The information contained in this section should be read in conjunction with our consolidated financial statements for the year ended December 31, 2025 and related notes and the information contained elsewhere in this annual report. Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). This discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties. As a result of many factors, such as those set forth under “ITEM 3.D: Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements,” our actual results may differ materially from those anticipated in these forward-looking statements. A. Operating Results Overview We are a leading provider of innovative network intelligence and security solutions that enable service providers and enterprises to protect and personalize the digital experience and monetize on their networks. Our flexible and highly scalable service delivery framework leverages the intelligence in data networks, enabling service providers to get closer to their customers, safeguard network assets and users, and accelerate time-to-revenue for value-added services. Our customers use our solutions to create sophisticated policies to monitor network applications, enforce quality of service policies that guarantee mission-critical application performance, mitigate security risks and leverage network infrastructure investments. We market and sell our products through a variety of channels, including direct sales and through our channel partners, which include distributors, resellers, OEMs and system integrators. We have a diversified end-customer base consisting primarily of service providers, enterprises, government and law enforcement entities. The resulting intelligent, content-aware broadband networks enable our customers to accurately monitor and manage network traffic per application, subscriber, network topology and device. In 2025, the primary drivers of our revenues were the mobile and fixed markets. Key measures of our performance Revenues We generate revenues from two sources: (1) sales of our network traffic management systems, our network management application solutions and platforms, and our security solution to telecom providers and (2) the provision of maintenance and support services and professional services, including installation and training. We generally provide maintenance and support services pursuant to a maintenance and support program, which may be purchased by customers at the time of product purchase or on a renewal basis. We recognize revenue under the core principle that transfer of control of our products or services to our customers should be reflected by an amount that represents the consideration we expect to receive in revenue. As such, we identify a contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to each performance obligation in the contract and recognize revenues when (or as) we satisfy each performance obligation. Apart from our Security-as-a-Service deals, we typically grant a one-year hardware and three-month software warranty on all of our products, or one-year hardware and software warranty to customers that purchase annual maintenance and support. As part of our Security-as-a-Service offering, the maintenance and support services are inherent to the security service fee. Typically, our support contracts with our customers provide hot line support, warranty, and software updates and upgrades if and when available. We record a provision for warranty at the time the product’s revenue is recognized. We estimate the liability of possible warranty claims based on our historical experience. Warranty claims have to date been immaterial to our results of operations. Maintenance and support revenues are recognized on a straight-line basis over the term of the applicable maintenance and support agreement. See “-Critical Accounting Policies and Estimates-Revenue Recognition” below. 45 Geographical breakdown. See “-Operating Results-Results of Operations-Revenues.” for the geographic breakdown of our revenues by percentage for the years ended December 31, 2024 and 2025. Cost of revenues and gross margins Our products’ cost of revenues consists primarily of costs of materials, manufacturing services and overhead, warehousing and product testing. Our services’ cost of revenues consists primarily of salaries and related personnel costs for our customer success staff. In 2025, our gross margin increased compared to 2024 due to an efficiency and cost reduction process undertaken by the company to align cost structure as well as the revenue levels and mix of revenue. In 2024, our gross margin increased compared to 2023 due to an efficiency and cost reduction process undertaken by the company to align cost structure and revenue levels. We believe that measuring our products’ cost of revenues and gross margins is helpful to understand our financial statements and results of operations because it enables the investors to evaluate the company’s effectiveness in its operations. In addition, our management team uses these metrics to monitor the company’s performance. Operating expenses Research and development. Our research and development expenses consist primarily of salaries and related personnel costs, costs for subcontractor services, depreciation, rent and costs of materials