| SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES A. Basis of presentation The accompanying unaudited condensed interim consolidated financial statements and related notes should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s annual report on Form 20 -F The results for the period of six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any other interim period or for any future period. B. Use of estimates in the preparation of financial statements 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 and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates. As applicable to these interim financial statements, the most significant estimates and assumptions include (i) revenue recognition, (ii) recoverability of the Company’s goodwill upon subsequent periods and (iii) measurement of fair value of equity awards. C. Principles of Consolidation The consolidated financial statements include the accounts of the Group. Intercompany transactions and balances have been eliminated upon consolidation. D. Cash and cash equivalents Cash equivalents are short -term E. Basic and diluted net loss per ordinary share The Company applies the two -class -10 -10 -10 Basic net loss per ordinary share is computed by dividing the net loss for the period applicable to ordinary shareholders, by the weighted average number of ordinary shares outstanding during the period. Diluted loss per share gives effect to all potentially dilutive common shares outstanding during the period using the treasury stock method with respect to stock options and certain stock warrants and using the if -converted During the periods of six months ended June 30, 2023 and 2022, the total weighted average number of Ordinary Shares related to then outstanding shares with preferences over Ordinary Shares (Convertible Ordinary 1 and 2 The net loss from operations and the weighted average number of Ordinary Shares used in computing basic and diluted net loss per share from operations for the period of six months ended June 30, 2023 and 2022, is as follows:
Six-month period ended
2023
2022
Unaudited
Numerator:
Net loss
$ (924
)
$ (836
)
Deemed dividend related to trigger of down round protection feature (see Note 3E below)
(7
)
—
Net basic loss
$ (931
)
$ (836
)
Change in fair value of convertible advanced investment
(269
)
—
Net diluted loss
$ (1,200
)
$ (836
)
Denominator:
Ordinary shares used in computing basic net loss per share
9,411,251
2,578,760
Incremental ordinary shares to be issued upon conversion of convertible advanced investments
461,759
—
Ordinary shares used in computing diluted net loss per share
9,873,010
2,578,760
Basic net loss per ordinary share from operation
$ (0.10
)
$ (0.32
)
Diluted net loss per ordinary share from operation
$ (0.12
)
$ (0.32
) | NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). A. The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reported periods. Actual results could differ from those estimates. As applicable to these financial statements, the most significant estimates and assumptions include (i) revenues recognition; (ii) identification of and measurement of financial instruments in funding transactions; (iii) recoverability of the Company’s goodwill upon subsequent periods (iv) measurement of fair value of equity awards and (v) evaluation of going concern. B. The functional currency of the Company and all of its subsidiaries all of which are primarily a direct and integral component of the Company’s operation is the US dollar (“$” or “dollar”), as the dollar is the primary currency of the economic environment in which the Company and its subsidiaries have operated (which is the currency of the environment in which an entity primarily generates cash) and expects to continue to operate in the foreseeable future. In accordance with ASC 830, “Foreign Currency Matters”, balances denominated in or linked to foreign currency are stated on the basis of the exchange rates prevailing at the applicable balance sheet date. For foreign currency transactions included in the consolidated Statement of Operations and Comprehensive Loss, the exchange rates applicable on the relevant transaction dates are used. Gains or losses arising from changes in the exchange rates used in the translation of such transactions are presented within financing income or expenses. C. The consolidated financial statements include the accounts of the Group. Intercompany transactions and balances have been eliminated upon consolidation. D. Cash equivalents are short -term E. Research and development expenses are charged to operations, as incurred. ASC 985 -20 -20 F. Prior to the effective date of an offering of equity securities, specific incremental costs directly (i.e. accounting, consulting, legal and printing fees) attributable to a proposed or actual offering of securities are deferred and charged against the gross proceeds of the offering, unless the offering of equity securities has been delayed but is currently in process, under which such specific incremental and direct costs are charged immediately to operations. As of December 31, 2022, the Company deferred specific incremental costs directly attributable to offering of securities through its IPO that closed in March 2023 in total amount of $313, which was classified as non -current G. Goodwill is the amount by which the purchase price of acquired net assets in a business combination exceeded the fair values of the net identifiable assets on the date of acquisition. Goodwill is not amortized but evaluated for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The provisions of ASC 350 “Intangibles -Goodwill -alone When the Company decides or is required to perform the quantitative goodwill impairment test, the Company compares the fair value of the reporting unit to its carrying value and an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. The Company determined that its operations represent a single reporting unit. The Company determines the fair value of its reporting unit by using the income approach, which utilizes a discounted cash flow model, as it believes that this approach best approximates the reporting unit’s fair value. Judgments and assumptions related to revenue, operating income, future short -term -term Finite lived intangible assets acquired in business combinations, which include technology, customer relationships and trade names, are initially recorded at fair value. They are amortized on a straight -line As a result of continued losses, the management performed an impairment test with respect to its intangible assets by maintaining an external valuation which utilized discounted cash flow model. Accordingly, certain assumptions and judgments were made to determine the discount rate as well as future cash flows of the Company. During the years ended December 31, 2022, 2021 and 2020, no impairment losses were identified through the impairment test. The lives used in computing straight -line
