A. [Reserved]
B. Capitalization and indebtedness. Not Applicable
C. Reasons for the offer and use of proceeds. Not Applicable.
D. Risk Factors
An investment in our ordinary shares involves
significant risks. You should carefully consider all of the information in this annual report, including the risks and uncertainties described
below, before making an investment in our ordinary shares. Any of the following risks could have a material adverse effect on our business,
financial condition and results of operations. In any such case, the market price of our ordinary shares could decline, and you may lose
all or part of your investment.
The risks set out below are not exhaustive
and do not comprise all of the risks associated with an investment in us. Additional risks and uncertainties not currently known to us
or which we currently deem immaterial may also have a material adverse effect on our business, financial condition, results of operations,
prospects and/or our share price.
Risks Related to Our Business and Industry
We have been a research and development
company with a history of losses, and we expect to incur significant expenses and losses as we continue the development of our radar technology.
We incurred a net loss of approximately $46.4
million on revenues of approximately $1 million for the year ended December 31, 2025, a net loss of approximately $49.3 million on revenues
of approximately $0.8 million for year ended December 31, 2024, and a net loss of approximately $43.5 million on revenues of approximately
$1.5 million for the year ended December 31, 2023. No assurance can be made that we can or will become profitable. Our modest level
of revenues through 2025 has been generated from sales of chipsets and prototype radar systems for evaluation and professional services.
Our chipset is expected to be in production later this year. Although we are actively marketing our chipset and systems to Tier 1 suppliers
and automobile manufacturers and other customers, we have been primarily a research and development company, and we are continuing to
incur research and development expenses as we continue to work on the development of our 4D imaging radar technology. We plan the transition
to production of our radar chip for sale to customers during 2026, although we can give no assurance that this timetable will be met,
and we did not meet our previous target to transition to production and achieving this milestone depends on execution of 3rd
parties as well. Until such time as we begin material commercial deliveries of our products, we will likely continue to generate losses.
Even if we are able to begin making material commercial deliveries of our products, we can give no assurance that we will be successful
in the commercial sale of our products.
We anticipate that our losses may continue to
be significant as we:
● Shift our research and development from production intent to production ready chipset;
● expand our production capabilities or outsource such production;
● expand our design, development, installation and servicing capabilities;
3
● experience delays by automobile manufacturers which are making final decisions relating to the next generation of automobiles and the introduction of advanced driver assisted systems (ADAS) and autonomous vehicles (AV) as a result of broader economic shifts that we believe are leading to short-term delays in the automobile manufacturers roll-out of advanced driver assistance systems.;
● produce chips for inventory and incur storage charges;
● incur costs in providing support and assistance to our initial commercial customers, primarily our Tier 1 suppliers, as they integrate our chipset in their radar product that they market to automotive companies and to our automotive company customers as they introduce our radar in their vehicles.
● incur sales and marketing activities costs and develop our distribution infrastructure; and.
● incur general and administration costs as we progress with our product development and continue to incur significant expenses in research and development as well as costs related to our status as a publicly traded corporation.
● Introduce the radar system to new markets and customers which require investments in sales, marketing, support, operations and development.
We will incur the expenses from these efforts
before we receive sufficient revenues to cover our incremental expenses with respect thereto, and therefore our losses in future periods
may 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.
Our limited operating history and evolving
business model makes evaluating our business and future prospects difficult and may increase the risk of your investment.
We have focused primarily on developing our 4D
imaging radar technology products since 2017 and did not generate any revenue until 2020. Our relatively limited operating history
and modest level of revenue to date make it difficult to evaluate our future prospects and the risks and challenges we may encounter.
Further, because we have limited historical financial data and operate in a rapidly evolving market, any predictions about our future
revenue and expenses may not be as accurate as they would be if we had a history of sales in commercial quantities or if we operated in
a more predictable markets rather than markets that are themselves developing markets that are developing at a slower rate than we had
anticipated.
From late 2023 through 2025 we broadened our focus
to seek contracts with Tier 1 suppliers and OEMs for orders in commercial quantity in addition to sales of radars for testing purposes
and, recently, we broadened our marketing to include off-road and other non-automotive uses for our radar. If this strategy is not successful,
and we do not generate orders for commercial quantities of our products, we may incur increased losses and our transition to production
will be delayed. In this connection, as both our business and the markets develop, our operations may undergo other changes that result
in a material change in our business and the direction of our business. Any such modifications could result in increased losses (as pivoting
the business may be costly) and future results may differ materially from those presented herein.
Any change in our business model, including
changes by automobile manufactures in introducing ADAS and AV features, may make the results of our operations to date less useful in
evaluating our business and prospects and may impact our ability to generate revenue and cash flow from operations.
If we fail to address the risks and difficulties
that we face, including those described elsewhere in this “Risk Factors” section, our business, financial condition and results
of operations could be impaired. We have encountered in the past, and will encounter in the future, risks and uncertainties frequently
experienced by growing companies with limited operating histories in rapidly changing industries. Delays by automobile manufacturers which
are making final decisions relating to the next generation of automobiles and the introduction of ADAS and AV capabilities as a result
of broader economic shifts that we believe are leading to short-term delays in the automobile manufacturers roll-out of ADAS and AV functions
will impact our ability to generate revenue and cash flow from operations. The AV market is currently undergoing a strategic shift, characterized
by several major automotive manufacturers re-evaluating or postponing the large-scale rollout of Level 3 (L3) systems due to technical
complexities, regulatory hurdles, and high development costs. In contrast, to the best of our knowledge, capital allocation and development
efforts remain robust in the Level 4 (L4) sector, where major technology firms continue to provide significant backing for independently
operated autonomous solutions, particularly for commercial fleets and ride-hailing services. If our assumptions regarding these risks
and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks and changes
successfully, the results of our operations could differ materially from our expectations and our business, financial condition and results
of operations could be adversely affected.
4
We expect to continue to invest substantially
in research and development to develop and commercialize new products, and these investments could significantly increase our losses and
may not generate significant revenue for us.
Our future growth depends on maintaining our technological
leadership in order to introduce new products that achieve market acceptance and penetrate new markets. Our research and development
expenses were approximately $34.8 million in 2025 $35.1 million in 2024 and approximately $34.1 million for 2023. We expect that our research
and development expenses are likely to continue to be significant in the future as we seek to expand our research and development effort
to meet the anticipated market needs. Because we expense our research and development activities, as we may increase these expenses it
will adversely affect the results of our operations. In addition, our research and development program may not produce successful results,
and even if it does successfully produce new products, those products may not achieve market acceptance, create additional revenue or
become profitable. Since the market for our products is cutting edge technology in an evolving industries, we can only be successful if
we can offer differentiated technology at a price acceptable to our customers. Our failure to offer cutting edge differentiated technology
can materially impair our ability to operate profitably. Further, since our marketing to the automotive market is primarily directed at
Tier 1 suppliers, who incorporate our chipset in the systems that they market to the automobile manufacturers, which include software
and hardware components in addition to our chipset, our business will be impacted to the extent that the manufacturers select a Tier-1
supplier that does not use our chipsets.
Agreements with customers may not generate
the anticipated revenue as we are subject to the risks of cancellation or postponement of deliveries or unsuccessful implementation.
Prospective customers of our products generally
must make significant commitments of resources to test and validate our products and confirm that they can integrate our products with
other technologies before including our products in any particular solution, system, product or model. The development cycles of our products
with new customers vary widely depending on the application, market, customer and the complexity of the product. In the automotive market,
for example, this development cycle can be over several years. As a result of these lengthy development cycles, we spend significant
time and resources to have our products selected by potential customers for a particular use. If we fail to secure such relationships,
we may not have an opportunity to supply our products within a sector with such a long lead time for a period of several years. Further,
we are subject to the risk that customers that order products, which are subject to the customer’s ability or willingness to integrate
the product with its other systems, may cancel or postpone orders for any reason whether in our control or not.
The development cycle of products using
our technology as well as the market for our products that are under development can be impacted by various factors which cannot be predicted,
including international conflicts, climate and weather conditions, global economic conditions and customer trends.
The development process for our products as well
as the timing of our sales and the market for our products can be affected by various factors, many of which are unpredictable. These
factors include such conditions as international trade issues such as tariffs, international conflicts, climate and weather conditions,
significant natural disasters such as the outbreak of a pandemic, or other catastrophic events. In recent months the following conditions
have affected or may affect various aspects of our business:
● The effect of the war with Iran and Hezbollah, including the missiles and drones fired at Israel generally and Tel Aviv-Jaffa, where our offices are located, in particular, along with continued hostilities with Hamas and any further intensification of hostilities with others, and the effect of the call-up of a significant portion of Israel’s working population, including some of our employees, and the effect of any potential boycott both of Israeli products and business and of stocks in Israeli companies as discussed below under the Risk Factor “Risks Related to our Incorporation and Location in Israel – Conditions in Israel” could materially and adversely affect our business.”
● Extreme global weather conditions that may adversely affect manufacturing facilities, packaging and other production and supply activities of our suppliers and/or customers, and cause material delays in our supply chain or to our forecasted orders.
● The effects of any other military conflicts and cybersecurity actions;
● The effects of any tariffs and counter-tariffs which may be imposed or threatened; and
● Any other conditions which may affect the industry generally and the ability of companies in their evaluation and purchase of our products or our ability and the ability of our customers and potential customers to evaluate our product, order our product, receive the product or pay for it as well as our ability to deliver it to the customers.
5
Any factors which affect the ability or willingness
of customers and potential customers to test our products or purchase our products could materially impair our ability to develop our
business, We cannot predict the extent that any of the foregoing will impact our business nor what other factors which we do not presently
contemplate may impact our business; however, any of these factors, as well as other factors not presently contemplated, may have a material
adverse effect upon our business.
We may need to raise additional funds in
the future in order to execute our business plan and these funds may not be available to us when we need them. If we cannot raise additional
funds when we need them, our business, prospects, financial condition and operating results could be negatively affected.
We are continuing to spend significantly more in research and development
than we are generating in revenue, since most of our revenue is for small volume non-automotive orders, samples and for testing. Although
our working capital on December 31, 2025 was approximately $38.9 million and we raised gross proceeds of $18.5 million in an underwritten
registered direct public offering on January 26, 2026, we may nonetheless require additional capital in order to fund our growth strategy
and to respond to various factors including, but not limited to. technological advancements, competitive dynamics or technologies, customer
demands, broader economic shifts that are leading to delays in our customer’s roll-out of systems which would use radar systems
that use our chipset and the economic cause related to the extension in decision-making timelines, business opportunities, products from
competitors, challenges, acquisitions or unforeseen circumstances, and we anticipate that, if we require financing we will seek to obtain
any such funding through equity, debt or convertible debt financing arrangements, although there can be no assurance that such financing
will be available on acceptable terms or at all. Our low stock price may affect our ability to raise funds in the equity or convertible
debt market.
We may not be able to timely secure debt or equity
financing on favorable terms, or at all. Our ability to incur additional debt may be affected by covenants in the deed of trust relating
to our outstanding convertible bonds. If we raise additional funds through the issuance of equity or convertible debt or other equity-linked
securities, our shareholders could experience significant dilution. In addition, any debt financing we may obtain in the future, whether
in the form of a credit facility or convertible debt, could involve restrictive covenants relating to our capital raising activities and
other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities,
including potential acquisitions. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require
it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited. In addition,
because our decision to issue debt or equity in the future will depend on market conditions, the restrictions on incurring debt under
the deed of trust relating to our convertible bonds and other factors beyond our control, we cannot predict or estimate the amount, terms,
timing, nature or success of our future capital raising efforts.
If market adoption of our products does
not develop, or develops more slowly than we expect, our business will be adversely affected.