consumed in connection with the design and development of our products. We expense all of our research and development costs as they are incurred. Our net research and development expenses are comprised of gross research and development expenses offset by financing through grants from the Israel Innovation Authority and Spain Tax Authority. Such participation grants are recognized at the time at which we are entitled to such grants on the basis of the costs incurred and included as a deduction of research and development expenses (see “Government Grants” below). We believe that significant investment in research and development, including hiring high quality research and development personnel, is essential to our future success. Sales and marketing. Our sales and marketing expenses consist primarily of salaries and related personnel costs, travel expenses, costs associated with promotional activities such as public relations, conventions and exhibitions, rental expenses, depreciation and commissions paid to third parties, promote our brand, establish new marketing channels and expand our presence worldwide. General and administrative. Our general and administrative expenses consist of salaries and related personnel costs, rental expenses, costs for professional services, credit loss expenses and depreciation. General and administrative expenses also include costs associated with corporate governance, VAT and other tax expenses and regulatory compliance, compliance with the rules implemented by the SEC, Nasdaq and the TASE and premiums for our director and officer liability insurance. Approved Enterprise Our facilities in Hod-Hasharon, Israel have been granted Approved Enterprise status under the Encouragement of Capital Investments Law, 1959, and enjoy certain tax benefits under this program. We intend to utilize these tax benefits after we utilize our net operating loss carry forwards. As of December 31, 2025, our net operating loss carry forwards for Israeli tax purposes totaled approximately $152 million. Income derived from other sources, other than through our “Approved Enterprise” status, during the benefit period will be subject to the regular corporate tax rate. 46 Government Grants Our research and development efforts have been financed, in part, through grants from the Israel Innovation Authority under our approved plans in accordance with the Research and Development Law. In 2025, 2024 and 2023, we received grants from the Israel Innovation Authority through non-royalty bearing programs. In addition, during 2025, 2024 and 2023, we received non-royalty bearing grants from the Spain Tax Authority. Factors Affecting Our Performance Our business, financial position and results of operations, as well as the period-to-period comparability of our financial results, are significantly affected by a number of factors, some of which are beyond our control, including: Customer concentration. The revenues derived from our largest customer in each of the past three years were 7%, 8% and 15% of our total revenues in 2025, 2024 and 2023, respectively. The revenues derived from our second largest customer amounted to 7%, 6% and 9% of our total revenues for 2025, 2024 and 2023, respectively. While we have some visibility into the likely scope of the customers’ projects, our relationships are conducted solely on a purchase order basis and we do not have any commitment for future purchase orders from these customers. The loss of any of such third parties could harm our results of operations and financial condition. Size of end-customers and sales cycles. We have a global, diversified end-customer base consisting primarily of service providers, enterprises, government and law enforcement entities. The deployment of our products by small and midsize enterprises and service providers can be completed relatively quickly. Large service providers take longer to plan the integration of our solutions into their existing networks and to set goals for the implementation of the technology. Sales to large service providers are therefore more complicated as they involve a relatively larger number of network elements and solutions. We are seeking to obtain additional significant customers in the large service provider market that would positively impact our future performance, but could decrease our market share. The longer sales cycles associated with the increased sales to large service providers of our platforms may increase the unpredictability of the timing of our sales and may cause our quarterly and annual operating results to fluctuate if a significant customer delays its purchasing decision and/or defers an order. Furthermore, longer sales cycles may result in delays from the time we increase our operating expenses and make investments in inventory to the time that we generate revenue from related product sales. Average selling prices. Our performance is affected by the selling prices of our products. We price our products based on several factors, including manufacturing costs, the stage of the product’s life cycle, competition, technical complexity of the product, and discounts given to channel partners in certain territories. We typically are able to charge the highest price for a product when it is first introduced to the market. We