You should read the following discussion and analysis of our financial condition and results of operations together with the audited annual consolidated financial statements and the related notes included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the section entitled Item 3.D. “Key Information—Risk Factors” of this Annual Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Company Overview We are a leading Tier-1 direct supplier of high-performance, automotive-grade LiDAR sensor platforms and complementary software stacks. Our solutions are designed to bring enhanced vision and superior performance to enable Physical AI through safe autonomous driving and other perception-focused applications at a mass scale. We provide complete LiDAR based solutions for OEMs and Tier-1 partners developing autonomous driving vehicles for the passenger car, robotaxi, shuttle, delivery vehicle and truck markets. We also leverage our proven automotive-grade LiDAR technology to offer solutions for non-automotive markets, including smart infrastructure, perimeter security, traffic management and robotics through our InnovizSMART product line, which is designed for, among other applications, Physical AI smart applications. We were founded in 2016, and our culture has been built on solving sophisticated technological problems through creativity and agile thinking. We created a new type of LiDAR sensor from the chip-level up, including a suite of powerful and sophisticated software applications. In 2018, we achieved our first design win to power BMW’s Level 3 autonomous platform, a program that reached maturity during 2024 with vehicles beginning to be sold with our LiDARs and complementary software stacks. In 2022, we made the strategic decision to become a Tier-1 direct supplier enabling direct technical engagement with OEMs and improved pricing, which has played a significant role in our subsequent major OEM program wins. That same year, following more than two years of extensive diligence and qualification, Volkswagen selected us as its direct LiDAR supplier for automated vehicles across several Volkswagen brands using our InnovizTwo platform. In 2023, we announced that Volkswagen aims to expand its use of InnovizTwo LiDAR to its I.D Buzz light commercial vehicle program. In 2024, we announced that Mobileye will use the InnovizTwo Long-Range and InnovizTwo Short- to Mid-Range LiDARs for the Mobileye Drive™ platform. In September 2025, Daimler Truck selected us as a future series production supplier of advanced LiDAR units for SAE Level 4 autonomous class-8 semi-trucks. 43 We are currently expanding our third-party manufacturing capacity through contract manufacturers to meet anticipated demand. As part of this effort, we have entered into arrangements with contract manufacturing partners with automotive-grade facilities, and we expect these collaborations to enable volume production as customer demand increases. In June 2025, we announced the launch of InnovizSMART, a high-performance LiDAR sensor based on the InnovizTwo platform, designed for a range of applications, including security, mobility, aerial, robotics, and intelligent traffic management, which we believe are well-suited for Physical AI deployments. With the maturation of our InnovizTwo LiDAR platform and expanding production capabilities, we are broadening our scope to focus on additional markets seeking affordable, high-performing LiDAR solutions. Recent Developments Launch of InnovizThree On December 23, 2025, we announced the launch of our third-generation LiDAR sensor, InnovizThree, first demonstrated at CES in January 2026. Designed with slimmer dimensions, lower power consumption and higher performance at a significantly reduced cost compared to InnovizTwo, InnovizThree is intended to enable seamless integration behind the windshield or on the rooftop, providing OEMs with extended design flexibility. On January 6, 2026, we also announced the first fully colored long-range LiDAR camera, a compact sensor-fusion module designed to help reduce OEM integration complexity. Integration of InnovizSMARTer LiDAR with NVIDIA Jetson Orin Nano On January 6, 2026, we announced the integration of our InnovizSMARTer LiDAR with NVIDIA Jetson Orin Nano, a physical AI solution designed to perform real-time 3D perception processing and data compression locally at the sensor through edge computing, which is intended to enable wireless deployment in bandwidth-constrained environments while reducing centralized processing costs. ATM Program In August 2025, we launched an ATM Program with Jefferies LLC, pursuant to which we may offer and sell, from time to time, to or through the Sales Agent, ordinary shares having an aggregate offering price of up to $75 million. During the year ended December 31, 2025, we issued and sold 9,252,639 ordinary shares under the ATM Program for net proceeds to the Company of approximately $13.3 million. Key Factors Affecting Innoviz’s Operating Results We believe that our future performance and success