NOTE 1 - GENERAL:

As of March 31, 2021, the Company began trading on the New York Stock Exchange under the Symbol “VLN”.

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

NOTE 3 - INVENTORIES:

Inventories write-downs amounted to approximately $142 thousand and $9 thousand during the six months ended June 30, 2026, and 2025, respectively. Inventory write-downs amounted to approximately $36 thousand and $9 thousand during the three months ended June 30, 2026, and 2025, respectively.

Inventories write-downs are recorded in cost of revenues.

NOTE 4 - COMMITMENTS AND CONTINGENT LIABILITIES:

The Company depends upon third party subcontractors for manufacturing of wafers, packaging and final tests. As of June 30, 2026, and December 31, 2025, the total value of open purchase orders acknowledged by such manufacturing contractors was approximately $13,297 thousand and $5,333 thousand, respectively.

The Company has noncancelable purchase agreements for certain IP embedded in the Company’s products as well as certain agreement for the license of development tools used by the development team. As of June 30, 2026, and December 31, 2025, the total value of non-paid amounts related to such agreements totaled to $3,740 thousand and $5,015 thousand, respectively.

As of June 30, 2026 and December 31, 2025, the Company is not a party to, or subject to the provisions of any order, writ, injunction, judgment or decree of any court or governmental agency or instrumentality. There is no material action, suit, proceeding or investigation by the Company currently pending or that the Company intends to initiate.

On March 26, 2024, the Company received a complaint from a customer (hereafter ‘Customer’) regarding allegedly damaged chips due to a certain batch production incident that customer embedded in its product. The Company identified and remedied the production process.

On September 10, 2024, the Customer sent a cost claim letter in the amount of 2,096 thousand Euro.

In 2024, the Company recorded a relevant provision in its books, within its other current liabilities. Relevant expenses were recorded in the general and administrative expenses.

In June 2025, following the ongoing discussions with the Customer and updated indications, the Company decreased the provision in its financial statements by $323 thousand. The reversal of the provision was recorded in the general and administrative expenses.

In October 2025, the insurance company provided a draft release and discharge agreement to be signed by the Company, the Customer, and the insurer. Subject to the final execution of such agreement by all parties, the insurance company will pay the Customer $1,726 thousand, less a $250 thousand retention amount to be paid by the Company, as final settlement of the claim.

Based on the progress achieved and the insurance company’s written confirmation of its intent to settle, management determined that the realization of the reimbursement from the insurer is probable and the amount is reasonably estimable. Accordingly, the Company recognized in September 2025 an insurance recovery asset of $1,476 thousand (representing the expected reimbursement from the insurer). The related income was recognized within general and administrative expenses in the consolidated statement of operations.

In December 2025, following the draft release and discharge agreement, and the Customer’s feedback to this letter, the Company decreased the provision in its financial statements by additional $412 thousand. Reversal of the provision was recorded in the general and administrative expenses.

As of June 30, 2026, and December 31, 2025, the provision amounted to $1,726 thousand, while the insurance recovery asset amounted to $1,476 thousand. The remaining difference of $250 thousand reflects the retention amount to be paid by the Company.

During June 2026 the parties signed the release and discharge agreement, and the relevant amounts were paid by the Company and by the insurance company during July 2026 (please refer to Note 14 for further information).

NOTE 5 - OTHER CURRENT LIABILITIES:

NOTE 6 - EARNOUT LIABILITY

During 2024 the Company acquired Acroname Inc., a US company specializing in advanced automation and control technologies. With respect to the Acroname’s acquisition, the Company shall be obligated to pay Acroname’s former shareholders earn out payments of up to $7.2 million, of which an amount of $1.5 million upon completion of a development of a certain product by June 2026, and the remaining amount depending on the achievement of certain revenue, EBITDA and cashflow targets in 2024 and 2025.

The Company recorded earn-out liability in connection with these payments at fair value on the acquisition date.

Each reporting period thereafter, the Company revaluated the earn-out liability and records the changes in their fair value in the consolidated statements of operations and comprehensive loss.

