Organization |
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Dec. 31, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Organization | Organization USA Rare Earth, Inc., collectively with its subsidiaries (the “Company,” “USARE,” “we,” or “our”) is building a leading global rare earth value chain, from mine to magnet and beyond. The Company intends to secure, reshore, and grow the materials intelligence and production technologies required to stand up a resilient rare earth industry. This advanced industrial operating system should strengthen supply-chain security for the national defense, manufacturing and technology of the United States (“U.S.”) and its allies. The Company’s plan is to build an integrated platform to encompass the entire rare earth value chain: extraction and separation of rare earth oxides; conversion of oxides into metals, alloys and strip-cast; and production of sintered neodymium-iron-boron (“NdFeB”) permanent magnets, which the Company refers to as neo magnets. This capability should address the supply-chain vulnerabilities created by China’s current dominance of rare earth processing, metal and magnet manufacturing. The Company (formerly known as Inflection Point Acquisition Corp. II or “IPXX”) was a special purpose acquisition company incorporated as a Cayman Islands exempted company on March 6, 2023. The Company was incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. On August 21, 2024, IPXX entered into a Business Combination Agreement (as amended on November 12, 2024 and January 30, 2025, the “Business Combination Agreement”), by and among IPXX, USA Rare Earth, LLC, a Delaware limited liability company (“USARE LLC”), and IPXX Merger Sub, LLC, a Delaware limited liability company and a direct wholly owned subsidiary of IPXX (“Merger Sub”). Pursuant to the Business Combination Agreement, Merger Sub merged with and into USARE LLC, with USARE LLC continuing as the surviving company (the “Merger”). On March 12, 2025, the Company filed a notice of deregistration with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and filed a certificate of incorporation (the “Certificate of Incorporation”) and a certificate of corporate domestication with the Secretary of State of the State of Delaware. On March 13, 2025 (the “Closing Date”), the Company consummated the previously announced Merger and related transactions (the “Merger Transactions”) contemplated by the Business Combination Agreement and USARE LLC became a direct wholly owned subsidiary of the Company. On March 14, 2025, following the closing of the merger transactions on March 13, 2025, shares of USARE common stock (“Common Stock”) and USARE warrants began trading on the Nasdaq Stock Market LLC (“Nasdaq”) under the symbols “USAR” and “USARW,” respectively. See Note 2, “Merger Transaction and Acquisition – IPXX Business Combination Agreement,” for additional information related to the Merger. Basis of Presentation The Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The historical consolidated financial statements reflect (i) the historical operating results of USARE LLC prior to the merger; (ii) the combined results of IPXX and USARE LLC following the close of the Merger; (iii) the assets and liabilities of USARE LLC at their historical cost and (iv) USARE LLC’s equity structure for all periods presented, as affected by the recapitalization presentation after completion of the Merger. References to a year refer to our fiscal years ended on December 31 of the specified year. Principles of Consolidation The Consolidated Financial Statements include the accounts of the Company, as well as its wholly-owned subsidiaries and variable interest entities (“VIEs”) for which the Company is the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation. Use of Estimates The preparation of Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The amounts that involve significant estimates include equity-based compensation, asset and liability valuations, such as earnout and warrant liabilities, certain equity issuances, litigation settlements, and other fair value estimates reported. The assumptions used in calculating fair value represent the Company’s best estimates. However, these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change or the Company uses different assumptions, any gain or loss recognized using estimates could be materially different. Cash and Cash Equivalents Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash deposits. The Company considers cash equivalents to be highly liquid investments, including U.S. treasury and agency securities purchased with original maturities of three months or less. The Company maintains its cash in institutions insured by the Federal Deposit Insurance Corporation (“FDIC”). Management considers the risk of loss to be minimal. Cash and cash equivalents consist of cash and liquid investments with an original maturity of three months or less. Cash and cash equivalents consisted of funds held in bank and investment accounts with financial institutions in the U.S. The Company continually monitors its cash positions with the financial institutions through which it invests. The Company maintains balances in various U.S. financial institutions in excess of U.S. federally insured limits. Deferred Offering Costs Deferred offering costs consist of direct legal, advisory, and other fees related to the Business Combination Agreement, and the Merger Transactions as described in Note 1, “Organization.” These costs are capitalized as incurred and are presented as part of current assets in the Company’s Consolidated Balance Sheets. Upon the closing of the Merger Transactions, deferred offering costs directly related to the issuance of shares were netted against the proceeds from the Merger and recorded as an offset to stockholders’ equity. Changes in Ownership Interest Without Loss of Control Changes in a parent’s ownership interest that do not result in a change in control of the subsidiary