expect that the average selling prices for our products will decrease over each product’s life cycle as our competitors introduce new products. In order to maintain or increase our current prices, we expect that we will need to enhance the functionality of our existing products by offering higher system speeds, additional products and features, such as additional security functions, supporting additional applications and providing enhanced reporting tools. We also from time to time introduce enhanced products, typically higher-end models that include new architecture and design and new capabilities that will be offered for an additional charge. Such enhanced products typically increase our average selling price. To further offset such declines, we sell maintenance and support programs for our products, and as our customer base and number of field installations grow, our related service revenues are expected to increase. Cost of revenues and cost reductions. Our cost of revenues as a percentage of total revenues was 28.9% for 2025 and 30.9% for 2024. Our products use off-the-shelf components and typically the prices of such components decline over time. However, the introduction and sale of new or enhanced products and services may result in an increase in our cost of revenues. We make a continuous effort to identify cheaper components of comparable performance and quality. We also seek improvements in engineering and manufacturing efficiency to reduce costs. Our products incorporate features that are purchased from third parties. In addition, new products usually have higher costs during the initial introduction period. We generally expect such costs to decline as the product matures and sales volume increases. The introduction of new products may also involve a significant decrease in demand for older products. Such a decrease may result in a devaluation or write-off of such older products and their respective components. The growth of our customer base is usually coupled with increased service revenues primarily resulting from increased maintenance and support. In addition, the growth of our installed base with large service providers may result in increased demand for professional services, such as training and installation services. An increase in demand for such services may require us to hire additional personnel and incur other expenditures. However, these additional expenses, handled efficiently, may be utilized to further support the growth of our customer base and increase service revenues. In 2025, our cost of revenues decreased due to revenue mix, efficiency, and cost structure alignment to revenue levels. 47 Currency exposure. A majority of our revenues in previous years and a substantial portion of our expenses are denominated in the U.S. dollar. However, a significant portion of our revenues is incurred in currencies other than the U.S. dollar, for example in Euros. In addition, a significant portion of our expenses, associated with our global operations, including personnel and facilities-related expenses, are incurred in currencies other than the U.S. dollar; this is the case primarily in Israel and to a lesser extent in other countries in Europe, Asia, Africa and Latin America. Consequently, a decrease in the value of the U.S. dollar relative to local currencies will increase the dollar cost of our operations in these countries. A relative decrease in the value of the U.S. dollar would be partially offset to the extent that we generate revenues in such currencies. In order to partially mitigate this exposure, we have decided in the past and may decide from time to time in the future to enter into hedging transactions. We may discontinue hedging activities at any time. As such decisions involve substantial judgment and assessments primarily regarding future trends in foreign exchange markets, which are very volatile, as well as our future level and timing of cash flows of these currencies, we cannot provide any assurance that such hedging transactions will not affect our results of operations when they are realized. See Note 5 to our consolidated financial statements included elsewhere in this annual report for further information. Also see “ITEM 11: Quantitative and Qualitative Disclosure About Market Risk.” Interest rate exposure. We have a significant amount of cash that is currently invested primarily in interest bearing vehicles, such as bank time deposits and available for sale marketable securities. These investments expose us to risks associated with interest rate fluctuations See “ITEM 11: Quantitative and Qualitative Disclosure About Market Risk.” Results of Operations The following table sets forth our statements of operations as a percentage of revenues for the periods indicated: Year Ended December 31, 2024 2025 Revenues: Products 32.6 30.4 Services 67.4 69.6 Total revenues 100 100 Cost of revenues: Products 11.6 12.6 Services 19.3 16.3 Total cost of revenues 30.9 28.9 Gross profit 69.1 71.1 Operating expenses: Research and development, net 28.3 24 Sales and marketing 33.5 30.2 General and administrative 13.8 13.4 Total operating expenses 75.6 67.6 Operating (loss) income (6.5 ) 3.5 Loss from extinguishment - (1.4 ) Other income - 0.1 Financing income, net 2.07 2.6 Profit (Loss) before