NOTE 3

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EVENTS DURING THE REPORTED PERIOD

As more fully described in Note 10.D and Note 19 to the Company's annual report on Form 10-K for the year ended December 31, 2014, from June of 2011 Integrity Israel, Avner Gal, David Malka, Zvi Cohen, Ilana Freger and Alexander Reykhman, on the one hand, and Y.H. Dimri Holdings ("Dimri"), on the other hand, which was a shareholder of Integrity Israel prior to the reorganization and merger (described in Note 1 to the Company's annual report on Form 10-K for the year ended December 31, 2014) were involved in arbitration proceedings resulting from certain claims asserted by Dimri following such reorganization. On March 11, 2015, the arbitrator issued a binding arbitration decision (the “Arbitration Decision”) which documents the parties' negotiated settlement of such arbitration proceedings. Pursuant to the terms of the Arbitration Decision, (1) Avner Gal, David Malka, Zvi Cohen, Ilana Freger and Alexander Reykhman transferred to Dimri, on March 18, 2015, an aggregate of 440,652 shares of the Company's outstanding Common Stock, (2) Integrity Israel (A) paid to Dimri on March 23, 2015, NIS 1,767,674 or $439,939 (based on the exchange rate of 4.018 NIS:$1 as of March 23, 2015), as repayment in full of the outstanding principal amount under the Investment Agreement, as adjusted for changes in the Israeli consumer price index since the date on which the loan was made, and (B) paid to Dimri on April 30, 2015, NIS 316,100 or $81,870 (based on the exchange rate of 3.861 NIS:$1 as of April 30, 2015), as partial reimbursement of Dimri's attorney's fees in the arbitration. The Company accrued for the fee reimbursement obligation as part of professional fees within selling, marketing and general and administrative expenses included in its Annual Report on Form 10-K for the fiscal year ended December 31. As of March 31, 2015 such amount is presented as part of accrued expenses under current liabilities.

Following the completion of the abovementioned transfers and payments, the Arbitration Decision released Integrity Israel, the Company and the other defendants in the arbitration from any legal claim by Yigal Dimri, the principal shareholder of Dimri, and any other companies under his control in respect of the subject matter of the arbitration, including the shareholder loan granted under and any claim of anti-dilution rights under the Investment Agreement, and similarly released Mr. Dimri and all companies under his control from any legal claim by Integrity Israel, the Company and the other defendants in the arbitration in respect of the subject matter of the arbitration.

As more fully described in Note 11 to the Company's annual report on Form 10-K for the year ended December 31, 2014, on March 13, 2013, the Company entered into a Securities Purchase Agreement (“Purchase Agreement”) with certain accredited investors (the “Series A Unit Purchasers”) pursuant to which the Company issued to the Series A Unit Purchasers an aggregate of 6,300 Series A Units. Based on the terms the Purchase Agreement, so long as any initial Series A Unit purchaser holds any shares of Series A Preferred Stock, if (1) the Company sells any shares of Common Stock or other securities convertible into, or rights to acquire, Common Stock and (2) a Purchaser then holding Series A Preferred Stock, Warrants, Conversion Shares or Warrant Shares reasonably believes that any of the terms and conditions appurtenant to such issuance or sale are more favorable to the purchaser in such subsequent sale of securities than are the terms and conditions granted to such Purchaser, then the Purchaser will be permitted to require the Company to amend the terms of this transaction (only with respect to such Purchaser) so as to match the terms of the subsequent issuance (including, for the avoidance of doubt, any terms and provisions that are or may be less favorable to such Purchaser).

During August and September of 2014, the Company issued to certain accredited investors 8,500 Series B Units. Pursuant to the Purchase Agreement, the Company was required to and did notify the holders of the Series A Preferred Stock of the closing of the sale of the Series B Units, and following receipt thereof such holders of Series A Preferred Stock were entitled, pursuant to the “most favored nation” provisions contained in the Purchase Agreement (as described above), to elect to amend the terms of their purchase of Series A Units to match the terms of the Series B Units. The Company is obligated to amend the terms of any of Series A Units who timely makes such election and tenders its Series A Units for exchange.

As of March 31, 2015, 4,341 Unit A holders elected to amend the terms of their Series A Units. Accordingly, the Company has exchange 4,341share of Series A Preferred Stock into 4,341shares of Series B Stock and 898,146 Warrants with down-round protection into 748,454 Series B-1 Warrants and 748,454 Series B-2 Warrants. Due to the differences in the contractual terms of each of the financial instruments exchanged management determined that the exchange constitutes an extinguishment of the exiting instruments and an issuance of new financial instruments. As a result of the exchange elections, the Company recorded a non-cash loss on extinguishment of Series A Preferred Stock and Series A Warrants in the amount of $773,297, resulting from the differences between the fair market value of the new Series B Units less the net book value of the exchanged Series A Preferred Stock and less the fair value of the exchanged Warrants with down-round protection (See Note 2B above).

As of April 30, 2015, the holders of approximately 2,440 additional Series A Units have complied with the conditions for the amendment of the terms of their Series A Units as described above. As a result of the additional exchanges, the Company expects to recognize during the three months period ending June 30, 2015, a non-cash loss on extinguishment of Series A Preferred Stock and Series A Warrants in the amount of approximately $250,000.