NOVOCURE LTD, 10-K filed on 2/22/2018
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2017
Feb. 16, 2018
Jun. 30, 2017
Document Document And Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 31, 2017 
 
 
Document Fiscal Year Focus
2017 
 
 
Document Fiscal Period Focus
FY 
 
 
Trading Symbol
NVCR 
 
 
Entity Registrant Name
Novocure Ltd 
 
 
Entity Central Index Key
0001645113 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
89,882,437 
 
Entity Public Float
 
 
$ 909,514,284 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
Current assets:
 
 
Cash and cash equivalents
$ 78,592 
$ 99,780 
Short-term investments
104,719 
119,854 
Restricted cash
2,126 
267 
Trade receivables, net
29,567 
6,339 
Receivables and prepaid expenses
8,105 
10,084 
Inventories
22,025 
25,549 
Total current assets
245,134 
261,873 
Long-term assets:
 
 
Property and equipment, net
9,031 
9,812 
Field equipment, net
9,036 
8,808 
Severance pay fund
111 
88 
Other long-term assets
1,986 
1,500 
Total long-term assets
20,164 
20,208 
Total assets
265,298 
282,081 
Current liabilities:
 
 
Trade payables
17,206 
18,356 
Other payables and accrued expenses
32,996 
18,526 
Total current liabilities
50,202 
36,882 
Long-term liabilities:
 
 
Long-term loan, net of discount and issuance costs
97,342 
96,231 
Employee benefit liabilities
2,453 
2,590 
Other long-term liabilities
1,737 
4,033 
Total long-term liabilities
101,532 
102,854 
Total liabilities
151,734 
139,736 
Commitments and contingencies
Shareholders’ equity:
 
 
Ordinary shares - No par value, Unlimited shares authorized; Issued and outstanding: 89,478,032 shares and 87,066,446 shares at December 31, 2017 and December 31, 2016 respectively;
Additional paid-in capital
697,165 
664,154 
Accumulated other comprehensive loss
(1,343)
(1,883)
Accumulated deficit
(582,258)
(519,926)
Total shareholders’ equity
113,564 
142,345 
Total liabilities and shareholders’ equity
$ 265,298 
$ 282,081 
Consolidated Balance Sheets (Parenthetical) (USD $)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Statement Of Financial Position [Abstract]
 
 
Common stock, par value
   
   
Common stock, shares authorized
Unlimited 
Unlimited 
Common stock, shares issued
89,478,032 
87,066,446 
Common stock, shares outstanding
89,478,032 
87,066,446 
Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Income Statement [Abstract]
 
 
 
Net revenues
$ 177,026 
$ 82,888 
$ 33,087 
Cost of revenues
55,609 
39,870 
20,610 
Impairment of field equipment
 
6,412 
 
Gross profit
121,417 
36,606 
12,477 
Operating costs and expenses:
 
 
 
Research, development and clinical trials
38,103 
41,467 
43,748 
Sales and marketing
63,528 
59,449 
38,861 
General and administrative
59,114 
51,007 
33,864 
Total operating costs and expenses
160,745 
151,923 
116,473 
Operating loss
(39,328)
(115,317)
(103,996)
Financial expenses, net
(9,169)
(6,147)
(3,151)
Loss before income taxes
(48,497)
(121,464)
(107,147)
Income taxes
13,165 
10,381 
4,434 
Net loss
$ (61,662)
$ (131,845)
$ (111,581)
Basic and diluted net loss per ordinary share
$ (0.70)
$ (1.54)
$ (3.67)
Weighted average number of ordinary shares used in computing basic and diluted net loss per share
88,546,719 
85,558,448 
30,401,603 
Consolidated Statements of Comprehensive Loss (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
Net loss
$ (61,662)
$ (131,845)
$ (111,581)
Other comprehensive loss, net of tax :
 
 
 
Change in foreign currency translation adjustments
10 
 
Pension benefit plan
532 
(388)
(1,505)
Total comprehensive loss
$ (61,122)
$ (132,223)
$ (113,086)
Statements of Changes in Shareholders' Equity (USD $)
In Thousands, except Share data
Total
USD ($)
Over-Allotment
USD ($)
Series J Preferred Stock
USD ($)
Ordinary Shares
Ordinary Shares
Over-Allotment
Preferred Shares
Preferred Shares
Series J Preferred Stock
Additional Capital Paid-in
USD ($)
Additional Capital Paid-in
Over-Allotment
USD ($)
Additional Capital Paid-in
Series J Preferred Stock
USD ($)
Accumulated Other Comprehensive Loss
USD ($)
Accumulated Deficit
USD ($)
Balance at Dec. 31, 2014
$ 97,875 
 
 
 
 
 
 
$ 374,375 
 
 
 
$ (276,500)
Balance (in shares) at Dec. 31, 2014
 
 
 
13,431,414 
 
58,676,017 
 
 
 
 
 
 
Share-based compensation to employees
11,860 
 
 
 
 
 
 
11,860 
 
 
 
 
Exercise of options and warrants
2,038 
 
 
 
 
 
 
2,038 
 
 
 
 
Exercise of options and warrants (in shares)
 
 
 
731,665 
 
 
 
 
 
 
 
 
Issuance of shares, net
 
157,534 1
94,599 2
 
 
 
 
 
157,534 1
94,599 2
 
 
Issuance of shares, net (in shares)
 
 
 
 
7,876,195 1
 
4,068,500 2
 
 
 
 
 
Issuance of shares and options in respect of settlement, net of fair value of shares provided as indemnification (Note 14c) (in shares)
 
 
 
(1,005,210)
 
 
 
 
 
 
 
 
Conversion of preferred shares to ordinary shares
 
 
 
62,744,517 
 
(62,744,517)
 
 
 
 
 
 
Other comprehensive loss, net of tax benefit of $165, $38, and 68 for the years ended December 2015, 2016 and 2017
(1,505)
 
 
 
 
 
 
 
 
 
(1,505)
 
Net loss
(111,581)
 
 
 
 
 
 
 
 
 
 
(111,581)
Balance at Dec. 31, 2015
250,820 
 
 
 
 
 
 
640,406 
 
 
(1,505)
(388,081)
Balance at Dec. 31, 2015
 
 
 
83,778,581 
 
 
 
 
 
 
 
 
Share-based compensation to employees
21,441 
 
 
 
 
 
 
21,441 
 
 
 
