| SIGNIFICANT ACCOUNTING POLICIES | NOTE 2
— SIGNIFICANT ACCOUNTING POLICIES: a. Basis of presentation The
Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United
States (hereinafter,“U.S GAAP”) and include the accounts of the Company and of all its wholly owned subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation. b. Use of estimates in the preparation of financial statements The preparation of the
consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from
those estimates and such differences may have a material impact on the Company’s consolidated financial statements. As
applicable to these consolidated financial statements, the most significant estimates relate to goodwill impairment, impairment of
long-lives assets, useful lives of intangible assets, income tax, legal and other contingencies and share-based payments. The
Company bases its estimates on historical experience, known trends and events and various other factors that the Company believes
are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. The Company evaluates its estimates and assumptions on an ongoing
basis. The Company’s actual results may differ from these estimates under different assumptions or conditions. c. Functional currency The
U.S. dollar is the currency of the primary economic environment in which the operations of the Company and its subsidiaries are conducted.
A substantial portion of the revenue and operational costs are denominated in U.S. dollars. Accordingly, the functional currency of the
Company is the U.S. dollar (“primary currency”). Transactions and balances originally denominated in dollars are presented
at their original amounts. Balances in foreign currencies are translated into the primary currency using historical and current exchange
rates for nonmonetary and monetary balances, respectively. For foreign transactions and other items reflected in the statements of operations,
the following exchange rates are used: (1) for transactions – exchange rates at transaction dates or average rates and (2) for
other items (derived from nonmonetary balance sheet items such as depreciation) – historical exchange rates. The resulting transaction
gains or losses are recorded as financial income or expenses. d. Business Combinations The
Company allocates the fair value of consideration transferred in a business combination to the assets acquired, liabilities assumed,
and non-controlling interests in the acquired business based on their fair values at the acquisition date. Acquisition-related expenses
are recognized separately from the business combination and are expensed as incurred. The excess of the fair value of the consideration
transferred plus the fair value of any non-controlling interest in the acquiree over the fair value of the assets acquired, liabilities
assumed in the acquired business is recorded as goodwill. The fair value of the consideration transferred may include a combination of
cash, equity securities, earn out payments and deferred payments. The allocation of the consideration transferred in certain cases may
be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from
the acquisition date. The cumulative impact of revisions during the measurement period is recognized in the reporting period in which
the revisions are identified. The Company includes the results of operations of the businesses that it has acquired in its consolidated
results prospectively from the respective dates of acquisition. The
Company records obligations in connection with its business combinations at fair value on the acquisition date. Each reporting period
thereafter, the Company revalues earn-out liabilities and records the changes in their fair value in the consolidated statements of operations
and comprehensive loss. Changes
in the fair value of earn-out liabilities can result from adjustments to the discount rates, the Company’s shares price, sales
and profitability targets. This fair value measurement represent Level 3 measurements, as they are based on significant inputs not observable
in the market. Significant judgment is required in determining the assumptions utilized as of the acquisition date and for each subsequent
period. Accordingly, changes in the assumptions described above could have a material impact on the Company’s consolidated results
of operations. e. Cash and cash equivalents Cash equivalents consist of short term deposits and money market funds.
The short term deposits are short-term unrestricted highly liquid investments that are readily convertible to cash and with original maturities
of three months or less at acquisition. The money market funds consist of institutional investors money market funds and are readily redeemable
to cash. f. Marketable Securities All highly liquid investments are classified
as marketable securities and have been classified and accounted for as available-for-sale. Investment in securities consists of debt securities
classified as available-for-sale and recorded at fair value. The Company classifies its marketable securities as either short-term or
long-term based on each instrument’s underlying contractual maturity date and its reasonable expectation regarding those securities.
Unrealized gains and losses on marketable debt securities classified as available-for-sale are reported net of reclassifications in other
comprehensive income/(loss). Premiums and discounts on debt securities
are amortized or accreted over the life of the related security as an adjustment to yield using the effective interest method. Such amortization
and accretion are included in the “Financial income, net” line item in the consolidated statements of operations.
