.

taxes result principally from temporary differences in the recognition of certain revenue and expense items for financial and income

tax reporting purposes.

Significant components of the Group’s future tax assets are as follows:

3 unchanged sentences

Valuation allowance

NOTE 16 –

INCOME (LOSS) PER SHARE

loss and the weighted average number of shares used in computing basic and diluted loss per share for the years ended December 31, 2020

and 2019 are as follows:

Income (loss) for the year

Conversion of preferred shares into common

(13,989,595 )

Conversion of warrants

Reclassification of warrants with down round protection as a result of early adoption of ASU 2017-11

Remeasurement of warrants issued to placement agent

Additional shares issued to Series D Holders on Conversion

Cash dividend on Series A Preferred Stock

Stock dividend on Series B Preferred Stock

Stock dividend on Series C Preferred Stock

Income (loss) for the period attributable to common stockholders

(39,818,168 )

Common shares used in computing Basic loss per share

1 unchanged sentence

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 (**)

In applying the treasury method, the average

market price of Common Stock was based on management estimate.

For December 31, 2019, management considered,

among other things, a valuation prepared by a third-party

valuation firm following the occurrence of the Forced Conversion.

31, 2019 management estimation considered, among other things, a valuation prepared by a third-party valuation firm following

the issuance of the Series D Units

applying the treasury method, the average market price of Common Stock was based on management estimate For December 31, 2020.

considered, among other things, the price per share in February 2020 offering ($0.4)

that will be issued upon exercise of all stock options and 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.

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 17 –

SEGMENT INFORMATION

Company operates in one operating segment, the following is a summary of operations within geographic areas:

Revenues based on the customer’s location:

Asia and Pacific

Company operates in one operating segment with negligible income in 2020.

long-lived assets are owned by Integrity Israel and are located in Israel.

NOTE 18 –

RELATED PARTIES

David Malka, our President,

entered into an employment agreement with Integrity Israel in July 2010 pursuant to which Mr.

Malka agreed to continue to

serve as the vice president of operations of Integrity Israel.

The agreement was approved by the board of directors and stockholders

of Integrity Israel.

Malka’s employment agreement provides for an annual salary of approximately $129,795,

$116,537 and $67,114 for the years ended December 31, 2019, 2018 and 2017 respectively.

Malka is entitled to an annual bonus to be determined by the Board of Directors in its sole discretion and an additional

sum provided that Mr.

Malka reaches certain milestones approved by the Board, as well as the payment of certain social and

insurance benefits and the use of a group three car.

During the year ended December 31, 2018, the company paid Mr.

retention bonus in the amount of $69,922 (252,000 NIS).

Effective April 7, 2017, Integrity Israel entered into an amended

and restated personal employment agreement (the “Malka Employment Agreement”) with David Malka for his continued

service as Vice President of Operations of the Company and Integrity Israel, effective as of March 20, 2017 (the “Malka

Effective Date”).

Pursuant to the terms of the Malka Employment Agreement, Mr.

Malka (a) receives a base monthly salary

of NIS 20,000 , which may increase to NIS 35,000 per month in the event certain performance milestones are met (the “Malka

Base Salary”);

(b) is eligible to earn an annual performance bonus between 420-864% of the Malka Base Salary, subject

to certain performance criteria to be established by the Board of Directors within the first ninety (90) days of each fiscal

anniversary of the Malka Effective Date, payable thirty days following the one-year anniversary of the Malka Effective Date

and provided that Mr.

Malka remains employed with Integrity Israel through and on the one-year anniversary of the Malka Effective

(d) received a modification to the terms of his option to purchase Common Stock at an exercise price per share equal

to $6.25 whereby the unvested portion of such options will accelerate and will be immediately exercisable, effective as of

the Malka Effective Date (since the original performance conditions were not expected to be satisfied as of the date of the

modification of the terms, the fair value of such grant was measured based on the fair value of the modified award at the

modification date);

and (e) received certain additional equity awards pursuant to the Plan and under the terms and conditions

as set forth in the Malka Employment Agreement.

In addition, the Malka Employment Agreement provides for the payment of certain

social benefits and the use of a company car.

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 18 –

RELATED PARTIES (cont.)

Andrew Garrett, Inc., which is controlled by one

of our directors, Andrew Sycoff, received during the year ended December 31,2019, cash of $833,557 ($633,557 for Placement

Agent fees and $200,000 for Advisory fees) and 2,213,881 warrants for Placement Agent fees in 2019 from us.

