| 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”).
a. Functional currency: A majority of the
Company’s customer orders are indexed to United States dollars (“dollar” or “U.S. dollars”). In addition, a substantial
portion of the Company’s purchase orders are indexed to the dollar. The Company’s management believes that the dollar is the primary currency
of the economic environment in which the Company operates. Thus, the functional and reporting currency of the Company is the dollar. Accordingly,
monetary accounts maintained in currencies other than the dollar are re-measured into dollars in accordance with Accounting Standards
Codification (“ASC”) No. 830 “Foreign Currency Matters”. All transaction gains and losses from the re-measured monetary
balance sheet items are reflected in the statements of operations as financial income or expenses, as appropriate.
b. Use of estimates: 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 periods. The Company’s management believes that the estimates, judgments
and assumptions used are reasonable based upon information available at the time they are made. Actual results could differ from those
estimates.
c. Cash equivalents: Cash equivalents
are short-term, highly liquid investments that are readily convertible to cash with original maturities of three months or less, at acquisition .
d. Bank deposits: Bank deposits with
maturities of more than three months but less than one year are included in short-term bank deposits. Such short-term bank deposits are
stated at cost, which approximate market values. Bank deposits with
maturities of more than one year are included in long-term bank deposits. Long-term bank deposits are stated at cost, which approximates
market values.
e. Trade receivables: Trade receivables
are recorded at the invoiced amount less an allowance for any potential uncollectible amounts and do not bear interest. The financial
statements include an allowance for credit losses for which collection of the receivable is not probable in total amount of $324,960 and
nil
f. Inventories: Inventories are
stated at the lower of cost or net realizable value. Inventory write-off is provided to cover risks
arising from slow-moving items, technological obsolescence, excess inventories and discontinued products. Inventory write-offs totaled
$78,485, $11,856 and nil Cost
is determined as follows: Raw
materials and components - using the “first-in, first-out” method. Work-in-progress
and finished products - raw materials as above with the addition of subcontracting costs, calculated on the basis of direct subcontractors
costs and with direct overhead costs. The
Company assesses the carrying value of its inventory for each reporting period to ensure inventory is reported at the lower of cost or
net realizable value in accordance with ASC No. 330-10-35, “Inventory”. Charges for obsolete and slow-moving inventories are
recorded based upon an analysis of specific identification of obsolete inventory items and quantification of slow-moving inventory items.
These assessments consider various factors, including historical usage rate, technological obsolescence, estimated current and future
market values and new product introduction. In cases when there is evidence that the anticipated utility of goods, in their disposal in
the ordinary course of business, will be less than the historical cost of the inventory, the Company recognizes the difference as a current
period charge to earnings and carries the inventory at the reduced cost basis until it is sold or disposed of.
g. Property and equipment, net: Property and equipment is comprised of the below and stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line
method over the estimated useful lives of the assets as follows:
%
Computers and manufacturing equipment 33
Office furniture and equipment 6 - 15
Leasehold improvements Over the shorter of the term of the
h. Impairment of long-lived assets: Property and
equipment and right-of-use asset for leases subject to depreciation are reviewed for impairment in accordance with ASC No. 360,
“Accounting for the Impairment or Disposal of Long-Lived Assets,” whenever events or changes in circumstances indicate
that the carrying amount of an asset (asset group) may not be recoverable. Recoverability of assets (asset group) to be held and
used is measured by a comparison of the carrying amount of an asset (asset group) to the future undiscounted cash flows expected to
be generated by the assets (asset group). If such assets (asset group) are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets (asset group) exceeds the fair value of the assets
(asset group). During 2023, 2022 and 2021, no impairment losses were recorded.
i. Leases: The Company adopted ASC 842, Leases
(“ASC 842”) on January 1, 2022, using a modified retrospective basis and applied the practical expedients related to the transition.
The Company determines if an arrangement is a lease and the classification of that lease at inception based on: (1) whether the contract
involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefits
from the use of the asset throughout the period, and (3) whether the Company has a right to direct the use of the asset. The Company elected
to not recognize a lease liability and a right-of-use (“ROU”) asset for leases with a term of twelve months or less. Lastly,
the Company also elected the practical expedient to not separate lease and non-lease components for its leases. ROU assets and lease liabilities are
recognized at commencement date based on the present value of remaining lease payments over the lease term. ROU assets are initially measured
at amounts, which represents the discounted present value of the lease payments over the lease, plus any initial direct costs incurred.
The lease liability is initially measured based on the discounted present value of remaining lease payments over the lease term. For this
purpose, the Company considers only payments that are fixed and determinable at the time of commencement. The implicit rate within the
operating leases is generally not determinable, therefore the Company uses the Incremental Borrowing Rate (“IBR”) based on
the information available at commencement date in determining the present value of lease payments. The Company’s IBR is estimated
to approximate the interest rate for collateralized borrowing with similar terms and payments and in economic environments where the leased
asset is located. An option to extend the lease is considered
in connection with determining the ROU asset and lease liability when it is reasonably certain that the Company will exercise that option.
