Valens Semiconductor (VLN) 6-K 2022 Q2 Current report (foreign)

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Exhibit 99.1

VALENS SEMICONDUCTOR LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

JUNE 30, 2022

VALENS SEMICONDUCTOR LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

AS OF JUNE 30, 2022

CONTENTS

	Page
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)- IN U.S. DOLLARS ($):
Balance sheets		3-4
Statements of operations		5
Statements of changes in shareholder’s equity		6
Statements of cash flows		7
Notes to consolidated financial statements		8-22

VALENS SEMICONDUCTOR LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

	June 30, 2022		December 31, 2021
	U.S. dollars in thousands
Assets
CURRENT ASSETS:
Cash and cash equivalents		46,577		56,791
Short-term deposits		110,177		117,568
Trade accounts receivable		10,047		7,095
Prepaid expenses		3,584		6,927
Other current assets		908		1,328
Inventories		17,318		9,322
TOTAL CURRENT ASSETS		188,611		199,031
LONG-TERM ASSETS:
Property and equipment, net		2,571		2,741
Operating lease right-of-use assets		4,408		—
Other assets		638		828
TOTAL LONG-TERM ASSETS		7,617		3,569
TOTAL ASSETS		196,228		202,600

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

3

VALENS SEMICONDUCTOR LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (continued)

	June 30, 2022			December 31, 2021
	U.S. dollars in thousands
Liabilities and Shareholders’ Equity
CURRENT LIABILITIES:
Trade accounts payable		7,345			4,493
Accrued compensation		4,912			4,583
Current maturities of operating leases liabilities		1,814			—
Other current liabilities		6,257			6,623
TOTAL CURRENT LIABILITIES		20,328			15,699
LONG-TERM LIABILITIES:
Forfeiture Shares, no par value: 1,006,250 shares authorized, issued and outstanding as of June 30, 2022 and December 31, 2021,respectively		516			4,658
Non-current operating leases liabilities		2,126			—
Other long-term liabilities		48			46
TOTAL LONG-TERM LIABILITIES		2,690			4,704
COMMITMENTS AND CONTINGENT LIABILITIES
TOTAL LIABILITIES		23,018			20,403
SHAREHOLDERS’ EQUITY:
Ordinary shares, no par value: 700,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 97,664,669, and 97,122,405 (excluding 1,006,250 ordinary shares subject to forfeiture) shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively.		49			49
Additional paid-in capital		318,214			312,156
Accumulated deficit		(145,053	)		(130,008	)
TOTAL SHAREHOLDERS’ EQUITY		173,210			182,197
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		196,228			202,600

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

4

VALENS SEMICONDUCTOR LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Six months ended June 30						Three months ended June 30
	2022			2021			2022			2021
	U.S. dollars in thousands, except share and per share amounts
REVENUES		44,101			30,874			22,481			17,510
COST OF REVENUES		(12,877	)		(8,875	)		(6,697	)		(5,043	)
GROSS PROFIT		31,224			21,999			15,784			12,467
OPERATING EXPENSES:
Research and development expenses		(29,031	)		(21,354	)		(14,904	)		(10,956	)
Sales and marketing expenses		(8,682	)		(6,332	)		(4,473	)		(3,222	)
General and administrative expenses		(8,641	)		(4,544	)		(4,340	)		(2,366	)
TOTAL OPERATING EXPENSES		(46,354	)		(32,230	)		(23,717	)		(16,544	)
OPERATING LOSS		(15,130	)		(10,231	)		(7,933	)		(4,077	)
Change in fair value of Forfeiture Shares		4,142			—			1,538			—
Financial income (expenses), net		(3,675	)		336			(3,560	)		503
LOSS BEFORE INCOME TAXES		(14,663	)		(9,895	)		(9,955	)		(3,574	)
INCOME TAXES		(389	)		(179	)		(43	)		(124	)
LOSS AFTER INCOME TAXES		(15,052	)		(10,074	)		(9,998	)		(3,698	)
Equity in earnings of investee		7			—			3			—
NET LOSS		(15,045	)		(10,074	)		(9,995	)		(3,698	)
Basic and diluted net loss per ordinary share		(0.15	)		(1.61	)		(0.10	)		(0.68	)
Weighted average number of shares used in computing net loss per ordinary share		97,296,206			10,927,357			97,442,359			11,020,299

