NOTE 2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments necessary (consisting of normal recurring adjustments) for a fair presentation of the Company's financial position at March 31, 2014 and the results of its operations and cash flow for the three month period then ended.

Interim financial statements are prepared on a basis consistent with the Company's annual financial statements. For a description of the significant accounting policies, other than the additional policy described in paragraph C below, which policy applied to reflect transactions that occurred in the current three month interim period ended March 31, 2014, refer to the Company's annual report on Form 10-K for the year ended December 31, 2013. Results of operations for the three month periods ended March 31, 2014 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2014.

The consolidated balance sheet as of December 31, 2013 was derived from the audited financial statements as of that date but does not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2013.

Warrants with Down-Round Protection

The Company has determined its derivative warrant liability to be a Level 3 fair value measurement and has used the Binomial pricing model to calculate its fair value. Because the warrants contain a price protection feature, the probability that the exercise price of the warrants would decrease as the stock price decreased was incorporated into the valuation calculations. The key inputs used in the fair value calculations were as follows:

	March 31, 2014
Dividend yield (%)		-
Expected volatility (%) (*)		105.14
Risk free interest rate (%)		1.36
Expected term of options (years) (**)		3.95
Exercise price (US dollars)		6.96
Share price (US dollars) (***)		8.50
Fair value (US dollars)		6.29

(*)

Due to the low trading volume of the Company's Common Stock, the expected volatility was based on the historical volatility of the share price of other public companies that operate in the same industry sector as the Company.

(**)

Due to the fact that the Company does not have sufficient historical exercise data, the expected term was determined based on the "simplified method" in accordance with Staff Accounting Bulletin No. 110.

(***)

The fair value per share of the Company's Common Stock as of March 31, 2014 was based on the management's estimate which was based among other factors on the price per share of the Company's Common Stock, as reported on the OTC Bulletin Board, during the reported period.

Recently issued accounting pronouncements

ASC Topic 830, "Foreign Currency Matters"

Effective January 1, 2014, the Group adopted Accounting Standards Update 2013-5, Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity ("ASU 2013-5").

ASU 2013-5 clarifies among other things that, when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a business (other than a sale of in-substance real estate or conveyance of oil and gas mineral rights) within a foreign entity, the parent is required to apply the guidance in Subtopic 830-30 to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided.

For public companies, the amendments in ASU 2013-5 became effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted.

The adoption of the standard did not have a material impact on the Group's consolidated results of operations and financial condition.