November 1, 2018, the Board approved an increase in David Podwalski’s annual base salary to $275,000;

and the Board

will re-evaluate his bonus payout as part of the annual compensation review at a January 2019 Board meeting, with new

goals to be effective January 1, 2019.

With respect to his $70,000 salary due in arrears, $50,000 shall be issued in RSUs

(as a settlement of the bonus obligation in the same amount), based on the price of the conversion of the outstanding

preferred stock, and $20,000 shall be paid in cash as soon as practicable;

and he shall be granted an addition 75,000

stock options with a three year term and three year vesting schedule with an exercise price based upon the price for the

conversion of the existing preferred stock.

October 25, 2019, David Podwalski resigned as an officer and director of Integrity Applications, Inc., retroactive to

September 17, 2019, in order to pursue other business interests.

In conjunction with this separation, he has been issued

$25,000 of the Company’s common stock, at the closing price on September 17, 2019, which was $0.50 per share, in

a transaction exempt from registration under Section 4(a)(2) under the Securities Act of 1933, as amended, and will receive

a cash payment of $25,000 at the time the Company raises an additional $2,000,000 in net proceeds from sale of its securities.

He has also agreed to not sell any shares of common stock owned by him for one year and thereafter can only sell shares

subject to volume limitations set forth in the Separation Agreement between the Company and him, of even date.

NOTE 19 –

MAJOR CUSTOMERS AND VENDORS

For the year ended

December 31, 2019, sales to one customer represented approximately 99% of net sales and purchases from two vendors represented

approximately 99% of net purchases.

Garrett, Inc., which is controlled by one of our directors, Andrew Sycoff, received during the year ended December 31, 2020, cash

approximately $2 million in placement agent fees and 3,750,000 warrants for Placement Agent fees in 2020 from us.

the year ending December 31, 2020 and 2019, $756 and $249 thousand, respectively, representing the fair value of warrants issued

as consideration for placement agent services to AGI.

This amount was accounted for as Warrants with down-round protection.

issuance, the fair value was recognized as an increase in additional paid in capital

APPLICATIONS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 20 –

SUBSEQUENT EVENTS

January 21, 2020, the Company announced that it has received CE Mark approval for a major enhancement to GlucoTrack, allowing

for a user to perform the calibration process by themselves, without the need for a certified calibrator.

The initial CE Mark

approval received for GlucoTrack required a calibration process that took three hours to complete, required eight invasive finger

stick reference measurements, needed to be repeated every thirty days and required a certified calibrator to perform the calibration.

After a series of successful enhancements and approvals, the calibration process now takes just thirty minutes, requires just

three invasive reference measurements, and needs to be repeated only once every six months.

With self-calibration, a user can

now perform this simplified process in the privacy and convenience of their own home.

February 14, 2020, the Company entered into a Securities Purchase Agreement and Registration Rights Agreement (collectively, the

“Agreements”) with an accredited investor, pursuant to which the accredited investor purchased 37,500,000 shares of

the Company’s common stock, par value $0.001 per share, for an aggregate gross purchase price of $15,000,000.

received net proceeds of $12,979,270 after payment of fees to its placement agent (including past due accrued expenses) and legal

and accounting fees.

The Agreements contain industry standard representations and warranties and contain covenants that the Company

must file a resale registration statement within 90 days of closing which must be effective within 120 days from the date of filing.

may be at risk as a result of the current COVID-19 pandemic.

Risks that could affect our business include the duration and scope

of the COVID-19 pandemic and the impact on the demand for our products;

actions by governments, businesses and individuals taken

in response to the pandemic;

the length of time of the COVID-19 pandemic and the possibility of its reoccurrence;

the timing required

to develop effective treatments and a vaccine in the event of future outbreaks;

the eventual impact of the pandemic and actions

taken in response to the pandemic on global and regional economies;

and the pace of recovery when the COVID-19 pandemic subsides.

February 8, 2021, the Company announced that it has promoted Erez Ben-Zvi to General Manager in addition to his current role as Vice

President of Product, effective immediately, with a one-time bonus of $18,000 and an increase in annual compensation of $36,000.

Ben-Zvi will assume the day-to-day responsibilities of David Malka who will be stepping down as President effective April 6, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures