NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES
|
a. Use of estimates:
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company's
management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
b. Financial statements in U.S. dollars:
The majority of the revenues of the Company and its subsidiaries are generated in U.S. dollars ("dollar") or linked to the dollar. In addition, a major portion of
the Company's and certain of its subsidiaries' costs are incurred or determined in dollars. The Company's management believes that the dollar is the currency of the primary economic environment in which the Company and its subsidiaries
operate. Thus, the functional and reporting currency of the Company and its subsidiaries is the dollar.
Accordingly, monetary accounts maintained in currencies other than the dollar are remeasured into U.S. dollars in accordance with Accounting Standards Codification
No. 830, "Foreign Currency Matters" ("ASC No. 830"). All transactions gains and losses from the remeasurement of monetary balance sheet items are reflected in the statements of operations as financial income or expenses as appropriate.
c. Principles of consolidation:
The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions have been eliminated upon
consolidation.
d. Cash and cash equivalents:
The Company considers all unrestricted highly liquid investments which are readily convertible into cash, with a maturity of three months or less at the date of
acquisition, to be cash equivalents.
e. Restricted deposits:
The restricted deposits are held in favor of financial institutions in respect of fulfillment of forward contracts and operating obligations. As of December 31,
2019, a major prepayment received from a client was classified as a restricted deposit due to the contractual terms with the client.
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
f.
|
Short-term bank deposits:
|
Short-term bank deposits are deposits with maturities of more than three months but less than one year at the balance sheet date. The deposits are in dollars and
bear interest at an annual weighted average rate of 2.33% and 2.82% at December 31, 2019 and 2018, respectively. In connection with the Company's hedging transactions, the Company is required to maintain compensating deposits balances in
the bank. Out of the short-term bank deposits, a total of $2,500 is due to the hedging transactions as of December 31, 2019 and 2018.
g. Marketable securities:
The Company accounts for investments in marketable securities in accordance with ASC 320, "Investments - Debt and Equity Securities". Management determines the
appropriate classification of its investments in debt securities at the time of purchase and re-evaluates such determinations at each balance sheet date.
Marketable securities classified as "available-for-sale" are carried at fair value, based on quoted market prices. Unrealized gains and losses are reported in a
separate component of shareholders' equity in accumulated other comprehensive income (loss). Gains and losses are recognized when realized, on a specific identification basis, in the Company's consolidated statements of comprehensive
loss.
The Company's securities are reviewed for impairment in accordance with ASC 320-10-35. If such assets are considered to be impaired, the impairment charge is
recognized in earnings when a decline in the fair value of its investments below the cost basis is judged to be Other-Than-Temporary Impairment (OTTI). Factors considered in making such a determination include the duration and severity of
the impairment, the reason for the decline in value, the potential recovery period and the Company's intent to sell, including whether it is more likely than not that the Company will be required to sell the investment before recovery of
cost basis. Based on the above factors, the Company concluded that unrealized losses on its available-for-sale securities, for the years ended 2019, 2018 and 2017, were not OTTI.
h. Inventories:
Inventories are stated at the lower of cost or net realizable value. Inventory write-offs are provided to cover risks arising primarily from end of life products and
from slow-moving items, technological obsolescence, and excess inventory. Inventory write-offs during the years ended December 31, 2019, 2018 and 2017 amounted to $ 629, $ 2,231 and $ 1,260, respectively, and were recorded in cost of
revenues.
Inventory write-off provision as of December 31, 2019 and 2018 amounted to $ 2,839 and $ 2,818, respectively.
Inventory cost is determined using the weighted average cost method.
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
i. Property and equipment, net:
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of
the assets at the following annual rates:
|
|
%
|
|
|
|
Lab equipment
|
|
16 - 25
|
Computers and peripheral equipment
|
|
33
|
Office furniture
|
|
6
|
Leasehold improvements
|
|
Over the shorter of the term of the lease or the useful life of the asset
|
Goodwill represents the excess of the purchase price over the fair value of net assets of purchased businesses. Under Accounting Standards Codification No. 350,
"Intangibles-Goodwill and Other" ("ASC No. 350"), goodwill is not amortized, but rather subject to an annual impairment test, or more often if there are indicators of impairment present. In accordance with ASC No. 350 the Company performs
an annual impairment test at December 31 each year.
ASC 350 allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. If
the qualitative assessment does not result in a more likely than not indication of impairment, no further impairment testing is required. If it does result in a more likely than not indication of impairment, the two-step impairment test
is performed. Alternatively, ASC 350 permits an entity to bypass the qualitative assessment for any reporting unit and proceed directly to performing the first step of the goodwill impairment test.
The first step, identifying a potential impairment, compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds its fair
value, the second step would need to be performed; otherwise, no further step is required. The second step, measuring the impairment loss, compares the implied fair value of the goodwill with the carrying amount of the goodwill. Any
excess of the goodwill carrying amount over the applied fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value.
The Company operates in one operating segment, and this segment comprises its only reporting unit. The Company has performed an annual impairment analysis as of
December 31, 2019 and determined that the carrying value of the reporting unit was less than the fair value of the reporting unit. Fair value is determined using market capitalization. During years 2019, 2018 and 2017, no impairment
losses were recorded.
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
k.
|
Impairment of long-lived assets and intangible assets subject to amortization:
|
Property and equipment and intangible assets subject to amortization are reviewed for impairment in accordance with ASC No. 360, "Accounting for the Impairment or
Disposal of Long-Lived Assets," whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets.
Intangible assets acquired in a business combination are recorded at fair value at the date of acquisition. Following initial recognition, intangible assets are
carried at cost less any accumulated amortization and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets that are not considered to have an indefinite
useful life are amortized over their estimated useful lives. Some of the acquired intangible assets are amortized over their estimated useful lives in proportion to the economic benefits realized. This accounting policy results in
accelerated amortization of such customer relationships as compared to the straight-line method. All other intangible assets are amortized over their estimated useful lives on a straight-line basis.
During the years ended December 31, 2019, 2018 and 2017, no impairment losses were recorded.
The Company generates revenues mainly from selling its products along with related maintenance and support services. At times, these arrangements may also include
professional services, such as installation services or training. Some of the Company’s product sells is done through resellers, distributors, OEMs and system integrators, all of whom are considered end-users.
The Company adopted accounting standards codification 606, "Revenue from Contracts with Customers" ("ASC 606"), effective on January 1, 2018. The Company recognizes
revenue under the core principle that transfer of control to the Company’s customers should be depicted in an amount reflecting the consideration the Company expects to receive. As such, the Company identifies a contract with a customer,
identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to each performance obligation in the contract and recognizes revenues when (or as) the Company satisfies a
performance obligation.
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The Company enters into contracts that can include combinations of products and services, that are capable of being distinct and accounted for as separate
performance obligations. The products are distinct as the customer can derive the economic benefit of it without any professional services, updates or technical support. The Company allocates the transaction price to each performance
obligation based on its relative standalone selling price out of the total consideration of the contract. For support, the Company determines the standalone selling prices based on the price at which the Company separately sells a
renewal contract on a stand-alone basis. For professional services, the Company determines the standalone selling prices based on the price at which the Company separately sells those services on a stand-alone basis. If the SSP is not
observable, the Company estimates the SSP taking into account available information such as geographic or regional specific factors, internal costs, profit objectives, and internally approved pricing guidelines related to the
performance obligation.
Maintenance and support related revenues are deferred and recognized on a straight-line basis over the term of the applicable maintenance and support agreement.
Other services are recognized upon the completion of installation or when the service is provided.
Deferred revenue includes amounts received from customers for which revenue has not yet been recognized. Deferred revenues are classified as short and long-term
based on their contractual term and recognized as revenues at the time the respective elements are provided.