An option to terminate the lease is considered unless it is reasonably certain that the Company will not exercise the option.
j. 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 (“ASC 606”). Under ASC 606, an entity recognizes revenue when
its customer obtains control of promised goods or services in an amount that reflects the consideration that the entity expects to receive
in exchange for those goods or services. 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. 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 has elected to apply the practical expedient for financing component for transactions
in which the difference between the payment date and the revenue recognition timing is up to 12 months. 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 because it best depicts the transfer of control to the customer,
which occurs as costs are incurred on the contracts. Therefore, in these transactions, revenue is recognized over time using the cost-to-cost
method. The Company determined that this method under ASC 606 is the best measure of progress towards satisfying the performance obligation
and reflects a faithful depiction of the transfer of goods and services. The Company uses significant judgment when it determines the
costs expected to be incurred upon satisfying the identified performance obligation.
k. 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.
l. 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 (“ASC 480”) in order to determine whether the instrument should be classified
as a liability, with subsequent changes in fair value recognized in the statements of operations in each period. If the instrument is
not within the scope of ASC 480, the Company further analyzes the provisions of FASB ASC Topic 815, derivatives and hedging
(“ASC 815-10”) in order to determine whether the instrument is considered indexed to the entity’s own stock and
qualifies for classification within equity. If the provisions of ASC 815-10 for equity classification are not met, the instrument
is classified as a liability, with subsequent changes in fair value recognized in the statements of operations in each period.
m. 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 revenues are recognized based on the Company’s historical experience. 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, 2023, 2022 and 2021, respectively:
Year ended December 31,
2023 2022 2021
Balance at the beginning of the year $ 25,049 $ 20,758 $ 9,879
Cost incurred (15,334 ) (3,220 ) (5,850 )
Expense recognized 30,596 7,511 16,729
Balance at the end of the year $ 40,311 $ 25,049 $ 20,758
n. Shipping and handling fees and costs: Shipping and handling
fees charged to the Company’s customers are recognized as product revenue in the period shipped and the related costs for providing these
services are recorded as a cost of revenues in the statements of operations.
o. Research, development costs: 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, software that is part of a product or process to be sold to a customer shall be accounted
for under ASC subtopic 985-20. The Company’s products contain embedded software which is an integral part of these products because
it allows the various components of the products to communicate with each other and the products are clearly unable to function without
this coding. Based on the Company’s product development process, the Company does not incur material costs after the point in time
at which the product as a whole reaches technological feasibility. Therefore, research and development costs are charged to the statement
of operations as incurred.
p. Government grants: The Company received
non-royalty-bearing and royalty-bearing grants from the Israel Innovation Authority (“IIA”) for approved research and development
projects. These grants are recognized at the time the Company is entitled to such grants on the basis of the costs incurred as provided
by the relevant agreement and included as a deduction from research and development expenses, net. Research and development
grants deducted from research and development expenses, net amounted to $259,473, $98,138 and nil
q. Basic and diluted net loss per share: Basic net loss per
share is computed based on the weighted average number of Ordinary Shares outstanding during each period. Diluted net loss per share is
computed based on the weighted average number of Ordinary Shares outstanding during each period, plus potential dilutive Ordinary Shares
considered outstanding during the period, if any, in accordance with ASC No. 260, “Earnings Per Share”. The total number
of Ordinary Shares related to outstanding share options excluded from the calculation of diluted income (loss) per share as they would
have been anti-dilutive was 5,685,694, 5,206,700 and 379,772 for the years ended December 31, 2023, 2022 and 2021, respectively.
o. Fair value of financial instruments: 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. A three-tier fair
value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring
fair value: Level 1 - Observable
inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 - Include
other inputs that are directly or indirectly observable in the marketplace. Level 3 - Unobservable
inputs that are supported by little or no market activity. 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 liabilities include long-term loans from related parties bear no interest
and are not linked to any index at approximate market rates.
p. 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 segments.
q. Income taxes: The Company accounts
for taxes on income in accordance with ASC Topic 740, Income Taxes, which prescribes the use of the asset and liability method whereby
d eferred 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. 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 not likely to be realized upon ultimate settlement. The Company accounts
for interest and penalties as a component of income tax expense.