 
Exercise of options and warrants
993 
 
 
 
 
 
 
993 
 
 
 
 
Exercise of options and warrants (in shares)
 
 
 
3,195,477 
 
 
 
 
 
 
 
 
Issuance of shares in connection with employeestock purchase plan
616 
 
 
 
 
 
 
616 
 
 
 
 
Issuance of shares in connection with employee stock purchase plan(in shares)
 
 
 
92,388 
 
 
 
 
 
 
 
 
Tax benefit from share-based award activity
698 
 
 
 
 
 
 
698 
 
 
 
 
Cumulative effect adjustment resulting from ASU 2016-09 adoption (See Note 2)
 
 
 
 
 
 
 
670 
 
 
 
(670)
Other comprehensive loss, net of tax benefit of $165, $38, and 68 for the years ended December 2015, 2016 and 2017
(378)
 
 
 
 
 
 
 
 
 
(378)
 
Net loss
(131,845)
 
 
 
 
 
 
 
 
 
 
(131,845)
Balance at Dec. 31, 2016
142,345 
 
 
 
 
 
 
664,154 
 
 
(1,883)
(519,926)
Balance at Dec. 31, 2016
 
 
 
87,066,446 
 
 
 
 
 
 
 
 
Share-based compensation to employees
27,116 
 
 
 
 
 
 
27,116 
 
 
 
 
Exercise of options and warrants
3,685 
 
 
 
 
 
 
3,685 
 
 
 
 
Exercise of options and warrants (in shares)
 
 
 
2,244,153 
 
 
 
 
 
 
 
 
Issuance of shares in connection with employeestock purchase plan
1,540 
 
 
 
 
 
 
1,540 
 
 
 
 
Issuance of shares in connection with employee stock purchase plan(in shares)
 
 
 
167,433 
 
 
 
 
 
 
 
 
Other comprehensive loss, net of tax benefit of $165, $38, and 68 for the years ended December 2015, 2016 and 2017
540 
 
 
 
 
 
 
 
 
 
540 
 
Net loss
(61,662)
 
 
 
 
 
 
 
 
 
 
(61,662)
Balance at Dec. 31, 2017
$ 113,564 
 
 
 
 
 
 
$ 697,165 
 
 
$ (1,343)
$ (582,258)
Balance at Dec. 31, 2017
 
 
 
89,478,032 
 
 
 
 
 
 
 
 
Statements of Changes in Shareholders' Equity (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Other comprehensive loss, tax benefit
$ 68 
$ 38 
$ 165 
Series J Preferred Stock
 
 
 
Share issuance expenses
 
 
319 
Over-Allotment
 
 
 
Share issuance expenses
 
 
$ 15,742 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Cash flows from operating activities:
 
 
 
Net loss
$ (61,662)
$ (131,845)
$ (111,581)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
7,677 
5,652 
3,153 
Asset write-downs and impairment of field equipment
241 
6,446 
46 
Increase in accrued interest expense
 
 
672 
Share-based compensation to employees
27,116 
22,139 
11,860 
Excess tax benefits from share-based award activity
 
(698)
 
Increase in trade receivables, net
(23,228)
(6,339)
 
Amortization of discount, net
252 
155 
329 
Decrease (increase) in receivables and prepaid expenses
1,979 
243 
(5,088)
Decrease (increase) in inventories
3,524 
(11,955)
(10,148)
Increase in other long-term assets
(554)
(692)
(381)
Increase (decrease) in trade payables
(1,150)
1,601 
6,961 
Increase in other payables and accrued expenses
14,460 
6,647 
3,579 
Increase in employee benefit liabilities, net
440 
97 
133 
Increase (decrease) in other long-term liabilities
(2,229)
957 
581 
Net cash used in operating activities
(33,134)
(107,592)
(99,884)
Cash flows from investing activities:
 
 
 
Purchase of property and equipment
(2,459)
(5,674)
(4,667)
Purchase of field equipment
(4,907)
(11,990)
(5,604)
Increase in restricted cash
(1,858)
(180)
(26)
Proceeds from maturity of short-term investments
120,000 
270,000 
104,000 
Purchase of short-term investments
(104,006)
(239,341)
(208,998)
Net cash provided by (used in) investing activities
6,770 
12,815 
(115,295)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of shares, net
1,540 
616 
252,133 
Proceeds from long-term loan, net
 
72,887 
22,886 
Excess tax benefits from share-based award activity
 
698 
 
Proceeds from issuance of other long-term loans
19 
 
 
Repayment of other long-term loans
(76)
(70)
(63)
Exercise of options and warrants
3,685 
993 
2,038 
Purchase of shares in respect of settlement
 
 
(5)
Net cash provided by financing activities
5,168 
75,124 
276,989 
Effect of exchange rate changes on cash and cash equivalents
10 
 
Increase (decrease) in cash and cash equivalents
(21,188)
(19,643)
61,810 
Cash and cash equivalents at the beginning of the year
99,780 
119,423 
57,613 
Cash and cash equivalents at the end of the year
78,592 
99,780 
119,423 
Cash paid during the year for:
 
 
 
Income taxes
10,286 
9,447 
1,489 
Interest
$ 10,162 
$ 6,595 
$ 1,688 
Organization and Basis of Presentation
Organization and Basis of Presentation

Note 1: Organization and basis of presentation

 

NovoCure Limited (including its consolidated subsidiaries, the “Company”) was incorporated in the Bailiwick of Jersey and is principally engaged in the development, manufacture and commercialization of tumor treating fields (“Tumor Treating Fields”) for the treatment of solid tumors. The Company has regulatory approvals and clearances in certain countries for Optune, its first Tumor Treating Fields delivery system, to treat adult patients with glioblastoma (“GBM”).

 

In September 2015, the Company’s shareholders approved the restructuring of the Company’s share capital by converting the Company’s ordinary and preferred shares to no par value shares and by effecting a sub division of the issued and outstanding share capital of the Company based on a proportion of 1: 5.913 (“Share Split Ratio”), such that each ordinary and preferred share nominal value of £0.01 of the Company, was divided into 5.913 shares of such applicable class of shares of the Company each with no par value. It was also resolved to apply the Split Ratio to the Company’s outstanding options and warrants, in accordance with their terms. All share and per share information included in these consolidated financial statements has been retroactively adjusted to reflect the conversion to no par value shares and the Share Split Ratio.