Transaction price allocated to remaining performance obligations represents non-cancelable contracts that have not yet been recognized that include deferred revenue
and amounts not yet received that will be recognized as revenue in future periods. The aggregate amount of the transaction price allocated to remaining performance obligations that the Company expects to recognize after the year ending
December 31, 2020 is approximately $37,875.
The Company pays sales commissions to sales and marketing personnel based on their certain predetermined sales goals. Sales commissions are considered incremental
and recoverable costs of obtaining a contract with a customer. Sales commissions earned by its employees are capitalized and amortized in over the revenue recognition period. Amortization expenses related to these costs are included in
sales and marketing expenses in the consolidated statements of operations. For the year ended December 31, 2019, the amortization of deferred commission was $1,351. The Company uses the practical expedient and does not assess the
existence of a significant financing component when the difference between payment and revenue recognition is a year or less.
The Company estimated variable consideration related to product returns based on its experience with historical product returns and other known factors. Such
provisions amounted to $163 and $191 as of December 31, 2019 and 2018, respectively. Following the adoption of ASC 606, As of December 31, 2019 and 2018, this provision was recorded as part of other payables and accrued expenses.
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
Following the adoption of ASC 606 in January 1, 2018, the Company recognizes for term-based license agreements at the point in time when control transfers and the associated maintenance revenues over the
contract period. Adoption of the standard has resulted in a reduction of deferred revenues of $712 that was recorded in accumulated deficit due to upfront recognition of license revenues from term licenses.
The cumulative effect of the changes made to the consolidated balance sheet as of January 1, 2018 for the adoption of Topic 606-10 was as follows:
|
|
December 31, 2017
|
|
|
Adjustments
|
|
|
January 1, 2018
|
|
|
|
(in thousands)
|
|
Deferred revenue, short term
|
|
|
11,370
|
|
|
|
(311
|
)
|
|
|
11,059
|
|
Deferred revenue, long term
|
|
|
3,878
|
|
|
|
(75
|
)
|
|
|
3,803
|
|
Trade receivables
|
|
|
22,737
|
|
|
|
326
|
|
|
|
23,063
|
|
Accumulated deficit
|
|
|
122,247
|
|
|
|
(712
|
)
|
|
|
121,535
|
|
In accordance with Topic 606-10, the disclosure of the impact of adoption on the consolidated balance sheet as of December 31, 2018 was as follows:
|
|
Amounts under
Topic 605
|
|
|
Impact of Adoption
|
|
|
As Reported
|
|
|
|
(in thousands)
|
|
Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
Deferred revenue, short term
|
|
|
14,152
|
|
|
|
(297
|
)
|
|
|
13,855
|
|
Deferred revenue, long term
|
|
|
4,264
|
|
|
|
(17
|
)
|
|
|
4,247
|
|
Trade receivables
|
|
|
25,603
|
|
|
|
490
|
|
|
|
26,093
|
|
Accumulated deficit
|
|
|
132,754
|
|
|
|
(804
|
)
|
|
|
131,950
|
|
In addition, following the adoption of ASC 606, the Company’s consolidated statement of operations for the year ended December 31, 2018, included an increase of
revenue in the amount of $ 92, net, compared to the accounting treatment under ASC 605.
m. Cost of revenues:
Cost of revenues consists primarily of costs of materials and the cost of maintenance and services, resulting from costs associated with support, customer success
and professional services.
n. Advertising expenses:
Advertising expenses are charged to the statement of comprehensive loss, as incurred. Advertising expenses for the years ended December 31, 2019, 2018 and 2017
amounted to $ 1,274, $ 1,270 and $ 1,236, respectively.
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
o. Research and development costs:
Accounting Standards Codification No. 985-20, requires capitalization of certain software development costs subsequent to the establishment of technological
feasibility.
Based on the Company's product development process, technological feasibility is established upon the completion of a working model. The Company does not incur
material costs between the completion of a working model and the point at which the products are ready for general release. Therefore, research and development costs are charged to the consolidated statement of comprehensive loss as
incurred.
p. Severance pay:
The liability in Israel for substantially all of the Company`s employees in respect of severance pay liability is calculated in accordance with Section 14 of the
Severance Pay Law -1963 (herein- "Section 14"). Section 14 states that Company's contributions for severance pay shall be in line of severance compensation and upon release of the policy to the employee, no additional obligations shall be
conducted between the parties regarding the matter of severance pay and no additional payments shall be made by the Company to the employee.
Furthermore, the related obligation and amounts deposited on behalf of such obligation under Section 14, are not stated on the balance sheet, because pursuant to the
current ruling, they are legally released from the obligation to employees once the deposits have been paid.
There are a limited number of employees in Israel, for whom the Company is liable for severance pay. The Company's liability for severance pay for its Israeli
employees was calculated pursuant to Section 14, based on the most recent monthly salary of its Israeli employees multiplied by the number of years of employment as of the balance sheet date for such employees.
The Company's liability was partly provided by monthly deposits with severance pay funds and insurance policies and the remainder by an accrual.
Severance expense for the years ended December 31, 2019, 2018 and 2017, amounted to $ 2,249, $ 1,950 and $ 1,801, respectively.
q. Accounting for stock-based compensation:
The Company accounts for stock-based compensation in accordance with Accounting Standards Codification No. 718, "Compensation - Stock Compensation" ("ASC No. 718")
that requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense
over the requisite service periods in the Company's consolidated statement of comprehensive loss. The Company recognizes compensation expenses for the value of its awards based on the straight-line method over the requisite service period
of each of the awards, net of estimated forfeitures.
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The Company accounted for changes in award terms as a modification in accordance with ASC 718. A modification to the terms of an award should be treated as an
exchange of the original award for a new award with total compensation cost equal to the grant-date fair value of the original award plus the incremental value measured at the same date. Under ASC 718, the calculation of the incremental
value is based on the excess of the fair value of the new (modified) award based on current circumstances over the fair value of the original award measured immediately before its terms are modified based on current circumstances.
The Company estimated the forfeiture rate based on historical forfeitures of equity awards and adjusted the rate to reflect changes in facts and circumstances if
any. The Company adopted ASU 2016-09 in the first quarter of the fiscal year 2017 and elected to retain its existing accounting policy and estimate expected forfeitures. The adoption of this ASU did not have a material impact on the
Company's consolidated financial statements.
The following table sets forth the total stock-based compensation expense resulting from stock options, restricted share units ("RSUs") and Phantoms granted to
employees included in the consolidated statements of comprehensive loss, for the years ended December 31, 2019, 2018 and 2017:
|
|
Year ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
264
|
|
|
$
|
316
|
|
|
$
|
362
|
|
Research and development
|
|
|
847
|
|
|
|
678
|
|
|
|
648
|
|
Sales and marketing
|
|
|
1,257
|
|
|
|
928
|
|
|
|
1,166
|
|
General and administrative
|
|
|
1,052
|
|
|
|
940
|
|
|
|
1,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
3,420
|
|
|
$
|
2,862
|
|
|
$
|
3,366
|
|
The Company selected the binomial option pricing model as the most appropriate fair value method for its stock-based compensation awards with the following
assumptions for the years ended December 31, 2018 and 2017:
|
|
Year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Suboptimal exercise multiple
|
|
|
2.9-3.5
|
|
|
|
2.9-3.5
|
|
Risk free interest rate
|
|
|
2.09%-3.05%
|
|
|
|
0.80%-2.20%
|
|
Volatility
|
|
|
26%-47%
|
|
|
|
27%-49%
|
|
Dividend yield
|
|
|
0%
|
|
|
|
0%
|
|
The expected annual post-vesting and pre-vesting forfeiture rates affects the number of exercisable options. Based on
the Company's historical experience, the annual pre-vesting and post-vesting are in the range of 0%-33% and 0%-41%, respectively, in the years 2018 and 2017. During 2019 no options were granted by the Company.