depends to a substantial extent on the following factors, each of which is in turn subject to significant risks and challenges, including those discussed below and in the section of this Annual Report entitled Item 3.D. “Key Information—Risk Factors.” Market Adoption As AI extends from digital workflows into the physical world, a transition commonly referred to as Physical AI, high-resolution LiDAR is emerging as a foundational sensing technology for systems that must perceive, reason, and act under real-world constraints. We believe that widespread adoption of LiDAR across Physical AI applications for autonomy is approaching and that we are well-positioned in both automotive and non-automotive markets to take advantage of this opportunity. Nevertheless, automotive OEMs and their suppliers have commenced the commercialization of autonomous systems that rely on LiDAR technology. Accordingly, we expect the rate of actual adoption and commercialization of LiDAR-based solutions by automotive OEMs and their suppliers to impact our results of operations, including revenue and gross margins, for the foreseeable future. Given the focus of the consumer automotive market on Level 2+, Level 3 and Level 4 segments, we expect these verticals to continue to grow over the short to medium term, we are aligning our focus and efforts on these segments, specifically via our InnovizTwo product. We believe that InnovizTwo will drive significant revenue growth in the near to medium term. We also believe that market penetration of InnovizTwo will drive revenues in the Level 2+, Level 3 and Level 4 segments of the market. This is because the architecture of our products, which feature agile configuration of multiple components, allow us to offer different product configurations based on the same hardware with only software modification. Accordingly, we can address multiple market needs and niches without the need to develop multiple hardware configurations. We also target Level 4 commercial automotive markets such as robotaxis, shuttles, delivery vehicles and trucks, as well as non-automotive applications including smart infrastructure, security, robotics and aerial solutions. While these non-automotive markets are at an earlier stage of commercialization relative to consumer automotive, we commenced initial commercial sales in certain of these segments during 2025. Our future success depends in part on customers in these markets adopting and scaling LiDAR-based solutions. 44 Design Wins Our solutions are designed to be key enabling technologies for OEMs in automotive and other applications. Because our solutions must be integrated into a broader platform by the OEM, it is critical that we achieve design wins with these customers. The time necessary to achieve design wins varies based on the market and application. The design cycle in the automotive market tends to be substantially longer and more onerous than in other markets. Even within the automotive market, achieving a design win with an automotive OEM takes considerably longer than a design cycle for an aftermarket application. We consider design wins to be critical to our future success, although the revenue generated by each design win and the time necessary to achieve such a win can vary significantly making it difficult to predict our financial performance. Product Cost and Margins Our results of operations will depend on our ability to leverage the fixed costs involved in production of our current products and our ability to improve gross margins on the basis of volume and manufacturing efficiencies. InnovizTwo platform is based on an improved design, which allows: (i) lower bill of materials, and (ii) more efficient manufacturing process, which together may allow for a significant cost reduction and improved gross margins. Continued Investment and Innovation Our unique LiDAR and perception solutions feature technological breakthroughs across core components and allow us to act as one of the leading suppliers in a competitive market. We believe that our financial performance is significantly dependent on our ability to maintain this position. This in turn will depend on our future research and development investments and our ability to attract and retain highly qualified and experienced research and development personnel. These are necessary to both continue the work required on our current products and future products to full commercialization, and to identify and respond to rapidly evolving customer requirements, develop and introduce innovative new products and enhance and service existing products. Failure to do this could adversely affect our market position and our revenue, and our research and development investments may not be recovered. We also intend to continue developing our proprietary software stack to enhance the value of our LiDAR solutions and support the growing demand for Physical AI-supported sensing suites. Components of Results of Operations Revenues Our revenues derive primarily from sales of LiDAR sensors