Fair Value Measurements

9 Months Ended

Sep. 30, 2014

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

- 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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