| 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 intangible assets, the valuation of earnout liability, goodwill
impairment valuation 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 operations and comprehensive income 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. Restricted short-term deposit Restricted
bank deposit is a cash amount related to a bank guarantee in connection with hedging activity. Such a deposit is stated at cost including
accrued interest, which approximates market value. The restricted short-term deposit is a deposit for a period of one year.
g. Short-term deposits Short-term
deposits are bank deposits with maturities over three months and of up to one year. As of December 31, 2024, and 2023, the short-term
deposits were denominated in U.S. dollars and NIS (Israeli currency) and bore average interest of 5.0% and 5.8%, respectively. Short-term
deposits are presented on the balance sheet at their cost, including accrued interest.
h. 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, restricted short-term deposit, trade
accounts receivable and trade accounts payable as well as Forfeiture Shares liability, earnout liability and derivative instruments.
Other than the Forfeiture Shares liability, the earnout liability and the derivative instruments (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 derivative instruments are measured at fair value within Level 2 of the fair value hierarchy as the valuation inputs
are based on quoted prices and market observable data of similar instruments (please refer to note 12) .
The
Company’s financial instruments which are considered as a Level 3 measurement are Forfeiture Shares liability (refer also to note
9) and earnout liability (refer also to note 10)
i. 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. As
of December 31, 2024 and December 31, 2023, the credit loss allowance for trade accounts receivable was not material. For each of the
years presented, the charge-offs and recoveries in relation to the credit losses were not material. 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.
j. 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.
k. 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 10-33
Furniture and office equipment 7
Production equipment 20-50 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.
l. 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, 2024, 2023 and 2022, the Company did not recognize an impairment loss on its long-lived assets.
m. Severance Pay The Israeli
Severance Pay Law, 1963 (“Severance Pay Law”), specifies that employees are entitled to severance payment, following the
termination of their employment. Under the Severance Pay Law, the severance payment is calculated as one-month’s salary for each
year of employment, or a portion thereof. 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. In
addition, the Company’s employees in other jurisdictions are entitled to certain pension plans and related severance payments in
accordance with local laws and practices.
n. Treasury shares Treasury
shares are presented as a reduction of shareholders’ equity, at their cost to the Company. The
Treasury shares are not entitled to any rights, such as voting rights and distributions. The Treasury shares were purchased in the open
market.
o. 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) and USB hubs. 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. 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,
2024, and 2023, there were no such deferred revenues recognized. The
Company generally provides 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.
p. 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, amortization cost of intangible asset of technology, cost of
personnel (including stock-based compensation), costs of logistics and quality assurance and other expenses associated with manufacturing
support.
q. 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.
r. Sales Commissions Internal
sales commissions are recorded within sales and marketing expenses. Sales commissions for the years ended December 31, 2024, 2023 and
2022 amounted $357 thousand, $482 thousand and $615 thousand, respectively.
s. Leases 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 long-term assets, current liabilities, and 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 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 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 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.
t. 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 $33 thousand and $16 thousand as of December 31, 2024 and 2023,
respectively.
u. 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) Cross
Industry Business (“CIB”): The Company solutions for the non-automotive verticals,
including audio-video, industrial, machine vision and medical markets, that deliver superior,
plug-and-play convergence and distribution of different interfaces, through a single long-distance
category cable. This segment was previously named Audio-Video. In order to address new opportunities
across verticals, the Company implemented organizational changes within this segment and
renamed it to Cross Industry Business Unit, encompassing verticals including Audio-Video,
Industrial, Machine Vision, and Medical.
2) Automotive:
Valens Automotive delivers safe & resilient high-speed in-vehicle connectivity for advanced
car architectures, realizing the vision of connected and autonomous cars.
v. Net loss per Ordinary Share Basic
net loss per Ordinary Share is computed by dividing net loss for the period by the weighted-average number of Ordinary Shares and vested
RSUs outstanding during the period, net of treasury shares. Diluted
net loss per share is computed by dividing net loss by the weighted-average number of ordinary shares outstanding during the period,
while giving effect to all potentially dilutive common shares to the extent they are dilutive. Potentially
dilutive common shares result from the assumed exercise of options and warrants and the assumed vesting of RSUs, using the “treasury
stock” method, and the Forfeiture Shares (see note 9). 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.
w. 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.
x. 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.
y. 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 Merger
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 and comprehensive loss.
z. Public and Private Warrants The
Company accounts for the warrants (please refer to note 13 (b)) 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.
aa. Business combination The
Company allocates the fair value of consideration transferred in a business combination to the assets acquired and the liabilities assumed
in the acquired business based on their fair values at the acquisition date. Acquisition-related expenses are recognized separately from
the business combination and are expensed as incurred. The excess of the fair value of the consideration transferred over the fair value
of the assets acquired, liabilities assumed in the acquired business is recorded as goodwill. The fair value of the consideration transferred
may include a combination of cash and earn out payments. The allocation of the consideration transferred in certain cases may be subject
to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition
date. The cumulative impact of revisions during the measurement period is recognized in the reporting period in which the revisions are
identified. The Company includes the results of operations of the businesses that it has acquired in its consolidated results prospectively
from the respective dates of acquisition.