that is a business are accounted for as equity transactions (i.e., no gain or loss is recognized in earnings) and in accordance with Accounting Standards Codification (“ASC”) 810, Consolidation. The carrying amount of the non-controlling interest (“NCI”) is adjusted to reflect the change in the NCI’s ownership interest in the subsidiary. Any difference between the amount by which the NCI is adjusted and the fair value of the consideration received is attributed to shareholders’/members’ equity and recognized in additional paid-in capital (“APIC”). Fair Value U.S. GAAP defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price), and establishes a fair value hierarchy that prioritizes the inputs used to measure fair value using the following definitions (from highest to lowest priority): •Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. •Level 2 — Observable inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means. •Level 3 — Prices or valuation techniques requiring inputs that are both significant to the fair-value measurement and unobservable. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. See additional information in Note 3, “Fair Value Measurements.” Inventories Inventories are stated at the lower of weighted average cost or net realizable value. The Company calculates inventory valuation adjustments for excess and obsolete inventory based on current inventory levels, movement, expected useful lives, and estimated future demand of the products. Long-lived Assets In accordance with ASC 360-10, Impairment or Disposal of Long-Lived Assets, the Company periodically reviews the carrying value of its long-lived assets, such as property, plant and equipment, mineral interests and equipment deposits, to test whether current events or circumstances indicate that such carrying value may not be recoverable. When impairment indicators are identified, a recoverability analysis is performed by comparing estimated future net cash flows with the carrying value and future obligations on an undiscounted basis. If an asset’s carrying value exceeds such estimated cash flows, the Company would record an impairment loss for the difference between the asset’s carrying amount and its fair value. Where estimates of future net cash flows are not determinable and where other conditions indicate the potential for impairment, management uses available market information and/or third-party valuation experts to assess if the carrying value can be recovered and to estimate fair value. The Company did not record an impairment loss related to long-lived assets for the years ended December 31, 2025 and 2024. Property, Plant, and Equipment Property, plant, and equipment are stated at cost, less accumulated depreciation. Advance payments of equipment not yet received are recorded as equipment deposits on the Consolidated Balance Sheets. Depreciation is calculated using the straight-line method over the following estimated useful lives of the related assets.
Depreciation commences once the asset is ready for its intended use. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation, is removed from the accounts and any resulting gain or loss is reflected in the Consolidated Statements of Operations and Comprehensive Loss. The costs of normal maintenance, repairs, and minor replacements are expensed as incurred. Mineral Properties Mining property acquisition costs, including directly attributable acquisition costs, are capitalized when incurred and are included in mineral interests on the Consolidated Balance Sheets. Acquisition costs include cash consideration and the fair value of shares issued as consideration. The Company also capitalizes amounts attributable to value beyond proven and probable (“VBPP”) reserves when acquiring mining property interests. Once proven and probable reserves have been established and a mineral property is determined to be economically and legally developable, subsequent development costs are capitalized as mine development assets. Upon commencement of commercial production, capitalized mining property and development costs are amortized using the units-of-production method over the estimated life of the related reserves. Capitalized costs related to properties that are abandoned or determined to be uneconomic are written off. Mining properties are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Exploration and Evaluation Costs Exploration and evaluation activities include the search for mineral resources and the assessment of the technical feasibility and commercial viability of mineral deposits. Such activities include geological and geophysical studies, exploratory drilling, sampling, and related technical evaluations. Exploration and evaluation costs are expensed as incurred. These costs include employee compensation, materials and supplies, drilling costs, contractor payments, and other costs directly associated with exploration activities undertaken prior to the establishment of proven and probable mineral reserves. License costs associated with the right to explore in a specific exploration area are capitalized and amortized over the term of the license. Once technical feasibility and economic viability of a mineral property have been established and appropriate approvals have been obtained, subsequent costs incurred to develop the property are capitalized as mine development assets. Exploration and evaluation costs incurred prior to that determination are not capitalized and are not subsequently reclassified. Goodwill and Other Acquired Intangible Assets Goodwill and other acquired intangible assets represent the value associated with the acquisition of Indian Ocean Rare Metals Pte. Ltd. under the acquisition method of accounting. Other acquired intangible assets consist of trademarks, customer relationships, supplier relationships, and manufacturing know-how. Intangible assets are recognized over their estimated useful life and are included within selling, general and