Changes in the fair value of earnout liability can result from adjustments to the discount rates, revenues, profitability targets and achievement of mutual development project. This fair value measurement represents Level 3 measurements, as they are based on significant inputs not observable in the market. Significant judgment is required in determining the assumptions utilized as of the acquisition date and for each subsequent period.

As of December 31, 2025, after achieving the revenue, EBITDA and cash flow targets, the Company calculated the Revenues Earnout according to the actual revenues achieved during the period starting from the Closing date and until December 31, 2025. The Revenues Earnout, amounting to $1,962 thousand, was included in the other current liabilities as of December 31, 2025, and was paid in March 2026.

As of December 31, 2025, the Company calculated the Joint Product Earnout using the probability that the targets will be achieved, a discount rate of 13.22% and expected term of 0.5 years.

As of June 30, 2026, the period for achieving the joint product target had expired, and the target had not been achieved. Accordingly, the Company has no remaining obligation in respect of the Joint Product Earnout as of that date.

NOTE 7 - DERIVATIVES AND HEDGING:

Derivatives

Generally accepted accounting principles require all derivatives, whether designated in a hedging relationship or not, to be recorded on the balance sheet at fair value. These derivative instruments are measured at fair value within Level 2 of the fair value hierarchy. The Company’s earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. The Company’s foreign currency risk management strategy is principally designed to mitigate the future potential financial impact of changes in the U.S. Dollar value of anticipated transactions and balances denominated in ILS resulting from changes in USD/ILS exchange rates. The Company entered into derivative transactions, specifically foreign currency forward contracts, to manage its exposure to foreign currency exchange risk to reduce earnings volatility. The Company does not enter into derivative transactions for trading or speculative purposes.

Non-Designated Hedges

The Company hedges its foreign currency monetary assets primarily resulting from foreign currency denominated short-term deposits with foreign exchange forward contracts to reduce the risk that the Company’s earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. These contracts have maturities of up to approximately 12 months. Generally, The Company does not designate these foreign currency forward contracts as hedges for accounting purposes and changes in the fair value of these instruments are recognized immediately in earnings. Any gains or losses on the underlying foreign-denominated balance are offset by the losses or gains on the forward contract. Derivative instruments are recorded as other current assets or other current liabilities.

As of June 30, 2026, the derivative instruments are recorded as other current liabilities ($16 thousand) . Gains and losses on forward contracts and foreign denominated deposits are included in financial income (expenses), net. The cash flows associated with these derivatives are classified in the consolidated statements of cash flows consistently with the classification of the underlying hedged transaction, within cash flows from investing activities.

For the six months ended June 30, 2026 and 2025, foreign currency profit, net was $0 and $731 thousand, respectively. For the three months ended June 30, 2026 and 2025, foreign currency profit, net was $0 and $915 thousand, respectively.

Designated Hedges

The Company has a foreign currency cash flow hedging program, designed to hedge the Company’s foreign exchange rate risk, resulting from ILS payroll expenses. The Company hedges portions of its forecasted payroll payments denominated in ILS for a period of up to 12 months, using forward contracts that are designated as cash flow hedges, as defined by ASC 815. Derivative instruments are recorded as other current assets or other current liabilities, according to the timing of the cash flows. As of June 30, 2026, the derivative instruments are recorded as other current assets ($436 thousand) and other current liabilities ($19 thousand). As of December 31, 2025, the derivative instruments are recorded as other current assets ($429 thousand). For these derivative instruments, designated as a cash flow hedge, gains and losses are reported as a component of other comprehensive income or loss and reclassified into earnings in the same line item associated with the hedged transaction and in the same period or periods during which the hedged transaction affects the statement of operations. As of June 30, 2026, the Company expects to reclassify all of its unrealized gains and losses from accumulated other comprehensive income or loss to earnings during the next twelve months. The cash flows associated with these derivatives are classified in the consolidated statements of cash flows consistently with the classification of the underlying hedged transaction, within cash flows from operating activities.