bb. Intangible assets Goodwill Goodwill
reflects the excess of the consideration transferred at the business combination date over the fair values of the identifiable net assets
acquired. Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination
that are not individually identified and separately recognized. The Company allocated the goodwill to a reporting unit that
is expected to benefit from the business combination. The primary items that generate goodwill include the value of the synergies
between the acquired company and the Company and the acquired assembled workforce, neither of which qualifies for recognition as an intangible
asset. ASC 350 allows an entity to first assess qualitative factors to determine whether a quantitative goodwill impairment test is necessary.
Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that
a reporting unit’s fair value is less than its carrying amount. Otherwise, no further impairment testing is required. Examples
of events or circumstances that may be indicative of impairment include but are not limited to: macroeconomic and industry conditions,
overall financial performance and adverse changes in legal, regulatory, market share and other relevant entity specific events. An
entity has the option to bypass the qualitative assessment for its reporting unit in any period and proceed directly to the quantitative
goodwill impairment test. This would not preclude the entity from performing the qualitative assessment in any subsequent period. The
quantitative assessment compares the fair value of the reporting unit to its carrying value, including goodwill. The
Company determines the fair value of its reporting unit using a discounted cash flow model, which utilizes key assumptions such as projected
revenues, cost of revenues and operating expenses (Level 3 measurement). These assumptions are determined by the Company’s management
utilizing its internal operating plan, growth rates for revenues and operating expenses and margin assumptions. An additional key assumption
under this approach is the discount rate, based on the weighted average cost of capital, which is adjusted for current risk-free rates
of capital, current market interest rates, and the evaluation of a risk premium relevant to the reporting unit. If
the Company’s assumptions relative to revenue growth rates, cost of revenues and operating expenses were to change, the Company’s
fair value calculation may change, which could result in impairment. If the Company’s assumptions relative to the discount rate
and the evaluation of risk premium growth rates were to change, the Company’s fair value calculation may change, which could result
in impairment. The Company uses the income approach to determine the fair value of the reporting units because it considers the anticipated
future financial performance of the reporting unit. Accordingly, changes in the assumptions described above could have a material impact
on the Company’s consolidated results of operations and comprehensive loss. The
Company’s goodwill is tested for impairment in the fourth quarter of each year and whenever events or changes in circumstances
indicate the carrying value of a reporting unit may not be recoverable. When necessary, the Company records charges for impairments of
goodwill for the amount by which the carrying amount of the respective reporting unit exceeds its fair value. However, the loss recognized
should not exceed the total amount of goodwill allocated to that reporting unit. The
reporting unit to which the goodwill, identified in Acroname’s acquisition, was assigned, is part of the CIB segment. The goodwill is deductible for tax purposes for a period of 15 years. As
of December 31, 2024, the Company completed a quantitative goodwill impairment test. The fair value of the reporting unit exceeded its
carrying amount and no goodwill impairment loss was recorded Other
Intangible Assets Definite
life intangible assets are amortized using the straight-line method over their estimated period of useful life. Amortization of core
technology is recorded under cost of revenues. Amortization of customer relationships is recorded under sales and marketing expenses. cc. Risk and uncertainties War
in Israel In
October 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian
and military targets. Following the attack, Israel’s security cabinet declared war against Hamas and commenced a military campaign
against Hamas. In addition, since the commencement of these events, there have been continued hostilities along Israel’s northern
border with Lebanon (with the Hezbollah terror organization), Israel’s southern border with the Gaza Strip (with the Hamas terrorist
organization) and on other fronts from various extremist groups in region, such as the Houthis in Yemen and various rebel militia groups
in Syria and Iraq. Further, on April 13, 2024, and on October 1, 2024, Iran launched a series of drone and missile strikes against Israel.
As of December 31, 2024, a ceasefire agreement has been reached between Israel and Lebanon. To date the Company’s operations and
financial results have not been materially affected. The
Company expects that the current conflict in the Gaza Strip, Lebanon and the security escalation in Israel will not have a material impact
on its business results in the short term. However, since this is an event beyond the Company’s control, its continuation or cessation
may affect our expectations. The Company continues to monitor its ongoing activities and will make any needed adjustments to ensure continuity
of its business, while supporting the safety and well-being of its employees. 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, trade accounts receivable and derivative financial instruments. As of December 31, 2024, and 2023, the Company had cash and
cash equivalents totaling $35,423 thousand and $17,261 thousand, respectively, as well as short-term deposits of $95,532 thousand and
$124,759 thousand as of December 31, 2024, and 2023, 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. Derivative
financial instruments are forward contracts entered into with major banks in Israel to hedge the Company’s foreign exchange rate
risk. Accordingly, management believes that these derivative financial instruments have minimal credit risk. The
Company extends diff |