g. Inventories: Inventories include raw materials and
finished products and are valued at the lower of cost or net realizable value. Costs include materials, labor, external service, and manufacturing
overhead. The Company adjusts excess and obsolete inventories to net realizable value and write-downs of excess and obsolete inventories
are recorded as a component of cost of revenues. h. Accounts receivables Accounts receivables are presented
net of the allowance for expected credit loss and consists of short term receivables that arise in the normal course of business. The
Company performs ongoing credit evaluations of its customers’ financial condition and typically requires no collateral from its
customers. The Company maintains the allowance
for estimated losses resulting from the inability of the Company’s customers to make required payments. The allowance represents
the current estimate of lifetime expected credit losses over the remaining duration of existing accounts receivable considering current
market conditions and supportable forecasts when appropriate. The estimate is a result of the Company’s ongoing evaluation of collectability,
customer creditworthiness, historical levels of credit losses, and future expectations. Changes
in the allowance for credit losses are recognized in general and administrative expenses. Accounts receivables are written-off
against the allowance for credit losses when management deems the accounts are no longer collectible. i. Property and equipment, net Property
and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated on a straight-line basis over the following
estimated useful lives:
Years
Computers and electronic equipment 3-7
Office furniture and lab equipment 5-7
Vehicles 7
Equipment and machinery 5-10 Leasehold
improvements are amortized over the terms of the respective leases or the estimated useful lives of the improvements, whichever
is shorter.
j. i.
Intangible Assets, net Goodwill Goodwill
reflects the excess of the consideration transferred plus the fair value of any non-controlling interest in the acquiree at the business
combination date over the fair values of the identifiable net assets acquired. Goodwill is an asset representing the future economic
benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.
The Company allocates goodwill to its reporting units based on the reporting unit expected to benefit from the business combination.
The primary items that generate goodwill include the value of the synergies between the acquired companies and the Company
and the acquired assembled workforce, neither of which qualifies for recognition as an intangible asset. ASC 350 allows an entity to
first assess qualitative factors to determine whether a quantitative goodwill impairment test is necessary. Further testing is only required
if the entity determines, based on the qualitative assessment, that it is more likely than not that a reporting unit’s
fair value is less than its carrying amount. Otherwise, no further impairment testing is required. Examples of events or circumstances
that may be indicative of impairment include but are not limited to: macroeconomic and industry conditions, overall financial performance
and adverse changes in legal, regulatory, market share and other relevant entity specific events. An entity has the option to bypass
the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative goodwill impairment test. This
would not preclude the entity from performing the qualitative assessment in any subsequent period. The quantitative assessment compares
the fair value of the reporting unit to its carrying value, including goodwill. The
Company determines the fair value of its reporting units using a discounted cash flow model, which utilizes key assumptions such as projected
revenues, cost of revenues and operating expenses. These assumptions are determined by the Company’s management utilizing its internal
operating plan, growth rates for revenues and operating expenses and margin assumptions. An additional key assumption under this
approach is the discount rate, based on the weighted average cost of capital, which is adjusted for current risk-free rates of capital,
current market interest rates, and the evaluation of a risk premium relevant to the business segment. If
the Company’s assumptions relative to revenue growth rates, cost of revenues and operating expenses were to change, the Company’s
fair value calculation may change, which could result in impairment. If the Company’s assumptions relative to the discount rate
and the evaluation of risk premium growth rates were to change, the Company’s fair value calculation may change, which could result
in impairment. The Company uses the income approach to determine the fair value of the reporting units because it considers the anticipated
future financial performance of the reporting units. Accordingly, changes in the assumptions described above could have a material impact
on the Company’s consolidated results of operations. The
Company’s goodwill is tested for impairment at least on an annual basis, on the last day of the fourth quarter of the fiscal year
and whenever events or changes in circumstances indicate the carrying value of a reporting unit may not be recoverable. When necessary,
the Company records charges for impairments of goodwill for the amount by which the carrying amount of the respective reporting unit
exceeds its fair value. However, the loss recognized should not exceed the total amount of goodwill allocated to that reporting
unit. The
goodwill is assigned to the reporting units of the AI Solutions segment (which was recorded in the acquisition of Nanox AI) and the Radiology
Services segment (which was recorded in the acquisition of USARAD). The carrying value of each reporting unit is determined by assigning
the assets and liabilities, including the existing goodwill, to those reporting units. During 2023 and 2022, the Company recognized
a goodwill impairment of $7,420 and 50,878 thousand, respectively. As of December 31, 2021, the Company did not determine that it was
more likely that not that the fair value of each reporting unit was less than its carrying amount. See note 4. Other
Intangible Assets, net Definite life intangible assets are
amortized using the straight-line method over their estimated period of useful life. Amortization of radiologist relationships, market
platform, developed technology and image big data are recorded under cost of revenues. Amortization of trade names and customer relationships
are recorded under sales and marketing expenses. In addition, the amortization period for intangible assets is reassessed and, if necessary,
revised. k. Impairment of long-lived assets The Company’s long-lived assets,
such as property, plant and equipment and identifiable intangible assets are reviewed for potential impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment indicators which could trigger an impairment
may include, among others, any significant changes in the manner of the Company’s use of the assets or the strategy of the Company’s
overall business, certain reorganization initiatives, significant negative industry or economic trends or when the Company concludes that
it is more likely than not that an asset will be disposed of or sold. The recoverability of assets 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 such 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. This measurement includes significant estimates and assumptions inherent in the estimate of the
fair value of identifiable intangible assets and property and equipment such as assumptions associated with forecasting profitability,
including operational margins and capital expenditures. Accordingly, changes in the assumptions described above could have a material
impact on our consolidated results of operations. An impairment charge in the amount of $172 thousand and $214 thousand was recorded
for the years ended December 31, 2022 and 2021, respectively, in relation to the Company’s Property, Plant and Equipment.
