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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policy) | 9 Months Ended
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Sep. 30, 2014
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract] |
Basis of presentation |
| A. | 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 U.S. GAAP 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 September 30, 2014 and the results of its operations and cash flow for each of the nine and three month periods 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 policies described in paragraphs B-C below, refer to the Company's annual report on Form 10-K for the year ended December 31, 2013. Results of operations for the nine and three month periods ended September 30, 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 U.S. GAAP 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.
Inventories |
| B. | Inventories Inventories are stated at the lower of cost or market value. Cost is determined as follows: With respect to raw materials, the Company calculates cost using the average cost method. With respect to work in process, the Company calculates the cost on the basis of the average direct manufacturing costs, including materials, labor and other direct manufacturing costs. The Company evaluates its ability to realize the value of its inventory based on a combination of factors including the following: historical usage rates, forecasted sales or usage, product end of life dates, estimated current and future market values and new product introductions. Purchasing requirements and alternative usage are explored within these processes to mitigate inventory exposure. In addition, inventory reserve is provided for slow-moving items. If recorded, the reserves are intended to reduce the carrying value of inventory to its net realizable value. To date, the Company has not recorded any reserve with respect to its inventory.
Revenue recognition |
| C. | Revenue recognition Revenues are recognized in accordance with ASC 605, "Revenue Recognition" and SEC Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition”, when delivery has occurred, persuasive evidence of an agreement exists, the fee is fixed and determinable, collectability is reasonably assured and no further obligations exist. Provisions are made at the time of revenue recognition for any applicable warranty cost expected to be incurred. The Company derives its revenues from sales of its GlucoTrack® model DF-F glucose monitoring device to distributors. The Company's products sold through agreements with distributors are generally non-exchangeable, non-refundable and non-returnable and the distributors generally are not entitled to any rights of price protection or stock rotation. Accordingly, the Company considers all the distributors as end-users for revenue recognition purposes.
Warrants with Down-Round Protection |
| D. | 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 (i.e., a feature providing that, upon the issuance of equity or equity linked securities at an effective price per share that is lower than the exercise price of the warrants, the exercise price of the warrants will be adjusted to such lower price), the probability that the exercise price of the warrants would decrease as the stock price decreases was incorporated into the valuation calculations. The key inputs used in the fair value calculations were as follows:
| September 30, 2014
Dividend yield (%) | -
Expected volatility (%) (*) | 105.14
Risk free interest rate (%) | 1.14
Expected term of options (years) (**) | 3.45
Exercise price (US dollars) (***) | 5.80
Common Stock price, per share (US dollars) (****) | 2.31
Fair value per Warrant with down-round protection (US dollars) | 1.19
| (*) | Due to the very low trading volume of the Company's Common Stock, the expected volatility was based on the historical volatility of the share price of other
| (**) | 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.
| (***) | As a result of the issuance of the Series B Units, pursuant to the terms of the Series A Warrants, on August 29, 2014, the exercise price per share of the Series A Warrants decreased from $6.96 per share to $5.80 per share and the number of shares of Common Stock issuable upon exercise of each such warrant, in the aggregate, increased such that the aggregate exercise price payable thereunder, after taking into account the decrease in the exercise price, will be equal to the aggregate exercise price prior to such adjustment.
| (****) | The Common Stock price, per share reflects the Company's management's estimation of the fair value per share of Common Stock as of September 30, 2014. In reaching its estimation, management considered, among other things, a valuation report prepared by a third-party valuation firm following the issuance of the Series B Units (See Note 1B and Note 3).
Recently issued accounting pronouncements |
| E. | Recently issued accounting pronouncements
| 1. | 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 ASU 2013-5 did not have a material impact on the Group's consolidated results of operations and financial condition.
| 2. | ASC Topic 915, "Development Stage Entities" On June 10, 2014, the FASB issued Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements (which includes an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation) (ASU 2014-10). The amendments in ASU 2014-10 remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, including the removal of Topic 915, Development Stage Entities, from the FASB Accounting Standards Codification. In addition, ASU 2014-10 amends the disclosures required in Topic 275, Risks and Uncertainties, to illustrate relevant disclosures about the risks and uncertainties related to current activities of an entity that has not begun planned principal operations. Also, ASU 2014-10, removes an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity. Under current U.S. GAAP, a development stage entity is defined as an entity that devotes substantially all of its efforts to establishing a new business and for which: (a) planned principal operations have not commenced; or (b) planned principal operations have commenced, but have produced no significant revenue. Currently, U.S. GAAP requires that a development stage entity present the same basic financial statements and apply the same recognition and measurement rules as established companies and in addition, present inception-to-date information about income statement line items, cash flows, and equity transactions.
| E. | Recently issued accounting pronouncements (cont.)
| 2. | ASC Topic 915, "Development Stage Entities" (cont.) The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which shall be applied prospectively. For public business entities, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein (fiscal 2015 for the Company). For public business entities, the amendment eliminating the exception to the sufficiency-of-equity-at-risk criterion for development stage entities should be applied retrospectively for annual reporting periods beginning after December 15, 2015, and interim periods therein. Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity's financial statements have not yet been issued (public business entities) or made available for issuance (other entities). Upon adoption, entities will no longer present or disclose any information required by Topic 915. The Company has not yet adopted ASU-2014-10. Other than the elimination of the inception-to-date information and other disclosure requirements of Topic 915, the adoption of ASU 2014-10 is not expected to have a material impact on the financial position or results of operations of the Company.
| 3. | Accounting Standard Update 2014-09, “Revenue from Contracts with Customers” In May 2014, the FASB issued Accounting Standard Update 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). ASU 2014-09 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 also requires entities to disclose sufficient information, both quantitative and qualitative, to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. An entity should apply the amendments in this ASU using one of the following two methods: 1. Retrospectively to each prior reporting period presented with a possibility to elect certain practical expedients, or, 2. Retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. If an entity elects the latter transition method, it also should provide certain additional disclosures. For a public entity, the amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period (the first quarter of fiscal year 2017 for the Company). Early application is not permitted. The Company is in the process of assessing the impact, if any, of ASU 2014-09 on its consolidated financial statements.
| E. | Recently issued accounting pronouncements (cont.)
| 4. | Accounting Standards Update 2014-15, “Presentation of Financial Statements—Going Concern” In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern ("ASU 2014-15"). ASU 2014-15 provide guidance on management's responsibility in evaluating whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). ASU 2014-15 also provide guidance related to the required disclosures as a result of management evaluation. The amendments in ASU 2014-15 are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company is in the process of assessing the impact, if any, of ASU 2014-15 on its consolidated financial statements or related disclosures.

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