and NRE to customers. Revenues from LiDAR sensors are recognized at a point in time when the control of the goods is transferred to the customer, generally upon delivery. NRE to certain customers may require substantive customer acceptance due to performance acceptance criteria that is considered more than a formality. For these services, revenues are recognized at a point in time upon customer acceptance. Cost of Revenues Cost of revenues include the manufacturing cost of LiDAR sensors, which primarily consists of components costs, sub-assembly costs and personnel-related costs, and amounts paid to third-party contract manufacturers and vendors. Cost of revenues also includes depreciation, costs of providing NRE, an allocated portion of overhead, warranty costs, excess and obsolete inventory and shipping costs. We expect cost of revenue to increase in absolute dollars in future periods to the extent revenue increases, however we expect our products’ unit cost to decrease as sales increase thereby leveraging economies of scale achievable due to our business model and higher production efficiencies. 45 Operating Expenses Research and Development Our research and development efforts are focused on enhancing and developing cost efficient LiDAR solutions and the accompanying software suite. Research and development expenses include: • personnel-related expenses, including salaries, benefits, and stock-based compensation expense for personnel in research and engineering functions; • expenses related to materials, software licenses, depreciation, supplies and third-party services; • prototype expenses; and • an allocated portion of facility and IT costs. We expense research and development costs as incurred until the point that technological feasibility is reached, which for our software products is generally shortly before the products are released to production. We expect that our research and development expenses will continue to be significant for the foreseeable future as we invest in research and development activities to improve and enhance our product portfolio. Sales and Marketing Sales and marketing expenses include: • personnel-related expenses, including salaries, benefits, and stock-based compensation expense for personnel in sales and marketing; • sales and marketing activities, including the cost of sales commissions, marketing programs, trade shows, consulting services, promotional materials and demonstration equipment, among other costs; and • an allocated portion of facility and IT costs. We expect our sales and marketing expenses to be similar in future periods as we focus our marketing activities in the automotive market. General and Administrative General and administrative expenses include: • personnel-related expenses, including salaries, benefits, and stock-based compensation expense for personnel in corporate, executive, finance and other administrative functions; • general and administration activities, including expenses relating to outside professional services, including legal, investors relations and audit and accounting services; and • the relevant portion of expenses for facilities, depreciation and IT costs that was not allocated to other operating expenses. We expect our general and administrative expenses to be similar in future periods. Financial Income, Net Financial income, net consists primarily of interest on cash and cash equivalents deposited in our bank account, exchange rate differences arising from our ILS denominated lease liabilities under ASC 842, marketable securities remeasurement and private placement warrants remeasurement. The deposits will vary based on cash and cash equivalents, and with market rates. Our marketable securities have an average credit rating of “A” and a maturity of up to three years. We do not intend to invest more than 5% of our investment portfolio in a single security at time of purchase. In addition, financial income, net includes the fluctuation in value due to foreign exchange differences between cash and cash equivalent and monetary assets and liabilities denominated in foreign currency, mainly in ILS and EUR. 46 Recent Accounting Pronouncements See Note 2 to our consolidated financial statements included elsewhere in this Annual Report for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Annual Report. A. Operating Results For a discussion of our results of operations for the year ended December 31, 2023, including a year-to-year comparison between the years ended December 31, 2024 and December 31, 2023, as well as a discussion of our liquidity and capital resources for the year ended December 31, 2023, refer to Item 5. “Operating and Financial Review and Prospects” in our Annual Report on Form 20-F for the year ended December 31, 2024, filed with the SEC on March 12, 2025. The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this Annual Report. The following table sets forth our consolidated results of operations data for the periods presented: Year ended December 31, 2025 2024 (In