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

5

VALENS SEMICONDUCTOR LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

	Six months ended June 30, 2022
	Ordinary shares				Additional paid- in capital		Accumulated deficit			Total
	Shares		Amount
Balance - January 1, 2022		97,122,405		49		312,156		(130,008	)		182,197
Exercise of options and RSUs		542,264		—		150		—			150
Stock based compensation		—		—		5,908		—			5,908
Net loss for the period		—		—		—		(15,045	)		(15,045	)
Balance – June 30, 2022		97,664,669		49		318,214		(145,053	)		173,210
	Six months ended June 30, 2021
	Ordinary shares				Additional paid- in capital		Accumulated deficit			Total
	Shares		Amount
Balance - January 1, 2021		10,795,372		40		21,211		(103,474	)		(82,223	)
Exercise of options		954,183		4		661		—			665
Stock based compensation		—		—		3,290		—			3,290
Net loss for the period		—		—		—		(10,074	)		(10,074	)
Balance – June 30, 2021		11,749,555		44		25,162		(113,548	)		(88,342	)
	Three months ended June 30, 2022
	Ordinary shares				Additional paid- in capital		Accumulated deficit			Total
	Shares		Amount
Balance - April 1, 2022		97,191,467		49		315,001		(135,058	)		179,992
Exercise of options and RSUs		473,202		—		96		—			96
Stock based compensation		—		—		3,117		—			3,117
Net loss for the period		—		—		—		(9,995	)		(9,995	)
Balance - June 30, 2022		97,664,669		49		318,214		(145,053	)		173,210
	Three months ended June 30, 2021
	Ordinary shares				Additional paid- in capital		Accumulated deficit			Total
	Shares		Amount
Balance - April 1, 2021		10,912,912		41		22,881		(109,850	)		(86,928	)
Exercise of options		836,643		3		586		—			589
Stock based compensation		—		—		1,695		—			1,695
Net loss for the period		—		—		—		(3,698	)		(3,698	)
Balance - June 30, 2021		11,749,555		44		25,162		(113,548	)		(88,342	)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

6

VALENS SEMICONDUCTOR LTD.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Six months ended June 30						Three months ended June 30
	2022			2021			2022			2021
	U.S. dollars in thousands
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss for the period		(15,045	)		(10,074	)		(9,995	)		(3,698	)
Adjustments to reconcile net loss to net cash used in operating activities:
Income and expense items not involving cash flows:
Depreciation		667		��	522			347			266
Stock-based compensation		5,908			3,290			3,117			1,695
Exchange rate differences		4,972			(231	)		4,501			(545	)
Interest from short-term deposits		(295	)		219			(132	)		37
Change in fair value of Forfeiture Shares		(4,142	)		—			(1,538	)		—
Reduction in the carrying amount of ROU assets		844			—			424			—
Changes in operating assets and liabilities:
Trade accounts receivable		(2,952	)		767			166			(2,475	)
Prepaid expenses		3,343			(1,833	)		3,051			(599	)
Other current assets		420			245			194			141
Inventories		(7,996	)		(2,541	)		(4,852	)		(1,752	)
Other assets		190			(31	)		86			(26	)
Trade accounts payable		2,779			1,124			1,691			451
Accrued compensation		329			(948	)		508			107
Other current liabilities		(366	)		(153	)		(1,010	)		(45	)
Change in operating lease liabilities		(1,312	)		—			(811	)		—
Other long-term liabilities		2			(7	)		2			—
Net cash used in operating activities		(12,654	)		(9,651	)		(4,251	)		(6,443	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in short-term deposits		(31,340	)		(4,520	)		(13,088	)		(4,520	)
Maturities of short-term deposits		37,400			29,500			21,900			12,500
Purchase of property and equipment		(424	)		(505	)		(244	)		(127	)
Net cash provided by investing activities		5,636			24,475			8,568			7,853
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred issuance costs		—			(218	)		—			(218	)
Exercise of options		150			665			96			589
Net cash provided by financing activities		150			447			96			371
Effect of exchange rate changes on cash and cash equivalents		(3,346	)		217			(2,830	)		531
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(10,214	)		15,488			1,583			2,312
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD		56,791			26,316			44,994			39,492
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD		46,577			41,804			46,577			41,804
SUPPLEMENT DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid for taxes		121			224			65			147
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Trade accounts payable on account on property and equipment		73			—			—			—
Unpaid issuance costs		—			2,722			—			2,722
Operating lease liabilities arising from obtaining operating right-of-use assets		350			—			104			—

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

7

VALENS SEMICONDUCTOR LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1 - GENERAL:

a. Valens Semiconductor Ltd. (hereafter “Valens”, and together with its wholly owned subsidiaries, the “Company”), was incorporated in Israel in 2006.