income tax expense (4.45 ) 4.8 Tax expense 1.91 1.2 Net profit (loss) (6.4 ) 3.6 48 Revenues See “ITEM 4B: Information on Allot-Business Overview-Customers” for the geographic breakdown of our revenues by percentage for the years ended December 31, 2023, 2024 and 2025. Year Ended December 31, 2025 Compared to Year Ended December 31, 2024 Products. Product revenues increased by $0.9 million, or 3%, to $31 million in 2025 from $30.1 million in 2024. The increase in product revenues in 2025 was mainly attributable to an increase in the number of AllotSmart product deals during 2025. Services. Service revenues increased by $8.9 million, or 14%, to $71 million in 2025 from $62.1 million in 2024. The increase was mainly attributed to an increase in our SECaaS solution recurring revenue from new and existing customers. Product revenues comprised 30.4% of our total revenues in 2025, a decrease of 2.2% compared to 2024 while the services revenues portion comprised 69.6% of our total revenues in 2025, an increase by 2.2%. Cost of revenues and gross margin Products. Cost of product revenues increased by $2.1 million, or 20%, to $12.8 million in 2025 from $10.7 million in 2024. Product gross margin decreased to 59% in 2025 from 64% in 2024. The decrease in product gross margin was mainly attributed to higher cost of product deals in 2025. Services. Cost of services revenues decreased by $1.2 million, or 7%, to $16.6 million in 2025 from $17.8 million in 2024. Services gross margin increased to 77% in 2025 from 71% in 2024. This increase in service gross margin is mainly attributed to a change in our mix of services and products. Specifically, in 2025 relative to 2024, there was a higher percentage of revenues attributable to our SECaaS solution, as well as a lower cost of services due to a lower cost of product deals. Total gross margin increased from 69.1% in 2024 to 71.1% in 2025. Operating expenses Research and development. Research and development expenses decreased by $1.6 million, or 6%, to $24.5 million in 2025 from $26.1 million in 2024. The decrease in our research and development expenses is mainly attributable to reduction in workforce and cost structure alignment as part of efficiency process carried out in 2025. Gross research and development expenses as a percentage of total revenues decreased to 25.4% (24%, net) in 2025 from 30.1% (28.3%, net) in 2024. Sales and marketing. Sales and marketing expenses decreased by $0.1 million, to $30.8 million in 2025 from $30.9 million in 2024. 49 General and administrative. General and administrative expenses increased by $0.9 million, or 7%, to $13.6 million in 2025 from $12.7 million in 2024. The increase is primarily attributable to legal and other general expenses. General and administrative expenses as a percentage of revenues decreased to 13.4% in 2025 from 13.8% in 2024. Financial income, net. In 2025, we had $2.6 million financial income, net. In 2024, we had $1.9 million financial income, net. The change in 2025 was mainly attributed to a increase in interest income. Income tax expense. In 2025, we had $1.2 million income tax expense. In 2024, we had $1.8 million income tax expense. The change in 2025 was mainly attributed to the decrease in withholding taxes and provision for uncertain tax position. For a discussion of our operating results for the fiscal year ended December 31, 2024, as compared to the fiscal year ended December 31, 2023, see “ITEM 5. Operating and Financial Review and Prospects-Operating Results” of our Annual Report on Form 20-F for the fiscal year ended December 31, 2024, which was filed with the SEC on March 27, 2025. Other Financial and Operating Data: Year ended December 31, 2025 2024 2023 (in millions) SECaaS revenues(1) $ 26.8 $ 16.5 $ 10.6 Recurring revenues(2) $ 62.8 $ 53.8 $ 49.5 SECaaS ARR(3) $ 30.8 $ 18.2 $ 12.7 (1) SECaaS refers to security as a service. We enter into service contracts pursuant to which we provide our SECaaS solution to operators using a revenue share business model whereby we and the operator share the revenue generated from the operator’s subscribers, or a fixed periodic fee up to an agreed number of subscribers. A majority of our SECaaS revenues are from contracts that are for one year or longer. We consider the operator to be our customer. The majority of our SECaaS service contracts contain a single performance obligation comprised of a series of distinct goods and services satisfied over time. Contract consideration is based on usage by the operator’s subscribers. As such, we allocate the variable consideration from those contracts to distinct service periods in which the service is provided and recognize revenue for each distinct service period. (2) Recurring revenues refers to the sum of support and maintenance revenues and SECaaS revenues. We generally provide maintenance and support services pursuant to a maintenance and support program, which may be purchased by customers at the time of product purchase or on a renewal basis. A majority of these programs are for one year or longer. 