thousands, except share and per share data) Revenues $ 55,089 $ 24,268 Cost of revenues (42,184 ) (25,429 ) Gross profit (loss) 12,905 (1,161 ) Operating expenses: Research and development 56,478 73,817 Sales and marketing 5,751 7,474 General and administrative 18,409 19,466 Total operating expenses 80,638 100,757 Operating loss (67,733 ) (101,918 ) Financial income, net 109 7,328 Loss before taxes on income (67,624 ) (94,590 ) Taxes on income (171 ) (167 ) Net loss $ (67,795 ) $ (94,757 ) Basic and diluted net loss per ordinary share $ (0.34 ) $ (0.57 ) Weighted average number of ordinary shares used in computing basic and diluted net loss per ordinary share 199,895,238 167,216,070 47 Comparison of the Years Ended December 31, 2025 and 2024 Revenues Year ended December 31, Change Change 2025 2024 $ % (In thousands) (In thousands) (In thousands) Revenues $ 55,089 $ 24,268 $ 30,821 127 % Revenues increased by approximately $30.8 million, or 127%, to approximately $55.1 million for the year ended December 31, 2025, from approximately $24.3 million for the year ended December 31, 2024. The increase in revenues was primarily due to increased sales of NRE, which contributed approximately $37.2 million in revenues during the year ended December 31, 2025 compared to approximately $18.0 million in revenues during the year ended December 31, 2024, the sale of machinery to a customer of approximately $8.4 during the year ended December 31, 2025, as well as increased sales of LiDAR sensors. Cost of Revenues and Gross Margin Year ended December 31, Change Change 2025 2024 $ % (In thousands except percentages) (In thousands) Cost of revenues $ 42,184 $ 25,429 $ 16,755 66 % Gross margin 23 % (5 )% Cost of revenues increased by approximately $16.8 million, or 66%, to approximately $42.2 million for the year ended December 31, 2025, from approximately $25.4 million for the year ended December 31, 2024. The increase in cost of revenues was primarily due to an increase in costs related to sales of NRE, costs related to the sale of machinery to a customer and costs related to sales of LiDAR sensors, partially offset by decreased production inefficiencies of InnovizOne and decreased excess and obsolete inventory. Gross margin increased to approximately 23% for the year ended December 31, 2025 from approximately (5)% for the year ended December 31, 2024, primarily due to increased sales of NRE, the sale of machinery to a customer, decreased production inefficiencies of InnovizOne and decreased excess and obsolete inventory. Operating Expenses Year ended December 31, Change Change 2025 2024 $ % (In thousands) (In thousands) (In thousands) Research and development $ 56,478 $ 73,817 $ (17,339 ) (23 )% Sales and marketing 5,751 7,474 (1,723 ) (23 )% General and administrative 18,409 19,466 (1,057 ) (5 )% Total operating expenses $ 80,638 $ 100,757 $ (20,119 ) (20 )% 48 Research and Development Research and development expenses decreased by approximately $17.3 million, or 23%, to approximately $56.5 million for the year ended December 31, 2025 from approximately $73.8 million for the year ended December 31, 2024. The decrease was primarily attributable to decreased payroll of approximately $10.7 million (primarily related to allocation of direct costs related to sales of NRE and to a decrease in headcount, partially offset by foreign currency exchange differences due to devaluation of the USD against the ILS), decreased stock-based compensation of approximately $5.0 million and decreased third-party consulting services and software expenses of approximately $2.2 million, partially offset by increased travel expenses of approximately $0.4 million. Sales and Marketing Sales and marketing expenses decreased by approximately $1.7 million, or 23%, to approximately $5.8 million for the year ended December 31, 2025 from approximately $7.5 million for the year ended December 31, 2024. The decrease was primarily attributable to decreased payroll of approximately $0.8 million (primarily attributed to a decrease in headcount), decreased stock-based compensation of approximately $0.4 million and decreased consulting services expenses of approximately $0.3 million. General and Administrative General and administrative expenses decreased by $1.1 million, or 5% to approximately $18.4 million for the year ended December 31, 2025 from approximately $19.5 million for the year ended December 31, 2024. The decrease was primarily related to decreased legal consulting services of approximately $1.0 million and decreased stock-based compensation of approximately $0.8 million, partially offset by increased payroll of approximately $0.7 million (primarily attributed to foreign currency exchange differences due to devaluation of the USD against the ILS). Financial Income, net Year ended December 31 Change Change 2025 2024 $ % (In thousands) (In thousands) (In thousands) Financial income, net $ 109 $ 7,328 $ (7,219 ) (99 )% Financial income, net was approximately $0.1 million for the year ended December 31, 2025, compared