NOTE

SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements are prepared according to United States generally accepted accounting principles (“U.S. GAAP”).

Use of estimates:

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company’s management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Financial statements in U.S. dollars:

Most of the Company’s revenues are generated in U.S. dollars. In addition, a substantial portion of the Company’s costs are incurred in U.S. dollars. The Company’s management believes that the U.S. dollar is the currency of the primary economic environment in which the Company operates. Thus, the functional and reporting currency of the Company is the U.S. dollar.

Monetary accounts maintained in currencies other than the U.S. dollar are remeasured into dollars in accordance with ASC

No.

830

30,

“Translation of Financial Statements.” All transaction gains and losses resulting from the remeasurement of monetary balance sheet items are reflected in the consolidated statements of operations as financial income or expenses as appropriate.

The financial statements of the Company’s subsidiary – DSP Group Technologies GmbH whose functional currency is in Euro, has been translated into dollars. All amounts on the balance sheets have been translated into the dollar using the exchange rates in effect on the relevant balance sheet dates. All amounts in the consolidated statements of operations have been translated into the dollar using the average exchange rate for the relevant periods. The resulting translation adjustments are reported as a component of accumulated other comprehensive income (loss) in changes in stockholders’ equity.

Accumulated other comprehensive loss related to foreign currency translation adjustments, net amounted to

$327

and

$256

as of

December 31, 2018

and

2017,

respectively.

Principles of consolidation:

The consolidated financial statements include the accounts of the Company. Intercompany transactions and balances have been eliminated in consolidation.

Cash equivalents:

Cash equivalents are short-term highly liquid investments, which are readily convertible to cash with original maturity of

three

months or less from the date of acquisition.

Restricted deposits:

Restricted deposits include deposits which are used as security for lease agreements.

Short-term deposits:

Bank deposits with original maturities of more than

three

months and less than

one

year are presented at cost, including accrued interest.

Marketable securities:

The Company accounts for investments in debt securities in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)

No.

320

10,

“Investments in Debt and Equity Securities.” Management determines the appropriate classification of the Company’s investments in debt securities at the time of purchase and reevaluates such determinations at each balance sheet date.

The Company classified all of its investments in marketable securities as available for sale.

Available-for-sale securities are carried at fair value, with the unrealized gains and losses, reported in accumulated other comprehensive income (loss) using the specific identification method. The amortized cost of marketable securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in financial income, net. Interest and dividends on securities are included in financial income, net. The Company classifies its marketable debt securities as either short-term or long-term based on each instrument’s underlying contractual maturity date and the entity’s expectations of sales and redemptions in the following year.

The marketable securities are periodically reviewed for impairment. If management concludes that any of these investments are impaired, management determines whether such impairment is other-than-temporary. Factors considered in making such a determination include the duration and severity of the impairment, the reason for the decline in value and the potential recovery period, and the Company’s intent to sell, or whether it is more likely than

not

that the Company will be required to sell the investment before recovery of cost basis. For debt securities, only the decline attributable to deteriorating credit of an-other-than-temporary impairment is recorded in the consolidated statement of operations, unless the Company intends, or more likely than

not

it will be forced, to sell the security. During the years ended

December 31, 2018,

2017

and

2016,

the Company did

not

record an-other-than-temporary impairment loss (see Note

Fair value of financial instruments:

Cash and cash equivalents, restricted deposits, short-term deposits, trade receivables, trade payables and accrued liabilities approximate fair value due to short-term maturities of these instruments. Marketable securities and derivative instruments are carried at fair value. See Note

for more information.

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.

Level

Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level

Include other inputs that are directly or indirectly observable in the marketplace.

Level

Unobservable inputs which are supported by little or

market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Inventories:

Inventories are stated at the lower of cost and net realizable value. Inventory reserves are provided to cover risks arising from slow-moving items or technological obsolescence.

The Company and its subsidiaries periodically evaluate the quantities on hand relative to historical, current and projected sales volume. Based on this evaluation, an impairment charge is recorded when required to write-down inventory to its market value.

Cost is determined as follows:

Work in progress and finished products- on the basis of raw materials and manufacturing costs on an average basis.