r. Severance pay: Effective July
1, 2022, the Company’s agreements with employees, are subject to Section 14 of the Severance Pay Law, 1963. Up
to July 1, 2022, the liability of the Company for severance pay for employees, was calculated pursuant to Israeli severance
pay law based on the most recent salary of each employee multiplied by the number of years of employment for these employee as of June
30, 2022. The Company’s liability for the period until June 30, 2022, is fully provided for by monthly deposits with severance
pay funds, insurance policies and an accrual. The deposited funds include profits and losses accumulated up to June 30, 2022. The
deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israeli severance pay law or labor
agreements. The value of these policies is recorded as an asset on the Company’s balance sheets. Effective July 1, 2022, the
Company’s agreements with new employees in Israel are subject to Section 14 of the Severance Pay Law, 1963, and
effective July 1, 2022, also with existing employees. The Company’s contributions for severance pay have extinguished
its severance obligation. Upon contribution of the full amount based on the employee’s monthly salary for each year of service, no additional
obligation exists regarding the matter of severance pay, and no additional payments is made by the Company to the employee.
Furthermore, the related obligation and amounts deposited on behalf of the employee for such obligation are not stated on the
balance sheet, as the Company is legally released from any obligation to employees once the required deposit amounts have been paid. Severance pay expenses
for the years
s. Concentrations of credit or business risk: Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents, bank deposits,
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 . 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.
t. Commitments and contingencies: Liabilities for loss contingencies
arising from claims, assessments, litigations, fines and penalties and other sources are recognized when it is probable that a liability
has been incurred and the amount of the assessment can be reasonably estimated. Gain contingencies are recognized when they are realized
or when all related contingencies have been resolved.
u. Share-based compensation: The Company applies ASC 718, Share-based
Payment (“ASC 718”). ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant
using an option-pricing model. The value of the awards is recognized as an expense over the requisite service periods in the Company’s
statements of operations. 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. The Company
accounts for forfeitures as they occur. 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. The Company used the Black-Scholes
option-pricing model to determine the fair value of options granted during 2022 and the repricing on May 2023. The following assumptions
were applied in determining the options’ fair value on their grant date:
2023 2022
Risk-free interest rate (a) 3.51%-3.83% 4.5%-1.6%
Expected option term (years) (b) 2.6-4.2 3.5-6.5
Expected share price volatility (c) 55.9%-63.1% 36.1%-58.7%
Dividend yield (d) - -
Weighted average grant date fair value $ 0.35 $ 1.07 These assumptions and estimates were
determined as follows:
(a) Risk-Free Interest Rate: The risk-free rate for the expected term of the options is based on the
Black-Scholes option-pricing model on the yields of U.S. Treasury securities with maturities appropriate for the expected term of employee
share option awards.
(b) Expected Term: The expected term represents the period that options are expected to be outstanding. The
Company determines the expected term using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and
the contractual life of the options.
(c) Expected Volatility: As the Company has a short trading history for its ordinary shares, the expected
volatility is derived from the average historical share volatilities of several unrelated public companies within the Company’s
industry that the Company considers to be comparable to its own business over a period equivalent to the option’s expected term.
(d) Expected Dividend Yield: The Company has never declared or paid any cash dividends and does not presently
plan to pay cash dividends in the foreseeable future. As a result, an expected dividend yield of zero percent was used.
v. Treasury shares: The Company repurchased 120,715 Ordinary
Shares on the open market and holds such shares as treasury shares. The Company presents the cost to repurchase treasury shares as a reduction
of shareholders’ equity. Treasury shares are not entitled to vote on any matters brought before the shareholders.
w. 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, which requires amounts generally described
as restricted cash and restricted cash equivalents to be included within cash and cash equivalents when reconciling the beginning-of-period
and end-of-period total amounts shown in the statement of cash flows. 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,
2023 2022
Cash and cash equivalents $ 2,050,494 $ 221,961
Restricted deposits 32,692 33,569
Total cash, cash equivalents and restricted deposits presented in the statements of cash flows $ 2,083,186 $ 255,530
x. Recently issued accounting pronouncements adopted: As an “Emerging Growth Company”,
the Jumpstart Our Business Startups Act (“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 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. In June 2016, the FASB issued ASU
2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
(“ASU 2016-13”), which replaces the existing incurred loss impairment model with an expected credit loss model and requires
a financial asset measured at amortized cost to be presented at the net amount expected to be collected. The guidance is effective for
the Company beginning January 1, 2023. The adoption of this standard did not have a material impact on the Company’s financial statements.
y. Recently issued accounting pronouncements not yet adopted: In November 2023, the FASB issued ASU
2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, which requires public entities
to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis.
Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing
segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. ASU 2023-07 is effective for fiscal years
beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption
permitted. The Company is currently evaluating the impact of adopting ASU 2023-07. In December 2023, the FASB issued ASU
2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires entities, on an annual basis, to provide disclosure
of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09
is effective for fiscal years beginning after December 15, 2025, with early adoption permitted. The Company is currently evaluating the
impact of adopting ASU 2023-09. |