to financial income, net of approximately $7.3 million for the year ended December 31, 2024. The decrease was primarily related to foreign currency exchange differences of approximately $5.0 million (out of which approximately $4.9 million is due to differences arising from our ILS denominated lease liabilities under ASC 842), decreased bank deposit interest income of approximately $1.8 million and decreased net gain related to marketable securities of approximately $0.4 million. Quantitative and Qualitative Disclosures About Market Risk We are exposed to a variety of risks, including foreign currency exchange fluctuations, changes in interest rates and inflation. We regularly assess currency, interest rate and inflation risks to minimize any adverse effects on our business as a result of those factors. Foreign Currency Risk Our financial results are reported in USD, and changes in the exchange rate between USD and local currencies in the countries in which we operate (primarily ILS) may affect the results of our operations. In the year ended December 31, 2025, substantially all of our revenues were denominated in USD. The USD cost of our operations in countries other than the United States may be negatively influenced by devaluation of the USD against other currencies. During the year ended December 31, 2025, the value of the USD devaluated against the value of the ILS by approximately 12.5%. Our most significant foreign currency exposures are related to our operations in Israel. We hedge our anticipated exposure by exchanging USD into ILS in amounts sufficient to fund up to three months of operations and monitoring foreign currency exchange rates over time. 49 Interest Rate Risk Our investment strategy is to achieve a return that will allow us to preserve capital and meet our liquidity requirements. We invest in bank deposits and marketable securities, primarily in USD. Our cash and cash equivalents are exposed to market risk related to changes in interest rates, which is affected by changes in the general level of the Bank of Israel interest rates and United States Federal Reserve interest rates. Due to the short-term nature and the low-risk profile of our interest-bearing accounts, an immediate 10% change in interest rates would not have a material effect on the fair market value of our cash and cash equivalents, bank deposits and restricted deposits or on our financial position or results of operations. Our investments in marketable securities are primarily in securities with an average credit rating of “A” and a maturity of up to three years. We do not intend to invest more than 5% of our investment portfolio in a single security at time of purchase. Other Market Risks We do not believe that inflation had a material effect on our business, financial conditions or results of operations during the years ended December 31, 2025 and 2024. B. Liquidity and Capital Resources Sources of Liquidity During the years ended December 31, 2025 and 2024, we funded our operations primarily from the approximately $370 million in proceeds we received in connection with the Business Combination (completed in April 2021), the approximately $61.4 million in net proceeds we received from our August 2023 underwritten equity offering, the approximately $37.3 million in net proceeds we received from our February 2025 registered direct offering, the approximately $13.3 million in net proceeds we received from the ATM Program during 2025, and the revenues generated from the sale of goods and services. As of December 31, 2025, we had approximately $72.1 million in cash and cash equivalents, short term bank deposits, short term restricted cash and marketable securities. Cash equivalents and marketable securities are invested in accordance with our investment policy. Cash Flows Summary The following table summarizes our cash flows for the periods presented: Year ended December 31, 2025 2024 (In thousands) (In thousands) Net cash used in operating activities $ (47,918 ) $ (76,955 ) Net cash provided by (used in) investing activities (21,394 ) 75,468 Net cash provided by financing activities 51,465 224 Effect of exchange rate changes on cash, cash equivalents and restricted cash 1,120 308 Net decrease in cash, cash equivalents and restricted cash $ (16,727 ) $ (955 ) Operating Activities During the year ended December 31, 2025, operating activities used approximately $47.9 million. The primary factors affecting operating cash flows during the year ended December 31, 2025 were the net loss of approximately $67.8 million, impacted by non-cash charges of approximately $19.9 million consisting of stock-based compensation of approximately $16.0 million, depreciation and amortization of approximately $5.9 million, remeasurement of private warrants of approximately $(0.1) million and an increase in working capital of approximately $(1.9) million. During the year ended December 31, 2024, operating activities used approximately $77.0 million. The primary factors affecting operating cash flows during the year ended December 31, 2024, were the net loss of approximately $94.8 million, impacted by non-cash charges of approximately $17.8 million consisting of stock-based compensation of approximately $19.7 million, depreciation and amortization of approximately $7.8 million, remeasurement of private warrants of approximately $(0.2) million and an increase in working capital of approximately $(9.5) million. 