Significant Accounting Policies
Significant Accounting Policies

Note 2: Significant accounting policies

The consolidated financial statements are prepared according to 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 consolidated financial statements and accompanying notes. The Company evaluates on an ongoing basis its assumptions, including those related to contingencies, deferred taxes, tax liabilities, useful-life of field equipment, revenue recognition and the estimations required in accrual base accounting, and share-based compensation costs. The Company’s management believes that the estimates, judgment and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of net revenue and expenses during the reporting period. Actual results could differ from those estimates.

b. Financial statements in U.S. dollars:

The accompanying financial statements have been prepared in U.S. dollars in thousands, except for share and per-share data.

The Company finances its operations in U.S. dollars and a substantial portion of its costs and revenues from its primary markets is incurred in U.S. dollars. As such, the Company’s management believes that the U.S. dollar is the currency of the primary economic environment in which NovoCure Limited and certain subsidiaries operate. The Company’s reporting currency is U.S. dollars.

Transactions and balances denominated in U.S. dollars are presented at their original amounts. Monetary accounts maintained in currencies other than the U.S. dollar are re-measured into dollars in accordance with Accounting Standards Codification (ASC) No. 830-10, “Foreign Currency Matters.” All transaction gains and losses of the re-measurement of monetary balance sheet items are reflected in the consolidated statements of operations as financial income or expenses, as appropriate.

For a subsidiary whose functional currency has been determined to be its local currency, assets and liabilities are translated at year-end exchange rates and statement of operations items are translated at average exchange rates prevailing during the year. Such translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss) in shareholders' equity.

c. Principles of consolidation:

The consolidated financial statements include the accounts of the Company and its wholly owned 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 that are readily convertible into cash with an original maturity of three months or less at the date acquired.

e. Short-term investments and restricted cash:

1. Short-term investments:

The Company accounts for investments in debt securities in accordance with ASC 320, “Investments-Debt and Equity Securities.” Management determines the appropriate classification of its investments in marketable debt securities at the time of purchase and reevaluates such determinations at each balance sheet date. For the years ended December 31, 2017 and 2016, all securities are classified as held-to-maturity since the Company has the intent and ability to hold the securities to maturity and, accordingly, debt securities are stated at amortized cost.

The amortized cost of held-to-maturity securities is adjusted for amortization of premiums and accretion of discounts to maturity and any other than temporary impairment losses. Such amortization and interest are included in the consolidated statement of operations as financial income or expenses, as appropriate.

For the three years ended December 31, 2017, no impairment losses have been identified.

2. Restricted cash:

The Company has restricted cash used as security for the use of Company credit cards, presented in short-term assets. Additionally, the Company has pledged bank deposits to cover bank guarantees related to facility rental agreements, fleet lease agreements and customs payments presented in other long-term assets (see Note 12).

f. Trade receivables:

Revenues from the use of Optune are recorded on an accrual basis for payers that meet the revenue recognition criteria for accrual basis where an agreement exists and collectability is reasonably assured. Trade receivables are presented net of allowances and allowance for doubtful accounts of $3,453 and $0, as of December 31, 2017 and 2016, respectively.  In order to provide for trade receivables that could become uncollectible in the future, the Company establishes an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. The Company considers receivables past due based on payment terms and historical cash collection experience. The Company evaluates such reserves on a regular basis and adjusts its reserves as needed. Once a receivable is deemed uncollectible, such balance is charged against the reserve. As of December 31, 2017 and 2016, the allowance for doubtful accounts was de minimis.

Trade receivables include unbilled receivables for therapy provided and not invoiced in the reported period.

 

g. Inventories:

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. The Company regularly evaluates its ability to realize the value of inventory. If the inventories are deemed damaged, if actual demand for the Company’s delivery systems deteriorates, or if market conditions are less favorable than those projected, inventory write-offs may be required.

Inventory write-offs of $489, $ 774 and $0, respectively, were identified for the years ended December 31, 2017, 2016 and 2015.

h. Property and equipment:

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following rates:

 

 

 

%

Computers and laboratory equipment

 

15 - 33

Office furniture

 

6 - 33

Production equipment

 

20

Leasehold improvements

 

Over the shorter of the term of the lease or its useful life

 

i. Field equipment:

Field equipment is stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful life of the field equipment which was determined to be 18 to 36 months. Field equipment is equipment being utilized under service agreements, and accounted for in accordance with ASC 840 on a monthly basis as an operating lease. The Company records a write-off provision for any excess, lost or damaged equipment when warranted based on an assessment of the equipment. Write-offs for equipment are included in cost of revenues. During the years ended December 31, 2017, 2016 and 2015, write-offs for $195, $ 6,436 and $36, respectively, were recorded (see Note 7).

j. Impairment of long-lived assets:

The Company’s long-lived assets are reviewed for impairment in accordance with ASC 360-10, “Property, Plant and Equipment,” whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. During the three years ended December 31, 2017, no impairment losses have been identified other than the impairment of field equipment described below in Note 7.

k. Other long-term assets:

Long term lease deposits in respect of office rent and vehicles under operating leases and restricted deposits are presented in other long-term assets.

l. Revenue recognition:

The Tumor Treating Fields delivery system for GBM, Optune, is comprised of two main components: (1) an electric field generator (the “device”) and (2) transducer arrays and related accessories that are disposable supplies to the device (“disposables”). Title is retained by the Company for the device and the patient is provided replacement disposables and technical support for the device during the rental period. The device and disposables are always supplied and functioning together and are not sold on a standalone basis.

Revenues are recognized when persuasive evidence of an arrangement exists, delivery of Optune has occurred, the fee is fixed or determinable and collectability is reasonably assured. The evidence of an arrangement generally consists of a prescription, a patient service agreement and the verification of eligibility and insurance with the patient’s third-party insurance company (“Payer”).   The Company assesses whether the fee is fixed or determinable based on whether there is sufficient history with Payers to reliably estimate their individual payment patterns or contractual arrangements exist and whether it can reliably estimate the amount that would be ultimately collected. Once the Company can reliably estimate the amounts that would be ultimately collected per Payer and the above criteria are met, the Company recognizes revenues net of allowances from the use of Optune on an accrual basis ratably over the lease term. The allowances are determined based on defined payment terms and historical collection data by Payer. Allowance adjustments related to final settlements for the reported periods are insignificant.  Revenues are recognized when cash is collected when the revenue criteria above are not met, such as when the price is not fixed or determinable or the collectability cannot be reasonably assured.  Patients have out-of-pocket costs for the amount not covered by their Payer and the Company bills the patient directly for the amounts of their co-pays and deductible, subject to the Company’s patient assistance programs.  The Company currently recognizes revenue from patients at the time cash is collected.