While our products can be applied for uses in
different markets, many of our products are still relatively new in the market, and it is possible that other solutions, products and
devices, based on new or existing technology or a combination of technologies, will achieve acceptance or leadership as compared to our
existing or future product lines. Even if our products are used, we cannot guarantee that our products will be designed into or included
in subsequent generations of such commercialized technology. In addition, we expect that widescale use of our products may lag behind
these initial applications significantly. The speed of market growth for our products is difficult if not impossible to predict. In addition,
to the extent that a market for our products develops successfully, we expect that there will be increasing competition from alternative
providers and other modalities. If we are not successful in commercializing our products in a timely manner, or not as successful as we
expect, or if other modalities gain acceptance by our potential customers, regulators and safety organizations or other market participants,
our business, results of operations and financial condition will be materially and adversely affected.
6
We may not be able to accurately estimate
the supply and demand of our products, which could result in a variety of inefficiencies in our business and hinder our ability to generate
revenue. If we fail to accurately predict our manufacturing requirements, we could incur additional costs or experience delays.
It is difficult to predict our future revenues
and budget for our expenses, and we may have limited insight into trends that may emerge and affect our business. We expect that we will
be required to provide forecasts of our demand to our potential customers several months prior to the scheduled delivery date. Currently,
because it is a developing market, there is little historical basis for making judgments on the demand for our products or our ability
to develop, produce, and deliver products, or our profitability in the future. If we overestimate our requirements, we or our potential
suppliers may have excess inventory, which indirectly would increase our costs. If we underestimate our requirements, we or our potential
suppliers may have inadequate inventory, which could interrupt the manufacturing of our products and result in delays in shipments, which
is likely to affect revenue and customer relations. In addition, lead times for materials and components that our potential suppliers
order may vary significantly and depend on factors such as the specific supplier, contract terms and demand for each component at a given
time. In negotiating contracts, we will need to satisfy our customers that we will be able to deliver quality products on the required
timetable. Since we rely upon GlobalFoundries as our manufacturer, any inability of GlobalFoundries to meet our requirement, could have
a material adverse effect on our ability to meet our customers’ requirements which would impair our ability to operate profitable.
If we fail to order sufficient quantities of product components in a timely manner, the delivery of products to our potential customer
base could be delayed and customers may take negative actions, which would harm our business, financial condition and operating results.
We target many customers that are large
companies with substantial negotiating power, exacting product standards and potentially competitive internal solutions. If we are unable
to sell our products to these customers, our prospects and results of operations will be adversely affected.
Many of our customers and potential customers
are large, multinational companies with substantial negotiating power relative to us and, in some instances, may have internal or external
solutions that are competitive with our products. These large, multinational companies also have significant resources, which may allow
them to acquire or develop competitive technologies either independently or in partnership with others. Accordingly, even after investing
significant resources to develop a product, we may not secure a design win or may not be able to commercialize a product on profitable
terms or we may obtain a commitment from a Tier-1 system supplier and that supplier may not be successful in marketing to the its customer(s).
Since our products are a key aspect of the safety
of vehicles that use our products and must comply with international standards, our products will be held to a stringent safety test before
they are included in a final product. If we fail these tests or certifications or if our products are not selected by companies or if
these companies develop or acquire competitive technology or negotiate terms that are disadvantageous to us, it will have an adverse effect
on our business and we may not be able to operate profitably.
Our principal customers include Tier-1 and
radar system suppliers with a view to including our chipset as part of a radar system that they market to the automobile industry, and
which compete with other Tier 1 and radar system suppliers in marketing to the automotive industry.
Many of our customers and potential customers
are either large, multinational Tier-1 and radar system companies which market radar systems that potentially may include our chipset
in the systems they market to the markets like the automotive industry, including OEMs, or large multinational companies. Thus, we are
dependent upon the ability of our Tier 1 and radar system suppliers to execute and complete the development of their product as well as
market their systems to the automotive industry. To the extent our product is part of a radar system that is offered by such Tier-1 and
radar system supplier, we depend on the ability of the Tier-1 and radar system supplier to successfully market and sell its product (which
includes our product) to the OEM’s or other companies, many times as a result of a bid process conducted by the OEM or other company.
Accordingly, even after investing significant resources to develop a product, we largely rely on our Tier-1 and radar system customers’
efforts to secure a design win in order for us to be able to commercialize our product on profitable terms. Because our products are a
component on a complete radar product offered by our Tier-1 and radar system customer to the OEM or other companies, if the radar products
are not selected by these companies or if these companies develop or acquire competitive technology or negotiate terms that are disadvantageous
to us, it will have an adverse effect on our business. We also market directly to automobile manufacturers and other OEMs and seek to
include our radar system in their products. To the extent that we are not successful in marketing to the these industries our business
will be materially impaired.
7
We continue to work with other companies,
including our sole supplier and our Tier 1, radar system companies and other customers to develop our business, and these initiatives
may prove more costly than we currently anticipate, and we may not succeed in generating sufficient revenue to operate profitability.
We continue to make investments and implement
initiatives designed to grow our business, including:
● investing in research and development;
● collaborating with Tier 1 and radar system suppliers to develop a radar product based on our chipsets, with the goal of enabling them to market their products to the automotive and other industries;
● expanding our sales and marketing efforts to attract new customers in new industries;
● investing in new applications and markets for our products;
● Investing in creation of a full system solution for automotive and other markets including the manufacturing of direct sell of such product
● further enhancing our manufacturing processes and relationships; and
● incurring in legal, accounting, and other administrative functions necessary to support our operations as a public company.
These initiatives may prove more expensive than
we currently anticipate, and we may not succeed in increasing our revenue, if at all, in an amount sufficient to offset these higher expenses
and to achieve and maintain profitability. The market opportunities we are pursuing are being developed, and it may be years before the
markets we expect to serve generate significant demand for our products at scale, if at all.
In addition, our revenue may be adversely affected
for a number of reasons, including the development and/or market acceptance and timing of market introduction of new technology that competes
with our products, changes by other market participants with respect to their acceptance or implementation of our technology, failure
of our customers to commercialize systems that include our products, our inability to effectively manage our inventory or manufacture
products at scale, our failure to enter new markets or to attract new customers or expand orders from existing customers or due to increasing
competition. Furthermore, it is difficult to predict the size and growth rate of our target markets, customer demand for our products,
commercialization timelines, developments in autonomous sensing and related technology, the entry of competitive products, or the success
of existing competitive products and services. Accordingly, we do not expect to achieve profitability over the near term. If our revenue
does not grow over the long term, our ability to achieve and maintain profitability may be adversely affected, and the value of our business
may significantly decrease.
The markets in which we compete are characterized
by rapid technological change, which requires us to continue to develop new products and product innovations and could adversely affect
market adoption of our products.
While we intend to invest substantial amounts
in research and development, continuing technological changes in our technology and competitive technologies could adversely affect adoption
of our products. Our future success will depend upon our ability to develop and introduce a variety of new capabilities and innovations
to our existing product offerings, as well as to introduce a variety of new product offerings to address the changing needs of the markets
in which we offer our products. Delays in delivering new products that meet customer requirements could damage our relationships with
customers and lead them to seek alternative sources of supply.
If we are unable to develop products or system
configurations that meet customer requirements, including pricing and delivery, on a timely basis or that remain competitive with other
technological alternatives, our products could lose market share, our revenue will decline, we may experience operating losses, and our
business and prospects will be adversely affected.
Certain of our development and supply arrangements
could be terminated or may not materialize into long-term contracts.
We have arrangements with Tier 1 suppliers and
other companies for the development of products that incorporate our products. Some of these arrangements will require renegotiation at
later stages of development or replacement by production or other agreements that have yet to be implemented, each of which could be terminated
or may not materialize into next-stage contracts or long-term contract arrangements. If these arrangements are terminated or if we are
unable to enter into next-stage contracts or long-term operational contracts, our business, prospects, financial condition and operating
results may be materially adversely affected.
8
We will be subject to risks associated with
our agreements with Tier 1s and other companies.
If we are successful in entering into definitive
agreements with potential customers, including Tier 1s, these arrangements will subject us to risks, including risks associated with non-performance
by the third party and sharing proprietary information, any of which may materially and adversely affect our business and prospects. Because
of our limited ability to monitor or control the actions of these third parties, to the extent any of these strategic third parties suffer
negative publicity or harm to their reputation from events relating to their business (related or unrelated to Arbe), we may also suffer
negative publicity or harm to our reputation by virtue of our association with any such third party. In addition, a third party may have
different priorities than we have with the effect that the supplier may not give our products the priority that we consider important,
which could impair our ability to generate revenue.
We may experience difficulties in managing
our growth and expanding our operations.
We expect to experience significant growth in
the scope and nature of our operations. Our ability to manage our operations and future growth will require us to continue to improve
our execution, operational, financial and management controls, compliance programs and reporting systems. We have an ongoing process of
reviewing and strengthening our compliance programs, including those related to export controls, privacy, cybersecurity, anti-corruption
and financial controls. We may not be able to implement improvements in an efficient or timely manner and may discover deficiencies in
existing controls, programs, systems and procedures, which could have an adverse effect on our business, reputation and financial results.
Continued pricing pressures may result in
lower than anticipated margins or losses, which may adversely affect our business.
Cost-cutting initiatives adopted by our customers
and their customers and other customers as well as the effects of competition may result in increased downward pressure on pricing. We
expect that as our industry develops and competition grows, our agreements with existing customers may require step-downs in pricing over
the term of the agreements or, if commercialized, over the periods of production, and we may not be able to negotiate price reductions
from our suppliers. In addition, our existing or future customers may reserve the right to terminate their engagement with us for convenience
including but not limited to supply contracts, which enhances their ability to obtain price reductions. Certain large customers may possess
significant leverage over their suppliers, including us, because the market is highly competitive. Accordingly, we expect to be subject
to substantial continuing pressure from our existing and prospective customers to reduce the price of our products. It is possible that
pricing pressures beyond our expectations could intensify as customers pursue restructuring, consolidation and cost-cutting initiatives.
If we are unable to generate sufficient production cost savings in the future to offset price reductions, our gross margin and profitability
would be adversely affected. Further, to the extent that the specifications of our chips result in prices which are not competitive, our
sales and gross margin may be impaired, and we may not be able to operate profitably.
Adverse conditions within our industry or
the global economy more generally could have adverse effects on our results of operations.
Our business is directly affected by and significantly
dependent on business cycles and other factors affecting the industries in which we operate and the global economy generally. Production
and sales within our industries are cyclical and depend on general economic conditions and other factors, including consumer spending
and preferences, the timing as to the introduction of new capabilities that require our technology, changes in interest rates and credit
availability, consumer confidence, fuel costs, fuel availability, environmental impact, governmental incentives and regulatory requirements
and political volatility. In addition, production and sales can be affected by our customers’ ability to continue operating in response
to challenging economic conditions, regulatory requirements and other factors. The volume of automotive production in North America, Europe,
Asia and the rest of the world has fluctuated, sometimes significantly, from year to year, and we expect any such fluctuations to give
rise to fluctuations in the demand for our products. Any significant adverse change in any of these factors may result in a reduction
in automotive sales and production by our customers and could have a material adverse effect on our business, results of operations and
financial condition.
Use of our products for markets other than
the automotive market may not develop or may develop much more slowly than we anticipate, which would adversely affect our business and
prospects.