50 (3) SECaaS ARR measures the current annual recurring SECaaS revenues, which is calculated based on estimated SECaaS revenues for the last month in the relevant period multiplied by 12. Non-GAAP Financial Measures The following non-GAAP financial data and reconciliations to financial information prepared in accordance with GAAP, including non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating profit (loss) and non-GAAP net income (loss), are presented to enable investors to have additional information on our business performance as well as a further basis for periodic comparisons and trends relating to our financial results. We believe such data provides useful information to investors and analysts by facilitating more meaningful comparisons of our financial results over time. The Company provides these non-GAAP financial measures because it believes they present a better measure of the Company’s core business and management uses the non-GAAP measures internally to evaluate the Company’s ongoing performance. Accordingly, the Company believes they are useful to investors in enhancing an understanding of the Company’s operating performance. The non-GAAP financial measures used by the Company are not based on any comprehensive set of accounting rules or principles. We believe that non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with our results of operations, as determined in accordance with GAAP, and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. Investors are cautioned that, unlike financial measures prepared in accordance with GAAP, non-GAAP financial measures may not be comparable with the calculation of similar measures for other companies. Investors should consider non-GAAP financial measures in addition to, and not as replacements for or superior to, measures of financial performance prepared in accordance with GAAP. Year ended December 31, 2023 2024 2025 GAAP gross profit $ 52,686 $ 63,690 $ 72,552 Share-based compensation(1) 1,219 779 564 Amortization of intangible assets 1,606 608 305 Non-GAAP gross profit $ 55,511 $ 65,077 $ 73,421 GAAP gross margin 56.6 % 69.1 % 71.1 % Share-based compensation(1) 1.3 % 0.8 % 0.6 % Amortization of intangible assets 1.7 % 0.7 % 0.3 % Non-GAAP gross margin 59.6 % 70.6 % 72.0 % GAAP operating expenses $ 117,621 $ 69,704 $ 68,948 Share-based compensation(1) (7,626 ) (5,261 ) (4,454 ) Income related to M&A activities(2) 699 - — Non-GAAP operating expenses $ 110,694 $ 64,443 $ 64,495 GAAP operating loss $ (64,935 ) $ (6,014 ) $ 3,604 Share-based compensation(1) 8,845 6,040 5,018 Income related to M&A activities(2) (699 ) - — Amortization of intangible assets 1,606 608 305 Non-GAAP operating profit (loss) $ (55,183 ) $ 634 $ 8,927 GAAP net loss $ (62,804 ) $ (5,869 ) $ 3,705 Share-based compensation(1) 8,845 6,040 5,018 Amortization of intangible assets 1,606 608 305 Income related to M&A activities(2) (656 ) - — Loss from extinguishment - - 1,410 Exchange rate differences(3) (378 ) 502 119 Changes in tax related items 100 352 375 Non-GAAP net income (loss) $ (53,287 ) $ 1,633 $ 10,931 (1) The below table sets forth share-based compensation for the periods presented: 51 Year ended December 31, 2023 2024 2025 (in thousands) Cost of revenues $ 1,219 $ 779 $ 564 Research and development costs, net 3,010 1,988 1,213 Sales and marketing 2,651 1,855 1,571 General and administrative 1,965 1,418 1,670 Share-based compensation $ 8,845 $ 6,040 $ 5,018 (2) The below table sets forth income related to M&A activities for the periods presented: Year ended December 31, 2023 2024 2025 (in thousands) General and administrative (699 ) $ - — Financial expenses 43 - — Income related to M&A activities $ (656 ) $ - — (3) Represents the change in value of non-dollar denominated financial assets based on changes in the relevant exchange rate compared to the U.S. dollar. B. Liquidity and Capital Resources As of December 31, 2025, we had $17.1 million in cash and cash equivalents, $48.7 million available for sale marketable securities, and $15.1 million in short-term deposits and $3.6 million short-term restricted deposits. As of December 31, 2025, our working capital, which we calculate by subtracting our current liabilities from our current assets, was $77.8 million. Based on our current business plan, we believe that our existing cash balances will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next twelve months. If our estimates of revenues, expense or capital or liquidity requirements change or are inaccurate and are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or arrange additional debt financing. In addition, we may seek to sell additional equity or arrange debt financing to give us financial flexibility to pursue attractive acquisitions or investment opportunities that may arise in the future. 