In the six months ended June 30, 2026, $31 thousand, $735 thousand, $261 thousand and $181 thousand were recorded in cost of revenue, research and development, sales and marketing and general and administrative expenses, respectively. In the six months ended June 30, 2025, $16 thousand, $391 thousand, $122 thousand and $85 thousand were recorded in cost of revenue, research and development, sales and marketing and general and administrative expenses, respectively. In the three months ended June 30, 2026, $17 thousand, $455 thousand, $160 thousand and $94 thousand were recorded in cost of revenue, research and development, sales and marketing and general and administrative expenses, respectively. In the three months ended June 30, 2025, $11 thousand, $272 thousand, $85 thousand and $59 thousand were recorded in cost of revenue, research and development, sales and marketing and general and administrative expenses, respectively.

NOTE 8 - TREASURY SHARES:

Overall, in the framework of the Buyback and the Second Buyback, the Company repurchased a total amount of 9,453,419 Ordinary Shares, for a total amount of $25 million.

During 2025, 6,151,225 shares were formally cancelled and retired from the Company’s issued share registration. On January 22, 2026, 3,302,194 shares were formally cancelled and retired from the Company’s issued share registration.

NOTE 9 - STOCK-BASED COMPENSATION:

Stock Options

As of June 30, 2026, and December 31, 2025, the number of ordinary shares included in the Company’s option plans totaled to 49,893,452 and 44,740,618, respectively.

5,000,941 out of the outstanding options that have not yet vested as of June 30, 2026, have acceleration mechanisms according to certain terms set forth in the grant agreements primarily in the case of an M&A Transaction which constitutes a Liquidation Event.

As of June 30, 2026, the unrecognized compensation costs related to those unvested stock options are $3,019 thousand, which are expected to be recognized over a weighted-average period of 2.85 years.

During the six-month period ended on June 30, 2026, 397,628 options were granted to related parties (please refer to Note 13 for further information).

As of June 30, 2026, the unrecognized compensation costs related to unvested stock options was $3,850 thousand, which are expected to be recognized over a weighted-average period of 2.82 years.

The weighted-average fair value of the options that were granted during the period ended June 30, 2026, was $1.66 at the grant date.

The total intrinsic value of options exercised during the period of three months ended June 30, 2026 was $3,539 thousand.

Restricted Stock Units

As of June 30, 2026, the unrecognized compensation cost related to unvested RSUs totaled to approximately $17,995 thousand and is expected to be expensed over a weighted-average recognition period of approximately 2.41 years.

During the six-month period ended on June 30, 2026, 688,929 RSU’s were granted to several related parties (please refer to Note 13 regarding Related Parties).

NOTE 10 - NET LOSS PER ORDINARY SHARE:

NOTE 11 - FINANCIAL INCOME (EXPENSES), NET

NOTE 12 - SEGMENT AND REVENUE BY GEOGRAPHY AND BY MAJOR CUSTOMER:

Cross Industry Business: The Company’s 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.

Automotive: Valens Automotive delivers safe & resilient high-speed in-vehicle connectivity for advanced car architectures, realizing the vision of connected and autonomous cars.

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

The CODM monitors the gross profit of each segment to analyze fluctuations relative to prior periods (cost reductions, change in product mix etc.).

The CODM uses segment operating profit (loss) to evaluate income (loss) in deciding whether to reinvest profits into the segment. Segment operating profit (loss) is used to monitor budget versus actual results, in order to assess the performance of the segment.

NOTE 13 - RELATED PARTY TRANSACTIONS

During the six months ended June 30, 2026, the Company granted 397,628 stock options at a weighted average exercise price of $1.66 to several executive officers and members of the Board of Directors (“Board”). No stock options were granted during the three months ended June 30, 2026.

In addition, during the six months ended June 30, 2026, the Company granted 688,929 RSUs to several executive officers and Board members of the Company. No RSUs were granted to executive officers and Board members of the Company during the three months ended on June 30, 2026.

The fair value of the stock options that were granted during the six months ended June 30, 2026, is $485 thousand, which is expected to be recognized over a 1-4-year vesting period, and the fair value of the granted RSUs is $1,210 thousand, which is expected to be recognized over a 1-4-years vesting period.

NOTE 14 - SUBSEQUENT EVENTS