The Company regularly evaluates the ability to realize the value of inventory based on a combination of factors, including the following: historical usage rates and forecasted sales according to outstanding backlogs. Purchasing requirements and alternative usage are explored within these processes to mitigate inventory exposure. When recorded, the reserves are intended to reduce the carrying value of inventory to its net realizable value. Inventory of

$9,819,

$9,422

and

$9,748

as of

December

31,

2018,

2017

and

2016,

respectively, is stated net of inventory reserves of

$508,

$468

and

$571

in each year, respectively. If actual demand for the Company’s products deteriorates, or market conditions are less favorable than those projected, additional inventory reserves

may

be required.

Property and equipment, net:

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 annual rates:

	%				Mainly %

Computers and equipment		20	-	33		33
Office furniture and equipment		7	-	15		15
Leasehold improvements	see below

Leasehold improvements are depreciated on a straight-line basis over the shorter of the lease term (including the extension option held by the Company and intended to be exercised) and the expected life of the improvement.

Property and equipment of the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset

may

not

be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of such assets to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

During the years ended

December

31,

2018,

2017

and

2016,

impairment losses were identified for property and equipment.

The Company accounts for costs of computer software developed or obtained for internal use in accordance with FASB ASC

No.

350

40,

“The Internal Use Software.” FASB ASC

350

requires the capitalization of certain costs incurred in connection with developing or obtaining internal use software. During

2018,

2017

and

2016,

the Company did

not

capitalize internal use software.

Goodwill and other intangible assets:

The goodwill and certain other purchased intangible assets have been recorded as a result of the BoneTone acquisition and the acquisition of a private company in Asia. Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill is

not

amortized, but rather is subject to an annual impairment test.

ASC

350

prescribes a

two

-phase process for impairment testing of goodwill. The

first

phase screens for impairment, while the

second

phase (if necessary) measures impairment. Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. In such a case, the

second

phase is then performed, and the Company measures impairment by comparing the carrying amount of the reporting unit’s goodwill to the implied fair value of that goodwill. An impairment loss is recognized in an amount equal to the excess. ASC

350

allows an entity to

first

assess qualitative factors to determine whether it is necessary to perform the

two

-step quantitative goodwill impairment test. An entity is

not

required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than

not

that its fair value is less than its carrying amount.

Alternatively, ASC

350

permits an entity to bypass the qualitative assessment for any reporting unit and proceed directly to performing the

first

step of the goodwill impairment test.

The Company performs an annual impairment test on

December 31

of each fiscal year, or more frequently if impairment indicators are present.

The Company’s reporting units are consistent with the reportable segments identified in Note

16.

Fair value is determined using discounted cash flows, market multiples and market capitalization. Significant estimates used in the methodologies include estimates of future cash-flows, future short-term and long-term growth rates, weighted average cost of capital and market multiples for the reporting unit.

For the fiscal year ended

December 31, 2018,

2017

and

2016,

the Company performed a quantitative assessment on its goodwill and

impairment losses were identified.

Intangible assets that are

not

considered to have an indefinite useful life are amortized using the straight-line basis over their estimated useful lives, which range from

years. The carrying amount of these assets is reviewed whenever events or changes in circumstances indicate that the carrying value of an asset

may

not

be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate.

If such asset is considered to be impaired, the impairment to be recognized is measured as the difference between the carrying amount of the assets and the fair value of the impaired asset.

During the fiscal year ended

December 31, 2018,

2017

and

2016,

impairment losses were identified.

Severance pay:

DSP Group Ltd., the Company’s Israeli subsidiary (“DSP Israel”), has a liability for severance pay pursuant to Israeli law, based on the most recent monthly salary of its employees multiplied by the number of years of employment as of the balance sheet date for such employees. DSP Israel’s liability is fully provided for by monthly accrual and deposits with severance pay funds and insurance policies.

The deposited funds include profits accumulated up to the balance sheet date. The deposited funds

may

be withdrawn only upon the fulfillment of the obligation pursuant to Israel’s Severance Pay Law or labor agreements.

The Company’s Korean subsidiary has a statutory liability for severance pay pursuant to Korean law based on the most recent monthly salary of its employees multiplied by the number of years of employment of such employees as of the balance sheet date for such employees. The Korean subsidiary’s liability is fully accrued.

Severance expenses for the years ended

December 31, 2018,

2017

and

2016,

were

$1,679,

$1,666

and

$1,582,

respectively.