administrative expense. Goodwill represents the excess of the purchase price of a business combination over the fair value of the net assets acquired. Goodwill is not amortized, but is tested for impairment annually and when an event occurs or circumstances change such that it is more likely than not that an impairment may exist. The Company’s annual testing date is October 1. The Company tests goodwill for impairment by performing a qualitative assessment or using a quantitative test. If the Company chooses to perform a qualitative assessment and determines it is more likely than not that the carrying value of the net assets is more than the fair value of the related operations, the quantitative test is then performed; otherwise, no further testing is required. The Company compares the carrying value of net assets to the estimated fair value of the related operations when the quantitative test is used. If the fair value is determined to be less than carrying value, the shortfall up to the carrying value of the goodwill represents the amount of goodwill impairment. Due to the Company’s recent acquisition of Indian Oceans Rare Metals Pte. Ltd., the Company performed its annual goodwill impairment test as of December 31, 2025, using a qualitative assessment. The Company determined the fair value of its reporting unit substantially exceeded their respective carrying values. Asset Retirement Obligation The Company recognizes and records the fair value of a liability for asset retirement obligations (“ARO”) in the period in which it is incurred, if there is a clear obligation at the termination of a lease and the potential obligation is measurable. ARO is capitalized to the corresponding asset, and the liability is included in Accrued liabilities on the Consolidated Balance Sheets. The ARO is adjusted for changes in the estimated timing or the amount of the original estimate as needed. Changes in the liability for an ARO due to the passage of time are recognized as accretion expense which is recorded in Selling, general and administrative on the Consolidated Statements of Operations and Comprehensive Loss. Leases The Company leases real estate and lab equipment in noncancelable operating and finance leases accounted for in accordance with ASC 842, Leases. Lease costs are presented in the Consolidated Statements of Operations and Comprehensive Loss as follows: (i) operating lease expense in Selling, general and administrative expenses and in Research and development expenses, (ii) finance lease right-of-use (“ROU”) asset amortization in Research and development expenses, and (iii) interest on finance lease liabilities in Interest expense and other income (loss), net on the Consolidated Statements of Operations and Comprehensive Loss. In addition, finance lease ROU assets are presented within Property, plant and equipment, net on the Consolidated Balance Sheets. At the inception of an arrangement, the Company determines whether the arrangement is, or contains, a lease. A contract is, or contains, a lease when there is a right to control the use of an identified asset for a period of time. A lease is a finance lease if one or more of the following criteria are met: (i) the lease transfers ownership of the asset by the end of the lease term, (ii) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (iii) the lease term is for the major part of the remaining useful life of the asset, (iv) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset, or (v) the asset is specialized in nature to have no alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if it does not meet any of the finance lease criteria noted above. The finance leases consist of lab equipment and the operating leases generally consist of real estate commitments. At lease commencement, the Company recognizes a ROU asset and lease liability for all leases. The Company adopted the following practical expedients: (i)the Company will not separate the lease component from the non-lease component for all asset classes. The Company has therefore not allocated consideration in a contract between lease and non-lease components; and (ii)the Company recognizes the payments on short-term leases (leases with terms at inception of 12 months or fewer) in Selling, general and administrative on the Consolidated Statements of Operations and Comprehensive Loss on a straight-line basis over the lease term. (iii)No outstanding lease payable is recognized on the Consolidated Balance Sheets with respect to these leases. A ROU asset is initially measured by adding the initial measurement of the lease liability, any lease payments made to the lessor at or before lease commencement, any initial direct costs incurred by the lessee, and subtracting any lease incentives received. The lease liability is initially measured at the present value of the minimum lease payments, discounted using the rate implicit in the lease or the Company’s incremental borrowing rate based on the original lease term. The rate implicit in the lease is used whenever that rate is readily determinable. If the rate implicit in the lease is not readily determinable, the Company utilizes its incremental borrowing rate, which is the rate for a collateralized loan with the same term as the lease. Variable lease payments that depend on an index or a rate are initially measured using the index or rate at the commencement date. Lease Expense The Company recognizes the amortization of its finance lease-related ROU assets, including purchase options when it is reasonably certain to exercise the related purchase option, on a straight-line basis over the shorter of the lease term or the useful life of the underlying asset as amortization expense. The Company recognizes its finance lease-related ROU assets’ lease liability discount over the shorter of the lease term or useful life of the underlying asset as interest expense. Any variable lease payments are expensed as incurred. The Company recognizes its operating lease-related ROU asset and lease liability amortization as lease expense on a straight-line basis over the lease term. Any variable lease payments are expensed as incurred. Derivatives The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain embedded derivatives that should be bifurcated from the host contract, pursuant to ASC 815, Derivatives and Hedging. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period Earnout Liabilities In accordance with ASC 815, unvested Earnout Shares (as defined below) are classified as a liability because they are not considered to be indexed to the Company’s common stock due to the change of control provisions in the Business Combination Agreement. At each period end, the Earnout Shares are remeasured to their fair value with the changes during that period recognized in Loss on fair market value of financial instruments, net on the Consolidated Statements of Operations and Comprehensive Loss. Upon issuance and release of the shares after each Triggering Event (as defined in Note 2, “Merger Transaction and Acquisition”) is met, the related Earnout Shares will be remeasured to fair value at that time with the changes recognized in Loss on fair market value of financial instruments, net, and such Earnout Shares will be reclassed to Shareholders’ Equity on the Consolidated Balance Sheet. Government Grants Because there is no specific guidance under U.S. GAAP that addresses the recognition and measurement of government assistance received by non-government entities, the Company accounts for government assistance by analogy to International Accounting Standards (“IAS”) 20, Accounting for Government Grants (“IAS 20”). The guidance within IAS 20 allows companies to choose between two options for how the associated profit or loss relating to the deferred income over the life of an underlying asset will be presented for grants related to assets. The Company has elected to account for these grants through profit and loss over the depreciable life of the underlying assets. The guidance within IAS 20 also allows companies to choose between two options of accounting for grants related to income. The Company has elected to report this category of grants as a reduction in the related expenses. See Note 9, “Government Grants” for further details of the Company’s government grants. Warrants The Company accounts for warrants as either equity or liability classified instruments based on an assessment of the warrant’s specific terms pursuant to the guidance of ASC 480, Distinguishing Liabilities from Equity and ASC 815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, that meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815. See Note 7, “Mezzanine and Stockholders' Equity,” for a discussion of the Company’s warrants. Equity-based Compensation The Company expenses equity-based compensation to employees and non-employees in accordance with ASC 718, Compensation - Stock Compensation. The fair value of equity-based compensation awards is measured at the date of grant and amortized over the requisite service period, which is generally the vesting period, with a corresponding increase in additional paid-in capital. In the case of a share-based compensation award that is either cancelled or forfeited prior to vesting, the amortized expense associated with the unvested awards is reversed. The Company has elected to account for forfeitures as they occur. See Note 8, “Equity-Based Compensation,” for further information regarding award valuation methodology, equity-based compensation expense, and the assumptions used in estimating the expense. Dividends As the Company has an accumulated deficit, dividends are recorded as a reduction to additional paid in capital. Once additional paid-in capital is reduced to zero, dividends are recorded against accumulated deficit. Paid-in-kind dividends are recorded at estimated fair value in accordance with ASC 845, Nonmonetary Transactions. The Company has never declared or paid any dividends on its common stock, and the Company does not currently intend to pay any dividends on its common stock for the foreseeable future. Net Loss Attributable to USA Rare Earth, Inc. The Company reports both basic and diluted earnings per share. Basic earnings per share is calculated based on the weighted-average number of shares of common stock outstanding during the period. Dividends on the Company’s 12% Series A Cumulative Convertible Preferred Stock are deducted from net income or added to net loss to determine net income (loss) attributable to common stockholders for purposes of calculating basic earnings per share. Diluted earnings per share is calculated based on the weighted-average number of shares of common stock outstanding plus the effect of potentially dilutive common stock equivalents outstanding during the period. Potentially dilutive securities include the Company’s 12% Series A Cumulative Convertible Preferred Stock, Series A Investor Warrants, Earnout Shares, incentive units and other convertible securities. The dilutive effect of warrants, incentive units and similar instruments is calculated using the treasury stock method, while the dilutive effect of convertible preferred stock is calculated using the if-converted method. Potentially dilutive securities are excluded from the computation of diluted earnings per share if their effect would be anti-dilutive, such as in periods in which the Company reports a net loss or when the contingent conditions for issuance of shares have not been satisfied. Business Combinations The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations, which requires the Company to recognize separately from goodwill, the assets acquired and the liabilities assumed at their acquisition date fair values. The amount by which the consideration transferred exceeds the aggregate fair value of the identifiable net assets acquired (i.e., identifiable assets minus liabilities assumed) is recorded as goodwill. While the Company uses its best