During 2023, 2022 and 2021, the Company did not record any impairment charge related to its definite life intangible assets. l. Investment in Equity Securities The
Company’s investment in equity securities consists of non-marketable equity securities, which is an investment in a privately held
company and presented under other non-current assets. The Company’s equity investment does not have a readily determinable fair
value. The investment is measured as cost method investment under the measurement alternative prescribed within ASU 2016-01 “Financial
Instruments—Recognition and Measurement of Financial Assets and Financial Liabilities” to the extent such an investment is
not subject to consolidation or the equity method. Under the measurement alternative, this investment is carried at cost, less any
impairment, adjusted for changes resulting from observable price changes in orderly transactions for an identical or similar investment
of the same issuer. The investment is impaired if based on a qualitative assessment of impairment indicators, the fair value of the investment
is less than its carrying amount. If considered impaired, the difference between the carrying amount and fair value should be recorded
in the consolidated statement of operations. In February 2022, the Company purchased 67,000 common shares of a privately held company for an amount
of $1,010 thousand. m. Severance pay Israeli
labor law generally requires severance pay be granted upon dismissal of an employee or upon termination of employment under certain other
circumstances. Pursuant to Section 14 of the Severance Compensation Act, 1963 (“Section 14”), all of the Company’s
employees in Israel are entitled to monthly deposits, at a rate of 8.33% of their monthly salary, made in their name with insurance companies.
Payments under Section 14 relieve the Company from any future severance payment obligation with respect to those employees and, as such,
the Company may only utilize the insurance policies for the purpose of disbursement of severance pay. As a result, the Company does not
recognize an asset nor liability for these employees. In 2023, 2022 and 2021, all of the employees
of the Company and its subsidiary in Israel are subject to Section 14 of the Severance Law. Severance pay expenses for 2023, 2022 and
2021 amounted to $1,024 thousand, $1,251 thousand and $846 thousand, respectively. n . Legal and other contingencies Certain
conditions, such as legal proceedings, may exist as of the date the consolidated financial statements are issued that may result in a
loss to the Company, but that will only be resolved when one or more future events occur or fail to occur. In assessing loss contingencies
related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s
management evaluates with its legal advisors the perceived merits of any legal proceedings or unasserted claims as well as the perceived
merits of the amount of relief sought or expected to be sought. Such assessment inherently involves an exercise of judgment. Legal fees
are expensed as incurred. Litigation outcomes and contingencies are unpredictable and excessive verdicts can occur. Therefore, the Company’s
assessments involve complex judgments concerning future events and often rely heavily on estimates and assumptions. The Company applies
the guidance in ASC 450-20-25 when assessing losses resulting from contingencies. The Company reviews the adequacy of the accruals on
a periodic basis and may determine to alter its reserves at any time in the future if the Company believes it would be appropriate to
do so. As such accruals are based on management’s judgment as to the probability of losses and, where applicable, actuarially determined
estimates, accruals may materially differ from actual verdicts, settlements or other agreements made with regards to such contingencies.
