NOTE 14

INCOME TAX

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

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

Reduction in Israeli corporate tax rates

As part of the Economic Efficiency Law (Legislative Amendments for the Implementation of the Economic Plan for the years 2009 and 2010) - 2009 (the "Arrangements Law") (hereinafter - the "Economic Efficiency Law for 2009"), article 126 of the Income Tax Ordinance (New Version) - 1961 was amended, whereby the corporate tax rate would be reduced so that in 2011 the corporate tax rate was 24% and in the years 2012 - 2016 the tax rate was supposed to be gradually reduced.

On December 6, 2011, the Law for the Change in the Tax Burden (Legislative Amendments) - 2011 was published. As part of this law, among other things, commencing from 2012, the blueprint for the reduction in corporate tax rates set out in the Economic Efficiency Law for 2009 was cancelled and the corporate tax rate was increased to 25%. Commencing in 2012, in addition, the tax rate on capital gains in real terms and the tax rate applicable to betterment in real terms were increased to 25%.

On July 30, 2013, the Israeli parliament approved the Law for the Change in National Priorities (Legislative Amendments to Achieve Budgetary Goals for 2013 and 2014) - 2013 (hereinafter - the "Law for the Change in National Priorities"), which, among other things increased the standard Israeli corporate income tax rate from 25% to 26.5% effective as of January 1, 2014.

Tax assessments

The Company and Integrity Israel have not received final tax assessments since their inception.

Carryforward tax losses

As of December 31, 2013, the Company had cumulative net operating losses (NOL) for US federal purposes of approximately $1.4 million that will expire between 2030-2033. Integrity Israel has losses carry forward balances for Israeli income tax purposes of nearly $ 15.5 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:

	US dollars
	Year ended December 31,
	2013			2012			2011

Pretax loss		(9,796,853	)		(2,772,307	)		(2,364,339	)
Federal tax rate		35	%		35	%		35	%
Income tax benefit computed at the ordinary tax rate		(3,428,899	)		(970,307	)		(827,519	)
Non-deductible expenses		21,250			4,553			4,885
Stock-based compensation		10,570			122,333			132,325
Amortization of warrants with down round protection		2,324,760			-			-
Tax in respect of differences in corporate tax rates		253,942			277,231			236,434
Losses and timing differences in respect of which no deferred taxes assets were recognized		818,377			566,190			453,875
		-			-			-

Deferred 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:

	US dollars
	December 31,
	2013			2012			2011

Composition of deferred tax assets:

Provision for employee-related obligation		33,629			47,440			42,137
Non-capital loss carry forwards		4,364,466			3,496,123			2,890,426
Valuation allowance		(4,398,095	)		(3,543,563	)		(2,932,563	)
		-			-			-