| SIGNIFICANT ACCOUNTING POLICIES | NOTE
2: SIGNIFICANT ACCOUNTING POLICIES The
consolidated financial statements are prepared in accordance with the United States generally accepted accounting principles ("U.S.
GAAP").
a. Use
of estimates: The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. The most significant assumptions are used in determining
values of goodwill and other identifiable intangible assets, revenues and the net realizable value of inventory. Actual results
could differ from those estimates.
b. Financial
statements in U.S. dollars: A
substantial portion of the Company's revenues is denominated in U.S. dollars ("dollars"). The Company's management believes
that the dollar is the primary currency of the economic environment in which the Company operates. Thus, the functional and reporting
currency of the Company is the dollar. Accordingly, monetary accounts maintained in currencies other than the dollar are re-measured
into dollars in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification
("ASC") 830, Foreign Currency Matters
c. Principles
of consolidation: The
consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances,
including profits from intercompany sales not yet realized outside the Company, have been eliminated upon consolidation.
d. Cash
equivalents: Cash
equivalents are short-term highly liquid investments with original maturities of less than three months from date of purchase.
e. Restricted
bank deposits: Restricted
bank deposits are deposits related to forward contracts with banks. Restricted deposits are presented at their cost.
f. Inventories: The
inventory is valued at the lower of cost or net realizable value. Cost is determined using the moving average cost method. In
2019 and 2018, inventory write-offs amounted to $91 and $52, respectively. Inventory
write-offs and write-downs are provided to cover risks arising from slow-moving items or technological obsolescence.
g. Property
and equipment, net: Property
and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by using the straight-line method
over the estimated useful lives of the assets, at the following annual rates:
%
Computers
and software 20 - 33 (Mainly
33)
Office
furniture and equipment 6 - 15 (Mainly
6)
Leasehold
improvements Over
the shorter of the period of
the lease or the life of the assets
Motor
vehicles 15
h. Business
combination: The
consolidated financial statements include the operations of an acquired business from the date of the acquisition's consummation.
Acquired businesses are accounted for using the acquisition method of accounting in accordance with ASC 805, " Business
Combinations Transaction
costs are expensed as incurred. Any excess of the consideration transferred over the assigned values of the net assets acquired
is recorded as goodwill. Contingent consideration incurred in a business combination is included as part of the acquisition price
and recorded at a probability weighted assessment of its fair value as of the acquisition date. The fair value of the contingent
consideration is re-measured at each reporting period, with any adjustments in fair value recognized in earnings.
i. Impairment
of long-lived assets and intangible assets subject to amortization: The
Company's long-lived assets are reviewed for impairment in accordance with ASC 360-10, Accounting for the Impairment or Disposal
of Long-Lived Asset Recoverability
of intangible assets is measured by a comparison of the carrying amount of the asset to the undiscounted future cash flows expected
to be generated by the asset. If intangible assets are considered to be impaired, the amount of any impairment is measured as
the difference between the carrying value and the fair value of the impaired assets. Intangible
assets with finite lives are amortized using the straight-line basis over their useful lives, to reflect the pattern in which
the economic benefits of the intangible assets are consumed or otherwise used up. As of December 31, 2019 the remaining intangible
assets were comprised mainly of costumer relationship. During
the year ended December 31, 2019 the Company recognized an impairment loss related to intangible assets in an amount of $356.
For further information see Note 8 below. For
each of the two years ended on December 31, 2018 and 2017, no impairment losses were identified.