estimate and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the identifiable assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Consolidated Statements of Operations and Comprehensive Loss. Variable Interest Entities The Company assesses its investments and other significant relationships to determine whether it has a variable interest in any legal entities and whether or not those entities are VIEs. A VIE is an entity with insufficient equity at risk for the entity to finance its activities without additional subordinated financial support or in which equity investors lack the characteristics of a controlling financial interest. If an entity is determined to be a VIE, the Company evaluates whether it is the primary beneficiary of the VIE. The primary beneficiary analysis is a qualitative analysis based on power and economics. The Company has concluded that it is the primary beneficiary of Round Top Mountain Development and has consolidated the VIE because it has both (i) the power to direct the activities of the VIE that most significantly influence the VIE’s economic performance and (ii) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. Revenue Recognition The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. Revenue is recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company identifies performance obligations in its contracts at contract inception and allocates the transaction price to those performance obligations based on their relative stand-alone selling prices. Payment terms vary based on the credit risk of the customer but generally require payment within 30 to 60 days of invoice. The Company evaluates customer creditworthiness at contract inception to determine whether collectability of consideration is probable. When collectability cannot be reasonably assessed, the Company may require prepayment or other forms of security. Customer prepayments are recorded as contract liabilities in the Consolidated Balance Sheets until the related performance obligations are satisfied. The Company’s contracts generally do not include significant variable consideration. Shipping and handling activities that occur after control of the product has transferred to the customer are considered fulfillment activities and are not separate performance obligations. Revenue is disaggregated based on categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. See Note 13, “Concentrations – Disaggregation of Revenue” for further discussion on revenue by category. Arrangements with Multiple Performance Obligations and Termination for Convenience Certain contracts may include multiple performance obligations. In these arrangements, the Company allocates the transaction price to each performance obligation based on its relative stand-alone selling price. Stand-alone selling prices are generally determined using observable stand-alone sales of the related goods or services. Certain customer contracts may include termination for convenience provisions. When such provisions exist, customers are generally required to pay a termination fee intended to compensate the Company for costs incurred and a reasonable profit margin. Practical Expedients and Exemptions The Company applies the practical expedient not to adjust the promised amount of consideration for the effects of a significant financing component when the period between transfer of control of the goods and payment is one year or less. The Company has elected to exclude sales and similar taxes collected from customers from the measurement of the transaction price. The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected duration of one year or less and (ii) contracts for which the Company recognizes revenue in the amount to which the Company has the right to invoice. Contract Costs Incremental costs of obtaining a contract are expensed as incurred when the amortization period of the asset that would otherwise be recognized is one year or less. These costs are included in Selling, general and administrative in the Consolidated Statements of Operations and Comprehensive Loss. Product Revenue Recognition Product revenue is derived from the sale of manufactured products. Contracts are generally evidenced by executed sales orders, purchase orders, or stand-alone agreements with fixed pricing. The Company’s performance obligation is generally the delivery of products, such as strip cast materials. Revenue is recognized at a point in time when control of the product transfers to the customer. Transfer of control typically occurs upon shipment or delivery in accordance with the applicable International Commercial Terms (“Incoterms”), which define the transfer of title and risk of loss. Research and Development Costs The Company expenses research and development (“R&D”) costs as incurred. R&D activities primarily comprise process engineering, production scale‑up, prototype and pilot‑run activities, product and material testing, and equipment trials undertaken to enhance manufacturing capability, product performance, and production efficiency. R&D expense includes personnel‑related costs (including share‑based compensation), materials and supplies consumed in testing and pilot runs, prototype and pilot‑line costs prior to establishing commercial feasibility, depreciation of equipment used in development, allocated facility and overhead costs, and third‑party technical services. Amounts are presented within Research and development expense in the Consolidated Statements of Operations and Comprehensive Loss. Capitalization and Related Considerations Prototype tooling, fixtures, and pilot equipment are expensed unless they have alternative future use in production or ongoing development, in which case such items are capitalized and depreciated. Costs of preliminary‑project and post‑implementation costs are expensed. Consideration received for development activities is evaluated and recognized either as a reduction of R&D expense (for reimbursements where the