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The computations of expected volatility and suboptimal exercise multiple is based on the average of the Company's realized historical stock price. The computation of
the suboptimal exercise multiple and the forfeiture rates are based on the grantee's expected exercise prior and post vesting termination behavior. The interest rate for a period within the contractual life of the award is based on the
U.S. Treasury Bills yield curve in effect at the time of grant.
The Company currently has no plans to distribute dividends and intends to retain future earnings to finance the development of its business.
The expected life of the stock options represents the weighted-average period the stock options are expected to remain outstanding and is a derived output of the
binomial model. The expected life of the stock options is impacted by all of the underlying assumptions used in the Company's model.
r. Treasury stock:
The Company repurchases its Ordinary shares from time to time on the open market and holds such shares as treasury stock. The Company presents the cost to repurchase
treasury stock as a reduction of shareholders' equity.
s. Concentration of credit risks:
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities,
short-term bank deposits, trade receivables and derivative instruments.
The majority of cash and cash equivalents and short-term deposits of the Company are invested in dollar deposits in major U.S. and Israeli banks. Such investments in
the United States may be in excess of insured limits and are not insured in other jurisdictions. Generally, the cash and cash equivalents and short-term bank deposits may be redeemed upon demand, and therefore, bear minimal risk.
Marketable securities include investments in dollar linked corporate and municipal bonds. Marketable securities consist of highly liquid debt instruments with high
credit standing. The Company’s investment policy, approved by the Board of Directors, limits the amount the Group may invest in any one type of investment or issuer, thereby reducing credit risk concentrations. Management believes that
the portfolio is well diversified and, accordingly, minimal credit risk exists with respect to these marketable debt securities
The Company's trade receivables are primarily derived from sales to customers located mainly in EMEA, as well as in APAC, Latin America and the United States.
Concentration of credit risk with respect to trade receivables is limited by credit limits, ongoing credit evaluation and account monitoring procedures. The Company performs ongoing credit evaluations of its customers and establishes an
allowance for doubtful accounts on a specific basis. Allowance for doubtful accounts amounted to $ 1,867 and $ 1,415 as of December 31, 2019 and 2018, respectively.
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The Company utilizes foreign currency forward contracts to protect against the risk of overall changes in exchange rates. The derivative instruments hedge a portion
of the Company's non-dollar currency exposure. Counterparties to the Company’s derivative instruments are all major financial institutions and its exposure is limited to the amount of any asset resulting from the forward contracts.
The Company has no significant off-balance sheet concentrations of credit risk.
t. Grants from the Israel Innovation Authority:
Participation grants from the Israel Innovation Authority (Previously known as the Office of the Chief Scientist) for research and development activity are
recognized at the time the Company is entitled to such grants on the basis of the costs incurred and included as a deduction of research and development costs. Research and development non royalty bearing grants recognized amounted to
$ 378, $ 374 and $ 392 in 2019, 2018 and 2017, respectively.
u. Income taxes:
The Company accounts for income taxes in accordance with Accounting Standards Codification No. 740, "Income Taxes" ("ASC No. 740"). ASC No. 740 prescribes the use of
the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value if it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The deferred tax assets and liabilities are classified to non-current assets and liabilities, respectively.
ASC No. 740 contains a two-step approach to recognizing and measuring a liability for uncertain tax positions. The first step is to evaluate the tax position taken
or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including
resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company classifies interest related
to unrecognized tax benefits in taxes on income
v. Basic and diluted net income (loss) per share:
Basic net income (loss) per share is computed based on the weighted average number of Ordinary Shares outstanding during each year. Diluted net income (loss) per
share is computed based on the weighted average number of Ordinary Shares outstanding during each year, plus dilutive potential Ordinary Shares considered outstanding during the year, in accordance with FASB ASC 260 "Earnings Per Share".
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
For the years ended December 31, 2019, 2018 and 2017, all outstanding options and RSUs have been excluded from the calculation of the diluted net loss per share since their effect was anti-dilutive. See
Note 16. The amount of those options and RSU’s was : 3,105,801, 2,998,174, 2,902,387 respectively.
w. Comprehensive loss:
The Company accounts for comprehensive loss in accordance with Accounting Standards Codification No. 220, "Comprehensive Income" ("ASC No. 220"). This statement
establishes standards for the reporting and display of comprehensive loss and its components in a full set of general purpose financial statements. Comprehensive loss represents all changes in shareholders' equity during the period except
those resulting from investments by, or distributions to shareholders. The Company determined that its items of comprehensive loss relate to unrealized gains and losses on hedging derivative instruments and unrealized gains and losses on
available-for-sale marketable securities.
The following table shows the components and the effects on net loss of amounts reclassified from accumulated other comprehensive loss as of December 31, 2019:
|
|
Year ended
December 31, 2019
|
|
|
|
Unrealized gain (losses) on marketable securities
|
|
|
Unrealized gains (losses) on cash flow hedges
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2018
|
|
$
|
(349
|
)
|
|
$
|
(418
|
)
|
|
$
|
(767
|
)
|
Changes in other comprehensive income (loss) before reclassifications
|
|
|
666
|
|
|
|
(332
|
)
|
|
|
334
|
|
Amounts reclassified from accumulated other comprehensive income (loss) to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
(7
|
)
|
Operating expenses
|
|
|
-
|
|
|
|
(89
|
)
|
|
|
(89
|
)
|
Financial income, net
|
|
|
4
|
|
|
|
-
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income (loss)
|
|
|
670
|
|
|
|
(428
|
)
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2019
|
|
$
|
321
|
|
|
$
|
(846
|
)
|
|
$
|
(525
|
)
|
x. Fair value of financial instruments:
The Company measures its cash and cash equivalents, marketable securities, derivative instruments, short-term bank deposits, trade receivables, other receivables, trade
payables and other payables at fair value. The carrying amounts of short-term bank deposits, trade receivables, other receivables, trade payables and other payables approximate their fair value due to the short-term maturities of such
instruments.
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
Fair value is an exit price, representing the amount that would be received if the Company were to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
The Company uses a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
|
Level 1 -
|
Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
Level 2 -
|
Include other inputs that are directly or indirectly observable in the marketplace, other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for
identical or similar assets or liabilities in markets with insufficient volume or infrequent transactions, or other inputs that are observable (model-derived valuations in which significant inputs are observable), or can be
derived principally from or corroborated by observable market data; and
|
|
Level 3 -
|
Unobservable inputs which are supported by little or no market activity.
|
The Company categorized each of its fair value measurements in one of those three levels of hierarchy. The fair value hierarchy also requires an entity to maximize
the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The Company's earn-out considerations are classified within Level 3. The valuation methodology used by the Company to calculate the fair value consideration is
the discounted cash flow using the Monte-Carlo simulation method by taking into account, forecast future revenues, expected volatility of 42.5% for Optenet and 20.7% for Netonomy and the weighted average cost of debt of 2%. As of
December 31, 2019 the fair value of the consideration was determined according to discounted cash flow since the earn-out will be completely paid by the third quarter of 2020.
y. Derivatives and hedging:
The Company accounts for derivatives and hedging based on Accounting Standards Codifiation No. 815, "Derivatives and Hedging" ("ASC No. 815").
The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. Derivative instruments that are not designated
and qualified as hedging instruments must be adjusted to fair value through earnings.