Revenue recognition:

The Company generates its revenues from sales of products. The Company sells its products through a direct sales force and through a network of distributors.

The Company adopted Accounting Standards Codification

606,

Revenue from Contracts with Customers (ASC

606

), effective on

January 1, 2018,

using the modified retrospective method. As a result of this adoption, the Company revised its accounting policy for revenue recognition as detailed below.

The Company recognizes revenue under the core principle that transfer of control to the Company’s customers should be depicted in an amount reflecting the consideration the Company expects to receive in revenue. In order to achieve that core principle, the Company applies the following

five

-step approach: (

) identify the contract with a customer, (

) identify the performance obligations in the contract, (

) determine the transaction price, (

) allocate the transaction price to the performance obligations in the contract, and (

) recognize revenue when a performance obligation is satisfied.

Identify the contract with a customer

A contract is an agreement between

two

or more parties that creates enforceable rights and obligations. In evaluating the contract, the Company analyzes the customer’s intent and ability to pay the amount of promised consideration (credit risk) and considers the probability of collecting substantially all of the consideration. The Company determines whether collectability is reasonably assured on a customer-by-customer basis pursuant to its credit review policy. The Company typically sells to customers with whom it has a long-term business relationship and a history of successful collection. A significant number of the Company’s customers are also large original equipment manufacturers with substantial financial resources. For a new customer, or when an existing customer substantially expands its commitments, the Company evaluates the customer’s financial position, the number of years the customer has been in business, the history of collection with the customer and the customer’s ability to pay and typically assigns a credit limit based on that review. The Company increases the credit limit only after it has established a successful collection history with the customer. If the Company determines at any time that collectability is

not

reasonably assured under a particular arrangement based upon its credit review process, the customer’s payment history or information that comes to light about a customer’s financial position, it recognizes revenue under that arrangement as customer payments are actually received.

Identify the performance obligations in the contract

At a contract’s inception, the Company assesses the goods or services promised in a contract with a customer and identifies the performance obligations.

The Company’s contracts with customers for the sale of products generally include

one

performance obligation.

Determine the transaction price

The transaction price is the amount of consideration to which the Company is entitled in exchange for transferring goods to a customer. Generally, the Company does

not

provide any variable consideration, including price protection, stock rotation, and/or right of return.

Allocate the transaction price to the performance obligations in the contract

The Company allocates the transaction price to

one

performance obligation.

Recognize revenue when a performance obligation is satisfied

Revenue is recognized at a point in time when or as performance obligation is satisfied by transferring control of a promised good to a customer. Generally, control of an asset is transferred to the customer on delivery of the products.

Under ASC

606,

certain product sales through the Company’s distributors where revenue was previously deferred until the distributors resold the Company’s products to the end customers are now recognized when products are delivered to the distributor and control of the promised goods are transferred, in an amount that reflects the consideration that the company expects to receive in exchange for those goods or services.

In accordance with the ASC

606

requirements, the disclosure of the impact of adoption of ASC

606

on the Company’s consolidated income statement and balance sheet was as follows (in thousands):

	For the year ended December 31, 2018
	As Reported			Prior to Adoption of ASC 606			Effect of Change Higher/(Lower)
Income statement

Revenues	$	117,438		$	117,127		$	311
Cost of revenues		59,991			59,884			107
Gross margin:		57,447			57,243			204
Operating expenses:
Research and development, net		36,109			36,109			-
Sales and marketing		15,323			15,307			16
General and administrative		9,955			9,955			-
Intangible assets amortization		1,700			1,700			-
Total operating expenses:		63,087			63,071			16
Operating loss:		(5,640	)		(5,828	)		188
Financial income		1,815			1,815			-
Loss before taxes on income		(3,825	)		(4,013	)		188
Taxes on income		1,868			1,868			-
Net income (loss)	$	(1,957	)	$	(2,145	)	$	188

	December 31, 2018
	As Reported			Prior to Adoption of ASC 606			Effect of Change Higher/(Lower)
Balance Sheet
Assets
Trade receivables	$	13,475		$	13,048		$	427
Inventories		9,819			9,943			(124	)
Other accounts receivable and prepaid expenses		3,670			3,691			(21	)

Liabilities
Accrued expenses and other accounts payable		(3,461	)		(3,461	)		-


Equity
Accumulated deficit		(112,363	)		(112,645	)		282

Warranty:

The Company warrants its products against errors, defects and bugs for generally

one

year. The Company estimates the costs that

may

be incurred under its warranty and records a liability in the amount of such costs. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Warranty costs and liability were immaterial for the years ended

December 31, 2018,

2017

and

2016.