Deferred revenues include amounts invoiced for days of therapy to be provided in future periods.

Unbilled revenues include revenues recognized for therapy provided and not invoiced in the reported period, and are presented as part of accounts receivable.

Revenues are presented net of indirect taxes of $1,293, $ 972 and $ 2,275 for the years ended December 31, 2017, 2016 and 2015, respectively.

m. Charitable care:

The Company provides Optune treatment at no charge to patients who meet certain criteria under its charitable care policy.  Because the Company does not pursue collection of amounts determined to qualify as charity, they are not reported as revenue. The Company's costs of care provided under charitable care were $1,483, $1,675 and $ 1,376 for the years ended December 31, 2017, 2016 and 2015, respectively. These amounts were determined by applying charitable care as a percentage of total billings to total cost of goods sold.

n. Shipping and handling costs:

The Company does not bill its customers for shipping and handling costs associated with shipping Optune to its customers. These direct shipping and handling costs of $5,322, $3,389 and $ 1,385 for the years ended December 31, 2017, 2016 and 2015, respectively are included in selling and marketing costs.

o. Accounting for share-based payments:

The Company accounts for share-based compensation in accordance with ASC 718, “Compensation—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 costs for the value of awards granted using the accelerated method over the requisite service period of the award, which is generally the option vesting term of four years.

The Company selected the Black-Scholes model as the most appropriate fair value method for all equity awards and the Employee Share Purchase Plan (the “ESPP”). For market condition awards, the Company also applied the Monte-Carlo simulation model. The Black-Scholes model requires a number of assumptions, of which the most significant are the share price, expected volatility and the expected equity award term.

Prior to NovoCure Limited’s initial public offering (“IPO”), the fair value of ordinary shares underlying the options was historically determined by management and the board of directors. Because there was no public market for the Company’s ordinary shares, the board of directors determined fair value of an ordinary share at the time of grant of the option by considering a number of objective and subjective factors including operating and financial performance, the lack of liquidity of share capital, general and industry specific economic outlook and valuations performed amongst other factors. For the period from January 1, 2015 through the IPO, the Company’s board of directors determined the fair value of ordinary shares for the reported periods, among other factors, based on valuations performed using the hybrid method, which is the hybrid between the probability weighted expected return method (PWERM) and the option pricing method.

The computation of expected volatility is based on actual historical share price volatility of comparable companies. Expected term of options granted is calculated using the average between the vesting period and the contractual term to the expected term of the options in effect at the time of grant. The Company has historically not paid dividends and has no foreseeable plans to pay dividends and, therefore, uses an expected dividend yield of zero in the option pricing model. The risk-free interest rate is based on the yield of U.S. treasury bonds with equivalent terms.

p. Fair value of financial instruments:

The carrying amounts of cash and cash equivalents, short-term investments, restricted cash, receivables and prepaid expenses, trade receivables, trade payables and other accounts payable and accrued expenses approximate their fair value due to the short-term maturity of such instruments. Based upon the borrowing terms and conditions currently available to the Company, the carrying values of the long-term loans approximate fair value.

The Company accounts for certain assets and liabilities at fair value under ASC 820, “Fair Value Measurements and Disclosures.” Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The Company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety.

The three levels of inputs that may be used to measure fair value are as follows:

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets;

Level 2 - Includes other inputs that are directly or indirectly observable in the marketplace, other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets with insufficient volume or infrequent transactions, or other inputs that are observable (model-derived valuations in which significant inputs are observable), or can be derived principally from or corroborated by observable market data; and

Level 3 - Unobservable inputs which are supported by little or no market activity.

The availability of observable inputs can vary from instrument to instrument and is affected by a wide variety of factors, including, for example, the type of instrument, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment and the instrument are categorized as Level 3.

q. Basic and diluted net loss per share:

The Company applies the two class method as required by ASC 260-10, “Earnings per Share.” ASC 260-10 requires the income or loss per share for each class of shares (ordinary and preferred shares) to be calculated assuming 100% of the Company’s earnings are distributed as dividends to each class of shares based on their contractual rights. No dividends were declared or paid during the reported periods.

According to the provisions of ASC 260-10, the Company’s pre-IPO preferred shares were not participating securities in losses and, therefore, are not included in the computation of net loss per share.  Post-IPO, there are no preferred shares outstanding.

Basic and diluted net loss per share is computed based on the weighted average number of ordinary shares outstanding during each year. Diluted loss per share is computed based on the weighted average number of ordinary shares outstanding during the period, plus dilutive potential shares considered outstanding during the period, in accordance with ASC 260-10. Basic and diluted net loss per ordinary share was the same for each period presented as the inclusion of all potential ordinary shares (all options and warrants) outstanding was anti-dilutive.

r. Income taxes:

The Company accounts for income taxes in accordance with ASC 740-10, “Income Taxes.” ASC 740-10 prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, to reduce deferred tax assets to their estimated realizable value, if needed.

The Company established reserves for uncertain tax positions based on the evaluation of whether or not the Company’s uncertain tax position is “more likely than not” to be sustained upon examination. The Company records interest and penalties pertaining to its uncertain tax positions in the financial statements as income tax expense.

s. Concentration of risks:

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents, restricted cash, short-term investments and trade receivables.

Cash and cash equivalents and restricted cash are invested at top tier banks or financial institutions in Jersey, the United States, Israel, Luxemburg, Switzerland, Japan and Germany. Such investments may be in excess of insured limits and are not insured in other jurisdictions. Generally, these investments may be redeemed upon demand and, therefore, bear minimal risk.

The Company has no off-balance sheet concentrations of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.

In 2017, one payer represented $15,479, or 9 %, of net revenues.  In 2016, the same payer represented $10,393, or 13%, of net revenues. In 2015, the same payer represented $5,595, or 17%, of net revenues.  Credit risk with respect to trade receivables is limited.

t. Retirement, pension and severance plans:

The Company has a 401(k) retirement savings plan for its U.S. employees. Each eligible employee may elect to contribute a portion of the employee’s compensation to the plan. The Company historically has not and currently does not make any matching contributions to this plan.

