10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

or

£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to__________

Commission File Number: 000-52545

OPHTHALIX INC.

(Exact name of registrant as specified in its charter)

Delaware	88-0445167
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

10 Bareket Street, Petach Tikva, Israel	4951778
(Address of principal executive offices)	(Zip Code)

+(972) 3-9241114

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  S  No  £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  S  No  £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	£	Accelerated filer	£
Non-accelerated filer	£	Smaller reporting company	S

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  £  No  S

The number of shares outstanding of the registrant’s Common Stock on November 13, 2014, was 10,441,251.

TABLE OF CONTENTS

		Page
PART I-FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	19
PART II-OTHER INFORMATION
Item 1A.	Risk Factors	20
Item 6.	Exhibits	20
SIGNATURES		21

Throughout this report, unless otherwise designated, the terms “we,” “us,” “our,” “the Company” and “our company” refer to OphthaliX Inc., a Delaware corporation, and its Israeli subsidiary, Eyefite Ltd. (“Eyefite”). All amounts in this report are in U.S. Dollars, unless otherwise indicated. The information in the report was updated to reflect a reverse share split (1:4.5) of our shares which became effective as of the close of business on August 6, 2013.

2

PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

OPHTHALIX INC. AND ITS SUBSIDIARY

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

U.S. DOLLARS IN THOUSANDS

UNAUDITED

INDEX

	Page
Condensed Consolidated Balance Sheets	4
Condensed Consolidated Statements of Comprehensive Loss	5
Condensed Consolidated Statements of Changes in Stockholders' Deficiency	6
Condensed Consolidated Statements of Cash Flows	7
Notes to Condensed Consolidated Financial Statements	8 - 14

- - - - - - - - - - - - - - -

3

OPHTHALIX INC. AND ITS SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

U.S. dollars in thousands, except share and per share data

	September 30, 2014			December 31, 2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	56		$	422
Investment in Parent Company		756			1,175
Other accounts receivable		20			20
Total current assets		832			1,617
NON-CURRENT ASSETS:
Property and equipment, net		1			1
Total long-term assets		1			1
Total assets	$	833		$	1,618
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Parent company	$	2,011		$	1,487
Other accounts payable and accrued expenses		201			263
Total current liabilities		2,212			1,750
NON-CURRENT LIABILITIES:
Derivative related to Service Agreement		1			7
STOCKHOLDERS' DEFICIENCY:
Share capital
Preferred Stock -
Authorized : 1,000,000 shares at September 30, 2014 and December 31, 2013; No issued and Outstanding shares at September 30, 2014 and December 31, 2013		-			-
Common Stock of $ 0.001 par value -
Authorized: 100,000,000 shares at September 30, 2014 and December 31, 2013; Issued and Outstanding: 10,441,251 shares at September 30, 2014 and December 31, 2013		10			10
Additional Paid-in capital		5,481			5,469
Accumulated other comprehensive income		64			483
Accumulated deficit		(6,935	)		(6,101	)
Total stockholders' deficiency		(1,380	)		(139	)
Total liabilities and stockholders' deficiency	$	833		$	1,618

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

4

OPHTHALIX INC. AND ITS SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

U.S. dollars in thousands, except share and per share data

	Nine months ended September 30,					Three months ended September 30,
	2014		2013			2014		2013
Operating expenses:
Research and development	$	509	$	1,501		$	169	$	394
General and administrative		292		1,086			109		283
Total operating expenses		801		2,587			278		677
Financial expenses (income), net		33		(72	)		14		(42	)
Net loss	$	834	$	2,515		$	292	$	635
Net loss per share:
Basic and diluted loss per share	$	0.08	$	0.24		$	0.03	$	0.06
Weighted average number of Common Stocks used in computing basic net loss per share		10,441,251		10,441,251			10,441,251		10,441,251
Weighted average number of Common Stocks used in computing diluted net loss per share		10,441,251		10,441,251			10,441,251		10,921,274
Other comprehensive loss (income):
Available-for-sale investments:
Changes in net unrealized loss (gains)		419		(251	)		46		(200	)
Less: reclassification adjustment for net loss included in net loss		-		40			-		-
Total other comprehensive loss (income)	$	419	$	(211	)	$	46	$	(200	)
Comprehensive loss	$	1,253	$	2,304		$	338	$	435

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

5

OPHTHALIX INC. AND ITS SUBSIDIARY

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY (UNAUDITED)

U.S. dollars in thousands, except share and per share data

					Additional					Accumulated other			Total
	Shares of Common Stock				paid-in		Accumulated			comprehensive			stockholders'
	Number		Amount		capital		deficit			income			deficiency
Balance as of December 31, 2012		10,441,251	$	10	$	4,871	$	(3,264	)	$	-		$	1,617
Stock based compensation		-		-		598		-			-			598
Unrealized gain from investment in Parent Company		-		-		-		-			483			483
Net loss		-		-		-		(2,837	)		-			(2,837	)
Balance as of December 31, 2013		10,441,251		10		5,469		(6,101	)		483			(139	)
Stock based compensation		-		-		12		-			-			12
Unrealized loss from investment in Parent Company		-		-		-		-			(419	)		(419	)
Net loss		-		-		-		(834	)		-			(834	)
Balance as of September 30, 2014		10,441,251		10		5,481		(6,935	)		64			(1,380	)

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

6

OPHTHALIX INC. AND ITS SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

U.S. dollars in thousands, except share and per share data

	Nine months ended September 30,
	2014			2013
Cash flows from operating activities:
Net loss	$	(834	)	$	(2,515	)
Adjustments to reconcile net loss to net cash used in operating activities:
Decrease in other accounts receivable		-			147
Increase (decrease) in other account payables and accrued expenses		(62	)		28
Increase in Parent company balance		524			1,323
Changes in fair value of the derivative related to service agreement		(6	)		(100	)
Loss from sale of investments in Parent Company		-			26
Stock based compensation		12			603
Net cash used in operating activities		(366	)		(488	)
Cash flows from investing activities:
Proceed from sale of shares, net		-			511
Purchase of property and equipment		-			(2	)
Net cash provided by investing activities		-			509
Cash flows from financing activities:
Proceeds from issuance of Common stock and warrants, net		-			-
Net cash provided by financing activities		-			-
Change in cash and cash equivalents		(366	)		21
Cash and cash equivalents at the beginning of the period		422			727
Cash and cash equivalents at the end of the period	$	56		$	748

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

7

OPHTHALIX INC. AND ITS SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:- GENERAL

a. OphthaliX Inc. (the "Company" or "OphthaliX") (formerly: "Denali Concrete Management Inc." or "Denali") originally incorporated in the State of Nevada on December 10, 1999 under the name Bridge Capital.com Inc. Bridge Capital.com Inc., was a nominally capitalized corporation that did not commence its operations until it changed its name to Denali Concrete Management Inc. in March 2001. Denali was a concrete placement company specializing in providing concrete improvements in the road construction industry. Denali operated primarily in Anchorage, Alaska, placing curb and gutter, sidewalks and retaining walls for state, municipal and military projects.

In December 2005, the Company ceased its principal business operations and focused its efforts on seeking a business opportunity, becoming a public shell company in the U.S.

Eye-Fite Ltd. ("Eye-Fite" or the "Subsidiary") was founded on June 27, 2011 in contemplation of the execution of a transaction between Can-Fite BioPharma Ltd. (the "Parent Company" or "Can-Fite") a public company in Israel and U.S and Denali, as further detailed in Note 1.b.1. below.