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
For derivative
instruments that hedge the exposure to variability in expected future cash flows that are designated as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated
other comprehensive income (loss) in shareholders' equity and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. As a result of adopting new accounting guidance discussed in Note
2, " Recently adopted accounting pronouncements," beginning January 1, 2019, gains and losses on the derivatives instruments that are designated and qualify as a cash flow hedge are recorded in accumulated other comprehensive income
(loss) and reclassified into in the same accounting period in which the designated forecasted transaction or hedged item affects earnings. Prior to January 1, 2019, cash flow hedge ineffectiveness was separately measured and reported
immediately in earnings. Cash flow hedge ineffectiveness was immaterial during 2018 and 2017. To apply hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged
transactions.
|
z.
|
Business combinations:
|
The Company accounts for business combinations in accordance with ASC No. 805. ASC No. 805 requires recognition of assets acquired, liabilities assumed, and any
non-controlling interest at the acquisition date, measured at their fair values as of that date. Any excess of the fair value of net assets acquired over the purchase price is recorded as goodwill and any subsequent changes in estimated
contingencies are to be recorded in earnings. In addition, changes in valuation allowance related to acquired deferred tax assets and acquired income tax positions are to be recognized in earnings.
aa. Lease:
On January 1, 2019, the Company adopted ASU No. 2016-02, Leases (ASC 842). The Company determines if an arrangement is a lease and the classification of that lease
at inception based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefits from the use of the asset throughout the period, and (3)
whether the Company has a right to direct the use of the asset. The Company elected to not recognize a lease liability and a right-of-use (“ROU”) asset for leases with a term of twelve months or less. The Company also elected the
practical expedient to not separate lease and non-lease components for its leases.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make minimum lease payments arising
from the lease. ROU assets are initially measured at amounts, which represents the discounted present value of the lease payments over the lease, plus any initial direct costs incurred. The lease liability is initially measured at lease
commencement date based on the discounted present value of minimum lease payments over the lease term. The implicit rate within the operating leases is generally not determinable, therefore the Company uses the Incremental Borrowing Rate
(“IBR”) based on the information available at commencement date in determining the present value of lease payments. The Company’s IBR is estimated to approximate the interest rate for collateralized borrowing with similar terms and
payments and in economic environments where the leased asset is located. Certain leases include options to extend or terminate the lease.
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain that the Company will
exercise that option. An option to terminate is considered unless it is reasonably certain that the Company will not exercise the option.
Payments under our lease arrangements are primarily fixed, however, certain lease agreements contain variable payments, which are expensed as incurred and not
included in
the operating lease right-of-use assets and liabilities. Variable lease payments are primarily comprised of payments affected by common area maintenance and utility
charges.
ab. Warranty costs:
The Company generally provides three months software and a one-year hardware warranty for all of its products. A provision is recorded for estimated warranty costs
at the time revenues are recognized based on the Company's experience. Warranty expenses for the years ended December 31, 2019, 2018 and 2017 were immaterial.
ac. Recently Adopted Accounting
Pronouncements:
In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842). The standard requires the recognition of ROU assets and lease liabilities for all leases. The
standard requires a modified retrospective transition approach to recognize and measure leases at the initial application.
The Company adopted the standard as of January 1, 2019, using a modified retrospective transition approach and elected to use the effective date as the date of
initial application. The Company adopted the ”package of practical expedients”, which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. As a
result, the consolidated balance sheets as of December 31, 2018 were not restated, continue to be reported under ASC 840, which did not require recognition of operating lease assets and liabilities on the balance sheets, and are not
comparative.
The standard had a material impact on the Company’s consolidated balance sheets which resulted in the recognition of ROU assets and lease liabilities of $6.7 million
and $6.7 million, respectively, on January 1, 2019, which included reclassifying deferred rent and rent prepayments as components of the ROU assets. The standard did not have a material impact on the Company's consolidated statements of
comprehensive income. See also Note 11a.
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The Company adopted Accounting Standards Update (“ASU”) No. 2017- 12, “Derivatives and Hedging” (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amended the eligibility criteria for hedged items and transactions to
expand an entity’s ability to hedge nonfinancial and financial risk components. The new guidance eliminates the requirement to separately measure and present hedge ineffectiveness and aligns the presentation of hedge gains and losses
with the underlying hedge item. The new guidance also simplifies the hedge documentation and hedge effectiveness assessment requirements. The amended presentation and disclosure requirements were adopted on a prospective basis, while
any amendments to cash flow and net investment hedge relationships which existed on the date of adoption were applied on a “modified retrospective” basis, meaning a cumulative effect adjustment to the opening balance of retained earnings as of the beginning of the year of adoption. The new guidance was effective for the Company on January 1,
2019 and the adoption did not have a material impact on the Company’s consolidated financial statements.
In June 2018, the FASB issued Accounting Standards Update No. 2018-07, "Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting" (ASU 2018-07). ASU 2018-07 was issued to simplify several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation – Stock Compensation,
to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used
or consumed in a grantor’s own operations by issuing share-based payment awards. The Company adopted this standard as of December 31, 2019 and did not have material effect on its consolidated financial statements.
ad. Recently Issued Accounting Pronouncement Not Yet Adopted:
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU
2016-13”). The standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. ASU 2016-13 is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company will adopt this standard as of January 1, 2020 and does not expect
this to have a material effect on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" ("ASU 2017-04"). ASU
2017-04 eliminates the requirement to measure the implied fair value of goodwill by assigning the fair value of a reporting unit to all assets and liabilities within that unit (the "Step 2 test") from the goodwill impairment test.
Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited by the amount of goodwill in that reporting unit. ASU 2017-04 will become effective
for the Company beginning January 1, 2020 and must be applied to any annual or interim goodwill impairment assessments after that date. Early adoption is permitted. The new guidance
was effective for the Company on January 1, 2020. The adoption did not have a material impact on the Company’s consolidated financial statements.
In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): “Simplifying the Accounting for
Income Taxes” (ASU 2019-12), which simplifies the accounting for income taxes. This guidance will be effective for us in the first quarter of 2021 on a prospective basis, and early adoption is permitted. The Company is currently
evaluating the impact of the new guidance on its consolidated financial statements.
NOTE 3:-
|
AVAILABLE-FOR-SALE MARKETABLE SECURITIES
|
The following is a summary of available-for-sale marketable securities:
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
|
Amortized cost
|
|
|
Gross unrealized gain
|
|
|
Gross unrealized
loss
|
|
|
Fair
value
|
|
|
Amortized cost
|
|
|
Gross
unrealized
gain
|
|
|
Gross unrealized
loss
|
|
|
Fair
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale - matures within one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Governmental debentures
|
|
$
|
449
|
|
|
$
|
1
|
|
|
$
|
-
|
|
|
$
|
450
|
|
|
$
|
1,799
|
|
|
$
|
-
|
|
|
$
|
(2
|
)
|
|
$
|
1,797
|
|
Corporate debentures
|
|
|
30,928
|
|
|
|
79
|
|
|
|
(8
|
)
|
|
|
30,999
|
|
|
|
37,808
|
|
|
|
6
|
|
|
|
(98
|
)
|
|
|
37,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,377
|
|
|
|
80
|
|
|
|
(8
|
)
|
|
|
31,449
|
|
|
|
39,607
|
|
|
|
6
|
|
|
|
(100
|
)
|
|
|
39,513
|
|
Available-for-sale - matures after one year through three years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Governmental debentures
|
|
|
855
|
|
|
|
1
|
|
|
|
-
|
|
|
|
856
|
|
|
|
476
|
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
472
|
|
Corporate debentures
|
|
|
23,653
|
|
|
|
197
|
|
|
|
(7
|
)
|
|
|
23,843
|
|
|
|
24,455
|
|
|
|
4
|
|
|
|
(253
|
)
|
|
|
24,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,508
|
|
|
|
198
|
|
|
|
(7
|
)
|
|
|
24,699
|
|
|
|
24,931
|
|
|
|
4
|
|
|
|
(257
|
)
|
|
|
24,678
|
|
Available-for-sale - matures after three years through five years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debentures
|
|
|
4,806
|
|
|
|
58
|
|
|
|
-
|
|
|
|
4,864
|
|
|
|
101
|
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
99
|
|
|
|
|
4,806
|
|
|
|
58
|
|
|
|
-
|
|
|
|
4,864
|
|
|
|
101
|
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
99
|
|
|
|
$
|
60,691
|
|
|
$
|
336
|
|
|
$
|
(15
|
)
|
|
$
|
61,012
|
|
|
$
|
64,639
|
|
|
$
|
10
|
|
|
$
|
(359
|
)
|
|
$
|
64,290
|
|
As of December 31, 2019, the Company had no investments with a significant unrealized losses for more than 12 months.