Rate of depreciation
%
Technology 20
Customer relationships 20
Trade names 10 H. Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight -line The Company’s long -lived The lives used in computing straight -line
Rate of depreciation
%
Computers and peripheral equipment 33
Office furniture and equipment 7 – 15 I. The Company entered into several non -cancelable The Company applies ASC Topic 842, Leases (“ASC 842”). Accordingly, the Company determines if an arrangement is a lease at inception. The Company’s assessment is based on: (i) whether the contract involves the use of an identified asset, (ii) whether the Company obtains the right to substantially all of the economic benefits from the use of the asset throughout the period of use, and (iii) whether the Company has the right to direct the use of the asset. Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: (i) the lease transfers ownership of the asset by the end of the lease term, (ii) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (iii) the lease term is for a major part of the remaining useful life of the asset, (iv) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset, or (v) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of lease term. A lease is classified as an operating lease if it does not meet any one of these criteria. Since all the Company’s lease contracts for premises do not meet any of the criteria above, the Company concluded that all its lease contracts should be classified as operating leases. Right of Use (“ROU”) assets and liabilities are recognized on the commencement date based on the 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. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate (“IBR”) based on the information available on the 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. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. Moreover, the ROU asset may also include initial direct costs, which are incremental costs of a lease that would not have been incurred if the lease had not been obtained. The Company uses the long -lived -10 The Company also elected the short -term -line J. The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes”. Accordingly, deferred income taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and the tax bases of assets and liabilities under the applicable tax law. Deferred tax balances are computed using the enacted tax rates expected to be in effect when these differences reverse. Valuation allowance in respect of deferred tax assets is provided for, if necessary, to reduce deferred tax assets is amounts more likely than not to be realized. The Company accounts for uncertain tax positions in accordance with ASC Topic 740 -10 -10 -likely-than-not K. The Company’s liability for severance pay to its Israeli employees is pursuant to Section 14 of the Israeli Severance Compensation Act, 1963 (“Section 14”), pursuant to which all the Company’s employees are included under Section 14, and are entitled only to monthly deposits, at a rate of 8.33% of their monthly salary, made in the employee’s name with insurance companies. Under Israeli employment law, payments in accordance with Section 14 release the Company from any future severance payments in respect of those employees. The fund is made available to the employee at the time the employer -employee L. The Company and its subsidiaries may be involved in certain legal proceedings and certain business relationships that arise from time to time in the ordinary course of their business and in connection with certain agreements with third parties. Except for income tax contingencies, the Company applies the provisions of ASC Topic 450, Contingencies. Thus, the Company records accruals for contingencies to the extent that the management concludes that the occurrence is probable and that the related liabilities are estimable. Legal expenses associated with contingencies are expensed as incurred. M. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and trade receivables as well as certain other current assets that do not amount to a significant amount. Cash and cash equivalents, which are primarily held in US Dollars and New Israeli Shekels (NIS), are deposited with major banks in Israel, U.S. and Russian Federation. Management believes that such financial institutions are financially sound and, accordingly, minimal credit risk exists with respect to these financial instruments. The Company does not have any significant off -balance-sheet The Company extends credit to customers in the normal course of business and does not require collateral or any other security to support amounts due. Management performs ongoing credit evaluations of its customers. The allowance for doubtful accounts is determined with respect to amounts the Group has determined to be doubtful of collection. In determining the allowance for doubtful accounts, the Company considers, among other things, its past experience with customers, the length of time that the balance is past due, the customer’s current ability to pay and available information about the credit risk on such customers. Provisions for the allowance for doubtful accounts are recorded under general and administrative expenses in the consolidated Statements of Operations and Comprehensive Loss. During the years ended December 31, 2022, 2021 and 2020, the Company has not recorded allowance in respect of accounts receivable. N. The Company recognizes revenues in accordance with ASC 606, “Revenue from Contracts with Customers” (“ASC 606”) under which the Company determines revenue recognition through the following five steps: • • • • • The Company enters into contracts that mostly include software and software related services (i.e. Post -Contract The Company derives its revenues from licensing the rights to use its software for a limited term (mainly for a period of one to three years) or on a perpetual basis for enterprises that incorporate the Company’s perpetual license in their own products delivered to