The Company and its Subsidiary conduct research and development activities using an exclusive worldwide license for a therapeutic drug CF101 solely for the field of ophthalmic diseases after the consummation of the transaction. See also Note 1.b.2.

Following the transaction, Denali changed its name to OphthaliX Inc. and also changed its corporate domicile from Nevada to Delaware.

b. Reverse Recapitalization and Related Arrangements:

1. Recapitalization:

On November 21, 2011 (the "Closing Date"), the Company acquired all the outstanding shares of EyeFite in consideration for the issuance to Can-Fite of 8,000,000 shares (and warrants to purchase shares) of the Company, representing approximately 87% of the fully diluted issued and outstanding share capital of the Company. Immediately prior to and as a condition to the closing of the transaction, OphthaliX entered into subscription agreements with new investors (the "New Investors") pursuant to which, OphthaliX received $3,330 in additional funds (excluding $333 of issuance expenses paid in cash) in consideration for issuing 646,776 shares of Common Stock of OphthaliX at a price per share of $5.148.

The Company also received 714,922 ordinary shares in Can-Fite, representing approximately 7% of Can-Fite's issued and outstanding share capital as of the Closing Date. On June 17, 2013, the Company sold 268,095 Can-Fite ordinary shares for a total consideration of $511. As of September 30, 2014, the Company holds 446,827 Can-Fite ordinary shares, representing approximately 2.4% of Can-Fite's issued and outstanding share capital.

In addition, OphthaliX issued to Can-Fite 466,139 shares of Common Stock, par value $0.001 per share, of the Company in exchange for Can-Fite ordinary shares valued at $2,400 at the time of the grant.

8

OPHTHALIX INC. AND ITS SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:- GENERAL (Cont.)

In accordance with the Israeli Securities Law (1968), Section 15C and related Securities Regulations, the shares issued by Can-Fite to OphthaliX had a “Resale Restriction Period”, which consists of one year of full restriction and a liquidation period of eight consecutive quarters. As such, OphthaliX is able to sell 12.5% of the Can-Fite ordinary shares it holds every quarter since November 21, 2012.

As part of the recapitalization arrangement, Can-Fite made an additional equity investment in OphthaliX in the amount of $500 in consideration for the issuance of an aggregate of 97,113 shares of Common Stock of OphthaliX at a price per share equal to $5.148.

In contemplation of the recapitalization transaction, it was agreed that for every four shares of Common Stock purchased by the New Investors and Can-Fite, they received nine warrants to acquire two share of Common Stock of the Company. The exercise price of such warrants is $7.74 per share of Common Stock. The warrants are exercisable for a period of five years from the date of grant. The warrants do not contain nonstandard anti-dilution provisions.

The transaction was accounted for as a reverse recapitalization which is outside the scope of ASC 805, Business Combinations. Under reverse capitalization accounting, EyeFite is considered the acquirer for accounting and financial reporting purposes, and acquired the assets and assumed the liabilities of the Company. Assets acquired and liabilities assumed are reported at their historical amounts. Consequently, the condensed consolidated financial statements of the Company reflect the operations of the acquirer for accounting purposes together with a deemed issuance of shares, equivalent to the shares held by the former shareholders of the legal acquirer and a recapitalization of the equity of the accounting acquirer. These condensed consolidated financial statements include the accounts of the Company since the effective date of the reverse capitalization and the accounts of EyeFite since inception.

2. License and research and development services from Can-Fite:

In connection with the consummation of the recapitalization transaction, the Company and Can-Fite entered into a license agreement, pursuant to which Can-Fite granted EyeFite a sole and exclusive worldwide license for the use of CF101, solely in the field of ophthalmic diseases ("CF101"). EyeFite will be obligated to make to the U.S. National Institutes of Health ("NIH"), with regard to the patents of which are included in the license to EyeFite, for as long as the license agreement between the Company and NIH remains in effect, a nonrefundable minimum annual royalty fee and potential future royalties of 4.0% to 5.5% on net sales.

9

OPHTHALIX INC. AND ITS SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:- GENERAL (Cont.)

In addition, the Company will be obligated to make certain milestone payments ranging from $25 to $500 upon the achievement of various development milestones for each indication. As of September 30, 2014, the Company accrual related to its clinical trials totaled $175. EyeFite will also be required to make payments of 20% of sublicensing revenues, excluding royalties and net of the required milestone payments. During the first nine months of 2014, the Company did not reach any milestone or generate revenue that would trigger any such payments to Can-Fite.

In addition, following the closing of the recapitalization transaction, an agreement was signed between Can-Fite, OphthaliX and EyeFite (the "Service Agreement"). According to the Service Agreement, Can-Fite will manage the research and development activities relating to pre-clinical and clinical studies for the development of the ophthalmic indications of CF101. According to the Service Agreement, in consideration for Can-Fite's services, EyeFite will pay to Can-Fite a service fee (consisting of all expenses and costs incurred by Can-Fite plus 15%). In addition, the Company is committed to future additional payments equal to 2.5% of any and all proceeds received by EyeFite relating to the activities regarding the drug (the "Additional Payment").

According to the Service Agreement, Can-Fite will have the right, until the earlier of (a) November 21, 2016, and (b) the closing of the acquisition of our company by another entity, resulting in the exchange of our outstanding shares of common stock such that the stockholders of our company prior to such transaction own, directly or indirectly, less than 50% of the voting power of the surviving entity, to convert the Additional Payment into an additional 480,022 shares of Common Stock of the Company (subject to adjustment in certain circumstances).

c. The Company devotes most of its efforts toward research and development activities. As of September 30, 2014 the Company does not have sufficient capital resources to conduct its research and development activities.

The Company's inability to raise funds to conduct its research and development activities will have a severe negative impact on its ability to remain a viable company. Liquidity resources, as of September 30, 2014 will be sufficient to continue the development of the Company's products at least for twelve months from the balance sheet date.

The Company is addressing its liquidity issues by implementing initiatives to raise additional funds as well as other measures that will allow it to cover its anticipated budget deficit. Such initiatives may include monetizing the Company's investment in Can-Fite's ordinary shares. In addition, in February 2013, which was updated in August 2014, the Company obtained a formal letter from Can-Fite stating that Can-Fite agrees to defer receiving payments owed under the Services Agreement from January 31, 2013 for the performance of the clinical trials of CF101 in ophthalmic indications until the completion of a fundraising by the Company. Any such deferred payments bear interest at a rate of 3% per annum from the due date of each invoice issued by Can-Fite to the Company until the time of payment by the Company. As of September 30, 2014, the deferred payments to Can-Fite totaled $2,002.

10

OPHTHALIX INC. AND ITS SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:- GENERAL (Cont.)

There are no assurances that the Company will be successful in obtaining an adequate level of financing needed for its long-term research and development activities. If the Company will not have sufficient liquidity resources, the Company may not be able to continue the development of all of its products or may be required to delay part of the development programs. 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

a. The significant accounting policies applied in the annual financial statements of the Company as of December 31, 2013, are applied consistently in these financial statements.

The unaudited Condensed Consolidated Financial Statements of OphthaliX Inc. have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information as well as the instructions to Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The Condensed Consolidated Balance Sheet as of December 31, 2013, is derived from the audited Consolidated Financial Statements as of that date, but does not include all disclosures including notes required by GAAP. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. The results of operations for the nine months ended September 30, 2014, are not necessarily indicative of the results that may be expected for the year ending December 31, 2014, or any future period. The information included in this Quarterly Report on Form 10-Q ("Report") should be read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” “Quantitative and Qualitative Disclosures About Market Risk,” and the Consolidated Financial Statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.

b. In June 2014, the FASB issued ASU 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. ASU 2014-10 eliminates the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date information on the statements of operations, cash flows and stockholders' equity. The amendments in ASU 2014-10 will be effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however early adoption is permitted. Although the Company has elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the Jumpstart Our Business Act of 2012, since early adoption is permitted the Company chose to early adopt the update effective June 30, 2014 consolidated financial statement.