52 Operating Activities Net cash provided by operating activities in 2025 was $17.8 million. Net cash provided by operating activities consisted mainly of a net income of $3.7 million, depreciation and amortization of $4.0 million, $5.0 million of share-based compensation expense, an increase of $6.4 million in deferred revenues, an increase of $4.6 million in inventory, $2.9 million Increase in other payables and accrued expenses, $1.4 million of loss from extinguishment, an increase of $1.0 million in employees and payroll accruals, an increase of $1.0 million in trade receivables, and a decrease of $1.3 million related to other operating activities. The change in employees and payroll accruals was mainly due to payroll-related items. Net cash provided in operating activities in 2024 was $4.8 million. Net cash provided in operating activities consisted mainly of a net loss of $5.9 million, depreciation, amortization and impairment of intangible assets of $6.4 million, $6 million of share-based compensation expense, a decrease of $3.3 million in inventory, a decrease of $4.4 million in employees and payroll accruals, an increase of $1.7 million in trade receivables, a decrease of $0.5 million in other payables and accrued expenses, a decrease of $0.7 million in other receivables and prepaid expenses, an increase of $1.9 million in deferred revenues and a decrease of $1.1 million related to other operating activities. The change in employees and payroll accruals, trade payables and other receivables and prepaid expenses was mainly due to advanced payments to suppliers and payroll-related items. Investing Activities Net cash used in investing activities in 2025 was $28.5 million, primarily attributable to proceeds from maturities of short-term deposits of $45.5 million, the purchase of short-term deposits of $45.4 million, the purchase of property and equipment of $2.3 million, investment in available-for sale marketable securities $113.7 million and an increase in restricted deposits of $5.7 million. The above changes were partially offset by the redemption or sale of marketable securities of $92.9 million. Net cash used in investing activities in 2024 was $2.9 million, primarily attributable to proceeds from maturities of short-term deposits of $19.3 million, the purchase of short-term deposits of $24.6 million, the purchase of property and equipment of $2.1 million, investment in available-for sale marketable securities $61 million and other activities. The above changes were partially offset by the redemption or sale of marketable securities of $64.8 million and a decrease in restricted deposits of $0.7 million. Financing Activities Net cash provided by financing activities in 2025 was $11.1 million, primarily attributable to the issuance of ordinary shares of $42.3 million, partially offset by the redemption of convertible debt of $31.4 million. There was no material net cash provided by financing activities in 2024. For a discussion of our liquidity and capital resources for the fiscal year ended December 31, 2024, see “ITEM 5. Operating and Financial Review and Prospects-Liquidity and Capital Resources” of our Annual Report on Form 20-F for the fiscal year ended December 31, 2024, which was filed with the SEC on March 27, 2025. Material Cash Requirements Our material cash requirements as of December 31, 2025, and any subsequent interim period, primarily include our capital expenditures, lease obligations and purchase obligations. Our capital expenditure primarily consists of purchases of lab equipment, computers and peripheral equipment, office furniture and equipment, leasehold improvements and SECaaS equipment. Our capital expenditures were $2.5 million in 2023, $2.1 million in 2024 and $2.3 million in 2025. We will continue to make capital expenditures to meet the expected growth of our business. 53 Our lease obligations consist of the commitments under the lease agreements for our group facilities and motor vehicles. The group facilities are leased under several lease agreements with various expiration dates. Our leasing expenses were $3.5 million in 2023, $2.7 million in 2024 and $2 million in 2025. As of December 31, 2025, we had fixed future minimum lease payments of $5.7 million related to offices and car leases arrangements, of which $0.8 million is due in the next twelve months, and that we cannot early terminate or where we would be required to pay a termination fee in the event of early termination. Our purchase obligations consist primarily of commitments for our operating activities. Our operating expenses were $118 million in 2023, $70 million in 2024 and $69 million in 2025. More than 75% of the Company’s operating expenses are attributable to salary expenses. As of December 31, 2025, we had $0.3 million outstanding non-cancelable inventory purchase obligations with a remaining term of 12 months. We intend to fund our existing and future material cash requirements with our existing cash balance. We will continue to make cash commitments, including capital expenditures, to support the growth of our business. Other than as discussed above, we did not have any significant capital and other commitments or long-term obligations as of December 31, 2025. C. Research and Development, Patents and Licenses In 2023, 2024 and 2025, we received non-royalty bearing grants from the Israel Innovation Authority. However, the terms of the grants require us to comply with the IIA’s restrictions and obligations as set out below. • Local Manufacturing Obligation. We must manufacture the products developed with these grants in Israel. We may manufacture the products outside Israel only if we receive prior approval from the IIA (such approval is not required for the transfer of up to 10% of the manufacturing capacity in the aggregate, in which case a notice must be provided to the IIA and not objected to by the IIA within 30 days of such notice). • Know-How Transfer Limitation. We have certain limitations on