If the assessment of a contingency indicates that it is probable that a material loss would be incurred and the amount of the liability
can be estimated, then the Company records an accrued expense in the Company’s consolidated financial statements based on its best
estimate. Loss contingencies considered to be remote by management are generally not disclosed unless material. For additional information,
see note 12. o. Revenue Recognition The majority of the Company’s
revenues are derived from radiology service fees received from various payors based on established billing rates. Revenues are
derived directly from hospitals and healthcare providers. The Company recognizes revenue in the period in which the performance
obligation is satisfied. The Company records the amount of revenue that reflects the consideration that it expects to receive in
exchange for those services. The Company applies the following five-step model in order to determine this amount:
(i) identification of the contract with a customer; (ii) identification of the promised services in the contract and
determination of whether they represent performance obligations, including whether they are distinct in the context of the contract;
(iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the
transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each
performance obligation. The teleradiology services have one performance obligation where the Company acts as principal to its
customers (imaging centers, hospitals, and other healthcare providers). Revenue is recognized at a point in time when such
performance obligation is satisfied, specifically when the radiologist completes the reading and the annotation of the
patient’s images. At large, payments are due at satisfaction of the Company’s performance obligation and after the
Company issues an invoice. The Company’s teleradiology fees are fixed based on the type of modalities and agreed with its
customers prior to rendering its services. Invoices are issued monthly for services rendered in the same month. Payments are due
upon receipt of the invoice. The Company assesses collectability as part of the revenue recognition model. This assessment includes
a number of factors such past due amounts, past payment history, and current economic conditions. If it is determined that
collectability cannot be reasonably assured, the Company will not recognize the revenue until collectability is assured. The Company
records deferred revenue for any upfront payments received in advance of the Company’s performance obligations being
satisfied. p. Research and development expenses, net Research and development expenses are
presented net of grants and charged to the statement of operations as incurred and consist primarily of personnel, materials and supplies
for research and development activities. q. Income tax
1) The Company accounts for
income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). ASC 740 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, if necessary, to reduce deferred tax assets to their estimated realizable
value if it is more likely than not that a portion or all of the deferred tax assets will not be realized, based on the weight of available
positive and negative evidence. Deferred tax liabilities and assets are classified as non-current.
2) Taxes that would apply in the event of disposal of investments in foreign and domestic subsidiaries
have not been taken into account in computing the deferred tax assets as it is apparent that the temporary differences
will not reverse in the foreseeable future. 3) The Company accounts for uncertain tax positions in accordance with ASC 740-10. ASC 740-10 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 if 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% (cumulative probability) likely to be realized upon ultimate settlement. The Company accrues interest and penalties related to unrecognized tax benefits under taxes on income (tax benefit). 4) Valuation allowances are provided unless it is more likely than not that the deferred tax asset will be realized. In the determination of the appropriate valuation allowances, the Company considers future reversals of existing taxable temporary differences, the most recent projections of future business results, that may enhance the likelihood of realization of a deferred tax asset. Assessments for the realization of deferred tax assets made at a given balance sheet date are subject to change in the future, particularly if earnings of the company or any of its subsidiaries are significantly higher or lower than expected, or if the Company takes operational or tax positions that could impact the future taxable of its earnings or its subsidiaries earnings. Accordingly, changes in the assumptions described above could have a material impact on the Company’s consolidated results of operations. r. Share-based compensation The
Company accounts for share-based compensation under ASC 718, “Compensation - Stock Compensation,” which requires the measurement
and recognition of compensation expense based on estimated fair values for all share-based payment awards made to non-employees, employees,
officers and directors. ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant. The
Company uses the Black-Scholes option-pricing model as part of such estimation. The Company recognizes compensation expenses
for its stock-based option awards and RSUs on a straight-line basis over the requisite service period (primarily a four-year period).
The Company accounts for forfeitures as they occur. s. Loss per share Basic loss per share is computed by
dividing net loss attributable to holders of ordinary shares of the Company by the weighted average number of ordinary shares outstanding
for each reporting period (including vested RSUs). In computing the Company’s diluted
earnings per share, the denominator for diluted earnings per share is a computation of the weighted-average number of ordinary shares
and the potential dilutive ordinary shares outstanding during the period. Potential dilutive ordinary shares result from assumed exercise
of options and the assumed vesting of RSUs, using the “treasury stock” method. The Company did not take into account
any dilutive instruments, such as investor warrants, share-based payments and earn-out liabilities that will be settled in ordinary shares
upon the achievement of certain milestones, for which the Company assesses their occurrence at the end of each reporting period-, since
their effect is anti-dilutive. t. Fair value measurement Fair value is based on the price that
would be received from the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants
at the measurement date. In order to increase consistency and comparability in fair value measurements, the guidance establishes a fair
value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described
as follows:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. In determining fair value, the Company
utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible
and considers counterparty credit risk in its assessment of fair value. The Company’s financial instruments
consist mainly of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and other liabilities.
The fair value of these financial instruments approximates their carrying value.