11

OPHTHALIX INC. AND ITS SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 3:- UNAUDITED CONDENSED FINANCIAL STATEMENTS

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates under different assumptions or conditions. 

NOTE 4:- FAIR VALUE MEASUREMENTS

The Company considers an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and views an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Since the quoted market value of the Company’s Common Stock was based on a sporadically traded stock with little volume, the Company's management determined the Company's stock price fair value based on ASC 820 Fair Value Measurement using the income approach assisted by a third party specialist. Consequently, the Company used the estimated stock price fair value in the underlying assumptions of the computation of the fair value of the derivative related to the Service Agreement. In accordance with ASC 820, the Company measures part of its investment in the Parent Company and embedded derivatives in the Service Agreement, at fair value. The investment in the Parent Company at fair value is based on quoted prices for identical assets in active markets and other inputs (such as risk free interest and volatility) that are directly or indirectly observable in the marketplace. Shares that are restricted for less than one year should be re-measured to reflect fair value at each cutoff date. As a result of such restrictions, the Company adjusted the quoted market price in the Tel-Aviv Stock Exchange of its investment in the Parent Company's shares, to reflect the discount that results from the resale restriction provisions. In measuring the fair value the Company used an average of Protective Put and Asian Put Option models. In estimating the fair value, the Company used Black-Scholes option-pricing model. These securities are classified as available-for-sale securities carried at fair value, with unrealized gains and losses reported as a separate component of Shareholders' equity under accumulated other comprehensive loss (income) in the consolidated balance sheets. The assets are classified within Level 2 on the fair value hierarchy. Embedded derivatives are classified within Level 3 because they are valued using valuation techniques. Some of the inputs to these models are unobservable in the market and are significant. 

12

OPHTHALIX INC. AND ITS SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 4:- FAIR VALUE MEASUREMENTS (Cont.)

The following table provides information by value level for financial assets and liabilities that are measured at fair value, as defined by ASC 820, on a recurring basis as of September 30, 2014 and December 31, 2013.

	September 30, 2014
	Fair value measurements
Description	Fair Value			Level 1(1)		Level 2(2)		Level 3(3)
Investment in Parent Company	$	756		$	756	$	-	$	-
Derivative related to Service Agreement		(1	)		-		-		(1	)
Total Financial Assets, net	$	755		$	756	$	-	$	(1	)

	December 31, 2013
	Fair value measurements
Description	Fair Value			Level 1(1)		Level 2(2)		Level 3(3)
Investment in Parent Company	$	1,175		$	514	$	661	$	-
Derivative related to Service Agreement		(7	)		-		-		(7	)
Total Financial Assets, net	$	1,168		$	514	$	661	$	(7	)

(1) Represents the portion of the Parent Company's shares that has no trading restrictions.

(2) Represents the portion of the Parent Company's shares that has trading restrictions.

(3) Fair value measurements using significant unobservable inputs.

The following table presents the changes in Level 3 instruments measured on a recurring basis for the six months ended June 30, 2014. The Company's Level 3 instruments consist of derivatives.

Balance at January 1, 2013	$	470
Change in fair value of derivatives		(463	)
Balance at December 31, 2013	$	7
Change in fair value of derivatives		(6	)
Balance at September 30, 2014	$	1

13

OPHTHALIX INC. AND ITS SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 5:- EQUITY

The following table summarizes the activity of stock options:

	Shares Subject to Options Outstanding
Description	Number of Shares		Weighted Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value(1)
Outstanding as of December 31, 2013		326,324		6.25		9.15	$	-
Granted		-		-		-		-
Expired		43,505		5.29		-		-
Forfeited/cancelled		165,319		5.29		-	$	-
Outstanding as of September 30, 2014		117,500		7.96		8.11	$	-
Exercisable as of September 30, 2014		74,525		8.45		7.83	$	-
Vested and expected to be vested		117,500		7.96		8.11	$	-

⁽¹⁾ The aggregate intrinsic value is calculated as the difference between the exercise price of the stock options and the closing price of the shares of the Company’s Common Stock of $1.01 as of September 30, 2014.

As of September 30, 2014, there was $39 of unrecognized stock-based compensation expense all of which is related to stock options. This unrecognized compensation expense, expected to be recognized over a weighted-average period of approximately 0.67 years. 

14

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of our balance sheets, statements of income and cash flows. This section should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013 and our interim financial statements and accompanying notes to these financial statements. All amounts are in U.S. dollars, in thousands, except share and per share data.

Forward-Looking Statement Notice

This quarterly report on Form 10-Q contains forward-looking statements about our expectations, beliefs or intentions regarding, among other things, our product development efforts, business, financial condition, results of operations, strategies or prospects. In addition, from time to time, we or our representatives have made or may make forward-looking statements, orally or in writing. Forward-looking statements can be identified by the use of forward-looking words such as “believe,” “expect,” “intend,” “plan,” “may,” “should” or “anticipate” or their negatives or other variations of these words or other comparable words or by the fact that these statements do not relate strictly to historical or current matters. These forward-looking statements may be included in, but are not limited to, various filings made by us with the United States Securities and Exchange Commission, or the SEC, press releases or oral statements made by or with the approval of one of our authorized executive officers. Forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to, those set forth in our most recent annual reports referenced below.

This report identifies important factors which could cause our actual results to differ materially from those indicated by the forward-looking statements, particularly those set forth under Item 1A. “Risk Factors” as disclosed in our Annual Report on Form 10-K, as filed with the SEC on March 27, 2014.

Such risk factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

All forward-looking statements attributable to us or persons acting on our behalf speak only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in this report. We undertake no obligations to update or revise forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. In evaluating forward-looking statements, you should consider these risks and uncertainties.

Description of Business

We are a clinical-stage biopharmaceutical company focused on developing therapeutic products for the treatment of ophthalmic disorders. We have in-licensed certain patents and patent applications protecting the use in the ophthalmic field of our current pipeline drug under development, a synthetic A ₃ adenosine receptor (“A3AR”), agonist, CF101 (known generically as IB-MECA).

We are focused on the development of CF101 for the treatment of glaucoma, with a Phase II study ongoing in Israel and Europe. We intend to amend the ongoing Phase II study protocol and continue to the second cohort, where patients will be treated with 2 mg CF101 or placebo. CF101 is a highly-selective, orally bioavailable small molecule synthetic drug, which targets the A3AR. We believe that CF101 has a favorable safety profile and a potent anti-inflammatory activity, mediated via its capability to inhibit the production of inflammatory cytokines, such as TNF-, MMPs, IL-1 and IL-6. This is mediated by activation of the A3AR, which is highly expressed in inflammatory tissues in contrast to normal tissues where expression levels of the receptor are very low. We believe that the anti-inflammatory and neuroprotective effects of CF101 make it a candidate for use in the treatment of ophthalmic indications, especially in glaucoma or related syndromes of ocular hypertension. While our parent, Can-Fite BioPharma Ltd. (“Can-Fite”), is continuing to develop CF101 for autoimmune inflammatory indications, including rheumatoid arthritis and psoriasis, we are focusing on the development of CF101 for ophthalmic indications.

