| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Basis of Presentation The accompanying consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
b. Use of estimates in preparation
of financial statements The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance
sheet date, amounts of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates under different assumptions or circumstances. On an ongoing basis, management evaluates its estimates, including
those related to write-down for excess and obsolete inventories, the valuation of stock-based compensation awards, estimated useful lives
of fixed assets and forfeiture shares liability. Such estimates often require the selection of appropriate valuation methodologies and
models, and significant judgment in evaluating ranges of assumptions and financial inputs. These estimates are based on historical data
and experience, as well as various other factors that management believes to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
c. Principles of consolidation The consolidated financial statements include the financial
statements of the Company and its subsidiaries. All inter-company transactions, balances, income, and expenses are eliminated in the consolidated
financial statements.
d. Functional Currency The currency of the primary economic environment in which
Valens and each of its subsidiaries conducts its operations is the U.S. dollar (“dollar”). Accordingly, the Company uses the
dollar as its functional and reporting currency. Foreign currency assets and liabilities are remeasured into U.S. dollars at the end-of-period
exchange rates except for non-monetary assets and liabilities, which are remeasured at historical exchange rates. Expenses in foreign
currency (mainly payroll to Israeli employees and overhead expenses), are remeasured at the exchange rate in effect during the period
the transaction occurred, except for those expenses related to balance sheet amounts, which are remeasured at historical exchange rates.
Gains or losses from foreign currency transactions are included in the consolidated statements of income (loss) as part of “financial
income (expenses), net”.
e. Cash and cash equivalents Cash and cash equivalents consist of cash and demand deposits
in banks and other short-term, highly liquid investments with original maturities of less than three months at the time of purchase.
f. Short term deposits Short-term deposits are bank deposits with maturities over
three months and of up to one year. As of December 31, 2023, and 2022, the short-term deposits were denominated in U.S. dollars and NIS
(Israeli currency) and bore average interest of 5.8% and 4.2%, respectively. Short-term deposits are presented on the balance sheet at
their cost, including accrued interest.
g. Fair Value of Financial Instruments The FASB ASC Topic 820, Fair Value Measurements and Disclosures
(“Topic 820”), establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair
value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level
1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under Topic 820
are described below: Level 1 - Quoted prices in active markets for identical assets
or liabilities; Level 2 - Inputs other than Level 1 that are observable, either
directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar
assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities; Level 3 - Unobservable inputs that are supported by little
or no market activity and that are significant to the fair values of the assets or liabilities. The Company’s financial instruments consist of cash, cash
equivalents, short-term bank deposits, trade accounts receivable and trade accounts payable as well as Forfeiture Shares liability. Other
than the Forfeiture Shares liability (see below), the recorded amounts approximate their respective fair value because of the liquidity
and short period of time to maturity, receipt or payment of these instruments. The Company’s financial instruments which are considered as
a Level 3 measurement are Forfeiture Shares liability (refer also to note 8).
h. Accounts Receivable, net Trade accounts receivable are recorded at the invoiced amount
and do not include finance charges. The Company performs ongoing credit evaluation of its customers and generally requires no collateral. The Company’s accounts receivables accounting policy
from January 1, 2023, following the adoption of the new CECL standard: The Company estimates CECL on trade receivables at inception
for estimated losses resulting from the inability of the Company’s customers to make required payments, based on estimated current
expected credit losses. The allowance represents the current estimate of lifetime expected credit losses over the remaining duration of
existing accounts receivable considering historical information, current market conditions and reasonable and supportable forecasts when
appropriate. The estimate is a result of the Company’s ongoing evaluation of collectability, customer creditworthiness, historical
levels of credit losses, and future expectations. There were no write-offs of accounts receivable for the years
ended December 31, 2023, 2022 and 2021, respectively. There are no expected credit losses recorded as of December 31, 2023, and December
31, 2022. The Company’s accounts receivables accounting policy
until December 31, 2022, prior to the adoption of the new CECL standard: The Company assesses the need for allowances for doubtful
accounts for estimated losses resulting from the inability of its customers to make required payments by considering factors such as historical
collection experience, credit quality, aging of the accounts receivable balances and current economic conditions that may affect a customer’s
ability to pay.
i. Inventories Inventories are comprised of finished goods as well as work
in process that is planned to be sold to the Company’s customers and is presented at the lower of cost or net realizable value, based
on the “first-in, first-out” basis. Most inventories are stored at the last production sites and are distributed from these
locations. Inventories are reduced for write-downs based on periodic reviews for evidence of slow-moving or obsolete parts. Once written
down, inventories write-downs are not reversed until the inventories are sold or scrapped.