end users and for the Company’s products sold to thousands private consumers, as applicable to each contract, and from, provision of related maintenance and technical support. The Company sells its products through direct sales force and indirectly through distributors and consumer platforms. Revenues are recognized when control of the promised goods or services are transferred to the customers, in an amount that reflects the consideration that the company expects to receive in exchange for those goods or services. However, when the consideration for the license is based on sales of the related customer, the company applies the provisions of ASC 606 with respect to sales -based -based Under ASC 606, an entity recognizes revenue when or as it satisfies a performance obligation by transferring software license (either timely -based -and-if-available -and-if-available -line -based As the Company bundles software licenses (either time -based Since the Company does not sell PCS on a stand -alone -plus -party The stand -alone -based -alone Due to the fact that the PCS services are usually involved with limited customer support, mainly based on several hours of technical support per contract, the transaction price allocated to the PCS is considered insignificant. Consequently, most of the transaction price is allocated to the software licenses as management believes the technology and products covered under the software license component are mature and fully functional. During the reported periods, costs to obtain contracts were in an insignificant amount. The Company does not grant a right of return to its customers. When product delivered to the customer is subject to evaluation, the Company defers revenue until evaluation is completed subject to formal selling agreement with the customer, at which time revenue is recognized provided that all other revenue recognition criteria are met. Commencing 2022, revenue is also derived from the traffic operations in the Google AdSense program, a web advertising platform, that the Company makes available on its websites. Google pays the Company on a cost -per-click The Company receives payments from customers based upon contractual payment schedules. Trade receivables are recorded when right to consideration becomes unconditional, and an invoice is issued to the customer. Unbilled receivables include amounts related to the Company’s contractual right to consideration for completed performance obligations not yet invoiced. As of December 31, 2022 and 2021, unbilled receivables balance amounted to $35 and $29, respectively, and are included within trade receivables balance in the Company’s Consolidated Balance Sheets. As of December 31, 2022 and 2021, the Company had $31 and $33, respectively, of remaining performance obligations not yet satisfied or partly satisfied related to revenues (mostly PCS). Such amounts are presented as deferred revenues which are expected to be recognized as revenues during the next twelve months. See also Note 16 for further discussion related to disaggregation of revenues. O. The Company measures and discloses fair value in accordance with the ASC 820, “Fair Value Measurements and Disclosures” which defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. 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 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. As a basis for considering such assumptions there exists a three -tier -value Level 1 — unadjusted quoted prices are available in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date. Level 2 — pricing inputs are other than quoted prices in active markets that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Level 3 — pricing inputs are unobservable for the non -financial -financial This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The fair value of cash and cash equivalents is based on its demand value, which is equal to its carrying value. Additionally, the carrying value of all other short -term -term P. The Convertible Ordinary 1 and 2 Shares and Convertible Preferred Shares are not subject to redemption feature upon any events that are considered not solely within the control of the Company. In addition, upon occurrence of liquidation event, as defined in the Company’s Articles of Association, all holders of the Ordinary Shares, Convertible Ordinary 1 and 2 Shares and Convertible Preferred Shares will be entitled to receive the same form of consideration. Thus, the Company classifies its Convertible Ordinary 1 and 2 Shares and Convertible Preferred Shares as part of permanent equity. Q. When multiple instruments are issued in a single transaction (package issuance), the total net proceeds from the transaction are allocated among the individual freestanding instruments identified. The allocation occurs after identifying all the freestanding instruments and the subsequent measurement basis for those instruments. Financial instruments that are required to be subsequently measured at fair value (such as derivative warrants liability) are measured at fair value and the remaining consideration is allocated to other financial instruments that are not required to be subsequently measured at fair value (i.e. straight loan), based on the relative fair value basis for such instruments. The allocation of issuance costs to freestanding instruments was based on an approach that is consistent with the allocation of the proceeds, as described above. Issuance costs allocated to the derivative warrant liability were immediately expensed. Issuance costs allocated to straight loan are recorded as a discount of the straight loan and accreted over the contractual term of straight loan up to face value of such loans using the effective interest method. R. Certain warrants that were issued to a commercial bank as part of entering into a straight loan and to seller through transaction in which certain identified intangible assets have been purchased are classified as a component of permanent equity since they are freestanding financial instruments that are legally detachable and separately exercisable, do not embody an obligation for the Company to repurchase its own shares, and permit the holders to receive a fixed number of Ordinary Shares upon exercise for a fixed exercise price and thus, are considered as indexed to the Company’s own shares. In addition, the warrants must require physical settlement and may not provide any guarantee of value or return. As such warrants were