We have decided to end the development of CF101 for the dry eye syndrome indication. This decision is based on a lack of correlation between patients' response to CF101 and over-expression of the drug target, the A3 adenosine receptor in this patient population. As part of our corporate strategy to build a specialized ophthalmic company that develops and in-licenses drugs for the treatment of ophthalmic diseases we are currently exploring opportunities to obtain technologies that will complement and expand the existing pipeline.

On June 2, 2014, Barak Singer ceased serving as our Chief Executive Officer by mutual agreement with us and on the same day, Dr. Pnina Fishman, our Chairman, was appointed to serve as the Chief Executive Officer.

15

Results of Operations -Nine Months Ended September 30, 2014 Compared to the Nine Months Ended September 30, 2013

	Nine Months ended September 30,
	2014		2013
	(in thousands)
Operating expenses:
Research and development	$	509	$	1,501
General and administrative		292		1,086
Total operating costs		801		2,587
Financial expenses (income), net		33		(72	)
Net loss	$	834	$	2,515

Revenues 

We did not generate any revenues from operations. We had no revenues because we do not have any commercial products and we do not expect to have such products for several years, if at all.

Operating Expenses

Research and development expenses.    Research and development expenses were $509 for the nine months ended September 30, 2014, compared to $1,501 for the nine months ended September 30, 2013, a decrease of $992 or 66%. The decrease in research and development expenses is primarily related to the completion of the Phase III CF101 study for dry eye syndrome at the end of 2013. Assuming we will have sufficient liquidity resources, we anticipate significantly higher costs in the future as our Phase II CF101 study for glaucoma progresses.

General and administrative expenses.    General and administrative expenses were $292 for the nine months ended September 30, 2014, compared to $1,086 for the nine months ended September 30, 2013, a decrease of $794 or 73%. The decrease in the general and administrative was primarily related to the termination of a former CEO during 2013 and the reversal of share based compensation expenses that are related to unvested stock options upon the termination of another former CEO during 2014.

Financial Expenses (Income), Net

Financial expenses, net were $33 for the nine months ended September 30, 2014 compared to financial income, net of $72 for the nine months ended September 30, 2013, a change of $105 or 145%. Financial expenses, net consisted primarily of interest expenses due to deferred payments to our parent company. For the nine month ended September 30, 2014 and 2013, financial income in amount of $6 and $100, respectively were related to revaluation of derivative liability related to the service agreement with our parent company signed on November 21, 2011.

Net Loss

As a result of the foregoing, we incurred a net loss of $834 for the nine months ended September 30, 2014 compared $2,515 for the nine months ended September 30, 2013, a decrease of $1,681 or 67%.

Results of Operations -Three Months Ended September 30, 2014 Compared to the Three Months Ended September 30, 2013

	Three Months ended September 30,
	2014		2013
	(in thousands)
Operating expenses:
Research and development	$	169	$	394
General and administrative		109		283
Total operating costs		278		677
Financial expenses (income), net		14		(42	)
Net loss	$	292	$	635

16

Revenues

We did not generate any revenues from operations. We had no revenues because we do not have any commercial products and we do not expect to have such products for several years, if at all.

Operating Expenses

Research and development expenses. Research and development expenses were $169 for the three months ended September 30, 2014, compared to $394 for the three months ended September 30, 2013, a decrease of $225 or 57%. The decrease in research and development expenses is primarily related to the completion of the Phase III CF101 study for dry eye syndrome that was completed at the end of 2013. Assuming we will have sufficient liquidity resources, we anticipate significantly higher costs in the future as our Phase II CF101 study for glaucoma progresses.

General and administrative expenses. General and administrative expenses were $109 for the three months ended September 30, 2014, compared to $283 for the three months ended September 30, 2013, a decrease of $174 million or 61%. The decrease in the general and administrative was primarily related to the termination of a former CEO during 2013 and the reversal of share based compensation expenses that are related to unvested stock options upon the termination of another former CEO during 2014.

Financial Expenses (Income), Net

Financial expenses , net were $14 for the three months ended September 30, 2014 compared to financial income of $42 for the three months ended September 30, 2013, a change of $56 or 133%. Financial expenses, net primarily consisted of interest expenses due to deferred payments to our Parent company. For the three month ended September 30, 2014 and 2013, financial income in amount of $2 and $36, respectively were related to revaluation of derivative liability related to the service agreement with our parent company signed on November 21, 2011.

Net Loss

As a result of the foregoing, we incurred a net loss of $292 for the three months ended September 30, 2014 compared $635 for the three months ended September 30, 2013, a decrease of $343 or 54%.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.

As of September 30, 2014 and December 31, 2013, we had $56 and $422 in cash and cash equivalents, a working capital deficit of $1,380 and $133 and an accumulated deficit of $6,935 and $6,101. The increase in working capital deficit was primarily due to deferred payments to our parent company and decrease in the fair value of our investment in Parent company's securities. Net cash used in operating activities was approximately $366 for the nine months ended September 30, 2014, compared with net cash used in operating activities of approximately $488 for the nine months ended September 30, 2013. The decrease in net cash used in operating activities was primarily related to the completion of the Phase III CF101 study for dry eye syndrome. There was no net cash provided by investing activities for the nine months ended September 30, 2014, compared with net cash provided by investing activities of approximately $509 for the nine months ended September 30, 2013. The decrease in net cash provided by investing activities was primarily due to the sale of parent company securities during June 2013.

There was no net cash provided by financing activities for the periods ended September 30, 2014 and 2013.

Since our reverse acquisition of all the outstanding interests in EyeFite on November 21, 2011, we funded our operations primarily through the private placement of shares of our common stock which took place on November 21, 2011. In such private placement, we raised approximately $3,500 in net proceeds after the deduction of offering expenses.

In February 2013, as updated in August 2014, Can-Fite issued us a formal letter stating that it would defer receiving payments owed to it under the services agreement we entered into with Can-Fite on November 21, 2011 (under which Can-Fite manages, as an independent contractor, all activities relating to pre-clinical and clinical studies performed for the development of the ophthalmic indications of CF101) beginning on January 31, 2013 for the performance of clinical trials of CF101 in ophthalmic indications until the completion of a certain fundraising by us. Any such deferred payments will bear interest at a rate of 3% per annum from the due date of each invoice issued by Can-Fite to us until the time we make such deferred payments. As of September 30, 2014, the deferred payments to Can-Fite totaled $2,002. For a long term solution, we will need to seek additional capital for the purpose of further testing our products, managing our business and obtaining certifications necessary in order to market them.

17

Developing drugs, conducting clinical trials and commercializing products is expensive and we will need to raise substantial additional funds to achieve our strategic objectives. Although we believe our existing cash and other financial assets resources will be sufficient to fund our current projected cash requirements, factoring in the deferment letter from Can-Fite, to operate our business as currently conducted at least for twelve months from the balance sheet date, we will require significant additional financing in the future. See Item 1A. “Risk Factors-Risks Related to the Company and Its Business” as disclosed in our Annual Report on Form 10-K, as filed with the SEC on March 27, 2014. Additional financing may not be available on acceptable terms, if at all. Our future capital requirements will depend on many factors, including:

● the failure to obtain regulatory approval or achieve commercial success of our product candidates, which currently includes only CF101;

● the level of research and development investment required to develop our product candidates, and maintain and improve our patented or licensed technology position;

● the costs of obtaining or manufacturing product candidates for research and development and testing;

● the results of preclinical and clinical testing, which can be unpredictable in product candidate development and any decision to initiate additional preclinical or clinical studies;

● changes in product candidate development plans needed to address any difficulties that may arise in manufacturing, preclinical activities or clinical studies;

● our success in establishing and effecting out-licensing agreements with strategic partners, the terms of these agreements and the success of these potential future licensees and partners in selling our products;

● our success rate in preclinical and clinical efforts associated with milestones and royalties, if applicable;

● the costs of investigating patents that might block us from developing potential product candidates;

● the costs of recruiting and retaining qualified personnel;

● the costs, timing and outcomes involved in obtaining regulatory approvals;

● the number of product candidates we pursue in the future;

● our revenues, if any;

● the costs of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights;

● our need or decision to acquire or license complementary technologies or new platform or product candidate targets; and

● the costs of financing unanticipated working capital requirements and responding to competitive pressures.