j. Goodwill: Goodwill
represents excess of the costs over the net assets of businesses acquired. Under ASC 350, Intangibles - Goodwill and Other
The
Company performs its annual impairment analysis of goodwill as of December 31 of each year, or more often if indicators of impairment
are present. The provisions of ASC 350 require that the impairment test be performed on goodwill at the level of the reporting
units As required by ASC 350, the Company chooses either to perform a qualitative assessment whether the two-step goodwill impairment
test is necessary or proceeds directly to the two-step goodwill impairment test. Such determination is made for each reporting
unit on a stand-alone basis. The qualitative assessment includes various factors such as macroeconomic conditions, industry and
market considerations, cost factors, overall financial performance, earnings multiples, gross margin and cash flows from operating
activities and other relevant factors. When the Company chooses to perform a qualitative assessment and determines that it is
more likely than not (more than 50 percent likelihood) that the fair value of the reporting unit is less than its carrying value,
then the Company proceeds to the two-step goodwill impairment test. If the Company determines otherwise, no further evaluation
is necessary. When
the Company decides or is required to perform the two-step goodwill impairment test, in the first step, or "Step 1",
the Company compares the fair value of each reporting unit to its carrying value. If the fair value exceeds the carrying value
of the net assets, goodwill is considered not impaired, and the Company is not required to perform further testing. If the carrying
value of the net assets exceeds the fair value, then the Company must perform the second step, or "Step 2", of the impairment
test in order to determine the implied fair value of goodwill. To determine the fair value used in Step 1, the Company uses discounted
cash flows. If and when the Company is required to perform a Step 2 analysis, determining the fair value of its net assets and
its off-balance sheet intangibles would require it to make judgments that involve the use of significant estimates and assumptions. The
Company operates in two operating-based segments: the Intelligent Robotics and RFID Division and Supply Chain Solutions. The Company's
goodwill is related to the Intelligent Robotics and RFID Division segment, which represents a reporting unit as a whole. The
Company determined the fair value of each of the reporting units using the Income Approach, which utilizes a discounted cash flow
model, as it believes that this approach best approximates each of the reporting units fair value at this time. The impairment
test was based on a valuation performed by management with the assistance of a third party appraiser. Judgments and assumptions
related to revenue, operating income, future short-term and long-term growth rates, weighted average cost of capital, interest,
capital expenditures, cash flows, and market conditions are inherent in developing the discounted cash flow model. The most significant
assumptions used for the Income Approach for the 2019 impairment test were five years of projected net cash flows, WACC of 15%
and a long-term growth rate of 2% for two reporting units. The Company considered historical rates and current market conditions
when determining the discount and growth rates to use in its analyses. If these estimates or their related assumptions change
in the future, the Company may be required to record additional impairment charges for its remaining balance of goodwill. The
aggregate fair value of the reporting units tested for impairment depends on various factors, some of which are qualitative and
involve management judgment, including stable backlog coverage and experience in meeting operating cash flow targets. During
the year ended December 31, 2019 the Company recognized an impairment loss of $614 related to its Intelligent Robotics and RFID
Division segment. For further information see Note 8 below. For
each of the two years ended on December 31, 2018 and 2017, no impairment losses were identified.
k. Severance
pay: The
Company's liability for severance pay for its Israeli employees is calculated pursuant to the Israeli Severance Pay Law - 1963
(the "Israeli Severance Pay Law"), based on the most recent salary of the employees multiplied by the number of years
of employment as of the balance sheet date. Employees employed for a period of more than one year are entitled to one month's
salary for each year of employment or a portion thereof. The Company's liability for its Israeli employees is mostly covered by
insurance or pension policies designed solely for distributing severance pay. Most
of the Company's employees are subject to Section 14 of the Israeli Severance Pay Law. The Company's contributions towards severance
pay, for Israeli employees subject to this section, have replaced its severance obligation. Upon contribution of the full amount
of the employee's monthly salary for each year of service, no additional calculations are conducted between the parties regarding
the matter of severance pay and no additional payments are required to be made by the Company to the employee in respect of severance
pay. Further, the related obligation and amounts deposited on behalf of the employee for such obligation are not stated on the
balance sheet, as the Company is legally released from the obligation to employees once the deposit amounts have been paid. Severance
expenses for years 2019, 2018 and 2017 amounted to $315, $ 210 and $ 451, respectively.
l. Revenue
recognition: The
Company derives its revenues mainly from the sale of products and supporting services. In
accordance with ASC Topic 605 "Revenue Recognition", until December 31, 2017 (prior to the adoption of ASC Topic 606)
the Company recognized revenues from sale of products when the following fundamental criteria were met: (i) persuasive evidence
of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the price to the customer is fixed
or determinable and (iv) collection of the resulting receivable is reasonably assured. Revenues
from service contracts were recognized ratably over the service period. The
Company applied the provisions of ASC Topic 605-25, "Revenue Recognition - Multiple-Element Arrangements", as amended.