The Company has a defined benefit plan with a pension fund for its Swiss employees, whereby the employee and the Company contribute to the pension fund. The Company accounts for its obligation, in accordance with ASC 715, "Compensation – Retirement Benefits" (see Note 9).

The pension expense for the years ended December 31, 2017, 2016 and, 2015 was $1,036, $ 529 and $404, respectively.

Israeli law generally requires payment of severance pay upon dismissal of an employee or upon termination of employment in certain other circumstances. The Company makes ongoing deposits into employee pension plans to fund its severance liabilities. According to Section 14 of Israel Severance Pay Law, the Company makes deposits on behalf of its employees with respect to the Company’s severance liability and therefore no obligation is provided for in the financial statements. Severance pay liabilities with respect to employees who are not subject to Section 14, are provided for in the financial statements based upon the number of years of service and the latest monthly salary and the related deposits are recorded as an asset based on the cash surrender value. Severance expense for the years ended December 31, 2017, 2016 and 2015 amounted to $506, $430 and $356, respectively.

u. Contingent liabilities:

The Company accounts for its contingent liabilities in accordance with ASC 450, “Contingencies.” A provision is recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated (see Note 14(c)).

With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. As of December 31, 2017 and 2016, the Company was not a party to any ligation that could have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

v. Other comprehensive income (loss):

The Company accounts for comprehensive income (loss) in accordance with ASC 220, "Comprehensive Income". ASC 220 establishes standards for the reporting and display of comprehensive income (loss) and its components. Comprehensive income (loss) generally represents all changes in shareholders' equity during the period except those resulting from investments by, or distributions to, shareholders. The accumulated other comprehensive income (loss), net of taxes, relates to a pension liability and foreign currency translation adjustments.

w. Recently adopted accounting pronouncements:

 

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments in ASU 2016-09 affect all entities that issue share-based payment awards to their employees and involve multiple aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  The Company adopted ASU 2016-09 during the quarter ended March 31, 2017, at which time it changed its accounting policy to account for forfeitures as they occur. The change was applied on a modified retrospective basis with a cumulative effect adjustment to accumulated deficit of $670 as of January 1, 2017. In addition, excess tax benefits for share-based payments are now presented as an operating activity in the statements of cash flows rather than financing activity. The changes have been applied prospectively in accordance with the ASU and prior periods have not been adjusted.

x. Recently issued accounting pronouncements:

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), an updated standard on revenue recognition and issued subsequent amendments to the initial guidance in March 2016, April 2016, May 2016 and December 2016 within ASU 2016-08, 2016-10, 2016-12 and 2016-20, respectively. The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods and services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods and services. In addition, the new standard requires expanded disclosures. The Company has adopted the standard effective January 1, 2018 using the modified retrospective method applied to all contracts. In preparation for adoption of the standard, the Company has implemented internal controls and key system functionality to enable the preparation of financial information including the assessment of the impact of the standard.  The Company uses the portfolio approach to apply the standard to portfolios of contracts with similar characteristics. Adoption of the standard will result in an increase to trade receivables of $3,215, deferred revenues of $645 and a cumulative impact to the Company's accumulated deficit as of January 1, 2018 of $2,570.

In February 2016, FASB issued ASU 2016-02-Leases (ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply

a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of their classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASC 842 supersedes the previous leases standard, ASC 840. The standard is effective on January 1, 2019, with early adoption permitted. The Company currently anticipates adopting the new standard effective January 1, 2019 and is evaluating the impact of the adoption of this standard on its consolidated financial statements.

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. ASU 2016-13 also applies to employee benefit plan accounting, with an effective date of the first quarter of fiscal 2020. The amendments in this update are effective for fiscal years beginning after December 31, 2019, including interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements, footnote disclosures and employee benefit plans’ accounting.

In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. The retrospective transition method, requiring adjustment to all comparative periods presented, is required unless it is impracticable for some of the amendments, in which case those amendments would be prospectively as of the earliest date practicable. The standard is effective on January 1, 2018. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements and footnote disclosures.

In November 2016, FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash.  This standard requires the presentation of the statement of cash flows to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. The standard is effective for fiscal years and the interim periods within those fiscal years beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the effects of the adoption of this ASU on the consolidated financial statements.

 

Cash and Cash Equivalents and Short Term Investments
Cash and Cash equivalents and Short-term investments

Note 3: Cash and Cash equivalents and Short-term investments

 

a.

Cash and cash equivalents:

 

Cash equivalents include items almost as liquid as cash, such as certificates of deposit and time deposits with maturity periods of three months or less when purchased.

 

 

December 31,

 

 

 

2017

 

 

2016

 

Cash

 

$

5,522

 

 

$

29,915

 

Money market funds

 

 

73,070

 

 

 

69,865

 

Total cash and cash equivalents

 

$

78,592

 

 

$

99,780

 

 

 

b.

Short-term investments

The Company invests in marketable U.S. Treasury Bills (“T-bills”) that are classified as held-to-maturity securities. The amortized cost and recorded basis of the T-bills are presented as short-term investments in the amount of $104,719 and $119,854, as of December 31, 2017 and 2016, respectively and their estimated fair value as of December 31, 2017 and 2016 was $104,655 and $119,825, respectively.

Receivables and Prepaid Expenses
Receivables and Prepaid Expenses

Note 4: Receivables and prepaid expenses

 

 

December 31,

 

 

 

2017

 

 

2016

 

Advances to and receivables from suppliers

 

$

2,924

 

 

$

5,829

 

Government authorities

 

 

2,006

 

 

 

1,867

 

Prepaid expenses

 

 

2,890

 

 

 

2,238

 

Others

 

 

285

 

 

 

150

 

 

 

$

8,105

 

 

$

10,084

 

 

Inventories
Inventories

Note 5: Inventories

 

 

December 31,

 

 

 

2017

 

 

2016

 

Raw materials

 

$

4,276

 

 

$

5,243

 

Work in process

 

 

8,435

 

 

 

8,292

 

Finished goods

 

 

9,314

 

 

 

12,014

 

 

 

$

22,025

 

 

$

25,549

 

 

Property and Equipment, Net
Property and Equipment, Net

Note 6: Property and equipment, net

 

 

December 31,

 

 

 

2017

 

 

2016

 

Cost:

 

 

 

 

 

 

 

 

Computers and laboratory equipment

 

$

10,833

 

 

$

10,121

 

Office furniture

 

 

2,303

 

 

 

1,931

 

Production equipment

 

 

1,222

 

 

 

1,179

 

Leasehold improvements

 

 

3,614

 

 

 

2,885

 

Total cost

 

$

17,972

 

 

$

16,116

 

Accumulated depreciation and amortization

 

 

(8,941

)

 

 

(6,304

)

Depreciated cost

 

$

9,031

 

 

$

9,812

 

 

Depreciation expense was $1,968, $1,673 and $ 1,348 for the years ended December 31, 2017, 2016 and 2015, respectively.