We currently have no agreements, arrangements, or understandings with any person to obtain funds through bank loans, lines of credit, or any other sources, other than the formal letter from Can-Fite agreeing to defer payments owed to it under the services agreement. Until we can generate significant continuing revenues, we expect to satisfy our future cash needs through debt or equity financings, or by out-licensing our product candidate. We cannot be certain that additional funding will be available to us on acceptable terms, or at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more of our research or development programs or our commercialization efforts.

We are addressing our liquidity issues by implementing initiatives to raise additional funds as well as other measures that we believe will allow the coverage of our anticipated budget deficit. Such initiatives may include monetizing of our assets, by intention to realize our investment in Can-Fite’s shares.

As of the date of this report, we have no material capital commitments.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources.

Critical Accounting Policies

Our significant accounting policies, which include management’s best estimates and judgments, are included in Note 2 to the financial statements for the year ended December 31, 2014 included in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission. There have been no significant changes in the Company’s critical accounting policies since December 31, 2013.

18

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we have elected not to provide the disclosure required by this item.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting

There has been no change in our internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act, during our most recent fiscal quarter ended September 30, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

19

PART II-OTHER INFORMATION

Item 1A. Risk Factors

See Item 1A. “Risk Factors” as disclosed in our Annual Report on Form 10-K, as filed with the SEC on March 27, 2014.

Item 6. Exhibits

SEC Ref. No.	Title of Document
31.1	Rule 13a-14(a) Certification by Principal Executive Officer
31.2	Rule 13a-14(a) Certification by Principal Financial Officer
32.1	Section 1350 Certification of Principal Executive Officer
32.2	Section 1350 Certification of Principal Financial Officer
101.INS	XBRL Instance Document *
101.SCH	XBRL Taxonomy Extension Schema Document *
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB	XBRL Taxonomy Extension Label Linkbase Document *
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document *

* Attached as Exhibit 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Loss, (iii) the Condensed Statements of Changes in Stockholders’ Deficiency, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Financial Statements.

20

SIGNATURES

Pursuant to the requirements 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. 

	OphthaliX Inc.
Date: November 13, 2014	By	/s/ Pnina Fishman,
		Pnina Fishman, Chief Executive Officer
		(Principal Executive Officer)
Date: November 13, 2014	By	/s/ Itay Weinstein
		Itay Weinstein, Chief Financial Officer
		(Principal Financial Officer)

21

EX-31.1

Exhibit 31.1

 Certification

I, Pnina Fishman, certify that:

1.          I have reviewed this Form 10-Q quarterly report of OphthaliX Inc. for the quarter ended September 30, 2014;

2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.          The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)          Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.          The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 13, 2014

/s/ Pnina Fishman      

Pnina Fishman, Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

 Certification

I, Itay Weinstein, certify that:

1.          I have reviewed this Form 10-Q quarterly report of OphthaliX Inc. for the quarter ended September 30, 2014;

2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.          The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)          Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.          The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 13, 2014

/s/ Itay Weinstein

Itay Weinstein, Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of OphthaliX Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2014, as filed with the Securities and Exchange Commission (the “Report”), the undersigned principal executive officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)         the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)         the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 13, 2014

/s/ Pnina Fishman

Pnina Fishman, Chief Executive Officer

(Principal Executive Officer)

EX-32.2

Exhibit 32.2

 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of OphthaliX Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2014, as filed with the Securities and Exchange Commission (the “Report”), the undersigned principal executive officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)         the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)         the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  November 13, 2014

/s/ Itay Weinstein

Itay Weinstein, Chief Financial Officer

(Principal Financial Officer)

XML

Unaudited Condensed Financial Statements

9 Months Ended

Sep. 30, 2014

Unaudited Condensed Financial Statements [Abstract]

UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE 3:- UNAUDITED CONDENSED FINANCIAL STATEMENTS

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates under different assumptions or conditions.

XML

Significant Accounting Policies

9 Months Ended

Sep. 30, 2014

Significant Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

a. The significant accounting policies applied in the annual financial statements of the Company as of December 31, 2013, are applied consistently in these financial statements.

The unaudited Condensed Consolidated Financial Statements of OphthaliX Inc. have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information as well as the instructions to Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The Condensed Consolidated Balance Sheet as of December 31, 2013, is derived from the audited Consolidated Financial Statements as of that date, but does not include all disclosures including notes required by GAAP. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. The results of operations for the nine months ended September 30, 2014, are not necessarily indicative of the results that may be expected for the year ending December 31, 2014, or any future period. The information included in this Quarterly Report on Form 10-Q ("Report") should be read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” “Quantitative and Qualitative Disclosures About Market Risk,” and the Consolidated Financial Statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.

b. In June 2014, the FASB issued ASU 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. ASU 2014-10 eliminates the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date information on the statements of operations, cash flows and stockholders' equity. The amendments in ASU 2014-10 will be effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however early adoption is permitted. Although the Company has elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the Jumpstart Our Business Act of 2012, since early adoption is permitted the Company chose to early adopt the update effective June 30, 2014 consolidated financial statement.

XML

Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
CURRENT ASSETS:
Cash and cash equivalents	$ 56	$ 422
Investment in Parent Company	756	1,175
Other accounts receivable	20	20
Total current assets	832	1,617
NON-CURRENT ASSETS:
Property and equipment, net	1	1
Total long-term assets	1	1
Total assets	833	1,618
CURRENT LIABILITIES:
Parent company	2,011	1,487
Other accounts payable and accrued expenses	201	263
Total current liabilities	2,212	1,750
NON-CURRENT LIABILITIES:
Derivative related to Service Agreement	1	7
Share capital
Preferred Stock - Authorized : 1,000,000 shares at September 30, 2014 and December 31, 2013; No issued and Outstanding shares at September 30, 2014 and December 31, 2013
Common Stock of $0.001 par value - Authorized: 100,000,000 shares at September 30, 2014 and December 31, 2013; Issued and Outstanding: 10,441,251 shares at September 30, 2014 and December 31, 2013	10	10
Additional Paid-in capital	5,481	5,469
Accumulated other comprehensive income	64	483
Accumulated deficit	(6,935)	(6,101)
Total stockholders' deficiency	(1,380)	(139)
Total liabilities and stockholders' deficiency	$ 833	$ 1,618