NOTE 4:-
|
FAIR VALUE MEASUREMENTS
|
In accordance with ASC No. 820, the Company measures its marketable securities and foreign currency derivative instruments at fair value. Cash equivalents and
available for sale marketable securities are classified within Level 1 or Level 2. This is because these assets are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs.
The earn-out liability related to the acquisitions of Optenet and Netonomy are classified within Level 3 because these liabilities are based on present value
calculations and an external valuation model whose inputs include market interest rates, estimated operational capitalization rates and volatilities. As of December 31, 2019 the fair value of the consideration was determined according
to discounted cash flow since the earn-out will be completely paid by the third quarter of 2020.
The Company's financial net assets measured at fair value on a recurring basis, including accrued interest components, consisted of the following types of instruments
as of December 31, 2019 and 2018, respectively:
|
|
As of December 31, 2019
|
|
|
|
Fair value measurements using input type
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale marketable securities
|
|
$
|
-
|
|
|
$
|
61,012
|
|
|
$
|
-
|
|
|
$
|
61,012
|
|
Foreign currency derivative contracts
|
|
|
-
|
|
|
|
(871
|
)
|
|
|
-
|
|
|
|
(871
|
)
|
Earn-out liability
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,100
|
)
|
|
|
(1,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial net assets
|
|
$
|
-
|
|
|
$
|
60,141
|
|
|
$
|
(1,100
|
)
|
|
$
|
59,041
|
|
|
|
As of December 31, 2018
|
|
|
|
Fair value measurements using input type
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale marketable securities
|
|
$
|
-
|
|
|
$
|
64,290
|
|
|
$
|
-
|
|
|
$
|
64,290
|
|
Foreign currency derivative contracts
|
|
|
-
|
|
|
|
(324
|
)
|
|
|
-
|
|
|
|
(324
|
)
|
Earn-out liability
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,051
|
)
|
|
|
(6,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial net assets
|
|
$
|
-
|
|
|
$
|
63,966
|
|
|
$
|
(6,051
|
)
|
|
$
|
57,915
|
|
Fair value measurements using significant unobservable inputs (Level 3):
Balance at January 1, 2019
|
|
$
|
6,051
|
|
|
|
|
|
|
Earn Out liability adjustments due to exchange rates
|
|
|
(113
|
)
|
Adjustment due to change in forecast and time value of earn-out consideration
|
|
|
(4,838
|
)
|
|
|
|
|
|
Balance at December 31, 2019
|
|
$
|
1,100
|
|
NOTE 5:-
|
DERIVATIVE INSTRUMENTS
|
The Company enters into hedge transactions with a major financial institution, using derivative instruments, primarily forward contracts and options to purchase and
sell foreign currencies, in order to reduce the net currency exposure associated with anticipated expenses (primarily salaries and related expenses that are designated as cash flow hedges), trade receivables and forecasted revenues
denominated in currencies other than U.S. dollar.
The Company currently hedges such future exposures for a maximum period of two years. However, the Company may choose not to hedge certain foreign currency exchange
exposures for a variety of reasons, including but not limited to immateriality, accounting considerations and the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a
portion of the financial impact resulting from movements in foreign currency exchange rates.
The Company records all derivatives on the consolidated balance sheets at fair value in accordance with ASC No. 820 at Level 2. Cash flow hedges are recorded in
other comprehensive income (loss) until the hedged item is recognized in earnings. The Company does not enter into derivative transactions for trading purposes. The net income (loss) recognized in "Financial income (expense), net"
during the years ended December 31, 2019, 2018 and 2017 was $534, $1,480 and $(1,801), respectively.
The Company had a net unrealized loss associated with cash flow hedges of $845 and $418 recorded in other comprehensive loss as of December 31, 2019 and 2018,
respectively. As of December 31, 2019 and 2018, the Company had outstanding hedge transactions in the net amount of $ 36,139 and $ 20,816, respectively.
The fair value of the outstanding foreign exchange contracts recorded by the Company on its consolidated balance sheets as of December 31, 2019 and 2018, as assets
and liabilities is as follows:
Foreign exchange forward and
|
|
|
|
December 31,
|
|
options contracts
|
|
Balance sheet
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Fair value of foreign exchange hedge transactions
|
|
Other receivables and prepaid expenses
|
|
$
|
158
|
|
|
$
|
56
|
|
Fair value of foreign exchange hedge transactions
|
|
Other payables and accrued expenses
|
|
|
(1,041
|
)
|
|
|
(474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
Other Comprehensive loss
|
|
$
|
(846
|
)
|
|
$
|
(418
|
)
|
Gain or loss on the derivative instruments, which partially offset the foreign currency impact from the underlying exposures, reclassified from other comprehensive
loss to operating expenses and cost of revenues for the years ended December 31, 2019, 2018 and 2017 were $ (96), $ 903 and $ (796), respectively.
NOTE 5:-
|
DERIVATIVE INSTRUMENTS (Cont.)
|
Non-designated hedges:
The Company also uses foreign currency forward contracts to mitigate variability in gains and losses generated from the re-measurement of certain monetary assets and
liabilities denominated in foreign currencies. These derivatives do not qualify for special hedge accounting treatment. These derivatives are carried at fair value with changes recorded in financial income, net. Changes in the fair value
of these derivatives are largely offset by the re-measurement of the underlying assets and liabilities. The derivatives have maturities of approximately twelve months. As of December 31, 2019 and 2018, the Company’s outstanding non-hedge
transactions were $ 15,741 and $ 16,023, respectively.
The fair value of the outstanding non-designated foreign exchange contracts recorded by the Company on its consolidated balance sheets as of December 31, 2019 and
2018, as assets and liabilities are as follows:
Foreign exchange forward and
|
|
|
|
December 31,
|
|
options contracts
|
|
Balance sheet
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Fair value of foreign exchange non-designated hedge transactions
|
|
Other receivables and prepaid expenses
|
|
$
|
12
|
|
|
$
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives non-designated as hedging instruments
|
|
|
|
|
12
|
|
|
|
94
|
|
NOTE 6:-
|
OTHER RECEIVABLES AND PREPAID EXPENSES
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
|
|
|
$
|
1,635
|
|
Government authorities
|
|
|
1,773
|
|
|
|
1,327
|
|
Short-term lease deposits
|
|
|
195
|
|
|
|
159
|
|
Foreign currency derivative contracts
|
|
|
170
|
|
|
|
150
|
|
Others
|
|
|
433
|
|
|
|
376
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,528
|
|
|
$
|
3,647
|
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
1,264
|
|
|
$
|
551
|
|
Finished goods
|
|
|
9,404
|
|
|
|
10,794
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,668
|
|
|
$
|
11,345
|
|
As of December 31, 2019 and 2018, the finished products line item above includes deferral of the cost of goods sold for which revenue was not yet recognized in the
amount of approximately $ 1,335 and $ 1,336, respectively.