Research and development costs, net:

Research and development costs, net of grants received, are charged to the consolidated statement of operations as incurred.

Government grants:

Government grants received by the Company’s Israeli subsidiary relating to categories of operating expenditures are credited to the consolidated statements of income during the period in which the expenditure to which they relate is charged. Royalty and non royalty bearing grants from the Israeli Innovation Authority ("IIA") (formerly known as Office of the Chief Scientist) for funding certain approved research and development projects are recognized at the time when the Company’s Israeli subsidiary is entitled to such grants, on the basis of the related costs incurred, and are included as a deduction from research and development expenses, net.

The Company recorded grants in the amount of

$1,678,

$1,528

and

$2,687

for the year ended

December 31, 2018

and

2017

and

2016,

respectively. The vast majority of those grants were bearing royalties.

The Company’s Israeli subsidiary is obligated to pay royalties amounting to

of the sales of certain products the development of which received grants from the IIA in previous years. The obligation to pay these royalties is contingent on actual sales of such products. Grants received from the IIA

may

become repayable if certain criteria under the grants are

not

met. The Israeli Research and Development Law provides that know-how developed under an approved research and development program

may

not

be transferred to

third

parties without the approval of the IIA. Such approval is

not

required for the sale or export of any products resulting from such research or development. The IIA, under special circumstances,

may

approve the transfer of IIA-funded know-how outside Israel, in the following cases: (a) the grant recipient pays to the IIA a portion of the sale price paid in consideration for such IIA-funded know-how or in consideration for the sale of the grant recipient itself, as the case

may

be, which portion will

not

exceed

six

times the amount of the grants received plus interest (or

three

times the amount of the grant received plus interest, in the event that the recipient of the know-how has committed to retain the research and development activities of the grant recipient in Israel after the transfer); (b) the grant recipient receives know-how from a

third

party in exchange for its IIA-funded know-how; (c) such transfer of IIA-funded know-how arises in connection with certain types of cooperation in research and development activities; or (d) if such transfer of know-how arises in connection with a liquidation by reason of insolvency or receivership of the grant recipient.

Equity-based compensation:

December 31, 2018,

the Company had

two

equity incentive plans from which the Company

may

grant future equity awards and

two

expired equity incentive plans from which

future equity awards

may

be granted but had outstanding equity awards granted prior to expiration. The Company also had

one

employee stock purchase plan. See full description in Note

12.

The Company accounts for equity-based compensation in accordance with FASB ASC

No.

718,

“Stock Compensation” (“FASB ASC

No.

718”

). FASB ASC

No.

718

requires companies to estimate the fair value of equity-based awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statements of operations.

The Company recognizes compensation expenses for the value of its awards granted based on the accelerated attribution method, rather than a straight-line method over the requisite service period of each of the awards, net of estimated forfeitures. FASB ASC

No.

718

requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Estimated forfeitures are based on actual historical pre-vesting forfeitures.

The Company selected the lattice option pricing model as the most appropriate fair value method for its equity-based awards and values options and stock appreciation rights (SARs) based on the market value of the underlying shares on the date of grant. The option-pricing model requires a number of assumptions, of which the most significant are the expected stock price volatility and the expected term of the equity-based award. Expected volatility is calculated based upon actual historical stock price movements. The expected term of the equity-based award granted is based upon historical experience and represents the period of time that the award granted is expected to be outstanding. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has historically

not

paid dividends and has

foreseeable plans to pay dividends.

With respect to the Company’s employee stock purchase plan, the Company selected the Monte Carlo pricing model as the most appropriate fair value method.

A majority of the Company’s equity awards until

2012

were in the form of stock appreciation rights (SARs). Starting in

2013,

a majority of the Company’s equity awards were in the form of restricted stock unit (“RSU”) grants.

The fair value of each restricted stock unit (“RSU”) is based on the market value of the underlying share on the date of grant.