j. Property and equipment Property and equipment are stated at cost less accumulated
depreciation that is calculated using the straight-line method over the estimated useful lives of the related assets, as follows:
%
Computers and software 33
Electronic and laboratory equipment 15–33
Furniture and office equipment 7
Production equipment 33–50 Leasehold improvements are depreciated by the straight-line
method over the shorter of the term of the lease or the estimated useful life of such improvements.
k. Impairment of long-lived
assets The Company tests long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. Recoverability of long-lived
assets is measured by comparing the carrying amount of the long-lived asset to the estimated undiscounted future cash flows expected to
be generated by the asset. If the sum of the expected undiscounted cash flow is less than the carrying amount of the asset, the Company
recognizes an impairment loss, which is the excess of the carrying amount over the fair value of the asset, using the expected future
discounted cash flows. For the years ended December 31, 2023, 2022 and 2021, the
Company did not recognize an impairment loss on its long-lived assets.
l. Severance Pay Valens: The employees of Valens Ltd. elected to be included under
section 14 of the Israeli Severance Compensation Act, 1963 (“section 14”). According to this section, these employees are
entitled only to monthly deposits, at a rate of 8.33% of their monthly salary, made in their name with insurance companies and/or pension
funds. Payments in accordance with section 14 release Valens Ltd. from any future severance payments (under the above Israeli Severance
Pay Law) in respect of those employees. As a result, the Company does not recognize any liability for severance pay due to these employees. The aforementioned deposits are not recorded as an asset in the Company’s balance sheet as they are not under the Company’s
control. Chinese subsidiary:
m. Revenue recognition The Company applies ASC 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.
To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following
five steps:
(i) Identify the contract(s) with
a customer;
(ii) Identify the performance obligations
in the contract;
(iii) Determine the transaction price;
(iv) Allocate the transaction price
to the performance obligations in the contract;
(v) Recognize revenue when (or as)
the performance obligation is satisfied. The Company uses the following practical expedients that are
permitted under ASC 606:
● The Company recognizes the incremental
costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have
recognized is one year or less. These costs are included in sales and marketing expenses.
● When a contract with a customer
includes a material right to acquire future goods or services that are similar to the original goods or services in the contract and
are provided in accordance with the terms of the original contract, the Company allocates the transaction price to the optional goods
or services by reference to the goods or services expected to be provided and the corresponding expected consideration.
● The Company applies the practical
expedient of allowing it to disregard the effects of a financing component if the period between when the Company transfers the promised
services to the customer and when the customer pays for the services will be one year or less. The Company generates revenues mainly from selling semiconductor
products (chips). Revenues are recognized when the customer (which includes distributors) obtains control over the Company’s product,
typically upon shipment to the customer. Taxes collected from customers relating to product sales and remitted to governmental authorities
are excluded from revenues. The Company does not grant a right of return, refund, cancelation
or termination. From time to time, the Company provides certain distributors with the right to free or discounted goods products in future
periods that provides a material right to the customer. In such cases, such right is accounted for as a separate performance obligation.
As of December 31, 2023, and 2022, the deferred revenues for such material rights were $0 thousand and $0 thousand, respectively. The
amounts of revenues recognized in the period that were included in the opening deferred revenues balance were $0 and $54 thousand for
the years ended December 31, 2023, and December 31, 2022, respectively. The Company generally provides to its customers a limited
warranty assurance that the sold products are in compliance with the applicable specifications at the time of delivery. Under the Company’s
standard terms and conditions of sale, liability for certain failures of product during a stated warranty period is usually limited to
repair or replacement of defective items. To the extent the Company sells extended warranty, the recognition of such revenue is deferred
until such warranty is in effect.
n. Cost of Revenues Cost of revenues includes cost of materials, such as the cost
of wafers, costs associated with packaging, assembly and testing costs, as well as royalties, shipping cost, depreciation cost of production
equipment, cost of personnel (including stock-based compensation), costs of logistics and quality assurance and other expenses associated
with manufacturing support.
o. Research and development
costs Research and development costs are expensed as incurred. Research
and development expenses consists of costs incurred in performing research and development activities including cost of personnel (including
stock-based compensation), pre-production engineering mask costs, engineering services, development tools cost, third parties’ intellectual
property license fees, depreciation of development equipment, prototype wafers, packaging and test development costs as well as overhead
costs. Development of a product is deemed complete when it is qualified through reviews and tests for performance and reliability. Subsequent
to product qualification, product costs are included in cost of goods sold.
