| Significant Accounting Policies | Note 2 - Significant Accounting
Policies The consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The significant accounting policies followed
in the preparation of the financial statements, applied on a consistent basis, except the accounting policy as mentioned in Note
2W, are as follows:
A. Liquidity and Capital Resources The Company has had recurring
losses and currently has an accumulated deficit as of December 31, 2019 of $216,832. The Company also has a payable balance
on its short-term loan of $2,478 that is due within the next 12 months. Since inception, the Company's
principal sources of liquidity have been revenues, proceeds from sales of equity securities, borrowings from banks, cash from the
exercise of options and warrants as well as proceeds from the divestiture of part of the Company's businesses. The Company
had cash, cash equivalents and short-term investments representing bank deposits of $4,848 (of which an amount of $105 has been
pledged as securities for certain items) as of December 31, 2019. The Company believes that it has sufficient capital resources
to fund its operations for at least the next 12 months. Further, as disclosed in Note 11A,
if certain conditions are met, including the approval of the Company's shareholders at the extraordinary general meeting
of the shareholders that is scheduled for April 2020, the Company expects to receive funds in a total amount of up to $1,200 in
consideration for the issuance of up to 6,000,000 Ordinary Shares, all in accordance with the terms and provisions of the Share
Purchase Agreement (as defined in Note 11A below). As of the reporting date, it
is hard to assess the future influence of the Corona Virus on the Company. The Company believes that one impact
of the Corona Virus on the Company may be a decrease in the Company's revenues derived from Mass Transit activity in the
Polish market. The Company is aware of no other material short term adverse influences on the Company. However, at this
initial point in time, it is hard to predict what other impacts the Corona Virus may have on the Company.
B. Financial statements in U.S. dollars Substantially all of the Company's
and certain of its subsidiaries' revenues are in U.S. dollars. A significant portion of purchases of materials , Transactions and balances
denominated in U.S. dollars are presented at their original amounts. For entities with a U.S. dollar
functional currency, transactions and balances in other currencies are remeasured into U.S. dollars in accordance with the principles
set forth in Accounting Standards Codification ("ASC") Topic 830, Foreign Currency Matters At each balance sheet date,
recorded balances of monetary assets and liabilities that are denominated in a currency other than the functional currency are
adjusted to reflect the current exchange rate. Exchange gains and losses from the remeasurement of such items denominated in non
U.S. dollar currencies are reflected in the consolidated statements of operations, among 'financial expenses, net',
as appropriate. The functional currency of the
Company's subsidiary in South Africa changed in October 2017 from the South African Rand to U.S. dollar. This change resulted
from a change in relevant circumstances whereby sales transactions denominated in U.S. dollars became the primary source of sales
revenue. The functional currency of the Polish subsidiary is its local currency. The financial statements of companies with a functional
currency that is not the U.S. dollar are translated into U.S. dollars using the exchange rate at the balance sheet date for assets
and liabilities, and weighted average exchange rates for revenues and expenses (which approximates the translation of each transaction).
Translation adjustments resulting from the process of the aforesaid translation are included as a separate component of equity
(accumulated other comprehensive gain or loss).
C. Principles of consolidation The consolidated financial statements
include the financial statements of the Company and its wholly-owned subsidiaries. Intercompany transactions and balances have
been eliminated in consolidation.
D. Estimates and assumptions The preparation of the consolidated
financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported
amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the year. Such estimates include the valuation of useful lives
of long-lived assets, revenue recognition, valuation of accounts receivable and allowance for doubtful accounts, valuation of inventories,
legal contingencies, the assumptions whether renewal options of lease period of buildings will be exercised in the future, the
assumptions used in the calculation of stock-based compensation, income taxes and other contingencies. Estimates and assumptions
are periodically reviewed by management and the effects of any material revisions are reflected in the period that they are determined
to be necessary. Actual results, however, may vary from these estimates.
E. Cash equivalents Cash equivalents are short-term
highly liquid investments and debt instruments that are readily convertible to cash with original maturities of three months or
less from the date of purchase. Bank deposits with original maturities of more than three months, or specific deposits that are
intended to be held as bank deposits for more than three months, and which will mature within one year, are classified as short-term
investments.