issued together with financial instruments that are not subsequently measured at fair value the warrants were measured based on allocation of the proceeds received by the Company in accordance with the relative fair value basis. When applicable, direct issuance expenses that were allocated to such warrants were deducted from additional paid -in Commencing January 1, 2018 and following the early adoption of ASU 2017 -11 -11 -round -11 S. Certain warrants that were granted by the Company for commercial bank through funding transaction entitle the bank to exercise the warrants for a variable number of shares and/or for a variable exercise price and thus the fixed -for-fixed -current -40 -40 The fair value of the aforesaid warrants derivative liability is estimated using the Black -Scholes -free T. Modifications to, or exchanges of, financial instruments such as loans or convertible loans, are accounted for as a modification or an extinguishment, following to provisions of ASC 470 -50 -50 Under ASC 470 -50 If the terms of a debt instrument are changed or modified and the present value of the cash flows under the terms of the new debt instrument is less than 10%, the debt instruments are not considered to be substantially different, except in the following two circumstances: (i) the transaction significantly affects the terms of an embedded conversion option, such that the change in the fair value of the embedded conversion option (calculated as the difference between the fair value of the embedded conversion option immediately before and after the modification or exchange) is at least 10% of the carrying amount of the original debt instrument immediately before the modification or exchange or (ii) the transaction adds a substantive conversion option or eliminates a conversion option that was substantive at the date of the modification or exchange. If the original and new debt instruments are considered as “substantially different”, the original debt is derecognized and the new debt is initially recorded at fair value, with the difference recognized as an extinguishment gain or loss under financial expense or income as applicable. If a convertible debt instrument with a beneficial conversion option that was separately accounted for in equity, is extinguished prior to its conversion or stated maturity date, a portion of the reacquisition price is allocated to the repurchase of the beneficial conversion option. The amount of the reacquisition price allocated to the beneficial conversion option is measured using the intrinsic value of that conversion option at the extinguishment date. The residual amount, if any, is allocated to the convertible debt instrument. The gain or loss on the extinguishment of the convertible debt instrument is determined based on the difference between the carrying amount and the fair value of the allocated reacquisition price. U. The Company applies the two -class -10 -10 -10 Basic net loss per Ordinary Share is computed by dividing the net loss for the period applicable to ordinary shareholders, by the weighted average number of Ordinary Shares outstanding during the period. Diluted loss per share gives effect to all potentially dilutive common shares outstanding during the year using the treasury stock method with respect to shares with preferences over Ordinary Shares (Convertible Ordinary 1 and 2 -converted During the years ended December 31, 2022, 2021 and 2020, the total weighted average number of Ordinary Shares related to outstanding shares with preferences over Ordinary Shares (Convertible Ordinary 1 and 2 V. Upon initial recognition, the Company has considered the provisions of ASC 480 -10 Upon initial recognition, the Company has considered the provisions of ASC 815 -15 -10 Furthermore, the Company applied ASC 470 -20 -20 Based on the characteristics of the convertible advance investments, the Company elected to measure this liability in its entirety, at its fair value in accordance with ASC 825 -10 W. The fair value of the benefit received in respect of loan received from the controlling shareholder is calculated on the basis of the difference between the interest rate that the Company would have required to pay for similar loan from commercial bank and the interest rate that the Company is actually charged under the agreement with the controlling shareholders. Such benefit is accounted for as capital contribution received from the controlling shareholder as additional paid -in X. -based compensation The Company measures and recognizes compensation expense for all equity -based -Stock -based -Scholes -pricing -free assumption is based on the Company’s historical experience and expectation of no future dividend payouts. The Company has historically not paid cash dividends and has no foreseeable plans to pay cash dividends in the future. The Company expensed compensation costs net of estimated forfeitures over the requisite service period by applying the straight -line The fair value of Ordinary Shares underlying the share options was determined by the Company’s management with the assistance of an independent valuation firm. Because there has been no public market for the Ordinary Shares, the Company’s management has determined fair value of the Ordinary Shares at the time of grant by considering several objective and subjective factors including data from other comparable companies, sales of Convertible Preferred Shares to unrelated third parties, operating and financial performance, the lack of liquidity of share capital and general and industry specific economic outlook, amongst other factors. The fair value of the underlying Ordinary Shares shall be determined by management until such time as the ordinary shares are listed on an established stock exchange, national market system or other quotation system. For all reported periods through December 31, 2020, the valuations were performed using the Option Pricing Method (“OPM”). Commencing June 30, 2021, the valuations were performed using Hybrid Method by combining the OPM and an IPO scenario. Commencing January 1, 2019, following the adoption of ASU 2018 -07 -based -based -based -employees When applicable, a modification to the terms and/or conditions of an award (i.e. a change of award’s fair value, vesting conditions or classification as an equity or a liability instrument) is accounted for as an exchange of the original award for a new award resulting in total compensation cost equal to the grant -date |