We are investing in and pursuing market opportunities
in various sectors and industries in addition to the automobile industry, such as autonomous delivery vehicles or robotaxies, delivery
robots, autonomous trucks, offroad vehicles, defense, agriculture, infrastructure, traffic systems, perimeter security and others. We
believe that these potential new markets present growth opportunity and therefore implement a business development plan aimed at these
new markets as they emerge. We are currently approaching these markets through our existing tier 1s, including Sensrad, as well as directly
with a radar product. Addressing these market needs can be time-consuming and costly. The market for our existing products and technology
outside of our core customer base is relatively new, rapidly developing and unproven in many markets or industries. Many of the participants
in the markets for our technology are still in the testing and development stages and we may not succeed in commercializing some or any
of their solutions. We cannot be certain that our products will be sold into these markets, or any market, at scale. Adoption of our products
outside of the automotive industry will depend on numerous factors, including: whether the technological capabilities of similar products
meet users’ current or anticipated needs, whether the benefits of designing products such as our products into larger systems outweigh
the costs, complexity and time needed to deploy such technology or replace or modify existing systems that may have used other modalities,
whether users in other applications can move beyond the testing and development phases and proceed to commercializing systems supported
by our technology and whether developers of products such as our products can keep pace with rapid technological change in certain developing
markets and the global response to supply chain delays. Also, customers in these markets may decide not to use our technology or use competing
solutions. If technology developed by us does not achieve commercial success outside of the automotive industry, or if the market develops
at a pace slower than we expect, our business, results of operation and financial condition may be materially and adversely affected.
9
We may initially be dependent on the non-automotive
market solely, which will result in lower revenues than expected
To the extent that market our chipsets for non-automotive
uses, including autonomous delivery vehicles or robotaxies, delivery robots, autonomous trucks, offroad vehicles, defense, agriculture,
infrastructure, traffic systems, perimeter security and others, before the automotive markers introduce in commercial quantities their
proposed ADAS vehicles, we will need to rely on the non-automotive market, with no assurance that we were generate profits from these
markets.
The software used with our chipsets uses
artificial intelligence to enhance the product performance and to add capabilities including but not limited to identify, track and classify
objects, map free space and other capabilities and the software to which our products interface, whether developed or obtained by the
direct customer or indirect is also likely to use artificial intelligence, all of which are subject to the risks related to artificial
intelligence.
Artificial intelligence technologies, including
generative artificial intelligence, are complex and rapidly evolving, and we face competition from other companies as well as an evolving
regulatory landscape. Several jurisdictions around the globe, including Europe and the United States, have already proposed or enacted
laws governing artificial intelligence and we may need to commit significant resources to maintain business practices that comply with
the evolving regulatory landscape. Our competitors or other third parties may incorporate artificial intelligence into their products
more quickly and successfully than we or our customers which could impair our ability to compete effectively and could adversely affect
our results of operations.
Artificial intelligence is intended to improve
the efficiency of software in the context with which it is designed. Our products, chipsets and software are designed to sense the surrounding
environment, but it is the related software developed or incorporated by the Tier 1 or the automobile or other manufacturer that actuate
based on the information generated by our products, chipsets and\or software. Thus, while our radar may identify the environment, it is
the software that tells the vehicle how to respond to the information provided by us. To the extent that either our hardware or software
or the software with which our software interfaces does not function as intended, which could result in accidents or misfunction, we may
be subject to claims or liability and our reputation may be impaired which could have a material adverse effect on our business and our
reputation.
Further, the products may be subject to security
breaches, which could result in damages if our products, or the software or hardware that is incorporated in the automobile or other solution
is subject to security breaches. Since radar systems are software-based, with the ability to modify or update software remotely, there
is a risk of security breaches that may affect the safety or functionality of a product.
We have a legal and contractual obligation to
protect the confidentiality and appropriate use of customer data. Any security breaches with respect to such data could result in the
loss of this information, litigation, indemnity obligations and other liabilities and could result in a violation of privacy and cybersecurity
laws. The security of our products is important in our customers’ decisions to purchase or use our products or services in their
products. Security threats are a significant challenge to companies like us whose business is providing technology products and services
to others.
The functionality of systems using our chipset
may be affected by open source software which may increase the risk of security vulnerability.
It is possible that software that interfaces with
our products may use open source software, which may subject the solution that incorporates our product to the risk of open source software,
including open source artificial intelligence. There may be vulnerabilities in open source software and third-party software that may
make products that use our products likely to be harmed by cyberattacks. If there is a security vulnerability in one of these components,
and if there is a security exploit targeting it, such security vulnerability may adversely impact our product vulnerability and we could
face increased costs, liability claims, reduced revenue, or harm to our reputation or competitive position. Because techniques used to
obtain unauthorized access or sabotage systems change frequently and generally may not be identified until they are launched against a
target, we may be unable to anticipate these techniques or to implement adequate preventative measures.
10
We may be subject to the effects of inflationary
pressures, and currency exchange rates which may impair our gross margins and our ability to operate profitably.
Although we do not believe that our business was
materially adversely affected by inflation prior to 2025, we have been experiencing cost increases, including increased labor costs, as
a result of the inflationary pressures, currency exchange rate changes, combined with supply line delays. The effects of the war in Iran,
and Iran’s response to the attacks by the United States and Israel exacerbated the already existing inflationary pressures and supply
line delays and shortages, may impair our margin and our ability to operate profitable. To the extent that inflation, currency exchange
rate changes along with supply line delays and semiconductor shortages, we may incur increased costs in our components as well as from
our contract manufacturers, and we may not be able to pass on any costs we may incur to our customers. Further, our costs may be affected
by any tariffs and counter-tariffs which are imposed or threatened. To the extent that we are unable to pass on costs, our gross margin
may be significantly eroded which may result in increased losses and may impair our ability to operate profitably. We cannot assure you
that these factors will not significantly impair our ability to generate a profit from our operations. Further, to the extent that inflationary
pressures and other factors affect the market or anticipated market for advanced ADAS vehicles, the market for our radar may be affected.
Our business may be impacted by international
trade issues including tariffs and counter-tariffs and restrictions on the export of advanced chips which may impact the cost and availability
of components equipment.
The president of the United States, Donald J.
Trump, has stressed the importance of tariffs. We cannot predict the extent of any tariffs that may affect our business, our manufacturer,
our Tier 1 suppliers, our customers in general, and the overall markets we operate in. To the extent that tariffs are threatened, even
if not imposed, imposition or threat of tariffs may impact the industry and may result in a delay in the development of products and solutions
that are based on our products. Any tariffs, including those that may also result in counter-tariffs, could result in a significant increase
in the cost of parts subject to the tariffs as well as significant supply chain delays which would increase costs and time. In addition,
the United States has imposed export restrictions on advanced chips and systems, including artificial intelligence chips, which may affect
both the ability of our supplier, GlobalFoundries Singapore Pte. Ltd. (“GlobalFoundries”) to obtain chips and the price of
chips. Any factors which could result in higher prices could result in a reduction in orders to our product and a delay in the introduction
of new features which require our technology, all of which could have a material adverse impact on our business and prospects.
If we seek to expand our business through
acquisition, we may not be successful in identifying acquisition targets or integrating their businesses with our existing business.
From time to time, we may undertake acquisitions
to add new products and technologies, acquire talent, gain new sales channels or enter into new markets or sales territories. To date,
we have no experience either with acquisitions or the integration of acquired technology and personnel.
There are significant risks associated with any
acquisition program, including, but not limited to, the following:
● We may incur significant expenses and devote significant management time to a potential acquisition, and we may be unable to consummate the acquisition on acceptable terms.
● If we identify an acquisition, we may face competition from other companies in the industry or from financial buyers seeking to make the acquisition.
● The integration of any acquisition with our existing business may be difficult and, if we are not able to integrate the business successfully, it may not only be unable to operate the business profitably, but management may be unable to devote the necessary time to the development of our existing business;
● The key employees who operated the acquired business successfully prior to the acquisition may not be happy working for us and may resign, thus leaving the business without the necessary continuity of management.
● Even if the business is successful, our senior executive officers may need to devote significant time to the acquired business, which may distract them from their other management activities.
● If the business does not operate as we expect, we may incur an impairment charge based on the value of the assets acquired.
● We may have difficulty maintaining the necessary quality control over the acquired business and our products and services.
● To the extent that an acquired company operates at a loss prior to our acquisition, we may not be able to develop profitable operations following the acquisition.
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● Problems and claims relating to the acquired business that were not disclosed at the time of the acquisition or we anticipated that we will be able to overcome, may result in increased costs and may impair our ability to operate the acquired company.
● The acquired company may have liabilities or obligations that were not disclosed to us, or the acquired assets, including intellectual property assets, may not have the value we anticipated.
● Any indemnification obligations of the seller under the purchase agreement may be inadequate to compensate us for any loss, damage or expense that we may sustain, including undisclosed claims or liabilities.
● To the extent that the acquired company is dependent upon our management to maintain relationships with existing customers, we may have difficulty in retaining the business of these customers if there is a change in management.
● Government agencies may seek damages after we makes the acquisition for conduct that occurred prior to the acquisition and we may not have adequate recourse against the seller.
● We may require significant capital both to acquire and to operate the business, and the capital requirements of the business may be greater than we anticipated, and our failure to obtain capital on reasonable terms may impair the value of the acquisition and may impair our continuing operations.
● The acquired company may be impacted by unanticipated events, such as a pandemic such as the COVID-19 pandemic, the effect of climate changes, terrorist or other disruptive activities in Israel, social unrest or other factors over which we may have no control.
If any of these risks occur, our business, financial
condition and prospects may be impaired.
The complexity of our products could
result in unforeseen delays or expenses from undetected defects, errors or bugs in hardware or software which could reduce the market
adoption of our products, damage our reputation with current or prospective customers, expose us to product liability, recalls, warranties
and other claims and adversely affect its operating costs.
Our products are being designed to be, among other
things, compatible with autonomous control. Autonomous driving technologies, whether used in automobiles or for non-automotive uses, are
subject to risks and there have been and can be accidents and fatalities associated with such technologies as well as breakdowns of the
systems as well as protesters who seek to make self-driving vehicles cease to function. The safety of such technologies depends in part
on user interaction and users, as well as other variables such as drivers on the roadways, may not be accustomed to using or adapting
to such technologies. To the extent accidents associated with our products that are used with autonomous controls occur, we could be subject
to liability, negative publicity, government scrutiny and further regulation. Any of the foregoing could materially and adversely affect
our results of operations, financial condition and growth prospects. Further, since autonomous driving is a new technology, risks may
arise which are not presently either contemplated or predictable and which may have a material adverse effect upon our business as well
as the industry in general.
Our products are technologically complex and require
high standards to manufacture. We have experienced in the past and will likely also experience in the future defects, errors or bugs at
various stages of development and manufacturing. We may be unable to timely release new products, manufacture existing products and correct
problems that arise or correct such problems to our customers’ satisfaction. Additionally, undetected errors and defects, especially
as new products are introduced or as new versions are released, could result in serious injury, including fatalities, to the end users
of technology incorporating our products, or those in the surrounding area, our customers never being able to commercialize technology
incorporating our products, litigation against us, negative publicity and other consequences. These risks are particularly prevalent in
the highly competitive markets in which we operate. Some errors or defects in our products may only be discovered after they have been
tested, commercialized and deployed by customers. In certain instances, we may provide our customers with a time-limited warranty for
our products. If such errors or defects occur within the respective warranty period, we may incur significant additional development costs
and product recall, repair or replacement costs. These problems may also result in claims against us by our customers or by third parties.
Our reputation or brand may be damaged as a result of these problems and customers may be reluctant to buy our products, which could adversely
affect our ability to retain existing customers and attract new customers and could adversely affect our financial results.
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In addition, we could face material legal claims
for breach of contract, product liability, tort or breach of warranty as a result of these problems. Defending a lawsuit, regardless of
its merit, could be costly and may divert management’s attention and adversely affect the market’s perception of us and our
products. In addition, our business liability insurance coverage could prove inadequate with respect to a claim and future coverage may
be unavailable on acceptable terms or at all. These product-related issues could result in claims against us and our business could be
adversely affected.
