| 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 with respect to the impairment analysis
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 and all of its subsidiaries 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 2020 and 2019, inventory write-offs
amounted to $103 and $91, 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)
Machines 7-33
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, 2020 the remaining intangible assets were comprised
mainly of customer relationships. During the years 2020 and 2019
the Company recognized an impairment loss related to intangible assets in an amount of $517 and $356, respectively. For further
information see Note 8 below. For year ended on December 31,
2018, 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 (“ASC 350”), goodwill is not amortized but
instead is tested for impairment at least annually or between annual tests in certain circumstances, and written-down when impaired. 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 unit. As required by ASC 350,
the Company chooses either to perform a qualitative assessment whether a goodwill impairment test is necessary or proceeds directly
to the 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 goodwill impairment test.
If the Company determines otherwise, no further evaluation is necessary. With respect to goodwill impairment tests performed before the
adoption of ASU 2017-04, when the Company decided or was required to perform the two-step goodwill impairment test, in the first
step, or “Step 1”, the Company compared the fair value of each reporting unit to its carrying value. If the fair value
exceeded the carrying value of the net assets, goodwill was considered not to be impaired, and the Company was not required to
perform further testing. If the carrying value of the net assets exceeded the fair value, then the Company was required to perform
the second step, or “Step 2”, of the impairment test in order to determine the implied fair value of goodwill. In such
circumstances, an impairment loss was recorded for the excess, if any, of the carrying value of the goodwill allocated to the reporting
unit over its implied fair value. 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. Commencing upon the adoption of ASU 2017-04 (which eliminated
Step 2 from the goodwill impairment, when the Company decides or is required to perform the goodwill impairment test, the Company
compares the fair value of the reporting unit to its carrying value and an impairment charge is recognized for the amount by which
the carrying amount exceeds the reporting unit’s fair value, if any. The Company operates in three operating-based segments: the
Intelligent Robotics division, the RFID division and the Supply Chain Solutions division. The Company’s goodwill was related
to two different reporting units: the RFID division segment and the Intelligent Robotics, each of which represents a whole separate
reporting unit. RFID Division: Under the RFID Division segment there
is one reporting unit with an allocated goodwill amount of approximately $ 4.6 thousand. The Company performed an impairment analysis
as of December 31, 2020 and 2019, using the income approach and concluded that the fair value of such reporting unit exceeds its
carrying value and accordingly the analysis did not result in an impairment loss of goodwill with respect to such unit. The most significant
assumptions used for the income approach for the 2020 impairment test were five years of projected net cash flows, estimated weighted
average cost of capital and a long-term growth rate. Intelligent Robotics Division: Under the Intelligent Robotics segment
(which comprises of the Imdecol business acquired in 2019, see Note 3) there is one reporting unit with an allocated goodwill amount
of approximately $ 471 thousand (before the impairment loss recorded in the year ended December 31, 2020). The Company performed an impairment analysis
as of December 31, 2020 and 2019, using the income approach and concluded that the carrying value of such reporting unit exceeds
its fair value. The analysis resulted in an impairment loss of goodwill with respect to such unit in an amount of $471 and $614,
respectively. The most significant assumptions used
for the income approach for the 2020 impairment test were five years of projected net cash flows, estimated weighted average cost of capital
and a long-term growth rate. See also Note 8.
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
2020, 2019 and 2018 amounted to $379, $315 and $ 210, respectively.
l. Revenue recognition: 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. The Company transfers control
of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time, if any of the
following criteria is met: a. The customer simultaneously receives and consumes the benefits provided by the Company’s performance
as the company performs, b. The Company’s performance creates or enhances an asset (for example, work in process) that the
customer controls as the asset is created or enhanced, or c. The Company’s performance does not create an asset with an alternative
use and the Company has an enforceable right to payment for performance completed to date. If none of the above criteria for satisfying
a performance obligation over time are met, the performance obligation is considered as satisfied at a point in time (such as upon
shipment of a completed robotics and automation project). 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. With respect to 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 direct sale to customers of products such as electro mechanical components and Automatic Identification Data Capture hardware manufactured by third parties. Revenues from sales of products are recognized at the point of time when the control of the product is transferred on to the customer, mostly upon delivery to the customer, either at the Company’s premises, to the customer’s carrier or to the customer’s 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 renewal 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: a. 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, b. 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 deferred and recognized over time, on a straight-line basis over the contract’s period, as the
services are mostly time-based support services. Revenues from a robotics and automation
project are recognized at a point in time and upon shipment of the completed project, as the control of such project is not eligible
to be considered as transferred over time. Robotics
and automation project’s 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.
4. Deferred revenues include unearned amounts received from customers but not yet recognized as revenues.
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. 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. 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, in order to reflect the expected credit
losses on accounts receivable balances. Judgment is required in the estimation of the allowance for doubtful accounts and the Company
evaluates the collectability of its accounts receivable based on a combination of factors including, among other things, the past
experience with the customers, the length of time that the balance is past due using an aging schedule, the customer’s current
ability to pay and its creditworthiness using all available information about the credit risk of such customer taking into consideration
the current business environment. If the Company becomes aware of a customer’s inability to meet its financial obligations,
a specific allowance is recorded to reduce the net receivable to the amount reasonably believed to be collectible from such customer. Accounts receivable are written
off against the allowance for uncollectible accounts when the Company determines amounts are no longer collectible. The expenses (income) related
to the allowance for doubtful accounts for the years ended December 31, 2020, 2019 and 2018 is $16, $1 and $17, 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, 2018, 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) are 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. 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 479,167, 413,373 and 196,750 for the years ended December 31, 2020, 2019,
and December 31, 2018, 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. Forfeitures are 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 2020, 2019 and 2018 was estimated on the date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions:
Year ended December 31,
2020 2019 2018
Risk-free interest 0.51 % 1.52 % 2.73 %
Dividend yields 0 0 0
Volatility 45 % 55 % 55 %
Expected option term 3.5 years 3.5 years 3.5 years
Forfeiture rate 0 % 0 % 0 % Until December 31, 2018 the
Company applied 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 certain reporting units that include goodwill and intangible assets at fair value on
a nonrecurring basis. These items are adjusted to fair value when they are considered to be impaired (see Note 8). As
of December 31, 2020 the Company measured the fair value of reporting unit goodwill at a total carrying amount of US$ 4.67
million that was allocated to one reporting unit. The evaluation provided an impairment in an amount of $471 (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 $ 0 and $ 13 as of December 31, 2020 and
2019, 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
2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” In January 2017, the FASB issued ASU No. 2017-04,
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminated Step 2 from the goodwill impairment
test, to simplify the subsequent measurement of goodwill. In accordance with the new guidance, the annual, or interim, goodwill
impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is
recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized
should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible
goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminated the requirements for
any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative
test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for
a reporting unit to determine if the quantitative impairment test is necessary. The amendments were applied by the Company, on a
prospective basis with respect to goodwill impairment tests that were performed subsequent to January 1, 2020. The adoption of ASU 2017-04 impacted the goodwill
impairment test that was performed as of December 31, 2020. For further information see Note 8. Accounting Standards Update
2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” In June 2016, The FASB has issued Accounting Standards
Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
(“ASU 2016-13”). The ASU is intended to improve financial reporting
by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other
organizations. ASU 2016-13 requires the measurement of all expected
credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable
and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform
their credit loss estimates. Many of the loss estimation techniques applied today
are still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses.
Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. ASU 2016-13 requires enhanced disclosures to help
investors and other financial statement users better understand significant estimates and judgments used in estimating credit l |