p. Sales Commissions Internal sales commissions are recorded within sales and marketing
expenses. Sales commissions for the years ended December 31, 2023, 2022 and 2021 amounted $482 thousand, $615 thousand and $790 thousand,
respectively.
q. Leases Lease accounting
policy from January 1, 2022, following the adoption of ASC 842: On January 1,
2022, 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. Leases primarily
consist of real estate property and vehicles and are classified as operating leases with fixed payment terms. The Company determines if
an arrangement is a lease, or contains a lease, at inception and records the leases upon lease commencement, which is the date when the
underlying asset is made available for use by the lessor. Right-of-use (“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. ROU assets and lease liabilities are included in other long-term assets, other current liabilities, and other long-term
liabilities on the consolidated balance sheet. Lease expenses for the operating leases are recognized on a straight-line basis over the
lease term and are included in operating expenses in the consolidated statements of operations and comprehensive income (loss). Options
to extend or terminate the lease are taken into account when it is reasonably certain at the commencement date that such options will
be exercised. The Company elected
to apply the short-term lease exemption for lease with a non-cancelable period of twelve months or less. Additionally, the Company has
lease agreements with lease and non-lease components. The non-lease components are accounted for separately and not included in the leased
assets and corresponding liabilities. On the commencement date, lease payments that include variable lease payments dependent on an index
or a rate (such as the Consumer Price Index or a market interest rate), are initially measured using the index or rate at the commencement
date. Such variable payments are recognized in the consolidated statements of operations and comprehensive income (loss) in the period
in which the event or condition that triggers the payment occurs. These variable payment amounts were not material to the consolidated
financial statements for the periods presented. The interest rate used to determine the
present value of the future lease payments is the Company’s incremental borrowing rate because the interest rate implicit in most
of its leases is not readily determinable. Lease accounting policy until December 31, 2021, prior to the adoption of ASC 842: The Company leases cars and offices
for use in its operations, which are classified as operating leases. Rentals for operating leases are charged to expense using the straight-line
method.
r. Equity investee Investment in which the Company exercises significant influence,
and which is not considered a subsidiary is accounted for using the equity method, whereby the Company recognizes its proportionate share
of the investee’s net income or loss after the date of investment, see Note 1b. The equity investee is included within Other assets
and totaled to $16 thousand and $17 thousand as of December 31, 2023 and 2022, respectively.
s. Segment reporting The chief operating decision maker is the Company’s
Chief Executive Officer (the “CODM”), who makes resource allocation decisions and assesses performance based on financial
information prepared on a consolidated basis, accompanied by disaggregated information about revenues, gross profit and operating loss
by the two identified reportable segments. The Company’s business includes two operating segments based on the two markets the Company
serves:
1) Audio-Video: The Company solutions for the Audio-Video market
deliver superior, plug-and-play convergence and distribution of different interfaces, through a single long-distance category cable.
The products sold into enterprise, Industrial, digital signage, medical, residential, education and VR markets.
2) Automotive: Valens Automotive delivers safe & resilient
high-speed in-vehicle connectivity for advanced car architectures, realizing the vision of connected and autonomous cars.
t. Net income (loss) per Ordinary
Share Net loss per Ordinary Share is computed by adjusting net loss
by the amount of dividends on redeemable convertible preferred shares, if applicable. Basic net loss per Ordinary Share is computed by dividing
net loss by the weighted-average number of Ordinary Shares outstanding during the year. Diluted net loss per Ordinary Share is computed
by dividing net loss by the weighted-average number of Ordinary Shares outstanding during the year, while giving effect to all potentially
dilutive Ordinary Shares to the extent they are dilutive. As long as the company had Redeemable Convertible Preferred Shares outstanding,
net loss per Ordinary Share was calculated and reported under the “two-class” method. For periods where there was a net loss,
no loss was allocated to the participating securities because they had no contractual obligation to share in the losses. The Forfeiture
Shares are subject to forfeiture if certain conditions are not achieved, for which we examine their occurrence at the end of each reporting
period. The Forfeiture Shares are not included in the denominator
of diluted earnings per share (EPS) unless the contingency has been met, or would have been met, as of the reporting date. The Ordinary Shares issued as a result of the Redeemable Convertible
Preferred Shares conversion on the Closing Date were included in the basic net loss per share calculation on a prospective basis.
u. Stock-based compensation The Company accounts for share-based compensation in accordance
with ASC 718-10. Under ASC 718-10, stock-based awards, including stock options and Restricted Share Units (“RSUs”), are recorded
at fair value as of the grant date and recognized as expense over the employee’s, directors and consultants’ requisite service period
(generally the vesting period) which the Company has elected to amortize on a straight-line basis. The Company recognizes share-based
compensation expense over the requisite service period of the award, net of estimated forfeitures, and revised its estimates, if necessary,
in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option
forfeitures.