Valens is a leading provider of semiconductor products (chips), operates in the Audio-Video and Automotive industries, renowned for its Physical Layer (PHY) technology, enabling resilient high-speed connectivity over simple, low-cost infrastructure. Valens is the inventor of the HDBaseT Technology, which enables the converged delivery of ultra-high-definition digital video and audio, Ethernet, control signals, USB and power through a single cable. In the audio-video space, Valens’ HDBaseT technology enables plug-and-play digital connectivity between ultra-HD video sources and remote displays. In the automotive domain, Valens’ product offering includes both symmetric and asymmetric connectivity technology for high bandwidth transmission of native interfaces over a single low-cost wires and connectors. Valens’ advanced PHY technology for the auto industry provides the safety and resilience required to handle the noisy automotive environment, addressing the needs of Advanced Driver Assistance Systems (ADAS), Automotive Data Solutions (ADS), infotainment, telematics and backbone connectivity.

b. On March 11, 2020, the World Health Organization designated the outbreak of a novel strain of coronavirus (“COVID-19”) as a global pandemic. Governments and businesses around the world have taken unprecedented actions to mitigate the spread of COVID-19, including imposing restrictions on movement and travel such as quarantines and shelter-in-place requirements, and restricting or prohibiting outright some or all commercial and business activity. These measures, though currently temporary in nature, may become more severe and continue indefinitely depending on the evolution of the COVID-19 pandemic. Although there are effective vaccines for COVID-19 that have been approved for use, not all the Company’s employees are vaccinated and specifically not with the booster vaccination. In addition, new strains of the virus have appeared (primarily, and most recently the Omicron variant), which may complicate treatment and vaccination programs. Accordingly, concerns remain regarding additional surges of the pandemic or the expansion of the economic impact thereof, and the extent to which the COVID-19 pandemic may impact the Company’s future results of operations and financial condition.

The Company has taken precautionary measures intended to help minimize the risk of the virus to its employees, including requiring some of the employees to work remotely and suspended all non-essential travels.

The Company’s business and operations have been and could in the future be adversely affected by the global COVID-19 pandemic. The COVID-19 pandemic and efforts to control its spread have curtailed the movement of people, goods and services worldwide, including in the regions in which we and our customers and partners operate, and are significantly impacting economic activity and financial markets. During 2020, 2021 and for the six months ended on June 30, 2022, the Company noticed a negative impact from COVID-19 on some of its customers’ demand, particularly with respect to end users’ audio-video and multimedia products that are used in public areas and for public events. Yet, the Company did receive an increase in demand for its high-speed connectivity products driven by a need for products and infrastructure to support the world’s developed trends derived from COVID-19 such as working from home, hybrid educational models and remote healthcare. On the product supply side, as the shortage in the semiconductor industry increases, the Company continues to face the impact of extended lead times from its suppliers as well as cost increases for certain raw materials that are in short supply, which may impact the Company’s revenues and gross margins.

Overall, considering the changing nature and continuing uncertainty around the COVID-19 pandemic, the Company’s ability to predict the impact of COVID-19 on its business in future periods remains limited. The effects of the pandemic on the Company’s business is unlikely to be fully realized, or reflected in its financial results, until future periods.

8

VALENS SEMICONDUCTOR LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

NOTE 1 - GENERAL

(continued)

:

c. On September 29, 2021 (the “Closing Date”), the Company consummated a merger transaction (referred to as the “Merger Agreement Closing”) pursuant to a merger agreement, dated May 25, 2021 (the “Merger Agreement”), by and among the Company, PTK Acquisition Corp. (“PTK”), a Delaware corporation whose common stock and warrants were then traded on the New York Stock Exchange and Valens Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company.

As a result of the Merger Agreement Closing, and upon consummation of other transactions contemplated by the Merger Agreement Closing (the “Transactions”), including the execution of series of subscription agreements, providing for the purchase of Valens Ordinary Shares by certain PIPE Investors (the “PIPE Financing”) at the Closing Date, as of September 30, 2021, the Company began trading on the New York Stock Exchange under the Symbol “VLN”.

The net proceeds received by the Company as part of the Merger Agreement Closing and the PIPE Financing totaled to $131.6 million.

Please also refer to Note 1(d) in the consolidated financial statement for the year ended December 31, 2021.

d. Military Tensions Between Russia and Ukraine

In February 2022, Russian forces launched a military invasion of Ukraine. In response, the United States, the European Union, United Kingdom and other governments have imposed significant economic sanctions on Russia, and Russia has responded with counter-sanctions. The war in Ukraine has disrupted international commerce and the global economy.

