| Significant Accounting Policies | Note 2 - Significant
Accounting Policies The financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The significant accounting policies
followed in the preparation of the financial statements, applied on a consistent basis, except as noted in Note 2W for the change in the
manner in which the Company accounts for leases, are as follows:
A. Functional Currency Most of the Company’s revenues
are denominated in U.S. dollars. A main portion of purchases of materials, component parts and sales costs are denominated in U.S. dollars.
Therefore, both the functional and reporting currency of the Company is the U.S. dollar. Transactions and balances denominated
in U.S. dollars are presented at their original amounts. Monetary balances denominated in currencies
other than the U.S dollar are converted into U.S dollars in accordance with Statements of the Accounting Standards Codification (“ASC”)
Topic 830, Foreign Currency Matters
B. Estimates and assumptions The preparation of the 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 financial statements and the reported amounts of revenues and expenses
during reported period. Actual results may differ from those estimates. As applicable for these financial statements, the most significant
estimates and assumptions related to revenue recognition, and valuation of inventories.
C. Cash equivalents Cash equivalents are short-term, highly
liquid investments and debt instruments that are readily convertible to cash with original maturities of three months or less from the
date of purchase.
D. Bank deposits Bank deposits with original maturities of more than three months, or specific deposits that are intended to be held as bank deposits for
more than three months, and which will mature within one year, are classified as short-term investments.
E. Trade receivables Trade receivables are recorded at the
invoiced amount and do not bear interest. The financial statements include an allowance for doubtful accounts for which collection of
the receivable is not probable and as of December 31, 2022, the provision for allowance for doubtful accounts was negligible. In determining
the adequacy of the allowance, consideration is given to each trade receivable historical experience, aging of the receivable, adjusted
to take into account current market conditions and information available about specific debtors, including their financial condition,
current payment patterns, the volume of their operations, and evaluation of the security received from them or their guarantors.
F. Inventories Inventories are stated at the lower
of cost or net realizable value. Cost is determined by calculating raw materials, work in process and finished products on a weighted
average cost basis. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably
predictable costs of completion, disposal and transportation. Inventory write-offs are provided to cover risks arising from slow moving
items or technological obsolescence. Such write-offs have been included in cost of revenues. Reserves for potentially excess and obsolete
inventory are made based on management’s analysis of inventory levels, future sales forecasts. Once established, the original cost
of inventory less the related inventory reserve represents the new cost basis of such products.
G. Property, plant and equipment, net Property, plant and equipment are stated
at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the
assets as follows:
Years
Computers and manufacturing equipment 3-7
Office furniture and equipment 17
Leasehold improvements Shorter of economic life
H. Revenue recognition The Company generates revenues from
sales of products manufactured based on the Company’s technology. The Company develops, design and manufactures both standard and
customizable high-end digital Video & Audio products. The Company’s products include proprietary software (firmware) embedded
into the tangible products and is not sold separately. The Company only sells its products to end customers with no right of return. The Company applies ASC Topic 606, Revenue from
Contracts with Customers In accordance with ASC 606, the entity performs the following
five steps:
(1) Identify the contract(s) with a customer,
(2) Identify the performance obligations in the contract,
(3) Determine the transaction price,
(4) Allocate the transaction price to the performance obligations
in the contract, and
(5) Recognize revenue when (or as) the entity satisfies a performance
obligation. Identifying the contract with a customer: The Company accounts for a contract with a customer when it
has approval and commitment from both parties, the rights of the parties and payment terms are identified and agreed upon, the contract
has commercial substance and collectability of consideration is probable. For each contract, the Company exercises judgement to identify
separate performance obligations and to evaluate, at the inception of the contract, if each distinct performance obligation within the
contract is satisfied at a point in time or over time. Identifying the performance obligations
in the contract: The Company’s sales transactions include a single performance
obligation which is the delivery of the product to the customer. The Company is not obligated and does not provide the customer with an
updated version of the products’ embedded software following the initial transaction. Therefore, the Company’s transactions
do not include any performance obligation relating to potential upgrades or updates for the software or product. In certain cases, the Company customizes its products based
on its customers’ requirements (Proof of Concept (“POC”) transactions). In addition, commencing 2021, the Company
also enters into several transactions in which it develops a specialized product, based on the Costumer’s requirements (Non-Recuring Engineering
(“NRE”) transactions). In these transactions, the Company has determined that the development or the customization and the
delivery of these products are not distinct within the context of the contract, since the nature of the Company’s promise is to
transfer a combined output to which each of these components is an input. Therefore, these transactions include a single performance obligation
which is the customized product. Determining the transaction price: Revenue is measured based on the consideration specified in
the contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties (such as sales tax).