The Company capitalized software costs according to FASB ASC 350-40, "Accounting for the costs of Computer Software Developed or Obtained for Internal Use". As of December 31, 2017 and 2016, the Company capitalized an accumulated amount of $5,576 and $4,742, respectively. Amortization for the year ended December 31, 2017 and 2016 was $1,226 and $731, respectively.

Field Equipment, Net
Field Equipment, Net

Note 7: Field equipment, net

 

 

December 31,

 

 

 

2017

 

 

2016

 

Field equipment

 

$

15,020

 

 

$

11,167

 

Accumulated depreciation

 

 

(5,984

)

 

 

(2,359

)

Field equipment, net

 

$

9,036

 

 

$

8,808

 

 

Depreciation expense was $4,483, $3,248 and $1,555 for the years ended December 31, 2017, 2016 and 2015, respectively. Write downs of $195, $6,436, and $36 were identified for the years ended December 31, 2017, 2016 and 2015, respectively.

 

The Company made the second generation Optune system available to all patients in the United States in 2016 and manufacturing of the first generation Optune system has been terminated. In 2016, the Company recorded an impairment loss with respect to the write-down of first generation Optune system field equipment in the amount of $6,412 (finished goods and production stage goods in the amount of $4,830 and $1,582, respectively) presented in cost of revenues.

Other Payables and Accrued Expenses
Other Payables and Accrued Expenses

Note 8: Other payables and accrued expenses

 

 

December 31,

 

 

 

2017

 

 

2016

 

Employees and payroll accruals

 

$

13,283

 

 

$

7,541

 

Taxes payable and others

 

 

9,110

 

 

 

3,142

 

Provision for settlement (Note 12)

 

 

5,500

 

 

 

5,500

 

Deferred revenues

 

 

4,959

 

 

 

2,267

 

Other

 

 

144

 

 

 

76

 

 

 

$

32,996

 

 

$

18,526

 

 

Employee Benefit Obligations
Employee Benefit Obligations

Note 9: Employee benefit obligations

The Company sponsors a defined benefit plan (the “Swiss Plan”) for all its employees in Switzerland for retirement benefits, as well as benefits on death or long-term disability. The liability in respect of the Swiss Plan is the projected benefit obligation calculated using the projected unit credit method. The projected benefit obligation as of December 31, 2017 represents the actuarial present value of the estimated future payments required to settle the obligation that is attributable to employee service rendered before that date. Swiss Plan assets are recorded at fair value.  Pension expense is presented in the payroll expenses in the various functions in which the employees are engaged. Actuarial gains and losses arising from differences between the actual and the expected return on the Swiss Plan assets are recognized in accumulated other comprehensive income (loss) and amortized over the requisite service period. The plan is part of a collective pension foundation run by an insurance company. The Company and the employees pay retirement contributions, which are defined as a percentage of the employees’ covered salaries. The foundation, in turn, has all its risks (disability, death, longevity) and future benefits managed and guaranteed by the insurance company. Interest is credited to the employees’ account at the minimum rate provided in the Swiss Plan, payment which is guaranteed by the insurance contract, which represents the Swiss Plan’s primary asset. The targeted allocation for these funds is as follows:

 

Asset Allocation by Category as of December 31, 2017:

 

 

 

 

Asset Category:

 

Asset

allocation (%)

 

Debt Securities

 

 

27

 

Real Estate

 

 

22

 

Equity Securities

 

 

30

 

Others

 

 

21

 

Total

 

 

100

 

 

The following table sets forth the Swiss Plan’s funded status and amounts recognized in the consolidated financial statements for the year ended December 31, 2017 and 2016:

 

 

December 31,

 

 

 

2017

 

 

2016

 

Change in Benefit Obligation

 

 

 

 

 

 

 

 

Projected benefit obligation at beginning of year

 

$

8,241

 

 

$

6,223

 

Interest cost

 

 

54

 

 

 

64

 

Company service cost

 

 

878

 

 

 

498

 

Employee contributions

 

 

417

 

 

 

321

 

Prior service cost

 

 

(314

)

 

 

-

 

Benefits paid

 

 

341

 

 

 

422

 

Actuarial loss

 

 

700

 

 

 

713

 

Projected benefit obligation at end of year

 

$

10,317

 

 

$

8,241

 

Change in Plan Assets

 

 

 

 

 

 

 

 

Fair value of plan assets at beginning of year

 

$

5,978

 

 

$

4,433

 

Actual return on plan assets

 

 

882

 

 

 

320

 

Employer contributions

 

 

625

 

 

 

482

 

Employee contributions

 

 

417

 

 

 

321

 

Benefits paid

 

 

341

 

 

 

422

 

Fair value of plan assets at end of year

 

$

8,243

 

 

$

5,978

 

 

 

 

 

 

 

 

 

 

Funded Status at End of year

 

 

 

 

 

 

 

 

Excess of obligation over assets

 

$

(2,074

)

 

$

(2,263

)

 

 

 

 

 

 

 

 

 

Change in Accrued Benefit Liability

 

 

 

 

 

 

 

 

Accrued benefit liability at beginning of year

 

$

(2,263

)

 

$

(1,790

)

Company contributions made during year

 

 

625

 

 

 

482

 

Net periodic benefit cost for year

 

 

(1,036

)

 

 

(529

)

Net decrease (increase) in accumulated other comprehensive loss

 

 

600

 

 

 

(426

)

Accrued benefit liability at end of year

 

$

(2,074

)

 

$

(2,263

)

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

2017

 

 

2016

 

Non - current plan assets

 

$

8,243

 

 

$

5,979

 

Non - current liability

 

 

10,317

 

 

 

8,242

 

Accrued benefit liability at end of year

 

$

(2,074

)

 

$

(2,263

)

Projected Benefit Payments

 

 

 

 

 

 

 

 

Projected year 1

 

$

166

 

 

$

148

 

Projected year 2

 

 

168

 

 

 

150

 

Projected year 3

 

 

172

 

 

 

152

 

Projected year 4

 

 

1,124

 

 

 

155

 

Projected year 5

 

 

163

 

 

 

1,069

 

Projected year 6-10

 

$

1,053

 

 

$

928

 

 

The fair value of the plan assets is the estimated cash surrender value of the insurance contract at December 31, 2017. The level of inputs used to measure fair value was Level 2.