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash flows from operating activities:
Net loss	$ 834	$ 2,515
Adjustments to reconcile net loss to net cash used in operating activities:
Decrease in other accounts receivable		147
Increase (decrease) in other account payables and accrued expenses	(62)	28
Increase in Parent company balance	524	1,323
Changes in fair value of the derivative related to service agreement	(6)	(100)
Loss from sale of investments in Parent Company		26
Stock based compensation	12	603
Net cash used in operating activities	(366)	(488)
Cash flows from investing activities:
Proceed from sale of shares, net		511
Purchase of property and equipment		(2)
Net cash provided by investing activities		509
Cash flows from financing activities:
Proceeds from issuance of Common stock and warrants, net
Net cash provided by financing activities
Change in cash and cash equivalents	(366)	21
Cash and cash equivalents at the beginning of the period	422	727
Cash and cash equivalents at the end of the period	$ 56	$ 748

XML

General

9 Months Ended

Sep. 30, 2014

General [Abstract]

GENERAL

NOTE 1:- GENERAL

a. OphthaliX Inc. (the "Company" or "OphthaliX") (formerly: "Denali Concrete Management Inc." or "Denali") originally incorporated in the State of Nevada on December 10, 1999 under the name Bridge Capital.com Inc. Bridge Capital.com Inc., was a nominally capitalized corporation that did not commence its operations until it changed its name to Denali Concrete Management Inc. in March 2001. Denali was a concrete placement company specializing in providing concrete improvements in the road construction industry. Denali operated primarily in Anchorage, Alaska, placing curb and gutter, sidewalks and retaining walls for state, municipal and military projects.

In December 2005, the Company ceased its principal business operations and focused its efforts on seeking a business opportunity, becoming a public shell company in the U.S.

Eye-Fite Ltd. ("Eye-Fite" or the "Subsidiary") was founded on June 27, 2011 in contemplation of the execution of a transaction between Can-Fite BioPharma Ltd. (the "Parent Company" or "Can-Fite") a public company in Israel and U.S and Denali, as further detailed in Note 1.b.1. below.

The Company and its Subsidiary conduct research and development activities using an exclusive worldwide license for a therapeutic drug CF101 solely for the field of ophthalmic diseases after the consummation of the transaction. See also Note 1.b.2.

Following the transaction, Denali changed its name to OphthaliX Inc. and also changed its corporate domicile from Nevada to Delaware.

b. Reverse Recapitalization and Related Arrangements:

1. Recapitalization:

On November 21, 2011 (the "Closing Date"), the Company acquired all the outstanding shares of EyeFite in consideration for the issuance to Can-Fite of 8,000,000 shares (and warrants to purchase shares) of the Company, representing approximately 87% of the fully diluted issued and outstanding share capital of the Company. Immediately prior to and as a condition to the closing of the transaction, OphthaliX entered into subscription agreements with new investors (the "New Investors") pursuant to which, OphthaliX received $3,330 in additional funds (excluding $333 of issuance expenses paid in cash) in consideration for issuing 646,776 shares of Common Stock of OphthaliX at a price per share of $5.148.

The Company also received 714,922 ordinary shares in Can-Fite, representing approximately 7% of Can-Fite's issued and outstanding share capital as of the Closing Date. On June 17, 2013, the Company sold 268,095 Can-Fite ordinary shares for a total consideration of $511. As of September 30, 2014, the Company holds 446,827 Can-Fite ordinary shares, representing approximately 2.4% of Can-Fite's issued and outstanding share capital.

In addition, OphthaliX issued to Can-Fite 466,139 shares of Common Stock, par value $0.001 per share, of the Company in exchange for Can-Fite ordinary shares valued at $2,400 at the time of the grant.

In accordance with the Israeli Securities Law (1968), Section 15C and related Securities Regulations, the shares issued by Can-Fite to OphthaliX had a “Resale Restriction Period”, which consists of one year of full restriction and a liquidation period of eight consecutive quarters. As such, OphthaliX is able to sell 12.5% of the Can-Fite ordinary shares it holds every quarter since November 21, 2012.

As part of the recapitalization arrangement, Can-Fite made an additional equity investment in OphthaliX in the amount of $500 in consideration for the issuance of an aggregate of 97,113 shares of Common Stock of OphthaliX at a price per share equal to $5.148.

In contemplation of the recapitalization transaction, it was agreed that for every four shares of Common Stock purchased by the New Investors and Can-Fite, they received nine warrants to acquire two share of Common Stock of the Company. The exercise price of such warrants is $7.74 per share of Common Stock. The warrants are exercisable for a period of five years from the date of grant. The warrants do not contain nonstandard anti-dilution provisions.

The transaction was accounted for as a reverse recapitalization which is outside the scope of ASC 805, Business Combinations. Under reverse capitalization accounting, EyeFite is considered the acquirer for accounting and financial reporting purposes, and acquired the assets and assumed the liabilities of the Company. Assets acquired and liabilities assumed are reported at their historical amounts. Consequently, the condensed consolidated financial statements of the Company reflect the operations of the acquirer for accounting purposes together with a deemed issuance of shares, equivalent to the shares held by the former shareholders of the legal acquirer and a recapitalization of the equity of the accounting acquirer. These condensed consolidated financial statements include the accounts of the Company since the effective date of the reverse capitalization and the accounts of EyeFite since inception.

2. License and research and development services from Can-Fite:

In connection with the consummation of the recapitalization transaction, the Company and Can-Fite entered into a license agreement, pursuant to which Can-Fite granted EyeFite a sole and exclusive worldwide license for the use of CF101, solely in the field of ophthalmic diseases ("CF101"). EyeFite will be obligated to make to the U.S. National Institutes of Health ("NIH"), with regard to the patents of which are included in the license to EyeFite, for as long as the license agreement between the Company and NIH remains in effect, a nonrefundable minimum annual royalty fee and potential future royalties of 4.0% to 5.5% on net sales.

In addition, the Company will be obligated to make certain milestone payments ranging from $25 to $500 upon the achievement of various development milestones for each indication. As of September 30, 2014, the Company accrual related to its clinical trials totaled $175. EyeFite will also be required to make payments of 20% of sublicensing revenues, excluding royalties and net of the required milestone payments. During the first nine months of 2014, the Company did not reach any milestone or generate revenue that would trigger any such payments to Can-Fite.

In addition, following the closing of the recapitalization transaction, an agreement was signed between Can-Fite, OphthaliX and EyeFite (the "Service Agreement"). According to the Service Agreement, Can-Fite will manage the research and development activities relating to pre-clinical and clinical studies for the development of the ophthalmic indications of CF101. According to the Service Agreement, in consideration for Can-Fite's services, EyeFite will pay to Can-Fite a service fee (consisting of all expenses and costs incurred by Can-Fite plus 15%). In addition, the Company is committed to future additional payments equal to 2.5% of any and all proceeds received by EyeFite relating to the activities regarding the drug (the "Additional Payment").

According to the Service Agreement, Can-Fite will have the right, until the earlier of (a) November 21, 2016, and (b) the closing of the acquisition of our company by another entity, resulting in the exchange of our outstanding shares of common stock such that the stockholders of our company prior to such transaction own, directly or indirectly, less than 50% of the voting power of the surviving entity, to convert the Additional Payment into an additional 480,022 shares of Common Stock of the Company (subject to adjustment in certain circumstances).

c. The Company devotes most of its efforts toward research and development activities. As of September 30, 2014 the Company does not have sufficient capital resources to conduct its research and development activities.

The Company's inability to raise funds to conduct its research and development activities will have a severe negative impact on its ability to remain a viable company. Liquidity resources, as of September 30, 2014 will be sufficient to continue the development of the Company's products at least for twelve months from the balance sheet date.