1) With respect to stock options, the Company uses the Black-Scholes
option-pricing model to determine the fair value of stock options. The determination of the fair value of stock-based payment awards
on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding number of
complex and subjective variables. These variables include the estimated stock price volatility over the term of the awards; actual and
projected employee stock option exercise behaviors, which is referred to as expected term; risk-free interest rate and expected dividends. The expected term is calculated using the simplified method,
as the Company has concluded that its historical share option exercise experience does not provide a reasonable basis to estimate the
expected option term. The Company estimates the volatility of its common stock by using the volatility rates of its peer companies, as
well as the historical volatility rates of the Company. The Company bases the risk-free interest rate used in its option-pricing models
on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term to maturity of its equity awards. The Company does
not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in its option-pricing
models.
2) With respect to RSUs, the Company uses the stock market price
as of the grant date to determine the fair value of such RSUs.
v. Concentrations of credit risk Financial instruments that subject the Company to concentrations
of credit risk consist primarily of cash, cash equivalents, investments in short-term deposits and trade accounts receivable. As of December
31, 2023, and 2022, the Company had cash and cash equivalents totaling $17,261 thousand and $20,024 thousand, respectively, as well as
short-term deposits of $124,759 thousand and $128,363 thousand as of December 31, 2023, and 2022, respectively, which are deposited in
major Israeli, U.S, Japanese, German and Chinese financial institutions. The Company’s management believes that these financial institutions
are financially sound. The Company extends different levels of credit to customers
and does not require collateral deposits. As of December 31, 2023, and 2022, the Company did not have expected credit losses.
w. Income taxes The Company accounts for income taxes using the asset and
liability approach, which requires the recognition of taxes payable or refundable for the current year and the deferred tax liabilities
and assets for the future tax consequences of events that we have recognized in our financial statements or tax returns. The Company measures
current and deferred tax liabilities and assets based on provisions of the relevant tax law. The Company records a valuation allowance
to reduce its deferred tax assets to the net amount that the Company believes is more likely than not to be realized. The Company considers
all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates
of future taxable income, and ongoing tax planning strategies in assessing the need for a valuation allowance. The Company classifies
interest and penalties relating to uncertain tax positions within income taxes.
x. Forfeiture shares Shares issued to PTK’s sponsor that are subject to forfeiture
(“Forfeiture Shares”) are evaluated as equity-linked contracts rather than as outstanding shares. In accordance with ASC 815-40,
the Forfeiture Shares are not solely indexed to the Company’s Ordinary Shares and therefore were accounted for as a liability on
the consolidated balance sheet at the Closing Date. This liability is subject to re-measurement at each balance sheet date until the contingency
settlement, and any change in fair value is recognized in the Company’s statement of operations.
y. Public and Private Warrants The Company accounts for the warrants in accordance with the
guidance contained in Accounting Standards Codification 815 (“ASC 815”), “Derivatives and Hedging”. Accordingly,
both the Public and the Private Warrants are considered indexed to the entity’s own stock and are classified within equity.
z. New Accounting Pronouncements Recently adopted accounting standards: 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. The guidance is effective for the Company for annual periods beginning after December 15, 2022, including interim periods within
those fiscal years. Early application is permitted. The Company adopted ASC 326 on January 1, 2023, and there was no material impact on
the Company’s consolidated balance sheet and the consolidated statements of operations upon adoption. Accounting Pronouncements effective in future periods: In December 2023, the FASB issued ASU 2023-09 Improvements
to Income Tax Disclosures. The ASU improves the transparency of income tax disclosures by requiring (1) consistent categories and greater
disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain
other amendments to improve the effectiveness of income tax disclosures. The ASU is effective for the Company for annual periods beginning
after December 15, 2025. The Company is evaluating the potential impact of this guidance on its consolidated financial statements. The
amendments in this Update should be applied on a prospective basis. Retrospective application is permitted. In November 2023, the FASB issued ASU No. 2023-07 Segment
Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU improves reportable segments disclosure requirements, primarily
through enhanced disclosures about significant segment expenses. The ASU is effective for fiscal years beginning after December 15, 2023,
and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is evaluating the
potential impact of this guidance on its Segment disclosure. A public entity should apply the amendments in this Update retrospectively
to all prior periods presented in the financial statements. |