Basic and diluted income (loss) per share:

Basic net income (loss) per share is computed based on the weighted average number of shares of common stock outstanding during the year. Diluted net income (loss) per share further includes the dilutive effect of stock options, SARs and RSUs outstanding during the year, all in accordance with FASB ASC

No.

260,

“Earnings Per Share.”

The total weighted average number of shares related to the outstanding stock options, SARs and RSUs excluded from the calculation of diluted net income per share due to their anti-dilutive effect was

1,317,197,

1,378,282

and

334,833

for the years ended

December 31, 2018,

2017

and

2016,

respectively.

Income taxes:

The Company accounts for income taxes in accordance with FASB ASC

No.

740,

“Income Taxes.” This topic prescribes the use of the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.

Deferred tax liabilities and assets are classified as non-current based on the adopting of Accounting Standards Update (“ASU”)

2015

17,

“Balance Sheet Classification of Deferred Taxes.” Prior to the adoption of ASU

2015

17,

U.S. GAAP required an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. ASU

2015

was issued to simplify the presentation of deferred income taxes. Deferred tax liabilities and assets are now classified as noncurrent in a classified statement of financial position for all period presented.

The Company accounts for uncertain tax positions in accordance with ASC

740,

which contains a

two

-step approach to recognizing and measuring uncertain tax positions. The

first

step is to evaluate the tax position taken or expected to be taken in a tax return by determining whether the weight of available evidence indicates that it is more likely than

not

that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The

second

step is to measure the tax benefit as the largest amount that is more than

50%

likely to be realized upon ultimate settlement. The Company reevaluates its income tax positions periodically to consider factors such as changes in facts or circumstances, changes in or interpretations of tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in recognition of a tax benefit or an additional charge to the tax provision.

The Company includes interest related to tax issues as part of income tax expense in its consolidated financial statements. The Company records any applicable penalties related to tax issues within the income tax provision.

Concentrations of credit risk:

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

The majority of cash and cash equivalents and short-term deposits of the Company are invested in dollar deposits with major U.S., European and Israeli banks. Deposits in U.S. banks

may

be in excess of insured limits and are

not

insured in other jurisdictions. Generally, cash and cash equivalents and these deposits

may

be withdrawn upon demand and therefore bear low risk.

The Company’s marketable securities consist of investment-grade corporate bonds and U.S. government-sponsored enterprise (“GSE”) securities. As of

December

31,

2018,

the amortized cost of the Company’s marketable securities was

$99,406,

and their stated market value was

$97,772,

representing an unrealized net loss of

$1,634.

A significant portion of the products of the Company is sold to original equipment manufacturers of consumer electronics products. The customers of the Company are located primarily in Japan, Hong Kong, Taiwan, China, Korea, Europe and the United States. The Company performs ongoing credit evaluations of their customers. A specific allowance for doubtful accounts is determined, based on management’s estimates and historical experience. Under certain circumstances, the Company

may

require a letter of credit. The Company covers most of its trade receivables through credit insurance. As of

December 31, 2018

and

2017,

allowance for doubtful accounts was provided.

The Company has

off-balance-sheet concentration of credit risk, except for certain derivative instruments as mentioned below.

Derivative instruments:

The Company accounts for derivatives and hedging based on FASB ASC

No.815,

“Derivatives and Hedging”. ASC

No.

815

requires companies to recognize all of their derivative instruments as either assets or liabilities on the balance sheet at fair value.

For derivative instruments that are designated and qualify as a cash flows hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gain or loss on a derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item is recognized in current earnings during the period of change.

To protect against the increase in value of forecasted foreign currency cash flows resulting from salary and rent payments in New Israeli Shekel (“NIS”) during the year, the Company instituted a foreign currency cash flow hedging program. The Company hedges portions of the anticipated payroll and rent of its Israeli facilities denominated in NIS for a period of

one

months with put and call options and forward contracts. These forward contracts and put and call options are designated as cash flow hedges and are all effective as hedges of these expenses.