The Company is addressing its liquidity issues by implementing initiatives to raise additional funds as well as other measures that will allow it to cover its anticipated budget deficit. Such initiatives may include monetizing the Company's investment in Can-Fite's ordinary shares. In addition, in February 2013, which was updated in August 2014, the Company obtained a formal letter from Can-Fite stating that Can-Fite agrees to defer receiving payments owed under the Services Agreement from January 31, 2013 for the performance of the clinical trials of CF101 in ophthalmic indications until the completion of a fundraising by the Company. Any such deferred payments bear interest at a rate of 3% per annum from the due date of each invoice issued by Can-Fite to the Company until the time of payment by the Company. As of September 30, 2014, the deferred payments to Can-Fite totaled $2,002.

There are no assurances that the Company will be successful in obtaining an adequate level of financing needed for its long-term research and development activities. If the Company will not have sufficient liquidity resources, the Company may not be able to continue the development of all of its products or may be required to delay part of the development programs.

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Condensed Consolidated Balance Sheets (Parentheticals) (Unaudited) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Statement of Financial Position [Abstract]
Preferred Stock, shares authorized	1,000,000	1,000,000
Preferred Stock, shares issued
Preferred Stock, shares outstanding
Common Stock, par value	$ 0.001	$ 0.001
Common Stock, shares authorized	100,000,000	100,000,000
Common stock shares issued	10,441,251	10,441,251
Common Stock, shares outstanding	10,441,251	10,441,251

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Equity (Details) (USD $)	9 Months Ended
	Sep. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Number of Shares, Outstanding	326,324
Number of shares, Granted
Number of shares, Expired	43,505
Number of shares, Forfeited/cancelled	165,319
Number of Shares, Outstanding	117,500
Number of Shares, Exercisable	74,525
Number of Shares, Vested and expected to be vested	117,500
Weighted Average Exercise Price, Outstanding	$ 6.25
Weighted Average Exercise Price, Granted
Weighted Average Exercise Price, Expiration	$ 5.29
Weighted Average Exercise Price, Forfeited/cancelled	$ 5.29
Weighted Average Exercise Price, Outstanding	$ 7.96
Weighted Average Exercise Price, Exercisable	$ 8.45
Weighted Average Exercise Price, Vested and expected to be vested	$ 7.96
Weighted Average Remaining Contractual Term, Outstanding (in years)	9 years 1 month 24 days
Weighted Average Remaining Contractual Term, Outstanding (in years)	8 years 1 month 10 days
Weighted Average Remaining Contractual Term, Exercisable (in years)	7 years 9 months 29 days
Weighted Average Remaining Contractual Term, Vested and expected to be vested (in years)	8 years 1 month 10 days
Aggregate Intrinsic Value, Outstanding		[1]
Aggregate Intrinsic Value, Granted		[1]
Aggregate Intrinsic Value, Expired		[1]
Aggregate Intrinsic Value, Forfeited/cancelled		[1]
Aggregate Intrinsic Value, Outstanding		[1]
Aggregate Intrinsic Value, Exercisable		[1]
Aggregate Intrinsic Value, Vested and expected to be vested		[1]

[1] The aggregate intrinsic value is calculated as the difference between the exercise price of the stock options and the closing price of the shares of the Company's Common Stock of $1.01 as of September 30, 2014.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Nov. 13, 2014
Document and Entity Information
Entity Registrant Name	OphthaliX, Inc.
Entity Central Index Key	0001218683
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Type	10-Q
Document Period End Date	Sep. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		10,441,251

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Equity (Details Textual) (USD $)	9 Months Ended
	Sep. 30, 2014
Equity [Abstract]
Closing price of the shares	$ 1.01
Unrecognized stock-based compensation expense related to stock options	$ 39
Unrecognised compensation expense, expected to recognized weighted average period	8 months 1 day

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Condensed Consolidated Statements of Comprehensive Loss (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Operating expenses:
Research and development	$ 169	$ 394	$ 509	$ 1,501
General and administrative	109	283	292	1,086
Total operating expenses	278	677	801	2,587
Financial expenses (income), net	14	(42)	33	(72)
Net loss	292	635	834	2,515
Net loss per share:
Basic and diluted loss per share	$ 0.03	$ 0.06	$ 0.08	$ 0.24
Weighted average number of Common Stocks used in computing basic net loss per share	10,441,251	10,441,251	10,441,251	10,441,251
Weighted average number of Common Stocks used in computing diluted net loss per share	10,441,251	10,921,274	10,441,251	10,441,251
Available-for-sale investments:
Changes in net unrealized loss (gains)	46	(200)	419	(251)
Less: reclassification adjustment for net loss included in net loss				40
Total other comprehensive income	46	(200)	419	(211)
Comprehensive loss (income)	$ 338	$ 435	$ 1,253	$ 2,304

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2014

Fair Value Measurements [Abstract]

Summary of financial assets and liabilities that are measured at fair value on a recurring basis

	September 30, 2014
	Fair value measurements
Description	Fair Value			Level 1(1)		Level 2(2)		Level 3(3)
Investment in Parent Company	$	756		$	756	$	-	$	-
Derivative related to Service Agreement		(1	)		-		-		(1	)
Total Financial Assets, net	$	755		$	756	$	-	$	(1	)

	December 31, 2013
	Fair value measurements
Description	Fair Value			Level 1(1)		Level 2(2)		Level 3(3)
Investment in Parent Company	$	1,175		$	514	$	661	$	-
Derivative related to Service Agreement		(7	)		-		-		(7	)
Total Financial Assets, net	$	1,168		$	514	$	661	$	(7	)

Summary of changes in Level 3 instruments measured on a recurring basis

Balance at January 1, 2013	$	470
Change in fair value of derivatives		(463	)
Balance at December 31, 2013	$	7
Change in fair value of derivatives		(6	)
Balance at September 30, 2014	$	1

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Equity

9 Months Ended

Sep. 30, 2014

Equity [Abstract]

EQUITY

NOTE 5:- EQUITY

The following table summarizes the activity of stock options:

	Shares Subject to Options Outstanding
Description	Number of  Shares		Weighted Average Exercise Price		Weighted-  Average  Remaining  Contractual  Term (in years)		Aggregate Intrinsic Value(1)
Outstanding as of December 31, 2013		326,324		6.25		9.15	$	-
Granted		-		-		-		-
Expired		43,505		5.29		-		-
Forfeited/cancelled		165,319		5.29		-	$	-
Outstanding as of September 30, 2014		117,500		7.96		8.11	$	-
Exercisable as of September 30, 2014		74,525		8.45		7.83	$	-
Vested and expected to be vested		117,500		7.96		8.11	$	-

⁽¹⁾ The aggregate intrinsic value is calculated as the difference between the exercise price of the stock options and the closing price of the shares of the Company’s Common Stock of $1.01 as of September 30, 2014.

As of September 30, 2014, there was $39 of unrecognized stock-based compensation expense all of which is related to stock options. This unrecognized compensation expense, expected to be recognized over a weighted-average period of approximately 0.67 years.

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Fair Value Measurements (Details) (Recurring [Member], USD $) In Thousands, unless otherwise specified	Sep. 30, 2014		Dec. 31, 2013
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment in Parent Company	$ 756		$ 1,175
Derivative related to Service Agreement	(1)		(7)
Total Financial Assets, net	755		1,168
Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment in Parent Company	756	[1]	514	[1]
Derivative related to Service Agreement		[1]		[1]
Total Financial Assets, net	756	[1]	514	[1]
Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment in Parent Company		[2]	661	[2]
Derivative related to Service Agreement		[2]		[2]
Total Financial Assets, net		[2]	661	[2]
Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment in Parent Company		[3]		[3]
Derivative related to Service Agreement	(1)	[3]	(7)	[3]
Total Financial Assets, net	$ (1)	[3]	$ (7)	[3]

[1] Represents the portion of the Parent Company's shares that has no trading restrictions.