our ability to transfer know-how funded by the IIA. Approval of any transfer of IIA funded know-how to another Israeli company will be granted only if the recipient abides by the provisions of the Innovation Law and related regulations. Transfer of IIA funded know-how outside of Israel requires prior approval of the IIA and may be subject to payments to the IIA. • Change of Control. We must notify the IIA in respect of any change in the means of control in our company, including ownership of our shares. In respect of any non-Israeli citizen, resident or entity that, among other things, (i) becomes a holder of 5% or more of our share capital or voting rights, (ii) is entitled to appoint one or more of our directors or our chief executive officer or (iii) due to the change in the means of control in our company, is nominated as one of our directors or as our chief executive officer we are required to obtain an undertaking that such non-Israeli citizen, resident or entity will comply with the rules and regulations applicable to the grant programs of the IIA. Approval to manufacture products outside of Israel or consent to the transfer of IIA funded know-how, if requested, is within the discretion of the IIA. Furthermore, the IIA may impose conditions on any arrangement under which it permits us to transfer IIA funded know-how or manufacturing out of Israel. Currently, Allot does not have any open grants with IIA. There can be no assurance that Allot will receive any grants during 2026. As of December 31, 2025, we had 28 issued U.S. patents. We expect to formalize our evaluation process for determining which inventions to protect by patents or other means. We cannot be certain that patents will be issued as a result of the patent applications we have filed. 54 In addition, during 2023, 2024 and 2025, we received non-royalty bearing grants from the Spain Tax Authority. These grants from the Spain Tax Authority are subject to specific compliance requirements and reporting obligations, which we continue to monitor to ensure conformity with applicable regulations. We believe that the financial support received has contributed to advancing our research and development initiatives and strengthening our intellectual property portfolio. As we progress, we intend to leverage both domestic and international government funding opportunities to further enhance our technological capabilities and remain competitive in the global market. D. Trend Information See “ITEM 5: Operating and Financial Review and Prospects” above. E. Critical Accounting Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and judgments are subject to an inherent degree of uncertainty and actual results may differ. Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included elsewhere in this annual report. Certain of our accounting policies are particularly important to the portrayal of our financial position and results of operations. In applying these critical accounting policies, our management uses its judgment to determine the appropriate assumptions to be used in making certain estimates. Those estimates are based on our historical experience, the terms of existing contracts, our observance of trends in our industry, information provided by our customers and information available from other outside sources, as appropriate. With respect to our policies on revenue recognition and warranty costs, our historical experience is based principally on our operations since we commenced selling our products in 1998. Our estimates are primarily guided by observing the following critical accounting policies: • Revenue recognition; • Inventories; • Impairment of goodwill and long lived assets; Because each of the accounting policies listed above requires the exercise of certain judgments and the use of estimates, actual results may differ from our estimations and as a result would increase or decrease our future revenues and net income. Revenue recognition. The Company generates revenues mainly from selling its products along with related maintenance and support services. At times, these arrangements may also include professional services, such as installation services or training. Some of the Company’s product sales are through resellers, distributors, OEMs and system integrators, all of whom are considered end-users. The Company also generates revenues from services, in which the Company provides network filtering and security services to its customers. The Company recognizes revenue under the core principle that transfer of control to the Company’s customers should be depicted in an amount reflecting the consideration the Company expects to receive. As such, the Company identifies a contract with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to each performance obligation in the contract and recognizes revenues when (or as) the Company satisfies a performance obligation. 