Although the Company does not currently operate in Ukraine or Russia and therefore does not experience any impact from the war in Ukraine, the duration and severity of the effects on its busines and the global economy are inherently unpredictable. Management will continue to monitor the effects of the war in Ukraine and its potential further impacts on the Company.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

a. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting.

Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In our opinion, the information contained herein reflects all adjustments necessary for a fair statement of our results of operations, financial position, cash flows, and shareholders’ equity. All such adjustments are of a normal, recurring nature.

The results of operations for the six and three months ended June 30, 2022 shown in this report are not necessarily indicative of the results to be expected for the full year ending December 31, 2022. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2021 as filed in the Company’s 20-F.

9

VALENS SEMICONDUCTOR LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(continued)

:

There have been no material changes in our significant accounting policies as described in our consolidated financial statements for the year ended December 31, 2021, other than as stated below.

b. Lease

On January 1, 2021 the Company adopted ASU No. 2016-02, Leases (“Topic 842”), The Company determines if an arrangement is a lease at inception. Balances related to operating leases are included in operating lease right-of-use (“ROU”) assets, Current maturities of operating leases liabilities and Non-current operating leases liabilities in the consolidated balance sheets.

The Company also elected

not

separating lease components from non-lease components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of operations on a straight-line basis over the lease term.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized as of the commencement date based on the present value of lease payments over the lease term. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The discount rate for the lease is the rate implicit in the lease unless that rate cannot be readily determined. As the Company’s leases do not provide an implicit rate, the Company’s uses its estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term (see also note 4).

c. New Accounting Pronouncements

Recently Adopted accounting Standards:

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASC 842”), on the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for in a manner similar to the accounting under existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASC 842 provides a number of optional practical expedients in transition, which permits the Company not to reassess its prior conclusions regarding lease identification, lease classification and initial direct costs under the new standard. The guidance is effective for the Company for annual periods beginning after December 15, 2021 and interim periods within annual periods beginning after December 15, 2022. The Company adopted ASC 842 on January 1, 2022, using a modified retrospective transition approach, at the effective date, without adjusting the comparative periods. The Company elected to utilize the available package of practical expedients permitted under the transition guidance within ASC 842 which does not require it to reassess the prior conclusions about lease identification, lease classification and initial direct costs.

10

VALENS SEMICONDUCTOR LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

NOTE 2   -   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(continued)

:

Upon adoption of ASC 842, the Company recognized operating right-of-use assets of $4.9 million with corresponding operating lease liabilities on its consolidated balance sheet as of January 1, 2022. See Note 4 for further details.

Recently issued accounting pronouncements, not yet adopted:

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (“ASC 326”): Measurement of Credit Losses on Financial Instruments to introduce a new model for recognizing credit losses on financial instruments based on estimated current expected credit losses, or CECL. Under the new standard, an entity is required to estimate CECL on trade receivables at inception, based on historical information, current conditions, and reasonable and supportable forecasts. ASU No. 2016-13 is effective for the Company for the annual period beginning after December 15, 2022, including interim periods within that reporting period. The Company is currently evaluating the impact of adoption of the new standard on its consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (“Topic 740”): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU No. 2019-12 is effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The adoption of this guidance will not have a significant impact on the Company’s consolidated financial statements.

NOTE 3 – INVENTORIES:

	June 30, 2022		December 31, 2021
	U.S. dollars in thousands
Work in process		8,056		4,718
Finished goods		9,262		4,604
		17,318		9,322

NOTE 4 - LEASES:

As of June 30, 2022, the Company has several operating lease agreements for its facilities and vehicles as follows:

Offices:

The Company’s corporate headquarters are located in Hod Hasharon, Israel, consisting of approximately 5,500 square meters of facility space under lease that will expire on February 28, 2023, with an option to extend the lease period by additional two years until February 28, 2025. The Company concluded that it is reasonably certain that it will exercise the renewal option. Accordingly, such renewal option was included in determining the lease term.

The monthly rent payment is approximately $132 thousands.

The Company has entered into various operating leases for office buildings in other territories. The total monthly rent payment of those leases is approximately $10 thousands.

11

VALENS SEMICONDUCTOR LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

NOTE 4 - LEASES

(continued):

Vehicles:

The Company rents motor vehicles for use by some of its employees under operating lease agreements with lease terms of three years. As collateral for the cars’ lease agreements, the Company pays in advance the fee for the last month under the lease agreement.

As of June 30, 2022, the Company is engaged with car lease companies for leasing of over 30 vehicles. The monthly payments for those agreements are approximately $27 thousands.