NOTE 8:- PROPERTY AND
EQUIPMENT, NET
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cost:
|
|
|
|
|
|
|
Lab equipment
|
|
$
|
17,548
|
|
|
$
|
16,038
|
|
Computers and peripheral equipment
|
|
|
22,374
|
|
|
|
20,680
|
|
Office furniture and equipment
|
|
|
1,356
|
|
|
|
1,197
|
|
Leasehold improvements
|
|
|
2,557
|
|
|
|
2,212
|
|
Lease equipment
|
|
|
930
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,765
|
|
|
|
40,127
|
|
Accumulated depreciation:
|
|
|
|
|
|
|
|
|
Lab equipment
|
|
|
14,548
|
|
|
|
13,273
|
|
Computers and peripheral equipment
|
|
|
20,145
|
|
|
|
19,039
|
|
Office furniture and equipment
|
|
|
659
|
|
|
|
598
|
|
Leasehold improvements
|
|
|
1,162
|
|
|
|
968
|
|
Lease equipment
|
|
|
116
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,630
|
|
|
|
33,878
|
|
|
|
|
|
|
|
|
|
|
Depreciated cost
|
|
$
|
8,135
|
|
|
$
|
6,249
|
|
Depreciation expense for the years ended December 31, 2019, 2018 and 2017 was $ 2,752, $ 2,203 and $ 2,191, respectively.
NOTE 9:-
|
INTANGIBLE ASSETS, NET
|
|
a.
|
The following table shows the Company's intangible assets for the periods presented:
|
|
|
Weighted Average
Useful life
|
|
|
December 31,
|
|
|
|
(Years)
|
|
|
2019
|
|
|
2018
|
|
Original Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
|
3.8
|
|
|
$
|
9,111
|
|
|
$
|
9,111
|
|
Backlog
|
|
|
2.8
|
|
|
|
1,877
|
|
|
|
1,877
|
|
Customer relationships
|
|
|
4.4
|
|
|
|
3,592
|
|
|
|
3,592
|
|
IP R&D
|
|
|
6
|
|
|
|
3,659
|
|
|
|
3,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,239
|
|
|
$
|
18,239
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
|
|
|
|
$
|
9,111
|
|
|
$
|
8,563
|
|
Backlog
|
|
|
|
|
|
|
1,877
|
|
|
|
1,877
|
|
Customer relationships
|
|
|
|
|
|
|
3,592
|
|
|
|
2,838
|
|
IP R&D
|
|
|
|
|
|
|
305
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,885
|
|
|
$
|
13,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost
|
|
|
|
|
|
$
|
3,354
|
|
|
$
|
4,961
|
|
|
b.
|
Amortization expense for the years ended December 31, 2019, 2018 and 2017 were $ 1,607, $ 1,631 and $ 1,477, respectively.
|
|
c.
|
Estimated amortization expense for the years ending:
|
Year ending December 31,
|
|
|
|
|
|
|
|
2020
|
|
|
610
|
|
2021
|
|
|
610
|
|
2022
|
|
|
610
|
|
Thereafter
|
|
|
1,524
|
|
|
|
|
|
|
Total
|
|
|
3,354
|
|
NOTE 10:-
|
OTHER PAYABLES AND ACCRUED EXPENSES
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Advances from customers
|
|
$
|
253
|
|
|
$
|
5,700
|
|
Accrued expenses
|
|
|
3,887
|
|
|
|
3,346
|
|
Government authorities
|
|
|
3,061
|
|
|
|
3,356
|
|
Holdback and contingent earnout
|
|
|
1,575
|
|
|
|
484
|
|
Foreign currency derivative contracts
|
|
|
1,041
|
|
|
|
474
|
|
Provision for returns
|
|
|
163
|
|
|
|
191
|
|
Others
|
|
|
234
|
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,214
|
|
|
$
|
13,695
|
|
NOTE 11:-
|
COMMITMENTS AND CONTINGENT LIABILITIES
|
a. Lease commitments:
The Group's facilities are leased under several lease agreements for periods ending up to 2023, with options to extend the leases ending up to 2025.
In addition, the Company has various operating lease agreements with respect to motor vehicles.
Lease expenses of office rent and vehicles for the years ended December 31, 2019, 2018 and 2017 were approximately $3,129, $2,934 and $3,126, respectively.
Expenses for short- term leases in 2019 were $ 278.
The following table represents the weighted-average remaining lease term and discount rate:
|
Year ended
December 31, 2019
|
|
|
Weighted average remaining lease term
|
2.52 years
|
Weighted average discount rate
|
|
The discount rate was determined based on the estimated collateralized borrowing rate of the Company, adjusted to the specific lease term and location of each lease.
NOTE 11:-
|
COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|
Maturities of operating lease liabilities were as follows:
Year ending December 31,
|
|
|
|
2020
|
|
$
|
3,170
|
|
2021
|
|
|
2,641
|
|
2022
|
|
|
1,019
|
|
2023
|
|
|
211
|
|
2024 and thereafter
|
|
|
78
|
|
|
|
|
|
|
Total lease payments
|
|
$
|
7,119
|
|
|
|
|
|
|
Less - imputed interest
|
|
$
|
(148
|
)
|
|
|
|
|
|
Present value of lease liabilities
|
|
$
|
6,971
|
|
As of December 31, 2019 maturities of operating lease liabilities which were not recognized under ASU No. 2016-02, Leases (ASC 842) were $ 225.
b. Major subcontractor:
The Company currently depends on one subcontractor to manufacture and provide certain hardware, warranty and support components for its traffic management systems.
If the subcontractor experiences delays, disruptions, quality control problems or a loss in capacity, shipments of products may be delayed and the Company's ability to deliver such products could be materially adversely affected. In the
event that the Company terminates its business connection with the subcontractor, it will have to compensate the subcontractor for certain inventory costs, as specified in the agreement with the subcontractor.
As of December 31, 2019, the Company has provided bank guarantees in respect of prepayments from customers in an
aggregate amount of approximately $ 26 million, in addition to bank guarantees in favor of leases agreements in an aggregate amount of approximately $ 501 .
d. Litigations:
On February 18, 2016, a former employee filed a claim against the Company alleging that he is entitled to compensation for unlawful dismissal by the Company. In
September 2019, the parties filed a request to approve a settlement agreement which the Court approved in October 2019.
NOTE 12:-
|
SHAREHOLDERS' EQUITY
|
As of December 31, 2019, the Company's authorized share capital consists of NIS 20,000,000 divided into 200,000,000 Ordinary Shares, par value NIS 0.1 per share.
Ordinary Shares confer on their holders the right to receive notice to participate and vote in general meetings of the Company, the right to a share in the excess of assets upon liquidation of the Company, and the right to receive
dividends if declared.