F. Trade receivables Trade receivables are recorded
at the invoiced amount and do not bear interest. Collections of trade receivables are included in net cash provided by operating
activities in the consolidated statements of cash flows. The consolidated financial statements include an allowance for loss from
receivables for which collection is in doubt. In determining the adequacy of the allowance consideration is given to each trade
receivable historical experience, aging of the receivable, adjusted to take into account current market conditions and information
available about specific debtors, including their financial condition, current payment patterns, the volume of their operations,
and evaluation of the security received from them or their guarantors.
G. Short-term investments Short-term investments consist
of:
(1) Bank deposits whose maturities are longer than three months
from the date of purchase, but not longer than one year from the balance sheet date.
(2) Bank deposits whose maturities are less than three months from the date of purchase, but are intended
to be held as bank deposits for more than three months.
(3) Restricted bank deposits whose maturities are not longer than one year from the balance sheet date
(for further details, see Note 9C).
H. Inventories Inventories are stated at the
lower of cost or net realizable value. Cost is determined by calculating raw materials, work in process and finished products on
a "moving average" basis. Net realizable value is defined as the "estimated selling prices in the ordinary course
of business, less reasonably predictable costs of completion, disposal and transportation." Inventory write-offs are provided
to cover risks arising from slow moving items or technological obsolescence. Such write-offs have been included in cost of revenues.
I. Property, plant and equipment, net Property, plant and equipment
are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets as follows:
Years
Buildings 25
Computers, software and manufacturing equipment 3-5
Office furniture and equipment 5-16
(mainly - 10) Leasehold improvements are amortized by the straight-line method
over the shorter of the lease term or the estimated useful economic life of such improvements.
J. Impairment of long-lived assets Long-lived assets, such as right-of-use
assets due to operating leases, property, plant, and equipment, and intangible assets subject to amortization, are evaluated for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If
circumstances require a long-lived asset to be tested for possible impairment, the Company first compares undiscounted cash flows
expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable
on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair
value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party
independent appraisals, as considered necessary.
K. Revenue recognition Accounting policy applicable
before January 1, 2018: The Group generates revenues
from product sales manufactured based on the Company's technology. In addition, the Company generates revenues from the technology
it developed through transaction fee arrangements and licensing agreements. Revenues are also generated from non-recurring engineering,
customer services and technical support. Revenues from product sales and
non-recurring engineering are recognized when delivery has occurred provided there is persuasive evidence of an agreement, the
fee is fixed or determinable, collection of the related receivable is probable and no further obligations exist. In the case of
non-recurring engineering, revenue is recognized upon completion of testing and approval of the customization of the product by
the customer, provided that no further obligation exists. Revenues are recognized net of value added tax. License and transaction fees
are recognized as earned based on actual usage. Usage is determined by receiving confirmation from the users. Revenues relating to customer
services and technical support are recognized as the services are rendered ratably over the term of the related contract. Licensing and transaction fees
are recognized based on the volume of transactions or monthly licensing fees from systems that contain the Company's products
and usually bear no cost to the Company. The cost to the Company of warranty
that the product will perform according to certain specifications and that the Company will repair or replace the product if it
ceases to work properly, is insignificant and is treated according to accounting guidance for contingencies. Accounting policy applicable
after January 1, 2018: In May 2014, the Financial Accounting
Standards Board ("FASB") issued ASC Topic 606, Revenue from Contracts with Customers The Company has adopted Topic
606 commencing from January 1, 2018 on a modified retrospective basis. Results for reporting periods beginning after January 1,
2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with
historic accounting under Topic 605. The Company utilized a comprehensive
approach in order to assess the impact of the guidance on its contract portfolio by reviewing its current accounting policies and
practices to identify potential differences that would result from applying the new requirements, including evaluation of the performance
obligations and variable consideration. The Company did not have a cumulative
adjustment to retained earnings or an impact on its revenue recognition policies or on its consolidated financial statements as
a result of the adoption of the new standard. Topic 606 requires entities to
follow a five-step process: (1) Identify the contract(s)
with a customer, (2) Identify the performance
obligations in the contract, (3) Determine the transaction
price, (4) Allocate the transaction
price to the performance obligations in the contract, and (5) Recognize revenue when (or
as) the entity satisfies a performance obligation. Accounting policy applicable
after January 1, 2018 (cont'd): The Company accounts for a contract
with a customer when it has approval and commitment from both parties, the rights of the parties and payment terms are identified,
the contract has commercial substance and collectability of consideration is probable. For each contract, the Company
exercises judgement to identify separate performance obligations and to evaluate, at the inception of the contract, if each distinct
performance obligation within the contract is satisfied at a point in time or over time. Revenue is measured based on
a consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third
parties. In certain arrangements with
variable consideration, the Company exercises judgement in order to estimate the amount of variable consideration to be included
in the transaction price. In these arrangements, revenue is recognized over time as it is mainly attributed to ongoing services
provided. Revenue is allocated among performance
obligations in a manner that reflects the consideration that the Company expects to be entitled for the promised goods or services
based on standalone selling prices "SSP". SSP are estimated for each distinct performance obligation and judgment may
be required in their determination. The best evidence of SSP is the observable price of a product or service when the Company sells
the goods separately in similar circumstances and to similar customers. The Company recognizes revenue
when it satisfies a performance obligation by transferring control over a product or service to a customer. For an analysis of
the performance obligations and the timing of revenue recognition, for each type of the contract, see also Note 10. The new standard requires the
Company to provide more robust disclosures than required by previous guidance. Such disclosures have been provided in Note 10. In addition, when the Company
has an unconditional right to receive proceeds before the performance obligation was fulfilled, it is now required to record receivables
against contract liabilities.