The table below presents the effects on the amounts relating to the Company’s total lease costs:

	For the six months ended on June 30,2022		For the three months ended on June 30, 2022
	U.S. dollars in thousands
Operating lease cost:
Fixed Payment		1,184		585

The table below presents supplemental cash flow information related to operating leases:​​​​​​​

	For the six months ended on June 30,2022		For the three months ended on June 30,2022
	U.S. dollars in thousands
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases		1,066		509
Right-of-use assets obtained in exchange for lease obligations (non-cash):
Operating leases, for initial adoption refer to note 2(c)		350		104

The table below presents supplemental balance sheet information related to operating leases:

	June 30, 2022
	U.S. dollars in thousands
Operating lease right-of-use assets		4,408
Current maturities of operating leases		1,814
Non-current operating leases		2,126
Total operating lease liabilities		3,940
Weighted average remaining lease term (years)		2.5
Weighted annual average discount rate		13.06	%

12

VALENS SEMICONDUCTOR LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

NOTE 4 - LEASES

(continued):

The table below presents maturities of operating lease liabilities:

	June 30, 2022
	U.S. dollars in thousands
2022		1004
2023		1,863
2024		1,722
2025		26
Total operating lease payments		4,615
Less: imputed interest		(675	)
Present value of lease liabilities		3,940

NOTE 5 - COMMITMENTS AND CONTINGENT LIABILITIES:

a. Noncancelable Purchase Obligations

The Company depends upon third party subcontractors for manufacturing of wafers, packaging and final tests. As of June 30, 2022, and December 31, 2021, the total value of open purchase orders for such manufacturing contractors was approximately $27,563 thousand and $50,591 thousand, respectively.

The Company has noncancelable purchase agreements for certain IP embedded in the Company products as well as certain agreement for the license of development tools used by the development team. As of June 30, 2022, and December 31, 2021, the total value of non-paid amounts related to such agreements totaled $4,557 thousand and $6,563 thousand, respectively.

b. Legal proceedings

As of June 30, 2022, and to date, the Company is not a party to, or subject to the provisions of any order, writ, injunction, judgment or decree of any court or governmental agency or instrumentality. There is

no

action, suit, proceeding or investigation by the Company currently pending or that the Company intends to initiate.

NOTE 6 - OTHER CURRENT LIABILITIES:

	June 30, 2022		December 31, 2021
	U.S. dollars in thousands
Accrued vacation		3,566		3,464
Taxes payable		36		40
Accrued expenses- related party		142		142
Accrued expenses		2,513		2,977
		6,257		6,623

13

VALENS SEMICONDUCTOR LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

NOTE 7 - FORFEITURE SHARES:

a. On the Closing Date, 1,006,250 Ordinary Shares that PTK sponsor received in respect of its PTK common stock, are subject to forfeiture if certain price targets for the Valens Ordinary Shares are not achieved within a certain period of time (of up to four years), after the Closing Date or if an M&A Transaction (as defined in the Merger Agreement Closing), does not occur at a certain minimum price.

The Company performed a Monte-Carlo simulation to calculate the fair value of such shares. As of the Closing Date, the fair value was $4,485 using the following assumptions: stock price of $7.4, expected term of 3-4 years, expected volatility of 47.74%-50.31% and risk-free interest rate of return of 0.53%-0.76%.

The fair value of the Forfeiture Shares was computed using the following key assumptions:

	June 30, 2022	December 31, 2021
Stock price	3.5	7.7
Expected term (years)	2.25-3.25	2.75-3.75
Expected volatility	48.35%-49.27%	48.77%-48.92%
Risk-free interest rate	2.94%-2.99%	0.91%-1.08%

b. The table below sets forth a summary of the changes in the fair value of the Forfeiture Shares classified as Level 3:

	Six months ended June 30, 2022			Year ended December 31, 2021
	U.S. dollars in thousands
Balance at beginning of period		4,658			—
Issuance of Forfeiture Shares		—			4,485
Changes in fair value		(4,142	)		173
Balance at end of the period		516			4,658

NOTE 8 - STOCK-BASED COMPENSATION:

Stock Options

The Company’s stock options have a term of up to 10 years from grant date unless extended by the Board of Directors. The granted options generally vest as follows: 25% on the first anniversary from the “Vesting Start Date” as defined in the grant agreement and remainder vest ratably over the following 12 quarters.

As of June 30, 2022, and December 31, 2021, the number of ordinary shares included in the Company’s option plans totaled to 28,383,788.

1,884,933 out of the outstanding options that have not yet vested as of June 30, 2022, have acceleration mechanisms according to certain terms set forth in the grant agreements primarily in the case of an M&A Transaction which constitutes a Liquidation Event (as defined in Note 9 in the consolidated financial statement for the year ended December 31, 2021).