50 Investing Activities During the year ended December 31, 2025, cash used in investing activities was approximately $21.4 million, which primarily resulted from investment in bank deposits of approximately $99.8 million, investment in marketable securities of approximately $37.6 million and purchase of property and equipment of approximately $4.3 million, partially offset by withdrawal of bank deposits of approximately $77.2 million, proceeds from sales and maturities of marketable securities of approximately $40.3 million and proceeds from the sale of machinery to a customer of approximately $2.9 million. During the year ended December 31, 2024, cash provided by investing activities was approximately $75.5 million, which primarily resulted from the withdrawal of bank deposits of approximately $127.3 million and proceeds from sales and maturities of marketable securities of approximately $62.2 million, partially offset by investment in marketable securities of approximately $55.5 million, investment in bank deposits of approximately $54.1 million and purchases of property and equipment of approximately $4.4 million. Financing Activities During the year ended December 31, 2025, cash provided by financing activities was approximately $51.5 million resulting from approximately $37.3 million in proceeds from our registered direct offering, net of issuance costs, approximately $13.3 million in proceeds from the sale of our ordinary shares under the ATM Program, net of paid issuance costs, and approximately $0.8 million from the exercise of employee stock options. During the year ended December 31, 2024, cash provided by financing activities was approximately $0.2 million resulting from the exercise of employee stock options. Funding Requirements We expect to continue to invest substantially in our research and development activities and incur commercialization expenses related to product sales, marketing, manufacturing and distribution. As we achieve further commercial success, we may need to obtain additional funding to support our continuing operations. In addition, our financial stability is reviewed by existing and potential customers from time to time and we believe that a stronger cash position provides us additional time to execute our growth strategy and is perceived positively by existing and potential customers and may also provide us with higher grading in such customers’ diligence processes. If we are unable to obtain capital when and if needed or on attractive terms, we could be forced to delay, reduce or eliminate some of our research and development programs or future commercialization efforts. As of December 31, 2025, we had cash and cash equivalents, short term bank deposits, short term restricted cash and marketable securities of approximately $72.1 million. We expect those funds to be sufficient to continue to execute our business plan for at least the next 12 months. Additionally, we intend to fund our operations from revenues generated from the sale of goods and services, together with funds received under the registered direct offering and proceeds from the sale of our ordinary shares from time to time under the ATM Program. We also expect our losses to be similar in future periods as we: • anticipate additional inflows of NRE payments from various programs to balance some of our losses; • expand production capabilities to produce our LiDAR solutions, and accordingly incur costs associated with outsourcing the production of our LiDAR solutions; • expand our design, development, installation and servicing capabilities; • continue to invest in research and development; • increase our test and validation activities as part of our Tier-1 responsibilities; • produce an inventory of our LiDAR solutions; and • continue to invest in sales and marketing activities, including diversification of our target markets, and develop our distribution infrastructure. Because we will incur costs and expenses from these efforts before we receive incremental revenues with respect thereto, losses in future periods will be significant. In addition, we may find that these efforts are more expensive than we currently anticipate or that these efforts may not result in revenues, which would further increase our losses. 