The Company’s transaction does not include a significant financing component as all amounts are due within few months from
transfer of Control. Recognize revenue when (or as) the
entity satisfies a performance obligation: The Company recognizes revenue when it satisfies a performance
obligation by transferring control over its product to a customer based on the shipment terms. In most cases, control is transferred at
Company’s premises (Ex-work terms). As for the POC and NRE transactions, the Company analyzed
the criteria in ASC 606 to determine whether control over products sold under the contracts is transferred over time. Mainly, whether
the Company’s performance does not create an asset with an alternative use to the Company, and if it has an enforceable right to
payment for performance completed to date. In its POC transactions, the Company has an enforceable right to payment for performance completed
through the term of the contract with its customers. However, the customized product has an alternative use for the Company, therefore,
none of the conditions stipulated in ASC 606 are met for recognizing revenue over time. Accordingly, revenue from POC transactions is
recognized at a point in time, upon delivery of the product to the customer usually on EX-Works terms. In the NRE transactions the Company determines that the specialized
product does not have an alternative use for the Company, and it has an enforceable right to payment for performance completed through
the term of the contract. Therefore, in these transactions, revenue is recognized over time using the cost-to-cost method. The Company
uses significant judgment when it determines the costs expected to be incurred upon satisfying the identified performance obligation. See also Note 10 for further information
regarding the Company’s revenue transactions.
I. Deferred issuance costs The Company capitalized certain legal,
professional accounting and other third-party fees that were directly associated with the IPO, as deferred costs until the IPO was consummated.
Following the completion of the IPO, these fees were recorded in the stockholders’ equity as a reduction of additional paid-in capital
generated as a result of the activity. The deferred issuance costs in the amount of $871,171 which were capitalized as of December 31,
2021 in long term assets were charged to equity during 2022 in conjunction with the IPO.
J. Warrant classification When the Company issues freestanding instruments, it first
analyzes the provisions of the Financial Accounting Standards Board (“FASB”) ASC Topic 480, distinguishing liabilities
from equity derivatives and hedging
K. Warranty reserve The Company provides a one-year standard warranty for its
products. The Company records a provision for the estimated cost to repair or replace products under warranty at the time of sale. Factors
that affect the Company’s warranty reserve include the number of units sold, historical and anticipated rates of warranty repairs
and the cost per repair. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as
necessary. The following table sets forth activity
in the Company’s accrued warranty account for each of the years ended December 31, 2022, 2021 and 2020 respectively:
2022 2021 2020
Balance at beginning of the year 20,758 9,879 8,930
Cost incurred (3,220 ) (5,850 ) -
Expense recognized 7,511 16,729 949
Balance at end of year 25,049 20,758 9,879
L. Research, development costs and intangible assets Research and development costs, which
consist mainly of labor costs, materials and subcontractor costs, are charged to operations as incurred. According to ASC Topic 350, Intangibles
- Goodwill and Other
M. Basic and diluted net loss per share Basic and diluted net loss per
Ordinary Share is computed based on the weighted average number of Ordinary Shares outstanding during each year. Shares issuable are
considered outstanding Ordinary Shares, including the Preferred Shares (prior to their conversion into Ordinary Shares), and included in the computation of basic net loss per
Ordinary Share as of the date that all necessary conditions have been satisfied. The denominator for diluted net loss
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 shares outstanding include the dilutive effect of in-the-money options and warrants using the treasury
stock method.
N. Fair value of financial instruments The Company’s financial instruments
consist mainly of cash and cash equivalents, short-term deposits, trade receivables, restricted deposits including deposits for employee
benefits, trade payable, and long-term loans. Fair value for the measurement of financial
assets and liabilities is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based
on assumptions that market participants would use in pricing an asset or liability. The Company utilizes a valuation hierarchy for disclosure
of the inputs for fair value measurement. This hierarchy prioritizes the inputs into three broad levels as follows:
● Level 1 Inputs: Unadjusted quoted prices in active markets for identical
assets or liabilities accessible to the reporting entity at the measurement date.
● Level 2 Inputs: Other than quoted prices included in Level 1 inputs
that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
● Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the
extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for
the asset or liability at measurement date. By distinguishing between inputs that
are observable in the market place, and therefore more objective, and those that are unobservable and therefore more subjective, the hierarchy
is designed to indicate the relative reliability of the fair value measurements. A financial asset or liability’s classification within
the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The Company, in estimating fair value
for financial instruments, determined that the carrying amounts of cash and cash equivalents, short-term deposits, trade receivables,
restricted deposits including deposits for employee benefits and trade payables are equivalent to, or approximate their fair value due
to the short-term maturity of these instruments. The carrying amounts of variable interest rate long-term loans are equivalent or approximate
to their fair value as they bear interest at approximate market rates. The liabilities include long-term loans from shareholders that
have no maturity dates, bear no interest and are not linked to any index.
O. Segments The Company operates in one segment.
Management does not segregate its business for internal reporting. The Company’s chief operating decision maker (“CODM”),
who is the Chief Executive Officer, evaluates the performance of its business based on financial data consistent with the presentation
in the accompanying financial statements. The Company concluded that its unified business is conducted globally and accordingly represents
one operating segment.
P. Income taxes The Company accounts for taxes on income
in accordance with ASC Topic 740, Income Taxes Balance Sheet Classification of Deferred
Taxes 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 accounts for interest and
penalties as a component of income tax expense.