As of June 30, 2022, the unrecognized compensation costs related to those unvested stock options are $5,899 thousand, which are expected to be recognized over a weighted-average period of 1.87 years.

14

The following is a summary of the status of the Company’s share option plan as of June 30, 2022, as well as changes during the period of six months ended June 30,2022:

	Six months ended June 30, 2022
	Number of Options			Weighted- Average Exercise price
Options outstanding as of December 31, 2021		15,449,513		$	0.73
Granted during the period		239,610		$	6.28
Exercised during the period		(512,357	)	$	0.30
Forfeited during the period		(38,017	)	$	0.86
Options outstanding as of June 30, 2022		15,138,749		$	0.83
Options exercisable as of June 30, 2022		11,985,418		$	0.72

The following table summarizes information about stock options outstanding as of June 30, 2022:

Outstanding as of June 30, 2022										Exercisable as of June 30, 2022
Range of exercise prices		Number outstanding		Weighted average remaining contractual term		Weighted average exercise price		Aggregate intrinsic value (U.S. dollars in thousands)		Number Exercisable		Weighted average remaining contractual term		Weighted Average exercise price		Aggregate intrinsic value (U.S. dollars in thousands)
	$0.15-$0.86		14,852,976		5.79	$	0.73		40,785		11,923,755		5.25	$	0.70		33,112
	$1.87		5,963		8.53	$	1.87		10		1,863		8.53	$	1.87		3
	$2.10		33,126		2.20	$	2.10		46		33,126		2.20	$	2.10		46
	$5.36		140,000		7.00	$	5.36		—		—		—		—		—
	$7.58		99,610		6.55	$	7.58		—		24,906		6.55	$	7.58		—
	$9.07		7,074		9.46	$	9.07		—		1,768		9.46	$	9.07		—

The calculated fair value of option grants was estimated using the Black-Scholes option-pricing model with the following assumptions:

	For the Six months ended on June 30,2022	For the six months ended on June 30 2021
Expected term	6-10	6-10
Expected volatility	46.73%-47.71%	48.15%-50.7%
Expected dividend rate	0%	0%
Risk-free rate	1.37%-3.00%	0.61%-1.74%

During the six months period ended on June 30, 2022, 239,610 options were granted to related parties (please refer to Note 12 for further information).

As of June 30, 2022, the unrecognized compensation costs related to unvested stock options was $11,252 thousand, which are expected to be recognized over a weighted-average period of 2.27 years.

15

VALENS SEMICONDUCTOR LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

NOTE 8 - STOCK-BASED COMPENSATION

(continued):

The following table presents the classification of the stock options expenses for the periods indicated:

	Six months ended June 30				Three months ended June 30
	2022		2021		2022		2021
	U.S. dollars in thousands
Cost of revenue		114		47		60		(10	)
Research and development		907		755		456		374
Selling, general and administrative		2,059		2,488		1,044		1,331
Total stock-based compensation		3,080		3,290		1,560		1,695

Restricted Stock Units

The following is a summary of the status of the Company’s RSU’s as of June 30, 2022, as well as changes during the period of six months ended June 30, 2022:

	Six months ended June 30, 2022
	Number of RSUs			Weighted- Average Grant Date Fair Value
RSUs outstanding at the beginning of the year		133,384		$	7.89
Granted during the period		3,699,376		$	6.24
Exercised during the period		(29,907	)	$	6.79
Forfeited during the period		(62,986	)	$	6.43
Outstanding at the end of the period		3,739,867		$	6.29
RSUs exercisable at June 30, 2022		—

The following table summarizes information about outstanding RSU’s as of June 30, 2022:

Outstanding as of June 30, 2022										Exercisable as of June 30, 2022
Range of exercise prices		Number outstanding		Weighted average remaining contractual term		Weighted average exercise price		Aggregate intrinsic value (U.S. dollars in thousands)		Number Exercisable		Weighted average remaining contractual term		Weighted Average exercise price		Aggregate intrinsic value (U.S. dollars in thousands)
	$3.31-$3.47		240,000		6.94	$	3.40	$	833		—		—		—		—
	$6.41-$6.43		3,302,159		6.81	$	6.43	$	11,491		—		—		—		—
	$6.80		66,174		6.55	$	6.80	$	230		—		—		—		—
	$7.89		131,534		6.46	$	7.89	$	458		—		—		—		—

As of June 30, 2022, the unrecognized compensation cost related to unvested RSUs totaled to approximately $19,124 thousand and is expected to be expensed over a weighted-average recognition period of approximately 3.5 years.

