FAIR VALUE MEASUREMENTS

Financial instruments measured at fair value on a recurring basis include warrants for convertible preferred share. The warrants were classified as a liability in accordance with ASC No. 480 (see Note 11). These warrants were classified as level 3 in the fair value hierarchy since some of the inputs used in the valuation were determined based on management’s assumptions. The fair value of the warrants on the issuance date and on subsequent reporting dates was determined using OPM utilizing the assumptions noted below. The fair value of the underlying preferred share price was determined by the board of directors considering, among others, third party valuations. The valuation of the Company was performed using a DCF model. The OPM method was then employed to allocate the enterprise value among the Company’s various equity classes, deriving a fully marketable value per share for the preferred share. The expected terms of the warrants were based on the remaining contractual expiration period. The expected share price volatility for the shares was determined by examining the historical volatilities of a group of the Company’s industry peers as there is no trading history of the Company’s shares. The risk-free interest rate was calculated using the average of the published interest rates for U.S. Treasury zero-coupon issues with maturities that approximate the expected term. The dividend yield assumption was zero as there is no history of dividend payments.

The following assumptions were used to estimate the value of the warrants to purchase series C convertible preferred shares:



	September 17, 2014 (conversion date)		December 31, 2013
Expected volatility	70	%	70	%
Risk-free rate	0.1	%	0.1	%
Dividend yield	—	%	—	%
Expected term (in years)	0		1.25

The following assumptions were used to estimate the value of the warrants to purchase series D convertible preferred shares:



	September 11, 2014 (IPO date)		December 31, 2013		September 24, 2013 (issuance date)
Expected volatility	70	%	70	%	70	%
Risk-free rate	1.7	%	0.1	%	0.2	%
Dividend yield	—	%	—	%	—	%
Expected term (in years)	4.80		1.25		1.50

The following assumptions were used to estimate the value of the warrants to purchase series E convertible preferred shares:



	September 11, 2014 (IPO date)		June 26, 2014 (issuance date)
Expected volatility	70	%	70	%
Risk-free rate	1.4	%	0.1	%
Dividend yield	—	%	—	%
Expected term (in years)	3.80		4.00

The change in the fair value of warrants to purchase convertible preferred shares liability is summarized below:



	Balance at beginning of period		Issuance of warrants to purchase preferred share		Exercise of warrants to purchase preferred share			Change in fair value			Conversion to Warrants to purchase ordinary share following IPO			Balance at end of period
December 31, 2014	$	3,341	$	5,794	$	(2,804	)	$	(776	)	$	(5,555	)
December 31, 2013	$	2,168	$	62	$	—		$	1,111		$	—		$	3,341

About Fair Value Disclosures

Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.

Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.

Lifeward Ltd. Fair Value Disclosure

About Fair Value Disclosures

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