NOTE 9

COMMITMENTS AND CONTINGENT LIABILITIES

On March 4, 2004, the Office of the Chief Scientist of the Ministry of Industry, Trade and Labor of the State of Israel (the "OCS") agreed to provide Integrity Israel with a grant of NIS 420,000, or approximately US$ 93,462, for its plan to develop a non-invasive blood glucose monitor (the "development plan"). This grant constituted 60% of Integrity Israel's research and development budget for the development plan. Due to Integrity Israel's acceptance of this grant, it is subject to the provisions of the Israeli Law for the Encouragement of Industrial Research and Development of 1984 (the "R&D Law"). Integrity Israel is required to pay royalties to the OCS on the proceeds from the sale of the Company's systems resulting from research and development projects for which the OCS provided a grant. The maximum royalties payable by Integrity Israeli will be an amount equal to US$93,462, plus interest from the date of grant at LIBOR. In the first 3 years of sales, Integrity Israel will be required to pay a 3% royalty on the sale of any product developed under the research and development projects. In the fourth, fifth and sixth years of sales, Integrity Israel will be required to pay a 4% royalty on sales of such products and from the seventh year onward Integrity Israel will be required to pay a 5% royalty. Integrity Israel was entitled to the grant only upon incurring research and development expenditures. There were no future performance obligations related to the grant received from the OCS. As of December 31, 2011, the contingent liabilities with respect to the grants received from the OCS subject to repayment under this royalty agreement on future sales equal an amount of US$ 93,462, not including interest. There is no expiration date with respect to Integrity Israel's obligations to pay royalties to the OCS in respect of the above.

Integrity Israel currently leases approximately 3,100 sq. ft. of office space in the city of Ashkelon, Israel for its principal offices and prototype laboratory. The lease term began on February 1, 2006 and was extended until January 31, 2009. Pursuant to a verbal agreement with the landlord, Integrity Israel currently leases these facilities on a monthly basis at a cost of NIS 11,500 plus VAT per month (US$ 3,010).

In 2010, the Company engaged Andrew Garrett, Inc. as its exclusive placement agent (the "Placement Agent") in connection with an offering on a "best efforts" basis of a minimum 560,000 shares (US$ 3,500,000) of the Company's Common Stock and a maximum of 2,000,000 shares of the Company's Common Stock (US$ 12,500,000) (the "Offerings"). Pursuant to a placement agent agreement with the Placement Agent, the Placement Agent (or its sub-agents) was entitled to receive, as a commission, an amount equal to 7% of the funds raised in the Offerings, such amounts to be paid in cash, plus 3% of the funds as a management fee plus a 3% non-accountable expense allowance (13% in the aggregate). In addition, the placement agent agreement required the Company to issue to the Placement Agent (or its sub-agents) warrants to purchase up to 10% of the shares of Common Stock issued to investors (or underlying convertible securities issued to investors) in connection with the Offerings at a price per share that will be equal to the offering price. The warrants to be issued to the Placement Agent include a limited Period (until September 1, 2012) Down-Round Protection under which the strike price of the warrants would be adjusted to a price per share at which the Company will subsequently issue stock, if such price per share is less than the original strike price of the warrants. See also Note 2R.

In connection with the Offerings described in Note 10, the Company paid to the Placement Agent US$ 366,412 and US$ 753,850, respectively, in cash during 2011 and 2010, respectively. In addition, the Company issued to the Placement Agent warrants to purchase 45,097 and 83,281 shares, respectively, of the Company's Common Stock with an exercise price of US$ 6.25. The warrants expire on the fifth anniversary of the date on which the shares of common stock underlying such warrants are fully registered with the SEC. The warrants include customary adjustment provisions for stock splits, reorganizations and other similar transactions and provide for anti-dilution protection until September 1, 2012 for certain issuances of common stock by us for less than US$ 6.25 per share.

Y.H. Dimri Holdings, which was a shareholder of Integrity Israel prior to the reorganization and merger described in Note 1 ("Dimri"), has alleged (post the reorganization) that, in connection with such reorganization, certain of Dimri's rights in Integrity Israel were violated. Under Dimri's investment agreement, certain rights in Integrity Israel were granted to Dimri, including an anti-dilution provision that provided that Dimri's holdings in Integrity Israel would not be diluted below 18% of Integrity Israel's issued capital shares as a result of any investment in Integrity Israel. On the date of the reorganization, Dimri owned 18% of Integrity Israel's ordinary shares and, therefore, upon the completion of the reorganization, Dimri was entitled to receive 18% of the shares of common stock of the Company outstanding on such date in exchange for his shares in Integrity Israel, subject to the fulfillment of certain requirements. The Company's management, considering the legal advice of Israeli legal counsel, believe that, given Dimri no longer owns shares in Integrity Israel as a result of the reorganization, rights attached to the shares in Integrity Israel no longer exist in Integrity Israel and do not and have never existed in the Company. However, Dimri has refused to acknowledge or agree to the termination of these rights and has challenged the Company's position.

On June 23, 2011, Mr. Dimri appealed to the District Court of HaMerkaz District in Petah Tikva, Israel, requesting the court to appoint an arbitrator to decide the dispute between Integrity Israel, the founders of Integrity Israel and Mr. Dimri (HPB 40754-06-11). On September 25, 2011, Integrity Israel's legal counsel filed an answer with the Court, disputing the facts and allegation raised in Dimri's motion and suggesting choosing an arbitrator with certain capacities, experience and skills. At a hearing held on October 11, 2011, the court appointed an arbitrator in this matter. On November 27, 2011, the proposed arbitrator informed the court that he would not be able to serve as an arbitrator in this matter. On December 26, 2011, new arbitrator was appointed in this matter. On February 14, 2012, a first procedural meeting took place with the appointed arbitrator. As a result of which Dimri is required to submit a statement of claim to the arbitrator (with a copy to the defendants' attorneys) by March 15, 2012. The defendants in the arbitration will be required to submit a statement of defense within 30 days of receiving Dimri's statement of claim and Dimri will have the right to reply within 10 days of receiving the statement of defense.

A preliminary session has been set for May 10, 2012. It should be noted that, in accordance with Israeli law, Mr. Dimri was not required to, and he did not, specify in his request for the appointment of an arbitrator the relief to be sought by him in the arbitration. As a result, the Company does not yet know the relief to be sought by Mr. Dimri in the arbitration. The Company anticipates that Mr. Dimri will specify the relief sought by him in his statement of claim.

The Company does not know what other actions Mr. Dimri will ultimately bring, if any, and against whom they will be brought. Nevertheless, the Company, its legal counsel and Integrity Israel's legal counsel believe that the Company and Integrity Israel have substantial defenses to any such claims and appropriate claims and counterclaims of their own and they intend to strongly defend against any such action by Mr. Dimri and to assert their own claims and counterclaims as they deem necessary.

Notwithstanding the aforesaid, the Company, considering the advice of its Israeli legal counsel, is unable to assess or make any estimate of the amount of the reasonably possible range of loss, if any. Accordingly, no provision has been made for this claim.