L. Research, development costs and intangible assets Research and development costs,
which consist mainly of labor costs, materials and subcontractors, are charged to operations as incurred. In accordance with ASC Topic
350-40, "Internal Use Software" According to ASC Topic 350, " Intangibles
- Goodwill and Other Amortization expenses amounted
to $202, $215 and $181 for the years ended December 31, 2019, 2018 and 2017, respectively. The amortization is presented within
research and development in the consolidated statements of operations.
M. Stock-based compensation The Company measures and recognizes
compensation expense for all stock-based payment awards made to employees and directors based on estimated grant date fair values.
The estimated fair value of awards is charged to income on a straight-line basis over the requisite service period, which is generally
the vesting period. ASC Topic 718, Compensation
– Stock Compensation The Company estimates forfeitures
based on historical experience. The Company elected to recognize
compensation cost for awards with only service conditions that have a graded vesting schedule using the straight-line method.
N. Basic and diluted net loss per share Basic and diluted net loss per
ordinary share is computed based on the weighted average number of ordinary shares outstanding during each year. Shares issuable
for little or no cash consideration, are considered outstanding ordinary shares and included in the computation of basic net loss
per ordinary share as of the date that all necessary conditions have been satisfied. In years that discontinued operations are
presented, the Company uses income from continuing operations (attributable to the parent entity) as the benchmark to determine
whether potential common shares are dilutive or antidilutive. Therefore, when the Company records a loss from continuing operations
and the issuance of option shares would be antidilutive due to the loss, but the Company has net income from discontinued operations,
potential shares are excluded from the diluted calculation even though the effect on net income from discontinued operations would
be dilutive. Stock options and warrants in
the amounts of 809,000, 1,501,000 and 1,535,000 outstanding as of the years ended December 31, 2019, 2018 and 2017, respectively,
have been excluded from the calculation of the diluted net loss per ordinary share because all such securities have an anti-dilutive
effect for all periods presented.
O. Fair value of financial instruments The Company's
financial instruments consist mainly of cash and cash equivalents, short-term interest bearing investments, accounts receivable,
restricted deposits for employee benefits, accounts payable and short-term and long-term loans. Fair value
for the measurement of financial assets and liabilities is defined as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. 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 liability. The Company utilizes a valuation hierarchy for disclosure of the inputs for fair value measurement. This hierarchy
prioritizes the inputs into three broad levels as follows:
● Level 1 Inputs: Unadjusted quoted prices in active
markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
● Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable
for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
● Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value
to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market
activity for the asset or liability at measurement date. By distinguishing
between inputs that are observable in the market place, and therefore more objective, and those that are unobservable and therefore
more subjective, the hierarchy is designed to indicate the relative reliability of the fair value measurements. A financial asset
or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair
value measurement. The Company, in estimating fair
value for financial instruments, determined that the carrying amounts of cash and cash equivalents, trade receivables, short-term
bank credit and trade payables are equivalent to, or approximate their fair value due to the short-term maturity of these instruments. The carrying amounts of variable
interest rate long-term loans are equivalent or approximate to their fair value as they bear interest at approximate market rates.
P. Income tax The Company accounts for taxes
on income in accordance with ASC Topic 740, Income Taxes The Company recognizes the effect
of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured
at the largest amount that is greater than 50 percent likely of being realized. The Company accounts for interest
and penalties as a component of income tax expense.