The fair value of the outstanding derivative instruments at

December

31,

2018

and

2017

is summarized below:

		Fair value of derivative instruments
Derivative assets		December 31,
(liabilities) designated as hedging	Balance sheet location	201 8			201 7

Foreign exchange forward contracts and put and call options	Other accounts receivable and prepaid expenses (Accrued expenses and other accounts payable)	$	(3	)	$	-

	Total	$	(3	)	$	-

The effect of derivative instruments in cash flow hedging transactions on income and other comprehensive income (“OCI”) for the years ended

December

31,

2018,

2017

and

2016

is summarized below:

	Gains (losses) on derivatives recognized in OCI
	Year ended December 31,
	2018			201 7		201 6

Foreign exchange forward contracts and put and call options	$	(19	)	$	163	$	45

		Gains (losses) on derivatives reclassified from OCI to income
		Year ended December 31,
	Location	201 8			201 7		201 6

Foreign exchange forward contracts and put and call options	Operating expenses	$	(16	)	$	172	$	1

As of

December 31, 2018,

the Company had outstanding option contracts in the amount of

$3,600.

As of

December 31, 2017,

the Company had

outstanding option or forward contracts.

As of

December 31, 2016,

the Company had outstanding option contracts in the amount of

$6,000.

Comprehensive income:

The Company accounts for comprehensive income in accordance with FASB ASC

No.

220,

“Comprehensive Income.” Comprehensive income generally represents all changes in stockholders’ equity during the period except those resulting from investments by, or distributions to, stockholders. The Company determined that its items of other comprehensive income relate to gains and losses on hedging derivative instruments, unrealized gains and losses on available-for-sale securities, unrealized gains and losses from pension and unrealized gain and losses from foreign currency translation adjustments.

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for

2018:

	Unrealized gains (losses) on available- for-sale marketable securities			Unrealized gains (losses) on Cash Flow Hedges			Unrealized gains (losses) on components of defined benefit plans			Unrealized gains (losses) on foreign currency translation			Total
January 1, 2018	$	(1,209	)	$	-		$	(409	)	$	(256	)	$	(1,874	)
Other comprehensive income (loss) before reclassifications		(465	)		(19	)		29			(71	)		(526	)
Losses (gains) reclassified from accumulated other comprehensive income (loss)		41			16			19			-			76
Net current period other comprehensive income (loss)		(424	)		(3	)		48			(71	)		(450	)

December 31, 2018	$	(1,633	)	$	(3	)	$	(361	)	$	(327	)	$	(2,324	)

The following table provides details about reclassifications out of accumulated other comprehensive income (loss) for

2018:

Details about Accumulated Other Comprehensive Income (Loss) Components	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)		Affected Line Item in the Statement of Income (Loss)

Losses on available-for-sale marketable securities	$	41	Financial income, net
		-	Provision for income taxes
		41	Total, net of income taxes

Losses on cash flow hedges
		13	Research and development
		1	Sales and marketing
		2	General and administrative
		16	Total, before income taxes
		-	Provision for income taxes
		16	Total, net of income taxes

Losses on components of defined benefit plans		12	Research and development
		7	Sales and marketing
		19	Total, before income taxes
		-	Provision for income taxes
		19	Total, net of income taxes

Total reclassifications for the period		76	Total, net of income taxes

Treasury stock at cost

The Company repurchases its common stock from time to time on the open market or in other transactions and holds such shares as treasury stock. The Company presents the cost to repurchase treasury stock as a reduction of stockholders’ equity.

From time to time, the Company reissues treasury stock under its employee stock purchase plan and equity incentive plans, upon purchases or exercises of equity awards under the plans. When treasury stock is reissued, the Company accounts for the re-issuance in accordance with ASC

No.

505

30,

“Treasury Stock” and charges the excess of the purchase cost over the re-issuance price (loss) to retained earnings. The purchase cost is calculated based on the specific identification method. In case the purchase cost is lower than the re-issuance price, the Company credits the difference to additional paid-in capital.

Recently issued and adopted accounting pronouncements:

May 2014,

the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)

2014

09,

“Revenue from Contracts with Customers (Topic

606

)” (“ASU

2014

09”

), which amends the existing accounting standards for revenue recognition. On

January 1, 2018,

the Company adopted Accounting Standards Codification (“ASC”)

606,

“Revenue from Contracts with Customers” and all the related amendments (collectively “ASC

606”

) using the modified retrospective method. The Company recognized the cumulative effect of initially applying ASC

606

as an adjustment to the opening balance of retained earnings. The comparative information has

not

been restated and continues to be reported under the revenue recognition standards in effect for those periods. The reported results for

2018

reflect the application of ASC

606

guidance while the reported results for

2017

were prepared under the guidance of ASC

605,

“Revenue Recognition (ASC

605

)”. The impact of the Company’s adoption of ASC

606

on the Company’s balance sheet was a decrease in accumulated deficit as of

January 1, 2018

$94.