customer does not obtain control of a distinct good or service) or as revenue when performance obligations are satisfied. Government grants that offset qualifying development activities are recognized as a reduction of related R&D expense when compliance is reasonably assured; amounts received in advance are recorded as liabilities until earned. Foreign Currency Translation The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using end of period exchange rates. Changes in reported amounts of assets and liabilities of foreign subsidiaries that occur as a result of changes in exchange rates between foreign subsidiaries’ functional currencies and the U.S. dollar are included in foreign currency translation adjustment. Foreign currency translation adjustment is included in accumulated other comprehensive loss, a component of stockholders’ equity in the accompanying Consolidated Statements Stockholders’ Equity. Revenue and expense transactions use an average rate prevailing during the month of the related transaction. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency of each of the operating locations are included in the other expense (income), net as incurred. Income Taxes The Company accounts for income taxes under an asset-and-liability approach. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for tax and financial reporting purposes measured by applying enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are provided when necessary to reduce net deferred tax assets to an amount that is more likely than not to be realized. The Company has provided a full valuation allowance against any net deferred tax assets the Company does not deem to be more likely than not realized as of December 31, 2025 and 2024. Advertising Expense Advertising expense is charged to operations during the year in which it is incurred. Advertising expense was not material for the years ended December 31, 2025, and 2024. Recently Adopted Accounting Pronouncement In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this ASU provide for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid. This ASU is effective for annual periods beginning after December 15, 2024. The Company adopted ASU 2023-09, effective January 1, 2025, on a retrospective basis and the adoption of this standard impacted certain income tax disclosures. See Note 10, “Income Taxes,” for further detail. Recently Issued Accounting Pronouncements Not Yet Adopted In January 2025, the FASB issued ASU 2025-01, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date. This ASU amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. The Company is currently evaluating the impact of adopting this ASU on its financial reporting disclosures. In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income (Topic 220): Disaggregation of Income Statement Expenses. This ASU requires additional disclosures by disaggregating the costs and expense line items that are presented on the face of the income statement. The disaggregation includes: (i) amounts of purchased inventory, employee compensation, depreciation, amortization, and other related costs and expenses; (ii) an explanation of costs and expenses that are not disaggregated on a quantitative basis; and (iii) the definition and total amount of selling expenses. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. This ASU should be applied prospectively. Retrospective application is permitted for all prior periods presented in the financial statements. The Company is currently evaluating the impact of adopting this ASU on its financial reporting disclosures. In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities. This ASU applies to business entities receiving government grants. This ASU covers cash or tangible non-monetary assets from governments, including forgivable loans, but excludes tax abatements, income tax credits, and exchanges. It requires recognition when there is reasonable assurance of compliance with conditions and receipt of funds. This ASU applies to non-exchange monetary/tangible assets, reducing inconsistent practices, specifically, 1) income-related grants can be reported as other income or a reduction of related expenses; and 2) asset-related grants can be recorded as deferred income or a reduction of the asset’s cost basis. This ASU is effective for fiscal years beginning after December 15, 2028, and interim periods within those fiscal years, with early adoption permitted. This ASU may be applied on a modified prospective, modified retrospective, or full retrospective basis. The Company is currently evaluating the impact of adopting this ASU on its financial reporting disclosures. In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, to improve, clarify, and navigate interim reporting requirements, making these areas more consistent under U.S. GAAP. ASU 2025-11 compiles required disclosures, including material changes since the last annual report, to streamline reporting. This ASU is effective for fiscal years after December 15, 2027, and interim periods within those fiscal years, with early adoption permitted. This ASU should be applied prospectively. Retrospective application is permitted for all prior periods presented in the financial statements. The Company is currently evaluating the impact of adopting this ASU on its financial reporting disclosures. In December 2025, the FASB issued ASU 2025-12, Codification Improvements. The ASU addresses thirty-three items, representing the changes to the Codification that (1) clarify, (2) correct errors, or (3) make minor improvements. Generally, the amendments in this Update are not intended to result in significant changes for most entities. The ASU is effective for interim reporting periods within annual reporting periods beginning after December 15, 2026. Early adoption is permitted. The Company is evaluating the potential impact of this guidance on the consolidated financial statements.
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