We will be affected by these problems regardless
of whether the defective product or component was manufactured or assembled by us or by a supplier or contract manufacturer, and we may
not have adequate recourse against the supplier or contract manufacturer, and we may not be able to obtain sufficient product liability
insurance to protect it against such loss or expense, including the cost of litigation.
Legislation or government regulations may
be adopted which may affect our products and liability.
Autonomous driving technology is subject to considerable
regulatory uncertainty as the law evolves to catch up with the rapidly evolving nature of the technology itself, all of which are beyond
our control. Our products also may not achieve the requisite level of autonomous compatibility required for certification and rollout
to consumers or satisfy changing regulatory requirements which could require us and our customers that develop and market products based
on our chipset to redesign, modify or update our or their products or stop using our products. Further, accidents, particularly accidents
that involve a large number of deaths, even if our products are not involved, may result in industry-wide reevaluation of the technologies
used, with the effect that there is a slowdown as automobile manufacturers cease making purchase during the reevaluation process, which
may result in suppliers other than us becoming a preferred supplier.
The automotive industry may become subject to
increased legislation and regulation. Such legislation may be triggered by a perceived safety concern, or it may result from a public
reaction to accidents caused by or involving automobiles, drones or other autonomous vehicles. The potential market for our products is
international, and each country or region may impose different and potentially conflicting regulations. These regulations may relate the
technical requirement and standards for end products or the components and may impose liability on the manufacturer or the seller of the
product, which liability may be strict liability, for damage resulting from the autonomous vehicle. Further, the legislation or regulations
in different countries may impose different standards, which may be conflicting. Any legislation or regulations that impose standards
or impose liability are likely to increase our development, support and manufacturing costs as well as the cost of compliance and product
liability insurance.
To the extent that the United States adopts regulations
that encourage gas driven automobiles and discourage electric vehicles, the market for automobiles with enhanced and AV features may be
adversely affected since ADAS and AV are adopted faster by electric vehicles. Any such action may both reduce the market for enhanced
ADAS and autonomous vehicles and delay the introduction of enhanced ADAS and autonomous vehicles, which could adversely affect our business.
We operate in a highly competitive markets
against a number of both established competitors and new market entrants, and some market participants have substantially greater resources
than we have.
The markets for sensing technology applicable
to autonomous solutions across numerous industries are highly competitive. Our future success will depend on our ability to develop and
protect from infringement in a timely manner and to stay ahead of existing and new competitors and to demonstrate to the market that our
technology is cutting-edge. A large number of companies offer radar-based and LiDAR-based technologies in competition with us. Some of
these companies are better capitalized and better known than we. Our competitors compete with us directly by offering products that claim
to provide similar or better offerings and indirectly by attempting to solve some of the same challenges with different technology. We
face competition both in marketing to our customers and their customers from other market participants, some of which have significantly
greater resources than we have, and, if our customers select our product for the radar solution they are offering to their customers,
they will compete with radar solutions offered by other suppliers. Our competitors may commercialize new technology which may achieve
market adoption or stronger brand recognition as compared to our products. Even in emerging markets, we face substantial competition from
numerous competitors seeking to prove the value of their technology. Additionally, increased competition may result in pricing pressure
and reduced margins and may impede our ability to increase the sales of our products or cause it to lose market share, any of which will
adversely affect our business, results of operations and financial condition.
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Fluctuation of the results of our earnings
on a quarterly and annual basis, could cause the share price of our ordinary shares to fluctuate or decline.
The results of our operations to date have primarily
reflected our research and development expenses with limited revenue. From 2020 through 2025, we had modest revenue from sales of our
products and services, primarily to customers making purchases for their own evaluation projects. In the future, sales in any given quarter
can fluctuate based on the timing and success of our customers’ development projects and marketing programs. Accordingly, the results
of any one quarter should not be relied upon as an indication of future performance. Our quarterly financial results may fluctuate as
a result of a variety of factors, many of which are outside of our control and may not fully reflect the underlying performance of our
business. These fluctuations could adversely affect our ability to meet our expectations or those of securities analysts or investors.
If we do not meet these expectations for any period, the value of our securities could decline significantly. Factors that may cause these
quarterly fluctuations include, without limitation, those listed below:
● The timing and magnitude of orders and shipments of our products in any quarter;
● Pricing changes we may adopt to drive market adoption or in response to competitive pressure;
● The effect of international trade issues, including tariffs and related supply line problems affecting us and our suppliers or customers and the automobile industry generally;
● The effect of inflation;
● The timing of the completion of our application engineering services;
● Our ability to retain our existing customers and attract new customers;
● Our ability to develop, introduce, manufacture, and ship products in a timely manner that meet customer requirements;
● Disruption in our sales channels or termination of our relationships with important channel partners;
● Delays in customers; purchasing cycles or deferments of customers; purchases in anticipation of new products or updates from us or our competitors;
● Fluctuations in demand pressures for our products;
● The mix of products sold and the gross margin of products sold in any quarter;
● The duration of, and responses of governments and industry to any worldwide or regional health crisis;
● Events and conditions affecting Israel-based businesses;
● The timing and rate of broader market adoption of autonomous systems, both generally and those utilizing our smart vision solutions across automotive and other market sectors;
● Market acceptance of our core products and further technological advancements by us, our competitors, and other market participants;
● The ability of our customers to commercialize systems that incorporate our products;
● Any change in the competitive dynamics of our markets, including the consolidation of competitors, regulatory developments, and new market entrants;
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● Our ability to effectively manage our inventory;
● Changes in the source, cost, availability and regulations pertaining to the materials we use;
● Changes in price we pay for the manufacturing, packaging, testing delivering or any other activity required to provide our products to customers.
● Adverse litigation, judgments, settlements, or other litigation-related costs, or claims that may give rise to such costs;
● Adverse publicity, litigation, and governmental investigations affecting autonomous vehicles, regardless of whether our products are involved;
● The war with Iran and Hezbollah along with the continuing conflict with Hamas and any other conflicts which may involve Israel and the effects of and the consequences of any settlement of any of these conflicts; and
● General economic, industry, and market conditions, including trade disputes.
Changes in tax laws or exposure to additional
income tax liabilities could affect our future profitability.
Factors that could materially affect our future
effective tax rates include but are not limited to:
● New income or other tax laws or regulations could be enacted at any time, which could adversely affect our business operations and financial performance. Further, existing tax laws and regulations could be interpreted, modified, or applied adversely to us. In particular, the newly enacted Pillar Two legislation in Israel may affect our tax liability and could increase the corporate income tax imposed on us.
● Actual or perceived political instability in Israel or any negative changes in the political environment may, individually or in aggregate, adversely affect the Israeli economy and, in turn, may result in major changes in Israeli tax laws, regulations and tax policies.
● Changes in accounting and tax standards or practices;
● Eligibility for beneficial treatment under Israeli tax laws;
● Changes in the composition of operating income by tax jurisdiction;
● Our operating results before taxes; and
● Our ability to use our accumulated tax losses to offset future income.
We may be subject to regular review and audit
by Israeli and other foreign tax authorities. Although we believe our tax estimates are reasonable, the authorities in these jurisdictions
could review our tax returns and impose additional taxes, interest, linkage and penalties, and the authorities could claim that various
withholding requirements apply to us or our subsidiaries or assert that benefits of tax treaties are not available to us or our subsidiaries,
any of which could materially affect our income tax provision, net income, or cash flows in the period or periods for which such determination
and settlement is made. Our determinations are not binding on any taxing authorities, and accordingly the final determination in an audit
or other proceeding may be materially different than the treatment reflected in our tax provisions, accruals and returns. An assessment
of additional taxes because of an audit could have a material adverse effect on our business, financial condition, results of operations
and cash flows.
There can be no assurance that our effective tax
rate will not increase over time as a result of changes in corporate income tax rates or other changes in the tax laws in the jurisdictions
in which we operate. Any changes in tax laws could have an adverse impact on our financial results. Corporate tax reform, base-erosion
efforts, including the OECD Pillar Two framework and tax transparency continue to be high priorities in many tax jurisdictions where we
have business operations. As a result, policies regarding corporate income and other taxes in numerous jurisdictions are under heightened
scrutiny, and tax reform legislation is being proposed or enacted in a number of jurisdictions.
In December 2025, the Israeli Parliament enacted
legislation implementing Pillar Two’s minimum tax provisions, which became effective on January 1, 2026. This legislation may affect our
tax liability and could increase the corporate income tax imposed on us. See the section titled “Material Israeli Tax Considerations”
for additional information.
The tax benefits that may be available to us require
that we continue to meet various conditions and may be terminated or reduced in the future, which could increase our costs and taxes.
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Changes in our product mix may impact our
financial performance.
Our financial performance can be affected by the
mix of products we sell during a given period. If our sales include more lower-gross margin products than higher gross margin products,
our results of operations and financial condition may be adversely affected. There can be no guarantees that we will be able to successfully
structure our product mix so that we are selling more of our high-gross margin products. In addition, our earnings forecasts and guidance
are expected to include assumptions about product sales mixes. If actual results vary from this projected product mix of sales, our results
of operations and financial condition could be adversely affected.
We are highly dependent on the services
of our senior executive officers, two of whom are founders.
We are highly dependent on our co-founders, Kobi
Marenko and Noam Arkind, who have acted as our Chief Executive Officer and Chief Technology Officer, respectively, since inception, and
on Ram Machness, who is our Chief Business Officer and will become Chief Executive Officer on April 1, 2026, at which time Mr. Marenko
will become President. Messsrs. Marenko, Arkind and Machness are deeply involved in all aspects of our business, including product development.
The loss of any of them may affect our business because it could be more difficult for us to, among other things, compete with other market
participants, manage our research and development activities, and retain existing customers or cultivate new ones. Negative public perception
of, or negative news related to, Mr. Marenko, Mr. Arkind or Mr. Machness may adversely affect our brand, relationship with customers,
or standing in the industry.
Our business depends on our ability to attract
and retain highly skilled personnel and senior management. Failure to effectively retain, attract and motivate key employees could impair
our ability to operate profitably.
Competition for highly skilled personnel is often
intense, especially in Israel, where our principal office is located, and we may incur significant costs to attract them particularly
because we are an Israeli company and our operations are located in Tel Aviv/Jaffa, Israel. We may face challenges in attracting or retaining
qualified personnel to fulfill our current or future needs. The highly competitive environment for highly skilled personnel can result
in higher compensation packages for employees. We have, from time to time, experienced, and we expect to continue to experience, difficulty
in hiring and retaining highly skilled employees with appropriate qualifications. In addition, job candidates and existing employees often
consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity or equity
awards declines, it may adversely affect our ability to retain highly skilled employees. Our stock price may affect their decision as
to whether to accept an offer of employment from us. Our success will depend in part on the attraction, retention, and motivation of executive
personnel critical to our business and operations. If we fail to attract new personnel or fail to retain and motivate our current personnel,
we could face disruptions in our operations, strategic relationships, key information, expertise, or know-how, and unanticipated
recruitment and onboarding costs, and our business and future growth prospects could be adversely affected. Further, Israel’s calling
up employed or employable personnel for military service may affect our ability to hire qualified personnel. We cannot give assurance
that we will be able to hire all the required personnel when we require them.
We face numerous risks associated with commercial
production.
We do not have manufacturing facilities, and we
rely on third parties for the manufacture of our products. We cannot be sure that our manufacturer, GlobalFoundries, or other companies
with which we may develop a strategic alliance will be able to develop efficient, automated, cost-efficient production capabilities and
processes and reliable sources of component supply that will enable us to meet the quality, price, engineering, design and production
standards, as well as the production volumes, required to successfully mass market our products. GlobalFoundries is a major semiconductor
manufacturer in the automotive industry, among other industries. Even if we and our supplier and strategic alliances are successful in
developing our initial production and further high volume production capability and processes and reliably sourcing our component supply,
we do not know whether we will be able to do so in a manner that avoids significant delays and cost overruns, including as a result of
factors beyond our control such as problems with potential suppliers and strategic partners, tariffs, force majeure events, or in time
to meet our product commercialization schedules or to satisfy the requirements of our potential customer base. Any failure to develop
such production processes and capabilities within our projected costs and timelines could have a material adverse effect on our business,
prospects, financial condition, and operating results.