Q. Severance pay The Company's liability
for severance pay for some of its Israeli employees is calculated pursuant to Israeli Severance Pay Law, 1963 (the "Israeli
Severance Pay Law") based on the most recent salary of the employee multiplied by the number of years of employment, as of
the balance sheet date. Those employees are entitled to one month's salary for each year of employment or a portion thereof.
Certain senior executives were entitled to receive additional severance pay. The Company records the liability as if it were payable
at each balance sheet date on an undiscounted basis. The liability is classified based on the expected date of settlement, and
therefore is usually classified as a long-term liability, unless the cessation of the employees is expected during the upcoming
year. The Company's liability
for those Israeli employees is partially provided for by monthly deposits for insurance policies and the remainder by an accrual.
The value of these policies is recorded as an asset in the Company's balance sheet. The deposited funds include profits
and losses accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation
pursuant to the Israeli Severance Pay Law or labor agreements. The value of the deposited funds is based on the cash redemption
value of these policies. In addition, the Company has deposited certain amounts with a trustee, to compensate for any severance
pay liability that is not covered by other funds. These deposits are restricted and may be withdrawn only for payment of severance
pay liabilities. The severance pay funds and the restricted deposits for employee benefits are classified based on the classification
of the corresponding liability. In respect of other Israeli employees,
the Company acts pursuant to the general approval of the Israeli Ministry of Labor and Welfare, pursuant to the terms of Section
14 of the Israeli Severance Pay Law, according to which the current deposits with the pension fund and/or with the insurance company
exempt the Company from any additional obligation to these employees for whom the said depository payments are made. These deposits
are accounted as defined contribution payments. Severance pay expenses for the
years ended December 31, 2019, 2018 and 2017 amounted to $275, $212 and $242, respectively. Defined contribution plan expenses
were $231, $232 and $231 in the years ended December 31, 2019, 2018 and 2017, respectively.
R. Advertising expenses Advertising expenses are charged to the statements
of operations as incurred. Advertising expenses for the years ended December 31, 2019, 2018 and 2017 amounted to $1,015, $1,367
and $1,254, respectively.
S. Concentrations of credit or business risk Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash equivalents, bank deposits and trade receivables. Cash equivalents are invested
mainly in U.S. dollars with major banks in Israel and Europe. Management believes that the financial institutions that hold the
Group's investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments. Most of the Company's trade
receivables are derived from sales to large and financially secure organizations. In determining the adequacy of the allowance,
management bases its opinion, inter alia, on the estimated risks, current market conditions and in reliance on available information
with respect to the debtor's financial position. As for major customers, see Note 16. The Company acquires certain components of
its products from single source manufacturers. The activity in the allowance
for doubtful accounts for the years ended December 31, 2019, 2018 and 2017 is as follows:
2019 2018 2017
Allowance for doubtful accounts at beginning of year $ 555 $ 568 $ 720
Additions charged to allowance for doubtful accounts 54 52 73
Write-downs charged against the allowance (10 ) (45 ) (225 )
Other 13 (20 ) -
Allowance for doubtful accounts at end of year $ 612 $ 555 $ 568
T. Commitments and contingencies Liabilities for loss contingencies
arising from claims, assessments, litigations, fines and penalties and other sources are recognized when it is probable that a
liability has been incurred and the amount of the assessment can be reasonably estimated. Loss recovery related to recovery of
a loss when the recovery is less than or equal to the amount of the loss recognized in the financial statements is recognized if
collection is probable and estimable. Gain contingencies are recognized only when resolved.
U. Business divestures As described in Note 1B, the
Company has sold certain operations. Upon reaching a definitive agreement with an acquirer, the Company recognizes the consideration
received from the divesture, less all assets and liabilities sold, as a gain or loss. Discontinued operations Upon divesture of a business,
the Company classifies such business as a discontinued operation, if the divested business represents a strategic shift that has
(or will have) a major effect on an entity's operations and financial results. For disposals other than by sale
such as abandonment, the results of operations of a business would not be recorded as a discontinued operation until the period
in which the business is actually abandoned. The SmartID Division divesture
and the Medismart divesture qualify as discontinued operations and therefore have been presented as such. The results of businesses that
have qualified as discontinued operations have been presented as such for all reporting periods. Results of discontinued operations
include all revenues and expenses directly derived from such businesses; general corporate overhead is not allocated to discontinued
operations. Any loss or gain that arose from
the divesture of a business that qualifies as discontinued operations has been included within the results of the discontinued
operations. The Company also presents cash
flows from discontinued operations separately from cash flows of continuing operations. Contingent consideration The Company's sale arrangements
consist of contingent consideration based on the divested businesses' future sales or profits. The Company records the contingent
consideration portion of the arrangement when the consideration is determined to be realizable.