[2] Represents the portion of the Parent Company's shares that has trading restrictions.

[3] Fair value measurements using significant unobservable inputs

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Equity (Tables)

9 Months Ended

Sep. 30, 2014

Equity [Abstract]

Shedule of stock options activity

	Shares Subject to Options Outstanding
Description	Number of  Shares		Weighted Average Exercise Price		Weighted-  Average  Remaining  Contractual  Term (in years)		Aggregate Intrinsic Value(1)
Outstanding as of December 31, 2013		326,324		6.25		9.15	$	-
Granted		-		-		-		-
Expired		43,505		5.29		-		-
Forfeited/cancelled		165,319		5.29		-	$	-
Outstanding as of September 30, 2014		117,500		7.96		8.11	$	-
Exercisable as of September 30, 2014		74,525		8.45		7.83	$	-
Vested and expected to be vested		117,500		7.96		8.11	$	-

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General (Details) (USD $)
In Thousands, except Share data, unless otherwise specified

1 Months Ended

9 Months Ended

Jul. 17, 2013

Nov. 21, 2012

Nov. 21, 2011

Sep. 30, 2014

Related Party Transaction [Line Items]

License Agreement Terms

License agreement between the Company and NIH remains in effect, a nonrefundable minimum annual royalty fee and potential future royalties of 4.0% to 5.5% on net sales.

Maximum [Member]

Related Party Transaction [Line Items]

Payment for milestone

$ 500

Minimum [Member]

Related Party Transaction [Line Items]

Payment for milestone

25

Percentage of voting power

50.00%

Eye-Fite Ltd [Member]

Related Party Transaction [Line Items]

Shares issued for acquired outstanding shares

8,000,000

Additional funds in consideration for issuing common Stock

3,330

Percentage of diluted issued and outstanding share capital

87.00%

Stock issuance expenses paid in cash

333

Shares issued, Price per share

$ 5.148

Can-Fite [Member]

Related Party Transaction [Line Items]

Common stock shares issued

646,776

466,139

Common stock value issued

2,400

Shares issued, Price per share

$ 0.001

Ordinary shares received

714,922

Percentage of issued and outstanding share capital on Closing Date

7.00%

Ordinary shares sold for considertion

268,095

Total consideration received for sale of stock

511

Ordinary shares held

446,827

Percentage of issued and outstanding share capital

12.50%

2.40%

Exercise price of the warrants

$ 7.74

Warrants exercisable period

5 years

Recapitalization transaction description

Every four shares of Common Stock purchased by the New Investors and Can-Fite, they received nine warrants to acquire two share of Common Stock of the Company.

Accrual clinical trials cost

175

Percentage of sublicensing revenues

20.00%

Percentage of expenses

15.00%

Future additional payments percentage

2.50%

Common Stock converted to additional payment

480,022

Interest rate on deferred payments

3.00%

Deferred payments

2,002

Ophthalix [Member]

Related Party Transaction [Line Items]

Common stock shares issued

97,113

Shares issued, Price per share

$ 5.148

Equity method investment additional amount

$ 500

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Fair Value Measurements (Details 1) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Fair Value Measurements [Abstract]
Beginning Balance	$ 7	$ 470
Change in fair value of derivatives	(6)	(463)
Ending Balance	$ 1	$ 7

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Condensed Statements of Changes in Stockholders' Equity (Deficiency) (Unaudited) (USD $) In Thousands, except Share data	Total	Shares of Common Stock	Additional paid-in capital	Accumulated deficit	Accumulated other comprehensive income
Balance, value at Dec. 31, 2012	$ 1,617	$ 10	$ 4,871	$ (3,264)
Balance, shares at Dec. 31, 2012		10,441,251
Stock based compensation	598		598
Unrealized gain/ loss from investment in Parent Company	483				483
Net loss	(2,837)			(2,837)
Balance, value at Dec. 31, 2013	(139)	10	5,469	(6,101)	483
Balance, shares at Dec. 31, 2013		10,441,251
Stock based compensation	12		12
Unrealized gain/ loss from investment in Parent Company	(419)				(419)
Net loss	834			(834)
Balance, value at Sep. 30, 2014	$ (1,380)	$ 10	$ 5,481	$ (6,935)	$ 64
Balance, shares at Sep. 30, 2014		10,441,251

XML

Fair Value Measurements

9 Months Ended

Sep. 30, 2014

Fair Value Measurements [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 4:- FAIR VALUE MEASUREMENTS

The Company considers an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and views an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Since the quoted market value of the Company’s Common Stock was based on a sporadically traded stock with little volume, the Company's management determined the Company's stock price fair value based on ASC 820 Fair Value Measurement using the income approach assisted by a third party specialist. Consequently, the Company used the estimated stock price fair value in the underlying assumptions of the computation of the fair value of the derivative related to the Service Agreement. In accordance with ASC 820, the Company measures part of its investment in the Parent Company and embedded derivatives in the Service Agreement, at fair value. The investment in the Parent Company at fair value is based on quoted prices for identical assets in active markets and other inputs (such as risk free interest and volatility) that are directly or indirectly observable in the marketplace. Shares that are restricted for less than one year should be re-measured to reflect fair value at each cutoff date. As a result of such restrictions, the Company adjusted the quoted market price in the Tel-Aviv Stock Exchange of its investment in the Parent Company's shares, to reflect the discount that results from the resale restriction provisions. In measuring the fair value the Company used an average of Protective Put and Asian Put Option models. In estimating the fair value, the Company used Black-Scholes option-pricing model. These securities are classified as available-for-sale securities carried at fair value, with unrealized gains and losses reported as a separate component of Shareholders' equity under accumulated other comprehensive loss (income) in the consolidated balance sheets. The assets are classified within Level 2 on the fair value hierarchy. Embedded derivatives are classified within Level 3 because they are valued using valuation techniques. Some of the inputs to these models are unobservable in the market and are significant. 

The following table provides information by value level for financial assets and liabilities that are measured at fair value, as defined by ASC 820, on a recurring basis as of September 30, 2014 and December 31, 2013.

	September 30, 2014
	Fair value measurements
Description	Fair Value			Level 1(1)		Level 2(2)		Level 3(3)
Investment in Parent Company	$	756		$	756	$	-	$	-
Derivative related to Service Agreement		(1	)		-		-		(1	)
Total Financial Assets, net	$	755		$	756	$	-	$	(1	)

	December 31, 2013
	Fair value measurements
Description	Fair Value			Level 1(1)		Level 2(2)		Level 3(3)
Investment in Parent Company	$	1,175		$	514	$	661	$	-
Derivative related to Service Agreement		(7	)		-		-		(7	)
Total Financial Assets, net	$	1,168		$	514	$	661	$	(7	)

(1) Represents the portion of the Parent Company's shares that has no trading restrictions.

(2) Represents the portion of the Parent Company's shares that has trading restrictions.

(3) Fair value measurements using significant unobservable inputs.

The following table presents the changes in Level 3 instruments measured on a recurring basis for the six months ended June 30, 2014. The Company's Level 3 instruments consist of derivatives.

Balance at January 1, 2013	$	470
Change in fair value of derivatives		(463	)
Balance at December 31, 2013	$	7
Change in fair value of derivatives		(6	)
Balance at September 30, 2014	$	1