NOTE 12:-
|
SHAREHOLDERS' EQUITY (Cont.)
|
A summary of the Company's stock option activity, pertaining to its option plans for employees and related information is as follows:
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
Number
of shares upon exercise
|
|
|
Weighted average exercise price
|
|
|
Number
of shares upon exercise
|
|
|
Weighted average exercise price
|
|
|
Number
of shares upon exercise
|
|
|
Weighted average exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
1,736,143
|
|
|
$
|
7.26
|
|
|
|
2,189,297
|
|
|
$
|
7.63
|
|
|
|
1,959,014
|
|
|
$
|
8.24
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
62,200
|
|
|
$
|
5.91
|
|
|
|
676,550
|
|
|
$
|
4.93
|
|
Forfeited
|
|
|
(59,107
|
)
|
|
$
|
10.05
|
|
|
|
(414,617
|
)
|
|
$
|
9.79
|
|
|
|
(346,750
|
)
|
|
$
|
7.01
|
|
Exercised
|
|
|
(223,295
|
)
|
|
$
|
4.36
|
|
|
|
(100,737
|
)
|
|
$
|
4.07
|
|
|
|
(99,517
|
)
|
|
$
|
3.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
1,453,741
|
|
|
$
|
7.59
|
|
|
|
1,736,143
|
|
|
$
|
7.26
|
|
|
|
2,189,297
|
|
|
$
|
7.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
1,240,005
|
|
|
$
|
8.01
|
|
|
|
1,281,665
|
|
|
$
|
8.02
|
|
|
|
1,274,649
|
|
|
$
|
9.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
|
|
|
1,442,990
|
|
|
$
|
7.61
|
|
|
|
1,464,802
|
|
|
$
|
7.65
|
|
|
|
1,607,782
|
|
|
$
|
8.44
|
|
The aggregate intrinsic value represents the total intrinsic value (the difference between the Company's closing stock price on the last trading day of the fiscal
years 2019, 2018 and 2017 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders if all option holders exercised their options on December 31, 2019, 2018 and 2017,
respectively. This amount may change based on the fair market value of the Company's stock. The total intrinsic value of options outstanding at December 31, 2019, 2018 and 2017, were $ 3,510, $ 1,518 and $ 1,063, respectively. The total
intrinsic value of exercisable options at December 31, 2019, 2018 and 2017, were approximately $ 2,791, $ 1,058 and $ 684, respectively. The total intrinsic value of options vested and expected to vest at December 31, 2019, 2018 and 2017,
were approximately $ 3,399, $ 1,246 and $ 819, respectively.
The total intrinsic value (the difference between the Company's closing stock price on the exercise date and the exercise price) of options exercised during the
years ended December 31, 2019, 2018 and 2017 were approximately $ 769, $ 201 and $ 176, respectively. The weighted-average grant-date fair value of the options granted during the years ended December 31, 2018 and 2017 were $ 2.89 and $
2.36, respectively. No options were granted during 2019. The number of options vested during the year ended December 31, 2019 was 226,317. The weighted-average remaining contractual life of the outstanding options as of December 31, 2019
is 3.45 years. The weighted-average remaining contractual life of exercisable options as of December 31, 2019 is 3.25 years.
NOTE 12:-
|
SHAREHOLDERS' EQUITY (Cont.)
|
The options outstanding as of December 31, 2019, have been classified by exercise price, as follows:
Exercise price
|
|
|
Shares upon exercise of options outstanding as of December 31, 2019
|
|
|
Weighted average remaining contractual life
|
|
|
Shares upon exercise of options exercisable as of December 31, 2019
|
|
|
|
|
|
|
|
Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23.31-27.58
|
|
|
|
64,500
|
|
|
|
2.63
|
|
|
|
64,500
|
|
$
|
15.2-17.07
|
|
|
|
49,936
|
|
|
|
1.97
|
|
|
|
49,936
|
|
$
|
10.0 -14.68
|
|
|
|
173,250
|
|
|
|
3.92
|
|
|
|
173,250
|
|
$
|
5.01-9.7
|
|
|
|
508,083
|
|
|
|
2.84
|
|
|
|
435,487
|
|
$
|
0.1-4.95
|
|
|
|
657,972
|
|
|
|
4.00
|
|
|
|
516,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,453,741
|
|
|
|
|
|
|
|
1,240,005
|
|
The following provides a summary of the restricted stock unit activity for the Company for the two years ended December 31, 2019:
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
Number
of shares upon exercise
|
|
|
Weighted average share price
|
|
|
Number
of shares upon exercise
|
|
|
Weighted average share price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
1,252,031
|
|
|
$
|
5.45
|
|
|
|
713,090
|
|
|
$
|
6.04
|
|
Granted
|
|
|
1,001,000
|
|
|
$
|
7.53
|
|
|
|
996,200
|
|
|
$
|
5.54
|
|
Vested
|
|
|
(401,904
|
)
|
|
$
|
7.53
|
|
|
|
(312,201
|
)
|
|
$
|
5.72
|
|
Forfeited
|
|
|
(199,067
|
)
|
|
$
|
7.61
|
|
|
|
(145,058
|
)
|
|
$
|
5.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at end of year
|
|
|
1,652,060
|
|
|
$
|
6.53
|
|
|
|
1,252,031
|
|
|
$
|
5.45
|
|
As of December 31, 2019, $ 402 and $ 8,001 unrecognized compensation cost related to stock options and RSUs respectively is expected to be recognized over a weighted
average vesting period of 3.01 years.
Under the terms of the above option plans, options may be granted to employees, officers, directors and various service providers of the Company and its
subsidiaries. The options vest over a four-year period, subject to the continued employment of the employee. The options generally expire no later than ten years from the date of the grant. The exercise price of the options at the date of
grant under the plans may not be less than the nominal value of the shares into which such options are exercised, any options, which are forfeited or cancelled before expiration, become available for future grants. As of December 31,
2019, 34,652 Ordinary shares are available for future issuance under the option plans.
In addition to granting stock options, the Company granted 1,001,000 and 996,200 RSUs in 2019 and 2018, respectively under the 2016 option plan. RSUs vest over a
four-year period subject to the continued employment of the employee. RSUs that are cancelled or forfeited become available for future grants.
NOTE 13:-
|
TAXES ON INCOME
|
The Israeli corporate income tax rate was 23% in 2019, 23% in 2018 and 24% in 2017.
In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget
Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017 and to 23% effective from January 1, 2018
b. Foreign Exchange Regulations:
Commencing in taxable year 2012, the Company has elected to measure its taxable income and file its tax return under the Israeli Income Tax Regulations (Principles
Regarding the Management of Books of Account of Foreign Invested Companies and Certain Partnerships and the Determination of Their Taxable Income) 1986 ("Foreign Exchange Regulations"). Under the Foreign Exchange Regulations, an Israeli
company must calculate its tax liability in U.S. Dollars according to certain rules. The tax liability, as calculated in U.S. Dollars is translated into NIS according to the exchange rate as of December 31st of each year.
|
c.
|
Tax benefits under Israel's law for the Encouragement of Capital Investments, 1959 ("the Law"):
|
In 1998, the production facilities of the Company related to its computational technologies were granted the status of an "Approved Enterprise" under the Law. In
2004, an expansion program was granted the status of "Approved Enterprise". According to the provisions of the Law, the Company has elected the alternative track of benefits and has waived Government grants in return for tax benefits. The
period of tax benefits, detailed above, is limited to the earlier of 12 years from the commencement of production, or 14 years from the approval date.
According to the provisions of the Law under the alternative track, the Company's income may be tax-exempt for a period of two years commencing with the year it
first earns taxable income, and subject to corporate taxes at the reduced rate of 10% to 25%, for an additional period of five to eight years depending upon the level of foreign ownership of the Company.
NOTE 13:-
|
TAXES ON INCOME (Cont.)
|
The Law was significantly amended effective April 1, 2005 ("the 2005 - Amendment"). The 2005 - Amendment includes revisions to the criteria for investments
qualified to receive tax benefits as a Beneficiary Enterprise and among other things, simplifies the approval process. The Amendment applies to new investment programs. Therefore, investment programs commencing after December 31, 2004, do
not affect the approved programs of the Company.
In addition, the Law provides that terms and benefits included in any letter of approval already granted will remain subject to the provisions of the Law as they
were on the date of such approval. Therefore, the Company's existing Approved Enterprise will generally not be subject to the provisions of the 2005 - Amendment. The Company elected 2006 and 2009 as "year of election" under the 2005 -
Amendment.