V. Restricted
Cash and Cash Equivalents in Statement of Cash Flows In
December 2016, the FASB issued Accounting Standards Update ("ASU") 2016-18, Statement of Cash Flows (Topic 230):
Restricted Cash The
following table provides a reconciliation of cash, cash equivalents, and restricted cash and cash equivalents reported within
the accompanying consolidated balance sheets that sum to the total of the same such amounts presented in the accompanying consolidated
statements of cash flows:
December
31
2019 2018 2017
Cash and
cash equivalents $ 2,543 $ 4,827 $ 6,742
Restricted cash and
cash equivalents (*) 105 278 1,057
Total
cash, cash equivalents, and restricted cash and cash equivalents presented in the statements of cash flows $ 2,648 $ 5,105 $ 7,799
(*) The
restricted cash and cash equivalents are included in short-term investments in the accompanying consolidated balance sheets.
W. Recently
Adopted Accounting Pronouncements In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes ASC 840, Leases. This ASU requires lessees to
recognize a right-of-use asset and lease liability on the balance sheet for most leases, whereas until December 31, 2018, only
financing-type lease liabilities (capital leases) were recognized on the balance sheet. Right-of-use assets represent a company's
right to use an underlying asset for the lease term and lease liabilities represent a company's obligation to make lease
payments arising from the lease. Operating and finance lease right-of-use assets and liabilities are recognized at the commencement
date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate based on
the information available at the commencement date to determine the present value of the lease payments. In
addition, the definition of a lease in the ASU has been revised with respect to when an arrangement conveys the right to control
the use of the identified asset under the arrangement, which may result in changes to the classification of an arrangement as
a lease. The ASU does not significantly change the lessees' recognition, measurement and presentation of expenses and cash
flows from the previous accounting standard. Lessors' accounting under the ASU is largely unchanged from the previous accounting
standard. The ASU expands the disclosure requirements of lease arrangements. The
Company has adopted ASU 2016-02 commencing from January 1, 2019, under the effective date method .
The
Company did not have a cumulative-effect adjustment to retained earnings as a result of the adoption of the new standard. The
adoption of this standard does not have a material impact on the results of operations and cash flows. See Note 17 for the impact
on the balance sheet as of December 31, 2019, and additional disclosures, as required by the new standard.
X. Recent
accounting pronouncements
1. In
June 2016,
the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326).
The main objective of this ASU is to provide financial statement users with more decision-useful
information about the expected credit losses on financial instruments and other commitments
to extend credit held by a reporting entity at each reporting date. To achieve this objective,
the amendments in this ASU replace the incurred loss impairment methodology in current
GAAP with a methodology that reflects expected credit losses and requires consideration
of a broader range of reasonable and supportable information to inform credit loss estimates.
The amendments affect entities holding financial assets and net investment in leases
that are not accounted for at fair value through net income. The amendments affect loans,
debt securities, trade receivables, net investments in leases, off-balance-sheet credit
exposures, reinsurance receivables, and any other financial assets not excluded from
the scope that have the contractual right to receive cash. ASU 2016-13 is effective for
the Company for fiscal years beginning after December 15, 2022, including interim periods
within those fiscal years. Early adoption is permitted for fiscal years beginning after
December 15, 2018. The Company currently does not expect the adoption of this accounting
standard to have a material impact on its consolidated financial statements
2. In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying
the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for
income taxes. This ASU, among other things, removes the exception to the incremental
approach for intraperiod allocation of tax expense when a company has a loss from continuing
operations and income from other items that are not included in continuing operations,
such as income from discontinued operations, or income recorded in other comprehensive
income. The general rule under ASC 740-20-45-7 is that the tax effect of pretax income
or loss from continuing operations should be determined by a computation that does not
consider the tax effects of items that are not included in continuing operations. Previously,
companies could consider the impact on a loss from continuing operations of items in
discontinued operations or other comprehensive income. However, under the amended guidance,
companies should not consider the effect of items outside of continuing operations in
calculating the tax effect on continuing operations. The new standard is effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15,
2020. Early adoption is permitted, with the amendments to be applied on a retrospective,
modified retrospective or prospective basis, depending on the specific amendment. The
Company |