Balance as of
Level 1 Level 2 Level 3 Total
Assets:
Money market funds (*) 28,373 - 28,373
Marketable securities (***) - 26,006 - 26,006
Total assets - 54,379 - 54,379
Liabilities:
Current maturities of long term loan - - 3,378 3,378
Contingent short-term earnout liability (**) - - 1,500 1,500
Total liabilities - - 4,878 4,878 The
Company classifies AFS securities within Level 2 because it uses alternative pricing sources and models utilizing market observable inputs
to determine their fair value.
Balance as of
Level 1 Level 2 Level 3 Total
Assets:
Money market funds (*) 31,841 31,841
Marketable securities (***) - 64,359 - 64,359
Total assets - 96,200 - 96,200
Liabilities:
Long term loan - - 3,228 3,228
Contingent short term earnout liability (**) - - 4,250 4,250
Contingent long-term earnout liability (**) - - 4,089 4,089
Total liabilities - - 11,567 11,567 The
Company classifies AFS securities within Level 2 because it uses alternative pricing sources and models utilizing market observable inputs
to determine their fair value. (*) As of December 31, 2023, approximately $28,373 thousand of Money market funds were classified under “Cash and Cash equivalents” in the consolidated balance sheets as such securities met all applicable classification criteria. As of December 31, 2022, approximately $31,841 thousand of Money market funds were classified under “Cash and Cash equivalents” in the consolidated balance sheets as such securities met all applicable classification criteria.
(**) The
income valuation approach is applied, and the valuation inputs include the contingent payment arrangement terms, discount rate and probability
assessments.
(***) The
following tables summarize the amortized cost, unrealized gains and losses, and fair value of available-for-sale marketable securities
as of December 31, 2023 and 2022:
December 31, 2023
Fair value Cost or amortized cost Gross unrealized holding loss
Level 2 securities:
Municipal bonds 2,263 2,291 (28 )
Corporate debt 19,441 19,715 (274 )
Certificates of deposit 2,989 2,989 -
Other 1,313 1,316 (3 )
Total 26,006 26,311 (305 )
December 31, 2022
Fair value Cost or amortized cost Gross unrealized holding loss
Level 2 securities:
Municipal bonds 8,216 8,430 (214 )
Corporate debt 47,476 49,099 (1,623 )
Certificates of deposit 4,983 4,983 -
Other 3,684 3,821 (137 )
Total 64,359 66,333 (1,974 ) As of December 31, 2023 and 2022, the Company’s debt securities
and certificates of deposit had the following maturity dates:
December 31
2023 2022
Due within one year 26,006 39,161
1 to 2 years - 25,198
Total 26,006 64,359 Contingent earnout liability: The
Company determines the fair value of the liabilities for the earn-out contingent consideration based on a probability-weighted discounted
cash flow analysis with regards to probability assessments of achievement of certain milestones and discount rate. A probability of success
factor ranging fro m 0% to 100% was us tone and the risk adjusted discount rate for fair value
measurement. The weighted average discount rate ranged The following table summarizes the activity
for those financial liabilities where fair value measurements are estimated utilizing Level 3 inputs:
December 31, December 31, December 31,
(U.S. Dollar in thousands)
Fair value at the beginning of the year $ 8,339 $ 48,285 -
Initial recognition of earnout liabilities - - 48,285
Change in fair value of earn out liabilities obligation - (4,488 ) (20,376 ) -
Issuance of ordinary shares due to achievement of milestones and settlement of contingent consideration (*) (1,561 ) (19,570 ) -
Payment due to settlement of contingent earnout liabilities (*) (790 ) - -
Reclassification of earn-out liability to equity (**) (1,500 ) -
Fair value at the end of the year $ - $ 8,339 $ 48,285
(*) On January 19, 2022, the Company issued 89,286 shares to the
former shareholders of Zebra due to partial achievement of a milestone that occurred post-closing. On December 29, 2022, the Company
entered into a settlement with respect to any additional amount that could be granted under the Agreement, according to which the Company
issued Zebra’s former shareholders an additional 2,648,424 ordinary shares (representing additional consideration of approximately
$18,617 thousand). As a result of the settlement, both parties’ performance obligations under the Agreement have been satisfied
in full. Therefore, no further revaluations are required due to this settlement. On
April 28, 2023, the Company agreed to pay an aggregate amount of $290 in cash and 45,392 ordinary shares to the former stockholders
of USARAD, in consideration for the achievement of certain milestones in connection with the first earn out period, as defined in
the USARAD Stock Purchase Agreement. In addition, the Company and the former shareholders of USARAD entered into a settlement
agreement with respect to any additional amount that could be granted to the shareholders of USARAD as consideration for the
remainder of the milesto |