ASC Topic 605-25 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products
and services. For such arrangements, each element of the contract was accounted for as a separate unit when it provided the customer
value on a stand-alone basis. The
Company followed the guidance in ASC 605-35, "Revenue Recognition - Construction-Type and Production-Type Contracts" ("ASC 605-35"),
with respect to revenues from customized software solutions, whereby the Company applied the Completed contract method, since
the Company was unable to obtain reasonable dependable estimates of the total effort required for completion. Under the completed
contract method, all revenue and related costs of revenue were deferred and recognized upon completion. Provisions for estimated
losses on contracts in process were recognized in the period such losses were determined. Deferred
revenues included unearned amounts received from customers (mostly for service contracts and advances from customers) but not
yet recognized as revenues. Deferred revenues from service contracts were recognized over the period of the contract and advances
were recognized once the delivery of the products is done. Revenue
recognition accounting policy applied from January 1, 2018 (following the adoption of ASC Topic 606): On
January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers In
accordance with ASC 606, The Company determines revenue recognition through the following five steps:
● Identification
of the contract, or contracts, with a customer;
● Identification
of the performance obligations in the contract;
● Determination
of the transaction price;
● Allocation
of the transaction price to the performance obligations in the contract; and
● Recognition
of revenue when, or as, the Company satisfies a performance obligation. A
contract with a customer exists when all of the following criteria are met: the parties to the contract have approved it (in writing,
orally, or in accordance with other customary business practices) and are committed to perform their respective obligations, the
Company can identify each party's rights regarding the distinct goods or services to be transferred ("performance
obligations"), the Company can determine the transaction price for the goods or services to be transferred, the contract
has commercial substance and it is probable that the Company will collect substantially all of the consideration to which it will
be entitled in exchange for the goods or services that will be transferred to the customer. The
transaction price represents the amount of consideration to which the Company expects to be entitled in exchange for transferring
promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts,
variable amounts, or both. Variable consideration is included in the transaction price only if it is not considered constrained
(i.e. it is considered probable that a significant reversal in the amount of cumulative revenue recognized will not occur). Revenue
is recognized when, or as, the Company satisfies a performance obligation by transferring a promised good or service to a customer.
A product is transferred when, or as, the customer obtains control of that product, and a service is considered transferred
as the services are received and used by the customers. Revenues
are recorded in the amount of consideration to which the Company expects to be entitled in exchange for performance obligations
upon transfer of control to the customer. If a contract contains a single performance obligation, the entire transaction price
is allocated to the single performance obligation. Contracts that contain multiple performance obligations such as different products
or products and services the Company performs an allocation of the transaction price to each performance obligation based on a
relative standalone selling price basis. The
Company records revenues net of any value added or sales tax. In
accordance with ASC 606, the Company's revenues are recognized as follows:
1. The
Company generates its revenues primarily from the sale of products such as electro mechanical
components and Automatic Identification Data Capture hardware manufactured by third parties,
through a direct sales to its customers. Revenues from sales of products are recognized
at the point of time when the control of the product is passed on to the customer, mostly
upon delivery to the customer, either at the Company premises by delivery to the customer
carrier or upon delivery to the customer premises, as applicable to each contract.
2. Revenues
from service contracts are recognized over the contract's period (for time-based
services) or based on the amount of work performed (for on-site inventory count and similar
services). Renewals of service support contracts create new performance obligations that
are satisfied over the term with the revenues recognized ratably over the period.
3. For
arrangements that involve the delivery or performance of multiple products or products
sold with service contracts, the Company analyzes whether the goods or services that
were promised to the customer are distinct. A good or service promised to a customer
is considered 'distinct' if both of the following criteria are met: 1. The
customer can benefit from the goods or service, either on its own (i.e. without any professional
services, updates or technical support) or together with other resources that are readily
available to the customer; and, 2. The Company's promise to transfer the goods
or service to the customer is separately identifiable from other promises in the contract. Revenues
from service contracts sold to customers within a single contractually binding arrangement together with products, were determined
to be distinct and therefore, are accounted for revenue recognition purposes, as a separate performance obligation. Accordingly,
the amount attributed to the service contract is recognized over time, on a straight-line basis over the contract's period,
as the services are mostly refer to time-based support services. Revenues
from operating services and parts and product sales are recorded upon providing the service or delivery of the products and parts
and when collectability is reasonably assured. Revenues from robotics and automation projects are recognized using the percentage-of-completion
method. When the Company is unable to recognize Revenues according to this method, the Revenues are recognized upon Completion
of the projects. Revenues
are recognized based on the percentage relationship that incurred costs bear to total estimated costs. Costs include direct material,
labor, and indirect costs. Selling, marketing, general, and administrative costs are charged to expense as incurred. Provisions
for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance,
job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements,
may result in revisions to costs and revenues, and are recognized in the period in which the revisions are determined. In
specific instances where there is a lack of dependable estimates or inherent risks that may cause the forecast to be doubtful,
then the completed-contract method is followed. Revenue is recognized when the contract is substantially complete and when collectability
is reasonably assured. Costs that are closely associated with the project are deferred as contract costs and recognized similarly
to the associated revenues.