 

 

Year ended

December 31,

 

 

 

2017

 

 

2016

 

Net Periodic Benefit Cost

 

 

 

 

 

 

 

 

Service cost

 

$

878

 

 

$

498

 

Interest cost (income)

 

 

62

 

 

 

(21

)

Expected return on plan assets

 

 

(42

)

 

 

(49

)

Amortization of prior service costs

 

 

124

 

 

 

87

 

Amortization of transition obligation

 

 

14

 

 

 

14

 

Total net periodic benefit cost

 

$

1,036

 

 

$

529

 

 

 

 

 

 

 

 

 

 

Weighted average assumptions:

 

 

 

 

 

 

 

 

Discount rate as of December 31

 

0.60%

 

 

0.60%

 

Expected long-term rate of return on assets

 

0.60%

 

 

0.60%

 

Rate of compensation increase

 

1.00%

 

 

1.00%

 

Mortality and disability assumptions   (*)

 

BVG 2015 GT

 

 

BVG 2015 GT

 

 

(*)

Mortality data used for actuarial calculation.

Long-Term Loan, Net of Discount and Issuance Costs
Long-Term Loan, Net of Discount and Issuance Costs

Note 10: Long-term loan, net of discount and issuance costs

In January 2015, the Company entered into a five-year term loan agreement (the “Term Loan Credit Facility”) with a lender to draw up to $100,000. In January 2015, the Company drew $25,000 from the lender and the remaining $75,000 was drawn in July 2016. As of December 31, 2017 and 2016, there was $100,000 principal outstanding under the Term Loan Credit Facility.

Interest on the Term Loan Credit Facility is 10% annually, payable quarterly in arrears. In addition, there is a 1.5% funding fee payable on the amount drawn on the funding date, a 0.75% pay-down fee on all principal amount repayments to be paid on the date such payments of principal are made and a pre-payment fee of 3.0%, 2.0% or 1.0% if the Company prepays outstanding loan amounts prior to the first, second or third year anniversaries, respectively, from the initial funding date. The entire outstanding principal loan is due in January 2020. The loan is secured by a first priority security interest in substantially all assets of the Company. The Term Loan Credit Facility sets forth certain affirmative and negative covenants with which the Company must comply on a quarterly basis commencing March 31, 2015 through the term of loan. As of December 31, 2017, the Company was in compliance with such covenants.

As of December 31, 2017 and 2016, the total discount of $1,204 and $1,699, respectively, and additional issuance costs of $1,454 and $2,070, respectively, are presented net of the loan and are amortized to interest expense over the five year term of the loan using the effective interest method.  On February 7, 2018, the Company prepaid our Term Loan Facility in full from the proceeds of a new term loan credit facility with a new lender.  For additional information, see Note 20.

Other Long-term Liabilities
Other Long-term Liabilities

Note 11: Other long-term liabilities

 

 

December 31,

 

 

 

2017

 

 

2016

 

Deferred rent liability

 

$

746

 

 

$

906

 

Leasehold improvements financing and other (see a and b below)

 

 

128

 

 

 

193

 

Unrecognized tax benefits (Note 13e)

 

 

244

 

 

 

2,400

 

Term Loan Credit Facility repayment fee (Note 10)

 

 

619

 

 

 

534

 

 

 

$

1,737

 

 

$

4,033

 

 

a. In July 2013, the Company entered into a loan agreement with the landlord of its facility in Switzerland whereby the landlord will offer a loan of up to CHF 400 for the purpose of financing leasehold improvements in the facility. As of December 31, 2016 and 2015, the Company received CHF 220 ($232) of this financing. The principal and interest is due in monthly payments from January 1, 2014 through December 31, 2018 and bears an annual interest of 5%.

b. In May 2013, the Company entered into an agreement with the landlord of one of its facilities in the United States and in January 2014, the Company entered into an agreement with a leasing company for an aggregate of $226 for the purpose of financing leasehold improvements in the facility and a lease of machinery, respectively. The loan and interest is due in monthly payments from June 1, 2013 through May 1, 2023 and bears an annual interest of 7%.

The above principal leasehold improvement financing repayments as of December 31, 2017 are as follows:

 

2018

 

$

32

 

2019

 

 

34

 

2020

 

 

29

 

2021

 

 

26

 

2022

 

 

27

 

Thereafter

 

 

12

 

 

 

 

160

 

Less: current portion of long-term loans

 

 

(32

)

Long-term loans, net of current portion

 

$

128

 

 

Commitments and Contingent Liabilities
Commitments and Contingent Liabilities

Note 12: Commitments and contingent liabilities

The facilities of the Company are leased under various operating lease agreements for periods ending no later than 2024. The Company also leases motor vehicles under various operating leases, which expire on various dates, the latest of which is in 2020.

Future minimum lease payments under non-cancelable operating leases as of December 31, 2017, are as follows:

 

2018

$

3,512

 

2019

 

2,525

 

2020

 

2,049

 

2021

 

1,610

 

2022

 

1,377

 

Thereafter

 

1,356

 

 

$

12,429

 

 

Lease and rental expense for the years ended December 31, 2017, 2016 and 2015 was $3,474, $2,748, and $2,194, respectively.

As of December 31, 2017 and 2016 the Company pledged bank deposits of $1,038 and $807, respectively, to cover bank guarantees in respect of its leases of operating facilities and obtained guarantees by the bank for the fulfillment of the Company’s lease commitments of $1,202 and $955, respectively.

In February 2015, the Company entered into a settlement agreement (the “Settlement Agreement”) with the Technion Research and Development Foundation (“Technion”) to resolve certain potential disputes regarding intellectual property developed by the Company’s founder and previously assigned to the Company. Pursuant to the Settlement Agreement, and in exchange for a release of potential disputes from Technion, the Company is obligated to pay a $5.5 million milestone payment (the “Milestone Payment”) to Technion in the quarter following the quarter in which the Company achieves $250.0 million of cumulative net sales (as defined in the Settlement Agreement) (the “Net Sales Milestone”).  The Company achieved the Net Sales Milestone in the fourth quarter of 2017. Accordingly, in the first quarter of 2018, the Company anticipates making the Milestone Payment to Technion.