The entitlement to the above benefits is contingent upon the fulfillment of the conditions stipulated in the Law, regulations published thereunder and the criteria
set forth in the specific letters of approval. In the event of failure to comply with these conditions, the benefits may be canceled and the Company may be required to refund the amount of the benefits, in whole or in part, including
interest and linked to changes in the Israeli CPI. As of December 31, 2019, management believes that the Company meets the aforementioned conditions.
If the Company pays a dividend out of exempt income derived from the Approved and Beneficiary Enterprise, it will be subject to corporate tax in respect of the gross
amount distributed, including any taxes thereon, at the rate which would have been applicable had it not enjoyed the alternative benefits, generally 10%-25%, depending on the percentage of the Company's Ordinary shares held by foreign
shareholders. The dividend recipient is subject to withholding tax at the rate of 15% applicable to dividends from approved enterprises, if the dividend is distributed during the tax exemption period or within twelve years thereafter. The Company currently has no plans to distribute dividends and intends to retain future earnings to finance the development of its business.
As of December 31, 2019, there is no income earned by the Company Israel’s “Approved Enterprises” and “Beneficiary Enterprise”.
Income from sources other than the "Approved and Beneficiary Enterprise" during the benefit period will be subject to tax at the regular corporate tax rate.
As of January 1, 2011, new legislation amending the Law came into effect (the "2011 Amendment"). The 2011
Amendment introduced a new status of "Preferred Company" and "Preferred Enterprise", replacing the then existing status of "Beneficiary Company" and "Beneficiary Enterprise". Similarly to "Beneficiary Company", a Preferred Company is an
industrial company owning a Preferred Enterprise which meets certain conditions (including a minimum threshold of 25% export). However, under this legislation the requirement for a minimum investment in productive assets was cancelled.
NOTE 13:-
|
TAXES ON INCOME (Cont.)
|
Under the 2011 Amendment, a uniform corporate tax rate will apply to all qualifying income of the Preferred Company, as opposed to the former law, which was limited
to income from the Approved Enterprises and Beneficiary Enterprise during the benefits period. The uniform corporate tax rate was 9% in areas in Israel designated as Development Zone A and 16% elsewhere in Israel during 2016 and 2017.
A dividend distributed from income which is attributed to a Preferred Enterprise/Special Preferred Enterprise will be subject to withholding tax at source at the
following rates: (i) Israeli resident corporation – 0%, (ii) Israeli resident individual – 20% as of 2014 and thereafter (iii) non-Israeli resident - 20% as of 2014 and thereafter subject to a reduced tax rate under the provisions of an
applicable double tax treaty.
In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which includes
Amendment 73 to the Law for the Encouragement of Capital Investments ("the 2016 - Amendment") was published. According to the 2016 - Amendment, a preferred enterprise located in development area A will be subject to a tax rate of 7.5%
instead of 9% effective from January 1, 2017 and thereafter (the tax rate applicable to preferred enterprises located in other areas remains at 16%).
The December 2016 amendment also prescribes special tax tracks for technological enterprises, the new tax tracks under the amendment are as follows:
Technological preferred enterprise - an enterprise whose total consolidated revenues (parent company and all subsidiaries) is less than NIS 10 billion. A
technological preferred enterprise, as defined in the Law, which is located in the center of Israel will be subject to tax at a rate of 12% on profits deriving from intellectual property (in development area A - a tax rate of 7.5%).
Special technological preferred enterprise - an enterprise whose total consolidated revenues (parent company and all subsidiaries) exceeds NIS 10 billion. Such
enterprise will be subject to tax at a rate of 6% on profits deriving from intellectual property, regardless of the enterprise’s geographical location.
Under the transition provisions of the 2016 Amendment, the Company may decide to irrevocably implement the new law while waiving benefits provided under the current
law or to remain subject to the current law.
|
d.
|
Tax benefits under the law for the Encouragement of Industry (Taxes), 1969 (the "Encouragement Law"):
|
The Encouragement Law, provides several tax benefits for industrial companies. An industrial company is defined as a company resident in Israel, at least 90% of the
income of which in a given tax year exclusive of income from specified Government loans, capital gains, interest and dividends, is derived from an industrial enterprise owned by it. An industrial enterprise is defined as an enterprise
whose major activity in a given tax year is industrial production activity.
NOTE 13:-
|
TAXES ON INCOME (Cont.)
|
Management believes that the Company is currently qualified as an "industrial company" under the Encouragement Law and as such, enjoys tax benefits, including: (1)
deduction of purchase of know-how and patents and/or right to use a patent over an eight-year period; (2) the right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli industrial
companies and an industrial holding company; (3) accelerated depreciation rates on equipment and buildings; and (4) expenses related to a public offering on the Tel-Aviv Stock Exchange and on recognized stock markets outside of Israel,
are deductible in equal amounts over three years.
Eligibility for benefits under the Encouragement Law is not subject to receipt of prior approval from any governmental authority. No assurance can be given that the
Israeli tax authorities will agree that the Company qualifies, or, if the Company qualifies, then the Company will continue to qualify as an industrial company or that the benefits described above will be available to the Company in the
future.
|
e.
|
Pre-tax income (loss) is comprised as follows:
|
|
|
Year ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
(8,934
|
)
|
|
$
|
(9,877
|
)
|
|
$
|
(17,539
|
)
|
Foreign
|
|
|
1,916
|
|
|
|
1,890
|
|
|
|
1,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(7,018
|
)
|
|
$
|
(7,987
|
)
|
|
$
|
(16,508
|
)
|
NOTE 13:-
|
TAXES ON INCOME (Cont.)
|
|
f.
|
A reconciliation of the theoretical tax expenses, assuming all income is taxed at the statutory tax rate applicable to the income of the Company and the actual tax expenses is as follows:
|
|
|
Year ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes on income
|
|
$
|
(7,018
|
)
|
|
$
|
(7,987
|
)
|
|
$
|
(16,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theoretical tax income computed at the Israeli statutory tax rate
(23%, 23% and 24% for the years 2019, 2018 and 2017, respectively)
|
|
$
|
(1,614
|
)
|
|
$
|
(1,837
|
)
|
|
$
|
(3,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in valuation allowance
|
|
|
951
|
|
|
|
1,189
|
|
|
|
8,946
|
|
Increase in losses and temporary differences due to change in Israeli
corporate and “Approved Enterprise" tax
|
|
|
-
|
|
|
|
659
|
|
|
|
(5,376
|
)
|
Previous years
|
|
|
|
|
|
|
|
|
|
|
|
|
Write off of prepaid and withholding taxes
|
|
|
1,536
|
|
|
|
1,828
|
|
|
|
909
|
|
Foreign tax rates differences related to subsidiaries
|
|
|
44
|
|
|
|
50
|
|
|
|
(48
|
)
|
Non-deductible expenses and other
|
|
|
327
|
|
|
|
65
|
|
|
|
684
|
|
Non-deductible share-based compensation expense
|
|
|
397
|
|
|
|
474
|
|
|
|
411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual tax expense
|
|
$
|
1,641
|
|
|
$
|
2,428
|
|
|
$
|
1,564
|
|
|
g.
|
Income tax expense is comprised as follows:
|
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Current taxes
|
|
$
|
341
|
|
|
$
|
580
|
|
|
$
|
689
|
|
Deferred taxes expense (benefit)
|
|
|
(236
|
)
|
|
|
20
|
|
|
|
(34
|
)
|
Write off of prepaid and withholding taxes
|
|
|
1,536
|
|
|
|
1,828
|
|
|
|
909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,641
|
|
|
$
|
2,428
|
|
|
$
|
1,564
|
|