4. Deferred
revenues include unearned amounts received from customers (mostly for service contracts
and advances from customers) but not yet recognized as revenues. Deferred revenues from
service contracts are recognized over the period of the contract and advances are recognized
once the delivery of the products is done. Deferred revenues include advanced payments
from customers in the amount of $144 as of December 31, 2019. This amount is expected
to be recognized during 2020, once the delivery of the products is done. In addition,
deferred revenues include unearned amounts from service contracts, which are mostly for
a period of three to five years, and the Company recognizes the revenues over the contract's
period. As of December 31, 2019, the deferred revenues from service contracts amounted
to $717. This amount will be mostly recognized in the years 2020 until 2022. The deferred
revenues also include amounts related to software projects in the amount of $188.
m. Income
taxes: The
Company and its subsidiaries account for income taxes in accordance with ASC 740, "Income Taxes" ("ASC 740").
ASC 740 prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based
on the differences between the financial reporting and the 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 and its subsidiaries provide
a valuation allowance, if necessary, to reduce deferred tax assets to the amounts that are more likely than not to be realized.
Interest expense and potential penalties related to income taxes are included in the tax expense line of the Company's Consolidated
Statements of Operations. Following
the initial application of ASU 2015-17, which became effective on January 1, 2017, deferred tax balances are presented as non-current
amounts. The
Company implements a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with ASC
740. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates
it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being
realized upon ultimate settlement.
n. Concentrations
of credit risk and allowance for doubtful accounts: Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents,
bank deposits, trade receivables, other accounts receivable and foreign currency derivative contracts. The
trade receivables of the Company are derived from sales to customers located primarily in Israel, the Far East, Europe and America.
The Company generally does not require collateral however a significant part of the Company's customers outside of Israel are
insured against customer nonpayment, through the Israeli Credit Insurance Company Ltd. In
certain circumstances, the Company may require letters of credit, other collateral, additional guarantees or advanced payments.
An allowance for doubtful accounts is determined with respect to specific debts that are doubtful of collection. The expenses
(income) related to the allowance for doubtful accounts for the years ended December 31, 2019, 2018 and 2017, is $1, $17 and $27,
respectively.
o. Contingencies The
Company and its subsidiaries are involved in certain legal proceedings that arise from time to time in the ordinary course of
their business and in connection with certain agreements with third parties. Except for income tax contingencies, the Company
records accruals for contingencies to the extent that the management concludes that the occurrence is probable and that the related
liabilities are estimable. Legal expenses associated with contingencies are expensed as incurred.
p. Derivative
financial instruments: ASC
815, "Derivatives and Hedging" Until
December 31, 2018, the effective portion of the changes in fair value of the derivative instruments designated for hedging purposes
was reported as a component of other comprehensive income ("OCI"), net of tax and reclassified into earnings in the
same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument
in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, was recognized in current
earnings during the period of change. During the reporting periods, up and until December 31, 2017, the gains or losses required
to be recognized in earnings for hedge ineffectiveness were insignificant. Commencing
January 1, 2019, the entire changes in fair value of the derivative instruments designated for hedging purposes that were determined
as qualifying for hedging purposes (including the ineffective components of the hedging relationship) were reported as a component
of OCI, net of tax and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For
other derivatives which do not qualify for hedge accounting, or which have not been designated as hedging instruments, are recognized
in the balance sheet at their fair value, with changes in the fair value carried to the statements of income as incurred in financing
income (expenses), net. See
Note 11 for disclosure of the derivative financial instruments in accordance with ASC 815.
q. Basic
and diluted net income per share: Basic
net income per share is calculated based on the weighted average number of Ordinary Shares outstanding during each year. Diluted
net income per share is calculated based on the weighted average number of Ordinary Shares outstanding during each year, plus
the potential dilution to Ordinary Shares considered outstanding during the year, in accordance with ASC 260, Earning per Share The
total number of Ordinary Shares related to outstanding options and warrants that was excluded from the calculations of diluted
net earnings per share, since they were determined to have an anti-dilutive effect, was 13,373, 196,750 and 314,125 for the years
ended December 31, 2019, 2018, and December 31, 2017, respectively.
r. Accounting
for share-based compensation: The
Company accounts for equity-based compensation in accordance with ASC 718, Stock Compensation ASC
718 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 statements of operations. The
Company recognizes compensation expenses for the value of its awards granted based on the straight-line method over the requisite
service period of each of the awards, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Estimated forfeitures
are based on actual historical pre-vesting forfeitures. The Company considers many factors when estimating forfeitures, including
employee class and historical experience. The
Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The option-pricing model
requires a number of assumptions, of which the most significant are expected stock price volatility and the expected option term.