During the six months ended on June 30, 2022 491,775 RSU’s were granted to several related parties (please refer to Note 12 regarding Related Parties).

16

VALENS SEMICONDUCTOR LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

NOTE 8 - STOCK-BASED COMPENSATION

(continued)

:

The following table presents the classification of RSU’s expenses for the periods indicated:

	Six months ended June 30				Three months ended June 30
	2022		2021		2022		2021
	U.S. dollars in thousands
Cost of revenue		155		—		84		—
Research and development		1,467		—		809		—
Selling, general and administrative		1,206		—		664		—
Total stock-based compensation- RSUs		2,828		—		1,557		—

NOTE 9 - NET INCOME (LOSS) PER ORDINARY SHARE:

The following table sets forth the computation of basic and diluted net income (loss) per ordinary share for the periods indicated:

	Six months ended						Three months ended
	June 30, 2022			June 30, 2021			June 30, 2022			June 30, 2021
Basic net loss per ordinary share
Numerator:
Net loss from continuing operations		(15,045	)		(10,074	)		(9,995	)		(3,698	)
Dividend on Series E Redeemable Preferred		—			(1,788	)		—			(906	)
Dividend on Series D Redeemable Preferred		—			(2,654	)		—			(1,346	)
Dividend on Series C Redeemable Preferred		—			(941	)		—			(477	)
Dividend on Series B-2 Redeemable Preferred		—			(650	)		—			(329	)
Dividend on Series B-1 Redeemable Preferred		—			(262	)		—			(129	)
Dividend on Series A Redeemable Preferred		—			(1,183	)		—			(601	)
Numerator for basic and diluted net loss per common share – net loss attributable to common stockholders		(15,045	)		(17,552	)		(9,995	)		(7,486	)
Denominator:
Denominator for basic and dilutive net loss per common share- adjusted weighted-average share		97,296,206			10,927,357			97,442,359			11,020,299
Basic and dilutive net loss per common share		(0.15	)		(1.61	)		(0.10	)		(0.68	)

17

VALENS SEMICONDUCTOR LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

The following weighted-average shares of securities were not included in the computation of diluted net income (loss) per common share as their effect would have been antidilutive:

	Six months ended				Three months ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Options		15,378,561		16,408,933		15,300,870		16,432,641
Restricted Stock Units		2,748,135		—		3,649,756		—
Warrants liability		—		40,452		—		—
Private Warrants		3,330,000		—		3,330,000		—
Public Warrants		5,750,000		—		5,750,000		—
Forfeiture Shares		1,006,250		—		1,006,250		—
Redeemable convertible Preferred A shares		—		32,901,384		—		32,901,384
Redeemable convertible Preferred B-1 shares		—		10,078,756		—		10,119,208
Redeemable convertible Preferred B-2 shares		—		18,670,270		—		18,670,270
Redeemable convertible Preferred C shares		—		9,424,938		—		9,424,938
Redeemable convertible Preferred D shares		—		19,313,646		—		19,313,646
Redeemable convertible Preferred E shares		—		11,080,674		—		11,080,674

NOTE 10 - FINANCIAL INCOME, NET:

	Six months ended June 30						Three months ended June 30
	2022			2021			2022			2021
	U.S. dollars in thousands
Foreign currency exchange differences		(3,865	)		239			(3,554	)		474
Interest income on short-term deposits		404			112			199			37
Other		(214	)		(15	)		(205	)		(8	)
Total financial income (expenses), net		(3,675	)		336			(3,560	)		503

18

VALENS SEMICONDUCTOR LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

NOTE 11 - SEGMENT AND REVENUE BY GEOGRAPHY AND BY MAJOR CUSTOMER:

a. For the purpose of evaluating financial performance and allocating resources, the CODM reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues, gross profit and operating loss by the two identified reportable segments, to make decisions about resources to be allocated to the segments and assess their performance. Assets information is not provided to the CODM and is not being reviewed. Revenues and cost of goods sold are directly associated with the activities of a specific segment. Direct operating expenses, including general and administrative expenses, associated with the activities of a specific segment are charged to that segment. General and administrative expenses which cannot be attributed directly, are allocated evenly between segments. Other operating expenses are allocated to segments based on headcount ratio.​​​​​​​