51 Off-Balance Sheet Arrangements Our remaining performance obligations are comprised of application engineering services not yet rendered. As of December 31, 2025, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $7.6 million, which we expect to recognize as revenues within the next 12 months. Other than as set forth above, we have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities. C. Research and Development, Patents and Licenses, etc. Research and Development We have invested a significant amount of time and expense into research and development of LiDAR-based technologies. Our research and development team is the largest department in the company and, as of December 31, 2025, was comprised of 283 employees. Our ability to maintain a leadership position in the industry depends to a great degree on our ongoing research and development activities. Our research and development team includes engineers and researchers with a diverse range of expertise and diverse levels of experience and academic backgrounds, including holders of B.Sc., M.Sc. and PhD degrees from leading academic institutions. Our research and development activities are largely conducted at our headquarters in Rosh HaAin, Israel. Creating an automotive-grade, eye-safe and cost efficient ~905nm wavelength LiDAR solution and the complementary software stack requires a multi-disciplinary team with expertise spanning optics, lasers, mechanical engineering, micro-electronics, chip design, complex IC packaging, algorithms, neural networks, systems engineering and software architecture. Intellectual Property Our success and competitive advantage depend in part upon our ability to develop and protect our core technology and intellectual property. We own a portfolio of intellectual property, including registered patents, registered trademarks, registered designs, confidential technical information, and expertise in the development of LiDAR technology and software for, among others, autonomous vehicles. We have filed patent and trademark applications in order to further secure these rights and strengthen our ability to defend against third parties who may infringe on our rights. We also rely on design and manufacturing know-how, continuing technological innovations, and licensing and exclusivity opportunities to maintain and improve our competitive position. Additionally, we protect our proprietary rights through agreements with our commercial partners, supply-chain vendors, employees, and consultants, as well as close monitoring of developments and products in our industry. D. Trend Information Supply Chain We currently have sufficient component inventory in order to meet the demands of our customers in the near-term. In addition, we are in the process of procuring additional component stock to keep in inventory on a go-forward basis to minimize the effect of supply chain strain on our business in the future. E. Critical Accounting Estimates Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience, known trends and events, and on various other factors that we believe are 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. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report, we believe the following accounting policies used in the preparation of our consolidated financial statements require the most significant judgments and estimates. Please see Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report for additional information. 52 Revenue Recognition We follow the provisions of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), which applies to all contracts with customers. Under ASC 606, revenue is recognized upon transfer of control of promised products and services to customers in an amount that reflects the consideration that we expect to receive in exchange for those products and services. When we enter into a contract, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within the contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We evaluate each performance obligation to determine if it is satisfied at a point in time or over time. Inventory Reserves Our inventory is stated at the lower of cost or estimated net realizable value. Cost of inventory is determined as follows: • Raw materials and work in process - based on weighted average cost. • Finished goods - based mainly on weighted average standard cost method. We charge cost of revenue for write-downs of inventory which are obsolete or in excess of anticipated demand based on a consideration of marketability and product life cycle stage, product development plans, component cost trends, demand forecasts, historical revenue, and assumptions about future demand and market conditions. Losses expected to arise from firm non-cancellable commitments for future purchases of inventory are charged to cost of revenues unless the losses are recoverable through firm sales contracts or other means. Useful Lives of Property, Plant, and Equipment Property and equipment are stated at cost, net of accumulated depreciation and impairment. The estimated useful lives of property and equipment are determined when those assets are initially recognized and are routinely reviewed for the remaining estimated useful lives. When useful life is reassessed for an asset, the remaining carrying amount of the asset is accounted for prospectively and depreciated over the revised estimated useful life.