Expected volatility was calculated based upon actual historical stock price movements over the most recent periods ending on the
date of grant, equal to the expected option terms. The expected option term represents the period that the Company's stock
options are expected to be outstanding and was determined based on the simplified method permitted by the SEC's Staff Accounting
Bulletin ("SAB") No.107 and extended by SAB 110 as the average of the vesting period and the contractual term. The
Company currently uses the simplified method as adequate historical experience is not available to provide a reasonable estimate. The
risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds with an equivalent term. The Company has historically
not paid dividends and has no foreseeable plans to pay dividends. The
fair value for options granted in years 2019, 2018 and 2017 was estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
Year
ended December 31,
2019 2018 2017
Risk-free interest 1.52 % 2.73 % 2.05 %
Dividend yields 0 0 0
Volatility 55 % 55 % 57 %
Expected option term 3.5
years 3.5
years 3.5
years
Forfeiture rate 0 % 0 % 0 % Until
December 31, 2018 the Company applies ASC 505-50, " Equity-Based Payments to Non-Employees
s. Fair
value of measurements: The
Company measures fair value and discloses fair value measurements for financial and non-financial assets and liabilities. The
Company also measures certain non-financial assets, consisting mainly of goodwill and intangible assets at fair value on a nonrecurring
basis. These assets are adjusted to fair value when they are considered to be impaired (see Note 8). As
of December 31, 2019 the Company measured the fair value of goodwill with a total carrying amount of US$ 5.76 million
that was allocated to two reporting unit. The evaluation provided an impairment in an amount of $614, (see Note 8). The fair value
measurement of the non-financial assets is classified as level 3. The
Company applies ASC 820, " Fair Value Measurements and Disclosures" In
determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring
fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most
observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset
or liability developed based on market data obtained from sources independent of the Company. Unobservable
inputs are inputs that the Company assumes market participants would use in pricing the asset or liability developed based on
the best information available under the circumstances. In
accordance with ASC 820, derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices
and market observable data of similar instruments. The
Company's financial assets and liabilities measured at fair value on a recurring basis, consisted of derivatives (foreign currency
forward contracts and hedging contracts) which were classified within Level 2 and amounted to $ 13 asset and $ 87 liability
as of December 31, 2019 and 2018, respectively. The
fair value hierarchy is broken down into three levels based on the inputs as follows:
Level
1 - Quoted
prices (unadjusted) in active markets for identical assets or liabilities that the Company
can access at the measurement date.
Level
2 - Valuations
based on one or more quoted prices in markets that are not active or for which all significant
inputs are observable, either directly or indirectly.
Level
3 - Valuations
based on inputs that are unobservable and significant to the overall fair value measurement. The
carrying amounts of cash and cash equivalents, restricted cash, restricted bank deposits, other accounts receivable, trade payables,
and other accounts payable and accrued expenses approximate their fair values due to the short-term maturities of such instruments.
t. Accounting
pronouncements adopted during the reported period: Accounting
Standards Update 2016-02, "Leases (Topic 842): Section A – Leases: Amendments to the FASB Accounting Standards Codification;
Section B – Conforming Amendments Related to Leases: Amendments to the FASB Accounting Standards Codification; Section C
– Background Information and Basis for Conclusions". Commencing
January 1, 2019, the Company adopted ASC Update 2016-02, Leases (Topic 842). Under
the new guidance, lessees are required to recognize the following for all leases (with the exception of short-term leases) at
the commencement date: 1. A lease liability, which is a lessee's obligation to make lease payments arising from a lease,
measured on a discounted basis; and, 2. A right-of-use asset, which is an asset that represents the lessee's right to use,
or control the use of, a specified asset for the lease term. Under
the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor
accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The new lease guidance simplified
the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities.
Lessees will no longer be provided with a source of off-balance sheet financing. As
permitted under ASU 2018-11, which provides, a transition election to not restate comparative periods for the effects of applying
the new standard, the Company adopted the new standard on January 1, 2019 and used the effective date as the date of initial application.
Consequently, the effect of the adoption was reflected through a cumulative-effect adjustment. Financial information for comparative
periods was not required to be updated and the disclosures required under the new standard were provided for dates and periods
before January 1, 2019. The
new lease standard provides a number of optional practical expedients in transition. The Company elected to apply the 'package
of practical expedients,' which permits the Company not to reassess its prior conclusions regarding lease identification,
lease classificatio |