55 Most of the Company’s contracts usually include combinations of products and services, that are capable of being distinct and accounted for as separate performance obligations. The products are distinct as the customer can derive the economic benefit of it without any professional services, updates or technical support. The Company allocates the transaction price to each performance obligation based on its relative standalone selling price out of the total consideration of the contract. For support, the Company determines the standalone selling prices based on the price at which the Company separately sells a renewal support contract on a stand-alone basis. For professional services, the Company determines the standalone selling prices based on the price at which the Company separately sells those services on a stand-alone basis. If the standalone selling price is not observable, the Company estimates the standalone selling price by taking into account available information such as geographic or regional specific factors, internal costs, profit objectives, and internally approved pricing guidelines related to the performance obligation. Product revenue is recognized at a point in time when the performance obligation is being satisfied. Maintenance and support related revenues are deferred and recognized on a straight-line basis over the term of the applicable maintenance and support agreement. Professional services are usually recognized at a point in time when the performance obligation is being satisfied. The Company also enters into service contracts, in which the Company provides SECaaS solutions to operators, which the Company considers as its customers. The Company’s SECaaS solutions are offered to operators on a Revenue Share business model, where both the Company and the operator share the revenue generated from the operator’s subscribers, or offered for a fixed yearly fee or up to an agreed number of subscribers. Most of the Company’s SECaaS contracts contain a single performance obligation comprised of series of distinct goods and services satisfied over time. The contracts consideration is based on usage by the operator’s subscribers. As such, the Company allocates the variable consideration in those contracts to distinct service periods in which the service is provided and recognizes revenue for each distinct service period. Inventories are stated at the lower of cost or market value. Inventory write-offs are provided to cover risks arising from slow-moving items, technological obsolescence, excess inventory and discontinued products. Inventory net write-off expenses in 2025 and 2024 totaled $(0.3) million and $3 million, respectively. Impairment of goodwill and long-lived assets. ASC 350 allows an entity to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If the qualitative assessment does not result in a more likely than not indication of impairment, no further impairment testing is required. If the Company elects not to use this option, or if the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company prepares a quantitative analysis to determine whether the carrying value of reporting unit exceeds its estimated fair value. If the carrying value of a reporting unit exceeds its estimated fair value, the Company recognizes an impairment of goodwill for the amount of this excess. The Company operates in one operating segment, and this segment comprises its only reporting unit. The Company has performed an annual impairment analysis as of December 31, 2025 and determined that the carrying value of the reporting unit was lower than the fair value of the reporting unit. Fair value is determined using market value. During the years 2025, 2024 and 2023, no impairment losses were recorded. We perform an annual impairment analysis of goodwill at December 31 of each year, or more often as applicable. We operate in one operating segment, and this segment comprises only one reporting unit. The provisions of ASC No. 350 require that a two-step impairment test be performed on goodwill at the level of the reporting units. In the first step, we compare the fair value of the reporting unit to its carrying value. If the fair value exceeds the carrying value of the net assets, goodwill is considered not impaired, and no further testing is required to be performed. If the carrying value of the net assets exceeds the fair value, then we must perform the second step of the impairment test in order to determine the implied fair value of goodwill. If the carrying value of goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference. 56 We believe that our business activity and management structure meet the criterion of being a single reporting unit for accounting purposes. We performed an annual impairment analysis as of December 31, 2025, and determined that the carrying value of the reporting unit was lower than the fair value of the reporting unit. Fair value is determined using market value. During the years ended 2024 and 2025, no impairment losses were recorded. Intangible assets acquired in a business combination are recorded at fair value at the date of the acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets that are not considered to have an indefinite useful life are amortized over their estimated useful lives. Some of the acquired intangible assets are amortized over their estimated useful lives in proportion to the economic benefits realized. This accounting policy results in accelerated amortization of such customer relationships and backlog as compared to the straight-line method. All other intangible assets are amortized over their estimated useful lives on a straight-line basis.