See Note

(m), “Revenue Recognition”, for further details.

August 2016,

FASB issued ASU

2016

15,

Statement of Cash Flows (Topic

230

) Classification of Certain Cash Receipts and Cash Payments. ASU

2016

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

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 Company adopted the standard effective as of

January 1, 2018,

and the adoption of this standard did

not

have a material impact on our Company's consolidated financial statements.

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.

The Company adopted the standard retrospectively to all periods presented effective as of

January 1, 2018.

March 2017,

FASB issued ASU

2017

07,

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost under FASB ASC Topic

715,

Retirement Benefits. Accordingly, as of

January 1, 2017,

the Company reports the current service cost component of net periodic benefit cost in Compensation and benefits on the Company's Consolidated Statements of Income, and reports the other components of net periodic benefit recovery as a separate line item outside of Operating income on the Company's Consolidated Statements of Income. These changes in presentation do

not

result in any changes to net income or earnings per share. Details of the components of net periodic benefit costs are provided in Note

(Pensions and employees benefit obligations). The ASU also prospectively restricts capitalization of net periodic benefit costs to the current service cost component when applicable. This restriction has

impact on the Company's financial statements, since the Company does

not

capitalize any portion of service cost.

ASC

718

– see Note

(q).

June 2018,

the FASB issued, ASC

2018

“Improvement to Nonemployee Share-based Payment Accounting”. Under the new standard, companies are

longer required to value non-employee awards differently from employee awards. This standard is effective for fiscal years beginning after

December 15, 2018,

including interim periods within that fiscal year. The Company has adopted this standard in

2018

and determined there was

material impact on the Company’s consolidated financial statements.

Recently issued accounting pronouncements

not

yet effective:

August 2018,

the FASB issued ASU

2018

15,

Intangibles—Goodwill and Other—Internal-Use Software (Subtopic

350

): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The implementation costs incurred in a hosting arrangement that is a service contract should be presented as a prepaid asset on the balance sheet and expensed over the term of the hosting arrangement to the same line item in the statement of income as the costs related to the hosting fees. The guidance in this ASU is effective for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years, and early adoption is permitted, including adoption in any interim period. The amendments should be applied either retrospectively or prospectively to all implementation costs incurred after adoption. The Company is currently evaluating the impact that the standard will have on our consolidated financial statements and do

not

expect the adoption of this ASU to have a material effect on our consolidated financial statements.

August 2018,

the FASB issued ASU

2018

14—Compensation—Retirement

Benefits—Defined Benefit Plans—General (Topic

715

): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans which improves disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This standard is effective for fiscal years ending after

December 15, 2020,

for public business entities. Early adoption is permitted for all entities. Entities are to apply the amendments in this Update on a retrospective basis for all periods presented. The Company is currently evaluating the impact that the standard will have on the Company’s consolidated financial statements and related disclosures.

February 2016,

the FASB issued ASU

2016

02,

Leases (ASC

842

) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under current GAAP.In

July 2018,

the FASB issued amendments in ASU

2018

11,

which provide another transition method in addition to the existing transition method, by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, and to

not

apply the new guidance in the comparative periods they present in the financial statements.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. ASU

2016

requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet ASU

2016

is effective for fiscal years beginning after

December 15, 2018 (

including interim periods within those periods). The Company will adopt ASU

2016

January 1, 2019

utilizing the modified retrospective transition method. The Company adopted the new standard effective

January 1, 2019.

While the Company is continuing to assess the potential impacts of ASU

2016

02,

the Company estimates that the adoption of ASU

2016

will result in the recognition of right-of-use assets and lease liabilities for operating leases of approximately

$12.5

million on its consolidated balance sheets for operation leases and it does

not

expect an impact on its consolidated statements of operations or debt.

June 2016,

the FASB issued ASU

2016

13,

Financial Instruments - Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments. ASU

2016

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

also applies to employee benefit plan accounting, with an effective date of the

first

quarter of fiscal

2022.

The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated balance sheets, statements of operations and cash flows.