	Six months ended on June 30, 2022
	Audio- Video		Automotive			Consolidated
	U.S. dollars in thousands
Revenues		35,067		9,034			44,101
Gross profit		27,881		3,343			31,224
Research and development expenses		11,392		17,639			29,031
Sales and marketing expenses		3,695		4,987			8,682
General and administrative expenses		4,244		4,397			8,641
Segment operating profit (loss)		8,550		(23,680	)		(15,130	)
Change in fair value of Forfeiture Shares							4,142
Financial expenses, net							(3,675	)
Loss before taxes on income							(14,663	)
Depreciation expenses		303		364			667
	Six months ended on June 30, 2021
	Audio- Video		Automotive			Consolidated
	U.S. dollars in thousands
Revenues		27,145		3,729			30,874
Gross profit		21,266		733			21,999
Research and development expenses		5,255		16,099			21,354
Sales and marketing expenses		3,437		2,895			6,331
General and administrative expenses		2,303		2,241			4,544
Segment operating profit (loss)		10,271		(20,502	)		(10,231	)
Financial expenses, net							336
Loss before taxes on income							(9,895	)
Depreciation expenses		171		351			522

19

VALENS SEMICONDUCTOR LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

NOTE 11 - SEGMENT AND REVENUE BY GEOGRAPHY AND BY MAJOR CUSTOMER

(continued)

:

	Three months ended on June 30, 2022
	Audio- Video		Automotive			Consolidated
	U.S. dollars in thousands
Revenues		18,335		4,146			22,481
Gross profit		14,414		1,370			15,784
Research and development expenses		5,122		9,782			14,904
Sales and marketing expenses		1,917		2,556			4,473
General and administrative expenses		2,081		2,259			4,340
Segment operating profit (loss)		5,294		(13,227	)		(7,933	)
Change in fair value of Forfeiture Shares							1,538
Financial expenses, net							(3,560	)
Loss before taxes on income							(9,955	)
Depreciation expenses		161		186			347
	Three months ended on June 30, 2021
	Audio- Video		Automotive			Consolidated
	U.S. dollars in thousands
Revenues		15,513		1,997			17,510
Gross profit		12,053		414			12,467
Research and development expenses		2,692		8,264			10,956
Sales and marketing expenses		1,648		1,574			3,222
General and administrative expenses		1,176		1,190			2,366
Segment operating profit (loss)		6,537		(10,614	)		(4,077	)
Change in fair value of Forfeiture Shares							—
Financial expenses, net							503
Loss before taxes on income							(3,574	)
Depreciation expenses		22		244			266

20

VALENS SEMICONDUCTOR LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

NOTE 11 - SEGMENT AND REVENUE BY GEOGRAPHY AND BY MAJOR CUSTOMER

(continued):

b. Geographic Revenues

The following table shows revenue by geography, based on the customers’ “bill to” location:

	Six months ended June 30				Three months ended June 30
	2022		2021		2022		2021
	U.S. dollars in thousands
Israel		1,279		779		749		371
China		5,339		8,233		2,533		4,787
United States		7,238		3,834		3,681		1,301
Hong Kong		7,286		5,567		3,965		3,592
Hungary		6,399		3,051		2,486		1,630
Japan		5,274		3,515		3,239		2,487
Other		11,286		5,895		5,828		3,342
		44,101		30,874		22,481		17,510

c. Supplemental data - Major Customers:

The following tables summarize the significant customers’ (including distributors) accounts receivable and revenues as a percentage of total accounts receivable and total revenues, respectively:

	June 30, 2022			December 31, 2021
Accounts Receivable	U.S. dollars in thousands
Customer A		17	%		12	%
Customer B		5	%		16	%
Customer C		10	%		7	%

	Six months ended June 30,						Three months ended June 30,
	2022			2021			2022			2021
Revenues	U.S. dollars in thousands						U.S. dollars in thousands
Customer D		11	%		11	%		14	%		14	%
Customer A		10	%		5	%		10	%		5	%
Customer E		0	%		12	%		0	%		14	%
Customer F		7	%		11	%		7	%		11	%
Customer G		6	%		10	%		7	%		12	%

d. Property and Equipment by Geography:

	June 30, 2022		December 31, 2021
	U.S. dollars in thousands
Domestic (Israel)		2,102		2,259
Taiwan		157		199
China		159		210
USA		153		73
		2,571		2,741

21

VALENS SEMICONDUCTOR LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

NOTE 12 - RELATED PARTY TRANSACTIONS

During the six months ended June 30, 2022, the Company granted 239,610 stock options, at a weighted average exercise price of $6.28 to several executive officers, and Board Of Directors (“Board”) members of the Company. In addition, during the six months ended June 30, 2022 the Company granted 491,775 RSUs to several executive officers and Board members of the Company.

The fair value of the stock options that were granted during the six months ended June 30, 2022 is $362 thousand, which is expected to be recognized over a 1-year vesting period, and the fair value of the granted RSUs is $2,603 thousand, which is expected to be recognized over a

1

-4-years vesting period.

22