Income Taxes
Income Taxes

Note 13: Income taxes

a. The provision for income taxes from continuing operations is comprised of:

Income (loss) before income taxes:

 

 

Year ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

United States (U.S.)

 

$

(77,654

)

 

$

(80,972

)

 

$

(55,087

)

Non-U.S.

 

 

29,157

 

 

 

(40,492

)

 

 

(52,060

)

 

 

$

(48,497

)

 

$

(121,464

)

 

$

(107,147

)

 

Income taxes expense:

 

 

Year ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

8,491

 

 

$

6,501

 

 

$

891

 

Non-U.S.

 

 

5,028

 

 

 

3,863

 

 

 

3,678

 

Total current

 

 

13,519

 

 

 

10,364

 

 

 

4,569

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

(3

)

 

$

1

 

 

$

-

 

Non-U.S.

 

 

(351

)

 

 

16

 

 

 

(135

)

Total deferred

 

 

(354

)

 

 

17

 

 

 

(135

)

Total income taxes  provision

 

$

13,165

 

 

$

10,381

 

 

$

4,434

 

 

b. For purposes of comparability, the Company uses the notional U.S. federal income tax rate of 35% when presenting the Company's reconciliation of the income tax provision.    The Company is a resident taxpayer in Jersey and as such is not generally subject to Jersey tax on remitted foreign earnings.  A reconciliation of the provision for income taxes compared with the amounts at the notional federal statutory rate was:

 

 

Year ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

U.S statutory income taxes rate

 

 

35.0

%

 

 

35.0

%

 

 

35.0

%

Non-deductible expenses

 

 

(6.8

)

 

 

(2.5

)

 

 

(2.4

)

Foreign taxes rate differential

 

 

15.1

 

 

 

(14.2

)

 

 

(19.2

)

Change in valuation allowance (1)

 

 

(11.9

)

 

 

(30.0

)

 

 

(18.2

)

State income taxes (1)

 

 

18.7

 

 

 

2.3

 

 

 

1.8

 

Share based compensation

 

 

(4.5

)

 

 

1.2

 

 

 

-

 

Change in unrecognized taxes expense

 

 

(0.8

)

 

 

(0.7

)

 

 

(1.2

)

Other (1)

 

 

(71.9

)

 

 

0.4

 

 

 

0.1

 

Effective taxes rate

 

 

(27.1

)%

 

 

(8.5

)%

 

 

(4.1

)%

_____________________________

 

 

(1)

For additional information, see the table below reflecting the net impact of the TCJA.

 

The Company's tax rate is affected by the tax rates in the jurisdictions outside the U.S. in which the Company operates. The jurisdictional location of earnings is a significant component of our effective tax rate as the tax rates outside of the U.S. are generally lower than the U.S. tax rate of 35% and the relative amount of losses or income for which no tax benefit or expense was recognized due to a valuation allowance.

 

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “TCJA”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017. On the same date, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, we have determined that the $34.8 million of the deferred tax expense recorded in connection with the remeasurement of certain deferred tax assets and liabilities earnings was a provisional amount and a reasonable estimate at December 31, 2017.  This remeasurement was fully offset by a valuation allowance resulting in no impact to the Company’s income tax expense for the year ended December 31, 2017. The Company’s subsidiary in the United States does not have any foreign subsidiaries and, therefore, the remaining provisions of the TCJA have no material impact on the Company's results of operations.  Additional work is necessary for a more detailed analysis of our deferred tax assets and liabilities as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded in the quarter of 2018 when the analysis is complete.

 

The table below reflects the net impact of the TCJA:

 

 

 

 

Year ended December 31, 2017

 

 

 

ETR before TCJA

 

 

US Tax Cuts & Jobs Act Impact

 

 

Reported ETR

 

U.S statutory income taxes rate

 

 

35.0

%

 

 

0.0

%

 

 

35.0

%

Non-deductible expenses

 

 

(6.8

)

 

 

0.0

 

 

 

(6.8

)

Foreign taxes rate differential

 

 

15.1

 

 

 

0.0

 

 

 

15.1

 

Change in valuation allowance

 

 

(83.4

)

 

 

71.5

 

 

 

(11.9

)

State income taxes

 

 

12.8

 

 

 

5.9

 

 

 

18.7

 

Share based compensation

 

 

2.0

 

 

 

(6.5

)

 

 

(4.5

)

Change in unrecognized taxes expense

 

 

(0.9

)

 

 

0.1

 

 

 

(0.8

)

Other

 

 

(0.9

)

 

 

(71.0

)

 

 

(71.9

)

Effective taxes rate

 

 

(27.1

)%

 

 

0.0

%

 

 

(27.1

)%

 

c. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

 

 

December 31,

 

 

 

2017

 

 

2016

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Allowance for doubtful accounts

 

$

6,797

 

 

$

18,770

 

Revenue recognition

 

 

60,099

 

 

 

46,953

 

Net operating loss carryforwards

 

 

972

 

 

 

577

 

Share based compensation

 

 

7,544

 

 

 

3,510

 

Deferred revenue

 

 

1,340

 

 

 

879

 

Other temporary differences

 

 

1,147

 

 

 

1,481

 

Total gross deferred taxes assets

 

$

77,899

 

 

$

72,170

 

Less: valuation allowance

 

 

(75,804

)

 

 

(70,061

)

Total deferred taxes assets

 

$

2,095

 

 

$

2,109

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Fixed assets

 

 

1,486

 

 

 

1,789

 

Total gross deferred taxes liabilities

 

$

1,486

 

 

$

1,789

 

 

 

 

 

 

 

 

 

 

Net deferred taxes assets

 

$

609

 

 

$

320

 

 

d. Carryforward loss:

As of December 31, 2017, one of the Company's Luxembourg subsidiaries has $3.6 million of net operating loss carry forwards (NOLs) available for utilization in future years.  

e. A reconciliation of the beginning and ending balances of uncertain tax benefits is as follows:

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Balance at beginning of the year

 

$

2,400

 

 

$

1,565

 

 

$

308

 

Additions for taxes positions related current year

 

 

55

 

 

 

1,088

 

 

 

848

 

Additions for taxes positions related to prior years

 

 

372