NOTE 1

GENERAL

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. Ltd. (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 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. Following the merger, Integrity Israel remained a wholly-owned subsidiary of the Company. As the merger transaction constituted a structural reorganization, the merger has been accounted for at historical cost in a manner similar to a pooling of interests. On this basis, stockholders' equity has been retroactively restated such that each ordinary share of Integrity Israel is reflected in stockholders' equity as a share of Common Stock of the Company as of the date of the issuance thereof by Integrity Israel. In addition, the historical financial statements of the Company for all dates prior to May 18, 2010 have been retroactively restated to reflect the activities of Integrity Israel.

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 home use by persons suffering with diabetes.

Since its inception, Integrity Israel has devoted substantially all of its efforts to business planning, research and development and raising capital, and has not yet generated any revenues. Accordingly, Integrity Israel (and therefore the Company) is considered to be in the development stage as defined in Financial Accounting Standards Board ("FASB") Accounting Standards Codification (ASC) Topic 915, "Development Stage Entities".

Going concern uncertainty

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 any revenues from operations, and therefore they are dependent upon external sources for financing their operations. Since inception, Integrity Israel and the Company have incurred accumulated losses of $25,086,679, stockholder's deficit of $11,063,118 and cumulative negative operating cash flow of $ 14,791,827. These factors raise substantial doubt about the Group's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. During 2011, the Company raised funds via the issuance of Common Stock in a total amount of approximately $2.4 million (net of related expenses). During 2012, the Company raised a total amount of approximately $1.0 million (net of related expenses) from the issuance of Common Stock. During 2013, the Company raised funds in an approximate amount of $5.3 million (net of related expenses) from the Issuance of units (the "Units") consisting of shares of the Company's Series A Convertible Preferred Stock (the "Preferred Stock") and detachable warrants to purchase shares of the Company's Common Stock (See Note 10M). As more fully described in Note 10A2, the Company will not be permitted to, among other things, incur indebtedness without the written consent of the holders of a majority in stated value of the outstanding Preferred Stock. Until such time as the Group generates sufficient revenue to fund its operations (if ever), the Group plans to finance its operations through the sale of equity and/or debt securities and, to the extent available, short term and long term loans. There can be no assurance that Integrity Israel and the Company will succeed in obtaining the necessary financing to continue their operations.

Stock split

The Board of Directors and stockholders of the Company approved in July 2010 a stock split of the outstanding shares of Common Stock and options to purchase shares of Common Stock of the Company, pursuant to which each share of Common Stock and each stock option was split into 2.1363 shares of Common Stock or options, as applicable (the "split"). The split became effective as of July 23, 2010. Unless otherwise noted, all share and option amounts for all periods presented have been retroactively restated to give effect to the split.

Risk factors

The Group has limited operating history and face a number of risks, including uncertainties regarding finalization of the development process, demand and market acceptance of the Group's products, the effects of technological 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. 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 any revenues from its operations to fund its activities and therefore the Group is dependent on the receipt of additional funding from its stockholders and investors in order to continue as a going concern (See Note 1B).

On May 14, 2013, the Securities and Exchange Commission declared effective a Registration Statement on Form S-1 registering for resale by the holders thereof an aggregate of 2,824,471 shares of the Company's Common Stock, consisting of 1,284,925 Shares issuable to certain of the selling stockholders named in the Registration Statement (the "Selling Stockholders") upon conversion of outstanding shares of the Company's Preferred Stock, 1,539,546 Shares issuable to certain of the Selling Stockholders upon exercise of outstanding warrants and 2,150 shares of Common Stock previously issued to a Selling Stockholder.