FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 31, 2014

NOTE 4:-

FAIR VALUE MEASUREMENTS

ASC 820, "Fair Value Measurements and Disclosures" ("ASC 820"), defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance.

ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:

Level 1 -

quoted prices in active markets for identical assets or liabilities;

Level 2 -

inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

Level 3 -

unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

On March 30, 2012, the Company consummated the final closing of a private placement transaction (the "2011-2012 Private Placement") pursuant to which the investors purchased an aggregate of 2,461,000 shares of Common Stock and warrants to purchase 2,461,000 shares of Common Stock at the exercise price of $1.50 for total consideration of $2,461. The Company has registered the investors' shares of Common Stock, and shares of Common Stock underlying the warrants, issued in the 2011-2012 Private Placement for public resale in a registration statement (the "Initial Registration Statement") declared effective by the SEC on February 14, 2013.

The placement agent for the 2011-2012 Private Placement and its permitted designees were granted warrants to purchase an aggregate of (i) 482,200 shares of Common Stock at the exercise price of $1.00 per share and (ii) 482,200 shares of Common Stock at the exercise price of $1.50 per share. Each of the aforementioned warrants issued in the 2011-2012 Private Placement (including those warrants issued to the placement agent) contained weighted average anti-dilution protection. Subsequent to the issuance of the 2011-2012 Private Placement warrants, the $1.50 exercise price for both the warrants issued to the investors and placement agent were adjusted to approximately $1.30 per share due to a certain anti-dilutive issuance and, accordingly, additional warrants to purchase an aggregate of 371,017 and 72,455 shares of Common Stock were granted to such investors and the placement agent and its designees, respectively.

The Company accounts for such warrants (each of which include weighted average anti-dilution protection) as a liability according to the provisions of ASC 815-40, "Derivatives and Hedging - Contracts in Entity's Own Equity". The Company measures the warrants at fair value by using Binomial option-pricing model in each reporting period until the warrants are exercised or expired, with changes in the fair values being recognized in the Company's statement of comprehensive loss as financial income or expense.

In estimating the warrants' fair value, the Company used the following assumptions:

Investor warrants:

	March 31, 2014			December 31, 2013

Risk-free interest rate (1)		0.71	%		0.70	%
Expected volatility (2)		52.51	%		52.09	%
Expected life (in years) (3)		2.58			2.82
Expected dividend yield (4)		0	%		0	%

Fair value Warrants	$	0.73		$	0.74

Placement agent warrants:

	March 31, 2014		December 31, 2013

Risk-free interest rate (1)		0.45%		0.50%
Expected volatility (2)		54.38%		50.91%
Expected life (in years) (3)		2.03		2.25
Expected dividend yield (4)		0%		0%

Fair value Warrants		$ 0.68-0.84		$ 0.67-0.83

(1)

Risk-free interest rate - based on yield rates of non-index linked U.S. Federal Reserve treasury bonds.

(2)

Expected volatility - was calculated based on actual historical stock price movements of companies in the same industry over a term that is equivalent to the expected term of the option.

(3)

Expected life - the expected life was based on the expiration date of the warrants.

(4)

Expected dividend yield - was based on the fact that the Company has not paid dividends to its shareholders in the past and does not expect to pay dividends to its shareholders in the future.

The changes in Level 3 liabilities associated with the 2011-2012 Private Placement warrants are measured at fair value on a recurring basis. The following tabular presentation reflects the components of the liability associated with such warrants as of March 31, 2014:

	Fair value of liability related to warrants

Balance at December 31, 2012	$	2,817
Change in fair value of warrants during the period		294
Exercise of warrants (*)		(415	)

Balance at December 31, 2013	$	2,696
Change in fair value of warrants during the period		(16	)
Exercise of warrants (*)		(9	)

Balance at March 31, 2014 (unaudited)	$	2,671

(*)

During the year ended December 31, 2013, 141,305 and 88,485 investor and placement agent warrants, respectively, were exercised for a total amount of 194,146 shares of Common Stock of the Company.

During the three month period ended March 31, 2014, the placement agent exercised 9,118 warrants for a total amount of 9,118 shares of Common Stock of the Company, respectively (See also Note 5c).

As of March 31, 2014, there were 3,629,964 outstanding (unexercised) warrants (including both investor and placement agent warrants) relating to the 2011-2012 Private Placement.

On February 18, 2014, the Company consummated a private placement transaction (the "February 2014 Private Placement") with institutional and other accredited investors, pursuant to which the Company issued units comprised of an aggregate of (i) 2,226,956 shares of common stock and (ii) warrants initially exercisable to purchase an aggregate of 1,670,216 shares of Common Stock. The price per unit issued in this offering was $1.88, yielding proceeds of approximately $3,813 net of issuance costs (See also note 5b).

The Company is obligated to grant to the placement agent for the February 2014 Private Placement warrants to purchase an aggregate of 144,885 shares of Common Stock at an exercise price of $2.35.

The warrants issued to the investors and placement agent in the February 2014 Private Placement are subject to adjustment upon the occurrence of certain events, including certain non-standard anti-dilution protection provisions. In addition, upon certain changes in control of the Company, the holder of a warrant can elect to receive, subject to certain limitations and assumptions, cash equal to the Black-Scholes value of the outstanding warrants.

The warrants issued to the investors and placement agent in the February 2014 Private Placement were exercisable immediately upon issuance and may be exercised at any time prior to the fifth (5^th) anniversary of the date that the warrant shares are registered for resale with the SEC or are able to be sold without restriction under Rule 144 under the Securities Act of 1933, as amended (the "Securities Act).

The Company accounts for such warrants (each of which includes weighted average anti-dilution protection) as a liability according to the provisions of ASC 815-40, "Derivatives and Hedging - Contracts in Entity's Own Equity". The Company measures the warrants at fair value by using Binomial option-pricing model in each reporting period until they are exercised or expired, with changes in the fair values being recognized in the Company's statement of comprehensive loss as financial income or expense.

In estimating the warrants' fair value, the Company used the following assumptions:

Investors and placement agent warrants:

	March 31, 2014			Issuance date

Risk-free interest rate (1)		1.75	%		1.63	%
Expected volatility (2)		57.67	%		61.49	%
Expected life (in years) (3)		5.08			5.20
Expected dividend yield (4)		0	%		0	%

Fair value Warrants	$	1.71		$	1.78

(1)

Risk-free interest rate - based on yield rates of non-index linked U.S. Federal Reserve treasury bonds.

(2)

Expected volatility - was calculated based on actual historical stock price movements of companies in the same industry over a term that is equivalent to the expected term of the option.

(3)

Expected life - the expected life was based on the expiration date of the warrants.

(4)

Expected dividend yield - was based on the fact that the Company has not paid dividends to its shareholders in the past and does not expect to pay dividends to its shareholders in the future.

The changes in Level 3 liabilities associated with the February 2014 Private Placement warrants are measured at fair value on a recurring basis. The following tabular presentation reflects the components of the liability associated with such warrants as of March 31, 2014:

	Fair value of liability related to warrants

Balance at December 31, 2013	$	-
Fair value of warrants to investors and service provider		3,230
Change in fair value of warrants during the period		(126	)

Balance at March 31, 2014 (unaudited)	$	3,104

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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