Q. Severance pay The Company’s liability for severance
pay for some of its Israeli employees is calculated pursuant to Israeli Severance Pay Law, 1963 (the “Israeli Severance Pay Law”)
based on the most recent salary of the employee multiplied by the number of years of employment until June 30, 2022. Those employees are
entitled to one month’s salary for each year of employment or a portion thereof. The Company records the liability as if it were
payable at each balance sheet date on an undiscounted basis. The Company’s liability for those
Israeli employees is provided for by monthly deposits funded for insurance policies until June 30, 2022 and the remainder by an accrual.
The value of these policies is recorded as an asset in the Company’s balance sheet. The deposited funds include profits
and losses accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation
pursuant to the Israeli Severance Pay Law or labor agreements. The value of the deposited funds is based on the cash surrender value of
these policies. In
accordance with the current employment agreements with certain employees, and for the period commencing July 1, 2022 for the employees
mentioned above, the Company makes regular deposits with certain insurance companies for accounts controlled by each applicable employee
in order to secure the employee’s rights upon retirement. Pursuant to applicable Israeli law, the Company is fully relieved from
any severance pay liability with respect to each such employee if it makes such payments on behalf of the employee. The liability accrued
in respect of such employees and the amounts funded, as of the respective agreement dates, are not reflected in the Company’s balance
sheets, since the Company does not control or manage the funds and the pension or severance pay risks are irrevocably transferred to the
applicable insurance companies. Severance pay expenses for the years
ended December 31, 2022, 2021 and 2020 amounted to $61,169 , $ 31,356 and $22,247, respectively.
R. Concentrations of credit or business risk Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash equivalents, bank deposits, trade receivables and trade
payables. Cash equivalents and bank deposits are
invested mainly in NIS and U.S. dollars with major banks in Israel. Management believes that the financial institutions that hold the
Company’s investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments. Most of the Company’s trade receivables
are derived from sales to large and financially secure organizations. In determining the adequacy of the allowance, management bases its
opinion, inter alia, on the estimated risks, current market conditions and in reliance on available information with respect to the debtor’s
financial position. See Note 10 for a discussion of the Company’s major customers. The Company acquires certain component
parts for its products from market leading suppliers that are single source manufacturers. In order to mitigate the risk and as a redundant
solution, the Company designs similar products based on component parts from different suppliers.
S. Commitments and contingencies Liabilities for loss contingencies arising
from claims, assessments, litigations, fines and penalties and other sources are recognized when it is probable that a liability has been
incurred and the amount of the assessment can be reasonably estimated. Gain contingencies are recognized when they are realized or when
all related contingencies have been resolved.
T. Cash and cash equivalents in Statement of Cash Flows The Company implements the Accounting
Standards Update (“ASU”) 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash The following table provides a reconciliation
of cash, cash equivalents, and restricted cash and cash equivalents reported within the accompanying balance sheets that sum to the total
of the same such amounts presented in the accompanying statements of cash flows:
December 31,
2022 2021
Cash and cash equivalents $ 221,961 $ 785
Restricted deposits 33,569 48,341
Total cash, cash equivalents and restricted deposits presented in the statements of cash flows $ 255,530 $ 49,126
U. Leases The Company adopted ASC 842, Leases The ROU asset calculation includes lease payments to be
made. The ROU asset and lease liability may include amounts attributed to options to extend or terminate the lease when it is reasonably
certain that the Company will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the
lease term. In addition, upon transition the Company has elected the practical expedients related to lease classification and hindsight.
V. Share based compensation The Company applies ASC 718, Share-based Payment The
Company measures the compensation cost related to the options awarded on the grant date and recognize the cost on a straight-line method
over the requisite service period of the awards, including awards with graded vesting and no additional conditions for vesting other than
service conditions. Fair
value of the equity instrument issued to a non-employee is measured as of the grant date. The fair value of the awards is recognized over
the vesting period, which coincides with the period that the counter-party is providing services to the Company.
W. Recently issued accounting pronouncements adopted In February 2016, the FASB issued
ASU 2016-02 regarding FASB ASC 842. The new guidance requires lessees to recognize lease assets and lease liabilities for those leases
classified as operating leases under previous FASB guidance. The Company adopted ASC 842 on January 1, 2022, using a modified retrospective
basis and applied the practical expedients related to the transition. Consequently, financial information was not updated and the disclosures
required under the standard are not provided for dates and periods before January 1, 2022. The adoption resulted in an increase of approximately
$530,444 for the right of use lease assets against lease liabilities. See also note 2U above. In August 2020, the FASB issued ASU
2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s
Own Equity (Subtopic 815 – 40 In November 2021, the FASB issued
ASU 2021-10, Government Assistance (Topic 832)
X. Recently issued accounting pronouncements not yet adopted As an emerging growth company, the Jumpstart Our
Business Startup Act of 2012 (the “JOBS Act”) allows the Company to delay adoption of new or revised
accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The
Company has elected to use this extended transition period under the JOBS Act. The adoption dates discussed below reflect this
election. In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments |