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We rely on third-party suppliers, and because
key components in our products come from limited or sole sources of supply, we are susceptible to supply shortages, long lead times for
components, and supply changes, any of which could disrupt our supply chain and delay deliveries of our products to customers.
The components that go into the manufacture of
our solutions are sourced from third-party suppliers. Some of the key components used to manufacture our products come from limited or
single-source suppliers. We have a manufacturing agreement with GlobalFoundries for the manufacture of our semiconductor products, as
well as other services, including pre-production, quality assurance, assembly, testing and supply-chain management. We are therefore dependent
on GlobalFoundries and subject to the risk of shortages and long lead times in the supply of these components, as well as the risk that
our suppliers will discontinue or modify components used in our products and the GlobalFoundries may not be able to manufacture the semiconductor
products we require in accordance with our timetable. These risks may be compounded by any tariffs or counter-tariffs which may be imposed
on the products we import. We purchase semiconductor chips that are an integral part of our products from GlobalFoundries. To the extent
that our Tier 1 suppliers modify their products, it may be necessary for us to make modifications to the chipset that we sell to the Tier
1 supplier, and we would need to work with GlobalFoundries, to develop and produce a modified product to meet the Tier 1 supplier’s
cost and timing requirements. If GlobalFoundries fails to deliver or delays the delivery of the semiconductor products or is otherwise
unable to meet our quality and delivery requirements, we may be required to seek an alternative source of supply. Although alternate chip
manufacturers are available, any change in suppliers would necessitate a change in the design of the semiconductor, a process that could
take up to two years, which would result in a loss of sales and a delay in the development and marketing of our products, which could
materially and adversely affect our results of operation, financial position, and prospects. Further, we, like other companies in the
automotive industry, are affected by an industry-wide semiconductor shortage, which may be exacerbated by tariffs and international trade
issues.
Reliance on third-party manufacturers reduces
our control over the manufacturing process, including our ability to finalize changes through validation, reduced control over quality,
product costs, and product supply and timing. We may experience delays in shipments or issues concerning product quality from our third-party
manufacturers. If GlobalFoundries experiences interruptions, delays, or disruptions in supplying our products, including by natural disasters,
other health epidemics and outbreaks, work stoppages, capacity constraints, the effects of the war between Israel and Hamas, or other
international conflicts, our ability to ship products to distributors and customers would be delayed. In addition, unfavorable economic
conditions could result in financial distress among third-party manufacturers upon which we rely, thereby increasing the risk of disruption
of supplies necessary to fulfill our production requirements and meet customer demands. These delays or product quality issues could have
an immediate and material adverse effect on our ability to fulfill orders and could have a negative effect on our operating results. In
addition, such delays or issues with product quality could adversely affect our reputation and our relationship with Tier 1 suppliers
and OEMs. If GlobalFoundries or any other third-party manufacturers experience financial, operational, manufacturing capacity, or other
difficulties, or experience shortages in required components, or if they are otherwise unable or unwilling to continue to manufacture
our products in required volumes or at all, our supply may be disrupted, we may be required to seek alternate manufacturers, and we may
be required to re-design our products. It would be time-consuming, and costly and impracticable to begin to use new manufacturers and
designs, and such changes could cause significant interruptions in supply, have an adverse effect on our ability to meet our scheduled
product deliveries, and subsequently lead to the loss of sales. While we take measures to protect our trade secrets, the use of a third-party
manufacturer may also risk disclosure of our innovative and proprietary manufacturing methodologies, which could adversely affect our
business. In addition, increased component costs could result in lower gross margins. Even where we are able to pass increased component
costs along to our customers, there may be a lapse of time before we are able to do so, such that we must absorb the increased cost. If
we are unable to buy these components in quantities sufficient to meet our requirements on a timely basis, we will not be able to deliver
products to our customers, which may result in such customers using competitive products instead of our products.
Our business is subject to the risks of
earthquakes, fires, floods, and other natural catastrophic events, global pandemics, and interruptions by man-made problems
such as network security breaches, computer viruses, wars or terrorism. Material disruptions of our business or information systems resulting
from these events could adversely affect our operating results.
A significant natural disaster, such as an earthquake,
fire, flood, or significant power outage, or other similar events, such as infectious disease outbreaks or pandemic events, could have
an adverse effect on our business and operating results. Despite the implementation of network security measures, our networks and our
products may also be vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering with our
solutions, and we have been subject to cybersecurity breaches that were not material and did not result in access to our technical or
other confidential information. In addition, natural disasters, acts of terrorism, or war could cause disruptions in our remaining manufacturing
operations, our or our customers’ businesses, our suppliers’ businesses, or the economy as a whole. We also rely on information
technology systems to communicate among our workforce and with third parties. Any disruption to our communications, whether caused by
a natural disaster or by man-made problems such as power disruptions, ransomware attacks, other cybersecurity breaches or wars, including
the wars with Iran and Hezbiolla, could adversely affect our business. To the extent that any such disruptions result in delays or cancellations
of orders or impede our suppliers’ ability to timely deliver product components or the deployment of our products, our business,
operating results, and financial condition would be adversely affected.
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Our business is sensitive to conditions
affecting the automotive industry, the duration and economic, governmental, and social impact of which are difficult to predict and may
significantly harm our business, prospects, financial condition, and operating results.
Adverse conditions affecting one or more automotive
manufacturers or the automotive industry in general could have a material adverse effect on our business, prospects, financial condition,
and operating results. Our business may be negatively affected by challenges to the larger automotive ecosystem. In addition, factors,
including the effects of climate change, government regulations, tariffs and threatened tariffs, and the ability of suppliers to obtain
rare earth elements, as well as other conditions that cannot be presently identified, can continue to affect the automotive industry.
To the extent that radar systems in vehicles are software-based, with manufacturers or software suppliers having the ability to modify
or update software remotely, there is a risk of security breaches that may affect the safety of the vehicle.
Increasing attention to, and evolving expectations
regarding, environmental, social and sustainability matters may impact our business and reputation.
Evolving and increased and changing expectations
regarding environmental, social and sustainability initiatives and disclosures may result in increased costs, enhanced compliance disclosure
obligations, or other impacts to our business, financial condition, or results of operations. Moreover, our environmental, social and
sustainability initiatives may be costly and may not have the desired effect, or we may ultimately be unable to complete certain initiatives
or targets, either on the timelines initially announced or at all, due to technological, legal, cost, or other constraints, which may
be within or outside of our control. Moreover, actions or statements that we may take based on expectations, assumptions, or third-party
information that we currently believe to be reasonable may subsequently be determined to be erroneous or be subject to misinterpretation.
If we fail to, or are perceived to fail to, comply with or advance certain environmental, social or sustainability initiatives, we may
be subject to various adverse impacts, including reputational damage, activism and potential stakeholder engagement and/or litigation.
Additionally, many of our customers, suppliers and others with which we have business relationships may be subject to similar expectations,
which may augment or create additional risks, including risks that may not be known to us.
Risks Related to our Intellectual Property
We may not be able to adequately protect
or enforce our intellectual property rights or prevent unauthorized parties from copying or reverse engineering our solutions. Our efforts
to protect and enforce our intellectual property rights and prevent third parties from violating our rights may be costly.
The success of our products and our business depends
in part on our ability to obtain patents and other intellectual property rights and maintain adequate legal protection for our products
in the United States, Europe, and other international jurisdictions. We rely on a combination of patent, copyright, service mark,
trademark, and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary
rights, all of which provide only limited protection. We cannot assure you that any patents will be issued with respect to our currently
pending patent applications or that any trademarks will be registered with respect to our currently pending applications in a manner that
gives us adequate defensive protection or competitive advantages, if at all, or that any patents issued to us or any trademarks registered
by us will not be challenged, invalidated, or circumvented. We have filed for patents and trademarks in Israel, the United States,
Europe, and China. Not all patent applications have resulted in patents, and we cannot assure you that patents will be granted. Further,
patent protection may not be available in all countries in which we operate or in which we seek to enforce our intellectual property rights,
and it may be difficult to enforce our patent rights. Our currently issued patents and trademarks and any patents and trademarks that
may be issued or registered, as applicable, in the future with respect to pending or future applications may not provide sufficiently
broad protection or may not prove to be enforceable in actions against alleged infringers. We cannot be certain that the steps we have
taken will prevent unauthorized use of our technology or the reverse engineering of our technology. Moreover, others may independently
develop technologies that are competitive with us or infringe on our intellectual property.
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Protecting against the unauthorized use of our
intellectual property, products, and other proprietary rights is expensive and difficult, particularly internationally. We intend to enforce
the intellectual property portfolio we have developed. Unauthorized parties may attempt to copy or reverse engineer our solutions or certain
aspects of our solutions that we consider proprietary. Litigation may be necessary in the future to enforce or defend our intellectual
property rights, to prevent unauthorized parties from copying or reverse engineering our solutions, to determine the validity and scope
of the proprietary rights of others, or to block the importation of infringing products into countries where we have patent protection.
Effective patent, trademark, service mark, copyright,
and trade secret protection may not be available in every country in which our products are available, and competitors based in other
countries may sell infringing products in one or more markets. An inability to adequately protect and enforce our intellectual property
and other proprietary rights, or an inability to prevent authorized parties from copying or reverse engineering our smart vision solutions
or certain aspects of our solutions that we consider proprietary, could seriously adversely affect our business, operating results, financial
condition, and prospects.
In addition to patented technology, we rely
on our unpatented proprietary technology, trade secrets, processes, and know-how.
We rely on proprietary information (such as trade
secrets, know-how, and confidential information) to protect intellectual property that may not be patentable or subject to copyright,
trademark, trade dress, or service mark protection, or that we believe is best protected by means that do not require public disclosure.
We generally seek to protect our proprietary information
by entering into confidentiality agreements, consulting services, or employment agreements that contain non-disclosure and non-use provisions
with our employees, consultants, contractors, and third parties. However, we may fail to enter into the necessary agreements, and even
if entered into, these agreements may be breached or may otherwise fail to prevent disclosure, third-party infringement, or misappropriation
of our proprietary information, may be limited as to their terms, and may not provide an adequate remedy in the event of unauthorized
disclosure or use of proprietary information. We have limited control over the protection of trade secrets used by our current or future
manufacturing partners and suppliers and could lose future trade secret protection if any unauthorized disclosure of such information
occurs. In addition, our proprietary information may otherwise become known or be independently developed by our competitors or other
third parties. To the extent that our employees, consultants, contractors, advisors, and other third parties use intellectual property
owned by others in their work for us, disputes may arise as to the rights to related or resulting know-how and inventions. Costly
and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or
maintain protection for our proprietary information could adversely affect our competitive business position. Furthermore, laws regarding
trade secret rights in certain markets where we operate may afford little or no protection to our trade secrets.
We also rely on physical and electronic security
measures to protect our proprietary information, but we cannot provide assurance that these security measures will not be breached or
provide adequate protection for our intellectual property. There is a risk that third parties may obtain and improperly utilize our proprietary
information to our competitive disadvantage. We may not be able to detect or prevent the unauthorized use of such information or take
appropriate and timely steps to enforce our intellectual property rights or to protect us against cybersecurity invasions that either
lock our computers so we cannot access our information or discloses our confidential information to others or to the general public. As
an Israeli company, we may be subject to attempts at cybersecurity breaches by persons or countries who seek to attach anything Israeli,
and we have seen increased attempts to do so.
Third-party claims that we are infringing
intellectual property, whether successful or not, could subject it to costly and time-consuming litigation or expensive licenses, and
our business could be adversely affected.
Although we hold patents related to our products,
a number of companies, both within and outside of the industry in which we operate, hold other patents covering various aspects of our
products. In addition to these patents, participants in this industry typically also protect their technology, especially embedded software,
through copyrights and trade secrets. As a result, there is frequent litigation based on allegations of infringement, misappropriation,
or other violations of intellectual property rights. In the future, we may receive inquiries from other intellectual property holders
and may become subject to claims that it infringes on their intellectual property rights, particularly as we expand our presence in the
market. In addition, parties may claim that the names and branding of our products infringe on their trademark rights in certain countries
or territories. If such a claim were to prevail, we may have to change the names and branding of our products in the affected territories,
and we could incur other costs.
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We currently have a number of agreements in effect
pursuant to which we have agreed to defend, indemnify, and hold harmless our customers, suppliers, and partners from damages and costs
that may arise from the infringement by our products of third-party patents or other intellectual property rights. The scope of these
indemnity obligations varies, but may, in some instances, include indemnification for damages and expenses, including attorneys’
fees. Our insurance may not cover all intellectual property infringement claims. A claim that our products infringe on a third party’s
intellectual property rights, even if untrue, could adversely affect our relationships with our customers, deter future customers from
purchasing our products, and expose us to costly litigation and settlement expenses. Even if we are not a party to any litigation between
a customer and a third party relating to infringement by our products, an adverse outcome in any such litigation could make it more difficult
for us to defend our products against intellectual property infringement claims in any subsequent litigation in which it is a named party.
Any of these results could adversely affect our brand and operating results.
Our defense of intellectual property rights claims
brought against us or our customers, suppliers, and channel partners, with or without merit, could be time-consuming, expensive to litigate
or settle, divert management resources and attention, and force us to acquire intellectual property rights and licenses, which may involve
substantial royalty or other payments and may not be available on acceptable terms or at all. Further, a party making such a claim, if
successful, could secure a judgment that requires us to pay substantial damages or obtain an injunction which will prohibit us from selling
our products. An adverse determination also could invalidate our intellectual property rights, adversely affect our ability to offer our
products to our customers, and may require that we procure or develop substitute products that do not infringe, which could require significant
effort and expense. Any of these events could adversely affect our business, operating results, financial condition, and prospects.
Legal and Regulatory Risks Related to our Business
Our sales and operations in international
markets expose us to operational, financial and regulatory risks.
Sales to international customers, i.e., customers
located outside of Israel, accounted for almost all of our sales to date. International operations are subject to a number of other risks,
including:
● Exchange rate fluctuations;
● Political and economic instability, international terrorism, and anti-American and anti-Israel sentiment, particularly in emerging markets;
● Reaction to any conflicts involving Israel, including its war with Iran and conflicts with Hezbollah, Hamas and others, including any official or unofficial boycotts of Israeli companies;
● The effects of the Russian invasion of Ukraine or any resolution of the invasion as it may affect suppliers and customers in Europe;
● Global or regional health crises;
● Potential for violations of anti-corruption laws and regulations, such as those related to bribery or fraud;
● Preference for locally branded products, and laws and business practices favoring local competition;
● Increased difficulty in managing inventory;
● Less effective protection of intellectual property;
● Stringent regulation of our products or systems incorporating our products;
● Difficulties and costs of staffing and managing foreign operations;
● Import and export laws and the impact of tariffs; and
● Changes in local tax and customs duty laws or changes in the enforcement, application, or interpretation of such laws.
The occurrence of any of these risks could negatively
affect our international business and, consequently, our business, operating results, and financial condition.
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We are subject to, and must remain in compliance
with, numerous laws and governmental regulations concerning the manufacturing, use, distribution, and sale of our products. Some of our
customers also require that we comply with their own unique requirements relating to these matters.
Our products contain electronic components, and
such components may contain materials that are subject to government regulation in the locations where we develop, manufacture, and assemble
our products, as well as the locations where we sell our products. Among other things, certain applicable laws and regulations require
or may in the future require the submission of annual reports to certain governmental agencies certifying that such products comply with
applicable performance standards, the maintenance of manufacturing, testing, and distribution records, and the reporting of certain product
defects to such regulatory agencies or consumers. Because our products are to be included in automobiles throughout the world, our radars
will need to comply with the applicable standards, laws or regulations in every country in which cars with our radar are sold, including
the United States, the European Union, Great Britain, China and Japan. If our products fail to comply with applicable regulations, we
and/or our products could be subjected to a variety of enforcement actions or sanctions, such as product recalls, repairs or replacements,
warning letters, untitled letters, safety alerts, injunctions, import alerts, administrative product detentions or seizures, or civil
penalties. The occurrence of any of the foregoing could harm our business, results of operations, and financial condition.
Since we operate on a global basis, we must continually
monitor applicable laws and regulations and engage in an ongoing compliance process to take necessary steps so that we and our suppliers
are in compliance with all existing laws and regulations. If there is unanticipated or onerous new legislation or regulation that significantly
impacts our use of various components, including those incorporating AI, or requires more expensive components, such legislation or regulation
could materially adversely affect our business, results of operations, and financial condition.
Since our products are used for autonomous driving
applications, they are subject to complicated and rapidly evolving laws and regulatory schemes that vary from jurisdiction to jurisdiction
at the state, federal, and international levels, including requirements related to safety, data privacy, artificial intelligence,
security, cybersecurity, and product liability, among other areas. These are rapidly evolving areas in which new or changed requirements
could impose limitations on the use of our products. If we fail to adhere to these new laws and regulations or fail to continually monitor
emerging developments, it may be subject to litigation, loss of customers, or negative publicity, and our business, results of operations,
and financial condition will be adversely affected. We are unable to predict how any future changes will impact it or if such impacts
will be material to our business.
The evolution of the regulatory framework
for autonomous vehicles and their related components is outside of our control.
Our business is subject to a patchwork of regulations
from local, state, federal and international authorities. U.S. federal regulations include those imposed by the U.S. Department of Transportation
and the NHTSA. In 2023, the NHTSA promulgated the “Occupant Protection for Vehicles with Automated Driving Systems” final
rule to update several Federal Motor Vehicle Safety Standards (“FMVSS”) to account for vehicles that are equipped with ADAS
and do not have traditional manual controls associated with human drivers. The NHTSA also proposed rules to update FMVSS for crash avoidance,
safety messaging and passenger-less vehicles as well as jointly proposed a rule with the Federal Motor Carrier Safety Administration regarding
AEB test devices for heavy vehicles.
Legislation or government regulations may
be adopted which may affect our products and liability.
Autonomous driving technology is subject to considerable
regulatory uncertainty as the law evolves to catch up with the rapidly evolving nature of the technology itself, all of which are beyond
our control. Our products also may not achieve the requisite level of autonomous compatibility required for certification and rollout
to consumers or satisfy changing regulatory requirements which could require us and our customers that develop and market products based
on our chipset to redesign, modify or update our or their products or stop using our products. Further, accidents, particularly accidents
that involve a large number of deaths, even if our products are not involved, may result in industry-wide reevaluation of the technologies
used, with the effect that there is a slowdown as automobile manufacturers cease making purchase during the reevaluation process, which
may result in suppliers other than us becoming a preferred supplier.
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The automotive industry may become subject to
increased legislation and regulation. Such legislation may be triggered by a perceived safety concern, or it may result from a public
reaction to accidents caused by or involving automobiles, drones or other autonomous vehicles. The potential market for our products is
international, and each country or region may impose different and potentially conflicting regulations. These regulations may relate the
technical requirement and standards for end products or the components and may impose liability on the manufacturer or the seller of the
product, which liability may be strict liability, for damage resulting from the autonomous vehicle. Further, the legislation or regulations
in different countries may impose different standards, which may be conflicting. Any legislation or regulations that impose standards
or impose liability are likely to increase our development, support and manufacturing costs as well as the cost of compliance and product
liability insurance.
To the extent that the United States adopts regulations
that encourage gas driven automobiles and discourage electric vehicles, the market for automobiles with enhanced and AV features may be
adversely affected since ADAS and AV are adopted faster by electric vehicles. Any such action may both reduce the market for enhanced
ADAS and autonomous vehicles and delay the introduction of enhanced ADAS and autonomous vehicles, which could adversely affect our business.
Certain states have legal restrictions on self-driving vehicles,
and many other states are considering them. This patchwork increases the difficulty of maintaining legal compliance. In Europe, certain
vehicle safety regulations apply to self-driving braking and steering systems, and certain treaties also restrict the legality of
certain higher levels of self-driving vehicles. Self-driving laws and regulations are expected to continue to evolve in numerous
jurisdictions in the U.S. and foreign countries and may restrict autonomous driving features that we may deploy.
The enactment or implementation of the proposed
Seft Drive Act of 2026 and related federal regulations (the “Self Drive Act”) could impose significant compliance costs, restrict
our ability to sell our radar chipsets for automobiles sold in the United States, or delay the deployment of autonomous driving systems
in the United States by our customers.
In February 2026, the Self Drive Act was introduced
in the U.S. House of Representatives to establish a federal framework for the regulation of automated driving systems (“ADS”).
While the Self Drive Act seeks to provide regulatory certainty, it introduces new and rigorous requirements that could materially affect
our business, financial condition, and results of operations.
Key risks associated with this legislation and
its anticipated implementation include:
● Mandatory “Safety Case” Requirements: The Self Drive Act requires manufacturers to develop a comprehensive “safety case”—a structured argument supported by evidence—demonstrating that an ADS-equipped vehicle does not pose an unreasonable risk to safety. As a provider of high-definition 4D imaging radar chipsets, which are critical components of these systems, we may be required to provide extensive data, testing results, and proprietary technical documentation to our OEM and Tier 1 customers to support their federal safety certifications. Any inability to provide sufficient evidence or any determination by the National Highway Traffic Safety Administration (“NHTSA”) that systems incorporating our technology do not meet these new standards could lead to a loss of customers or exclusion from the U.S. market.
● National Security and Supply Chain Restrictions: The legislation includes provisions focused on the security of connected vehicles and directs reviews of the supply chain for ADS software and hardware. Given that our principal research and development and manufacturing operations are located in Israel and our Tier 1 suppliers are located outside of the United States, any future federal rules that restrict the use of foreign-sourced technology in U.S. autonomous vehicles—or prioritize “Made in America” requirements—could put us at a competitive disadvantage compared to U.S.-based companies.
● New Federal Safety Standards and Timelines: The Self Drive Act mandates that NHTSA issue final rules prescribing new motor vehicle safety standards for ADS by September 2027. The uncertainty surrounding the “objective content requirements” of these future standards may cause our OEM customers to delay serial production or redesign their sensor suites, which could result in the deferral of revenue or increased expenses for us as we seek to align our chipset specifications with evolving federal mandates.
● Data Reporting and Liability: The Self Drive Act proposes a National Automated Vehicle Safety Data Repository, requiring the reporting of crash data involving ADS. If vehicles equipped with our radar chipsets are involved in accidents, the resulting public data could lead to increased litigation, reputational damage, or regulatory scrutiny, regardless of whether our technology was at fault.
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The Self Drive Act represents a significant shift
from the current voluntary safety self-assessment framework to a more formal, mandatory federal oversight regime. If we or our customers
fail to comply with the Self Drive Act’s requirements once finalized, or if the costs of compliance exceed our expectations, our ability
to compete in the U.S. automotive market would be significantly impaired.
We and our customers are also subject to a complex
and evolving patchwork of laws and regulations across various U.S. states regarding the testing and deployment of autonomous vehicles
(“AVs”). The Self Drive Act introduced a Federal preemption framework designed to standardize the market. Under the Self Drive
Act, a state or political subdivision is generally prohibited from maintaining or enforcing any law or requirement that prohibits the
sale, introduction, or importation of an ADS or ADS-equipped vehicle, provided the manufacturer has developed the required “safety
case.” Additionally, the Self Drive Act preempts states from requiring manufacturers to report information about a “covered
crash” to state or local authorities. Since the Self Drive Act is proposed legislation, we cannot predict whether or when the Self
Drive Act will be approved or, if it is enacted, what the provisions of the final bill will be.
However, this preemption is not absolute. The
Self Drive Act contains significant exceptions that allow states to continue enforcing their own laws regarding:
● Traffic laws, vehicle registration, and safety/emissions inspections;
● Insurance and generally applicable consumer protection laws;
● Congestion management and environmental regulations; and
● Laws relating to the sale, distribution, repair or service of ADS-equipped vehicles by dealers or distributors.
Furthermore, the Self Drive Act explicitly states
that compliance with federal safety case requirements does not exempt a person from liability at common law. Consequently, despite federal
efforts to streamline regulation, we may still face inconsistent state-level enforcement or varying legal standards across jurisdictions.
Any failure by us or our OEM customers to navigate these remaining state-level authorities, or a successful common law liability claim,
could increase our compliance costs, lead to significant legal expenses, or limit the geographic areas where vehicles using our 4D imaging
radar can be deployed.
Government vehicle safety regulations are an important
factor for our business. Historically, these regulations have imposed ever-more stringent safety regulations for vehicles. These safety
regulations often require, or customers demand, that vehicles have more safety features per vehicle and more advanced safety products.
While we believe increasing automotive safety
standards will present a market opportunity for our products, government safety regulations are subject to change based on a number of
factors that are not within our control, including new scientific or technological data, adverse publicity regarding industry recalls
and safety risks of autonomous driving, accidents involving our products, domestic and foreign political developments or considerations,
and litigation relating to our products and our competitors’ products. Changes in government regulations, as well as changes or
evolutions in court doctrines in interpreting those regulations, especially in the autonomous driving industry, could adversely affect
our business. If government priorities shift and we are unable to adapt to changing regulations or to court interpretations of those regulations,
our business may be materially and adversely affected.
Federal and local regulators impose more stringent
compliance and reporting requirements in response to product recalls and safety issues in the automotive industry. As the vehicles that
use our products go into production, we may become subject to stringent requirements, including a duty to report, strict timing requirements,
and safety defects with our products. Such rules and regulations may impose potentially significant civil penalties for violations, including
the failure to comply with such reporting actions. If we cannot rapidly address any safety concerns or defects with our products, our
business, results of operations, and financial condition may be adversely affected.
The U.S. Department of Transportation has
issued regulations that require manufacturers of certain autonomous vehicles to provide documentation covering specific topics to regulators,
such as how automated systems detect objects on the road, how information is displayed to drivers, what cybersecurity measures are in
place, and the methods used to test the design and validation of autonomous driving systems. As cars that carry our sensors go into production,
the obligations of complying with safety regulations could increase, and it could require increased resources and adversely affect our
business.
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Failures, or perceived failures, to comply
with privacy, data protection, and information security requirements in the variety of jurisdictions in which we operate may adversely
impact our business, and such legal requirements are evolving, uncertain and may require improvements in, or changes to, our policies
and operations.
Our current and potential future operations and
sales are subject to laws and regulations addressing privacy and the collection, use, storage, disclosure, transfer, and protection of
a variety of types of data. For example, the European Commission has adopted the General Data Protection Regulation and California has
enacted the California Consumer Privacy Act of 2018 and the People’s Republic of China has laws relating to data protection,
all of which provide for potentially material penalties for non-compliance. These regulations may, among other things, impose
data security requirements, disclosure requirements, and restrictions on data collection, use, and sharing that may impact our operations
and the development of our business. While, generally, we do not have access to, collect, store, process, or share information collected
by our products unless our customers choose to proactively provide such information to us, our products may evolve both to address potential
customer requirements or to add new features and functionality. Therefore, the full impact of these privacy regimes on our business is
rapidly evolving across jurisdictions and remains uncertain at this time.
We may also be affected by cyberattacks and other
means of gaining unauthorized access to our products, systems, and data. For instance, cyber criminals or insiders may target us or third
parties with whom we have business relationships in an effort to harm them, their proper use, or the data stored in them, resulting in
direct and indirect damages, including disruption, interruption, or severance of operations, ransomware, leaks and data loss, theft of
property, espionage, harm to reputation, harm to public trust, and rehabilitation expenses. We work to prevent and reduce exposure to
the risk of cyber-attacks with strategies including the use of information security systems, assimilation of a culture of data security
(including training for managers and employees), refinement and adjustment of procedures, internal control programs, and auditing and
support with the assistance of experts in the field. During 2023, we suffered a cybersecurity breach that did not have any material effect
upon our business. We cannot assure that we will not suffer in the future from cybersecurity attacks that may have a material adverse
effect upon our business and our ability to conduct research and development or to market and sell our products.
Our operations are rich in technology and computing
and may be exposed to risks related to the stability of the information systems, their compatibility with the scope of our operations,
information security, technical failures, overload of system servers, and the like. An impairment of the stability of computer systems
and an inability on the part of us to return its systems to normal operation within a reasonable timeframe, or a lack of technological
ability to meet commitments or the expectations of potential customers and strategic partners, may damage our reputation and harm our
business outcomes.
We are assessing the continually evolving privacy
and data security regimes and measures that we believe are appropriate in response. Since these data security regimes are evolving, uncertain,
and complex, especially for a global business like ours, we may need to update or enhance our compliance measures as our products, markets,
and customer demands further develop, and these updates or enhancements may require implementation costs. The compliance measures we do
adopt may prove ineffective. Any failure, or perceived failure, by us to comply with current and future regulatory or customer-driven
privacy, data protection, and information security requirements, or to prevent or mitigate security breaches, cyberattacks, or improper
access to, use of, or disclosure of data, or any security issues or cyberattacks affecting us, could result in significant liability,
costs (including the costs of mitigation and recovery), and a material loss of revenue resulting from the adverse impact on our reputation
and brand, loss of proprietary information and data, disruption to our business and relationships, and diminished ability to retain or
attract customers and business partners. Such events may result in governmental enforcement actions and prosecutions, private litigation,
fines and penalties, or adverse publicity, and could cause customers and business partners to lose trust in us, which could have an adverse
effect on our reputation and business.
We may be exposed to liabilities under the
U.S. Foreign Corrupt Practices Act and other U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions,
and other trade laws and regulations, and any determination that we violated these laws could have a material adverse effect on our business.
We are subject to export control and import laws
and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, and various economic and trade
sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Control. We are or may be also
subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the U.S. domestic
bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, the United Kingdom Bribery
Act 2010, the Proceeds of Crime Act 2002, the anti-bribery laws of the People’s Republic of China, the European Union’s
policies and, if enacted, proposed legislation, on bribery and corruption and other anti-bribery and anti-money laundering laws in countries
outside of the United States in which we conduct our activities or solicit business. Compliance with these laws has been the subject
of increasing focus and activity by regulatory authorities in recent years. Anti-corruption laws are interpreted broadly and prohibit
companies, their employees, and third-party intermediaries from authorizing, promising, offering, providing, soliciting, or accepting,
directly or indirectly, improper payments or benefits to or from any person, whether in the public or private sector. Our activities outside
the United States may create the risk of unauthorized payments or offers of payments by employees, consultants, sales agents, or
distributors, even though they may not always be subject to our control. It is our policy to implement safeguards to discourage these
practices by our employees, consultants, sales agents, and distributors. However, our existing safeguards and any future improvements
may prove to be less than effective, and our employees, consultants, sales agents, or distributors may engage in conduct for which we
might be held responsible, even if it does not explicitly authorize such activities. Should our export activity be subject to security
oversight, this may have a material effect on our activity. Further, our business may be affected by sanctions that may be imposed on
customers or suppliers who trade with sanctioned countries and/or companies in violation of United States or European restrictions.
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Noncompliance with anti-corruption, anti-money
laundering, export control, sanctions, and other trade laws could subject us to whistleblower complaints, investigations, sanctions, settlements,
prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions,
suspension and/or debarment from contracting with certain persons, the loss of export privileges, reputational harm, adverse media coverage,
and other collateral consequences. If any subpoenas or investigations are launched, or governmental or other sanctions are imposed, or
if we do not prevail in any possible civil or criminal litigation, our business, results of operations, and financial condition could
be materially harmed. Responding to any action will likely result in a materially significant diversion of management’s attention
and resources, significant defense and compliance costs, and other professional fees. In addition, the U.S. government may seek to
hold us liable for successor liability for FCPA violations committed by companies in which we invest or that we may acquire. As a general
matter, enforcement actions and sanctions could harm our business, results of operations, and financial condition.
Regulations related to conflict minerals
may cause us to incur additional expenses and could limit the supply and increase the costs of certain metals used in the manufacturing
of our products.
We are subject to the requirements under the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, that requires us to determine, disclose, and
report whether our products contain conflict minerals. The implementation of these requirements could adversely affect the sourcing, availability,
and pricing of the materials used in the manufacture of components used in our products. In addition, we will incur additional costs to
comply with the disclosure requirements, including costs related to conducting diligence procedures to determine the measures we took
to exercise due diligence in the sources and chain of custody of conflict minerals that may be used in or necessary to the production
of our products and, if applicable, potential changes to products, processes, or sources of supply as a consequence of such verification
activities. It is also possible that our reputation may be adversely affected if we determine that certain of our products contain minerals
not determined to be conflict minerals or if we are unable to alter our products, processes or sources of supply to avoid the use of such
materials.
We may become involved in legal and regulatory
proceedings and commercial or contractual disputes, which could have an adverse effect on our profitability and consolidated financial
position.
We may be, from time to time, involved in litigation,
regulatory proceedings, and commercial or contractual disputes that may be significant. These matters may include, without limitation,
disputes with our potential suppliers and strategic partners and our potential customer base, intellectual property claims, stockholder
litigation, government investigations, class action lawsuits, personal injury claims, environmental issues, customs and VAT disputes,
and employment and tax issues. In addition, we could face in the future a variety of labor and employment claims against us, which could
include but are not limited to general discrimination, wage and hour, privacy, pension (including, for US employees, ERISA), or disability
claims. In such matters, government agencies or private parties may seek to recover from us very large, indeterminate amounts in penalties
or monetary damages (including, in some cases, treble or punitive damages) or seek to limit our operations in some way. These types of
lawsuits could require significant management time and attention or could involve substantial legal liability, adverse regulatory outcomes,
and/or substantial expenses to defend. Often, these cases raise complex factual and legal issues and create risks and uncertainties. No
assurances can be given that any proceedings and claims will not have a material adverse impact on our operating results and consolidated
financial position or that our established reserves or our available insurance will mitigate this impact.
The results of our operations may be affected
by changes in currency exchange rates.
Our results of operations and cash flows are subject to fluctuations
due to changes in foreign currency exchange rates. Currently, most of our revenue is generated in U.S. dollars, and most of the cash we
raise is generated in U.S. dollars, while our expenses are generally denominated in the currencies of the jurisdictions in which we conduct
our operations, primarily the Israeli Shekel, the U.S. dollar and, to some extent, the Euro. We have not generated significant revenue
to date, and we are economic hedging part of the cash we raise to some extent and therefore we do not believe that foreign currency exchange
rates have not had, or currently have, a material effect on our business. However, we cannot give any assurance that changes in foreign
currency exchange rates will not have a material impact on us.
Our cash and cash equivalents could be adversely
affected if the financial institutions in which we hold our cash and cash equivalents fail.
We regularly maintain cash balances at third-party
financial institutions in the United States and in Israel. Maintaining any significant portion of our cash in financial institutions is
subject to adverse conditions in the financial or credit markets, which could impact access to our invested cash or cash equivalents and
adversely impact our operating liquidity and financial performance. We are diversifying our investments for cash designated for our long-term
activities into short-and long term deposits, writing call options to hedge against foreign exchange rates currency fluctuations and also
considering spreading our cash and cash equivalents among several financial institutions in order to reduce the risks associated with
maintaining all of our cash and cash equivalents at one financial institution. Notwithstanding these efforts, the failure of one or more
of the financial institutions in which our cash and cash equivalents are held could result in our inability to obtain or a significant
delay in obtaining the return of our funds from any of those financial institutions or any other adverse condition suffered by any of
those financial institutions, could impact access to our invested cash or cash equivalents and could adversely impact our operating liquidity
and financial performance. Part of our cash was held in Silicon Valley Bank (“SVB”), and, following the restructure of SVB,
in 2023 we transferred substantially all the cash from SVB to other financial institutions.
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Our convertible bonds have covenants which
could restrict our ability to incur debt obligations
The deed of trust for our convertible bonds requires
us to comply with the following two covenants as long as the bonds are outstanding:
● Our shareholders’ equity shall not fall below $5 million as of the last day of two consecutive quarters.
● We shall have cash and cash equivalents of not less than $5 million as of the last day of one quarter.
Although the bonds are unsecured obligations,
the deed of trust provides that the Trustee will have a security interest, for the benefit of the bondholders, in the escrow funds. We
are prohibited, as long as the bonds are outstanding, from creating or agreeing to create in favor of any third party any floating charge
of any rank over all of our present and future property and rights to secure any obligation or debt of any kind, unless either the lien
is approved by a special resolution of the bondholders or we create, in favor of the bondholders, concurrently with the grant of the lien
to the third party, a charge of equal ranking with the lien to the third party which is pari passu with the lien to the third party. These
covenants may impair our ability to incur additional debt, including convertible debt. We issued additional convertible bonds in December
2025.
Risks Related to our Incorporation and Location
in Israel
The
wars with Iran and Hezbollah, the continued hostilities with Hamas and other potential conflicts in the Middle East and other
conditions in Israel could materially and adversely affect our business.
We are an Israeli corporation, and most of our
employees, operate from our offices in Tel Aviv-Yafo, Israel. In addition, the majority of our officers and directors are residents of
Israel.
Accordingly, political, economic, and military
conditions in Israel and the surrounding region may directly affect our business and operations.
Many Israeli citizens are obligated by law to
perform military reserve duty. During the recent conflicts, the Israeli military has called up hundreds of thousands of reservists, many
of them for prolonged periods, and a number of our executive and non-executive employees and their family members have been called as
well. While these call-ups have not resulted in material disruption to our operations to date, extended reserve duty obligations are expected
to continue in the coming years, and significant increase in the scope or duration of such service could disrupt our operations and adversely
affect our business.
Our commercial insurance does not cover losses
that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement
value of direct damages caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained
or that it will sufficiently cover our potential damages.
The State of Israel and Israeli companies have
been subjected to economic boycotts, and several countries restrict business with the State of Israel and with Israeli companies. International
actions and legal proceedings have, from time to time, been accompanied by calls for sanctions or other restrictive measures involving
Israel or Israeli companies. There is a growing movement among countries, activists and organizations to boycott Israeli goods, services
and academic research or to restrict business with Israel. If these efforts become more widespread, they could negatively impact our business
operations, customer relationships and ability to expand into new markets and/or engage with potential customers.
Since October 7, 2023, Israel has been engaged in military conflicts
in multiple fronts. Following attacks by Hamas on Israeli communities and civilian and military targets in Southern Israel, Israel declared
war against Hamas and launched a prolonged military campaign in the Gaza Strip. A temporary ceasefire agreement between Israel and Hamas
took effect on October 9, 2025, as part of a U.S. proposed peace framework. In January 2026, the parties commenced an additional phase
of that framework, which contemplates disarmament steps, further Israeli military withdrawals and the deployment of international stabilization
forces. The implementation, timing and outcome of these arrangements remain uncertain, and, as of the date of this report, Hamas has not
been disarmed, and Israeli forces remain in Gaza.
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Israel has also been involved in military conflict with Hezbollah in
Lebanon, including ground operations and extensive strikes on Hezbollah targets, leading to a temporary ceasefire agreement in November
2024.
In addition, instability in Syria following changes
in its political leadership has resulted in limited Israeli military operations targeting military assets and infrastructure, and continued
volatility in Syria may further destabilize the region.
The Houthi movement in Yemen has also carried
out attacks against Israel and maritime vessels in the Red Sea, resulting in disruptions to regional shipping routes and supply chains.
Such attacks have occurred intermittently and may resume or intensify depending on future developments, including regional hostilities,
which could further increase instability in the region.
In June 2025, Israel launched a military operation
against Iranian military and nuclear facilities. Iran retaliated with missile and drone attacks on targets in Israel. The United States
also conducted strikes against Iranian nuclear facilities before a ceasefire took effect.
On February 28, 2026, Israel and the United States launched a joint
operation against targets in Iran. In response, Iran launched ballistic missiles and drones against targets in Israel. Hezbollah also
fired rockets into Israel and Israeli responded by bombing targets in Lebanon, including in Beirut, and commenced actions including extensive
strikes and ground operations in Southern Lebanon.
As part of the ongoing conflict, Iran has launched
extensive missile and drone strikes against several Arab countries, primarily targeting the United Arab Emirates, Saudi Arabia, Bahrain
and Kuwait, as well as at U.S. military assets in the Middle East. As of the date hereof, certain military activities relating to this
operation are ongoing, and their outcome and potential implications remain uncertain.
These developments have had, and may continue to have, certain macroeconomic
consequences, including credit rating actions relating to Israel by Moody’s, S&P and Fitch. Regional hostilities, including
the temporary closures of the Strait of Hormuz during the June 2025 and February 2026 conflicts and disruptions in Red Sea shipping routes,
have affected international energy sector and trade routes to and from Israel.
Although our business has not been materially
affected by such disruptions to date, a prolonged or broader escalation could result in delays in supplier deliveries, extended lead times
and increased costs for freight, insurance and materials. Furthermore, during the June 2025 and February 2026 conflicts with Iran, Israeli
airspace was closed and commercial flights to and from Israel were suspended for certain periods. More broadly, regional security conditions
have led to repeated disruptions in international air travel to and from Israel, including flight cancellations and suspensions of service
by international carriers. While not material to date, these disruptions may cause certain delays in product deliveries, business travel
and customer engagement, and any recurrence causing prolonged or expanded suspension of air travel could further disrupt our operations
and adversely affect our ability to smoothly conduct business internationally. In addition, during the June 2025 and February 2026 conflicts,
Iranian missiles have struck civilian areas within Israel. While our facilities have not sustained any damage to date, future hostilities
could directly affect our facilities, employees and infrastructures.
The heightened tensions in the area increased
the risk of cyberattacks against us.
The war may lead to a decrease in the share price
of our ordinary shares as a result of investors’ fear of the geopolitical risks.
In addition, the Israeli government has pursued
and continues to consider changes to Israel’s judicial system, which in turn may affect the checks and balances between the authorities
in Israel. These legislative and policy developments have sparked widespread public debate and protests within Israel in the past years,
as well as reactions from international organizations, investors, and credit rating agencies. Critics argue that such changes may negatively
impact Israel’s business and economic environment, including foreign investment, capital markets, and the country’s credit
rating. Actual or perceived political instability in Israel or any negative changes in the political environment may, individually or
in aggregate adversely affect the Israeli economy and, in turn, our business, financial condition, results of operations, and prospects.
These legislative and policy developments have
sparked widespread public debate and protests within Israel, as well as reactions from international organizations, investors and credit
rating agencies. Critics argue that such changes may negatively impact Israel’s business and economic environment, including foreign
investment, capital markets, and the country’s credit rating.
27
We may become subject to claims for remuneration
or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.
A significant portion of our intellectual property
has been developed by our employees in the course of their employment with us. Under the Israeli Patent Law, 5727-1967, or the “Patent
Law,” inventions conceived by an employee in the course of and as a result of his or her employment with a company are regarded
as “service inventions,” which belong to the employer, unless there is a specific agreement between the employee and employer
giving the employee service invention rights. The Patent Law also provides that if there is no such agreement between an employer and
an employee, the Israeli Compensation and Royalties Committee (the “Committee”), a body constituted under the Patent Law,
will determine whether the employee is entitled to remuneration for his or her inventions. Case law clarifies that the right to receive
consideration for “service inventions” can be waived by the employee and that, in certain circumstances, such waiver does
not necessarily have to be explicit. The Committee will examine, on a case-by-case basis, the general contractual framework between the
parties using the interpretation rules of the general Israeli contract laws. Further, the Committee has not yet determined one specific
formula for calculating this remuneration but rather uses the criteria specified in the Patents Law.
Although we generally enter into assignment-of-invention
agreements with our employees pursuant to which such individuals assign to it all rights to any inventions created in the scope of their
employment or engagement with us, we may face claims demanding remuneration in consideration for assigned inventions. As a consequence
of such claims, we could be required to pay additional remuneration or royalties to our current and/or former employees, or be forced
to litigate such claims, which could negatively affect our business.
The potential tax benefits that may be available
to us require us to meet various conditions and may not be available to us, which could increase our costs and taxes.
We may be eligible for certain tax benefits under
the Israeli Law for the Encouragement of Capital Investments, 5719-1959, referred to as the Investment Law, provided to “Preferred
Technology Enterprises”. We have not yet applied for these benefits. In order to receive and remain eligible for the tax benefits
for the Preferred Technology Enterprises tax benefits, we must continue to meet certain conditions stipulated in the Investment Law and
its regulations. If these tax benefits are reduced, cancelled or discontinued, our Israeli taxable income from would be subject to regular
Israeli corporate tax rates. The standard corporate tax rate for Israeli companies has been 23% since 2018. Additionally, if we increase
our activities outside of Israel through acquisitions, for example, our expanded activities might not be eligible for inclusion in future
Israeli tax benefit programs. See “Certain Material Israeli Tax Considerations.”
The terms of grants received from the Israeli
government require us to satisfy specified conditions in order to transfer the manufacture of products based on know-how funded by the
Israel Innovation Authority outside of Israel or to transfer outside of Israel the know-how itself.
Under the Israeli Encouragement of Research, Development,
and Technological Innovation in Industry Law, 5744-1984, or the Innovation Law, research, and development programs that meet specified
criteria and may be approved by a committee of the Israel Innovation Authority of the Israeli Ministry of Economy and Industry, or IIA,
are eligible for grants from the IIA. The grant amounts are determined by the research committee and are typically a percentage of
the project’s expenditures. Under most programs, the grantee is required to pay royalties to the State of Israel from the sale of
products developed under the program.
Our research and development efforts in relation
to our product have been partially financed through royalty-bearing and non-royalty bearing grants from the IIA in the total amount of
approximately $4.0 million through December 31, 2025.
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Under the terms and conditions of the IIA grants
provided to us and pursuant to applicable laws, we are required to pay royalties from sales of products and services that incorporate
know-how developed with the IIA-funded, royalty-bearing grants. Such royalties are due up to an amount equal to 100% of the IIA grants
received, linked to the U.S. dollar, plus interest on the unpaid amount received based on the 12-month Secured Overnight Financing
Rate, known as SOFR, from the year the grant was approved. If we will manufacture IIA-funded products outside of Israel and generate sales,
the ceiling may increase based on the percentage of production that is outside of Israel, up to a maximum of 300% of the IIA grants, linked
to the dollar and bearing interest as detailed above.
● Local Manufacturing Obligation. Under the regulations promulgated under the Innovation Law and the guidelines issued by the IIA, the manufacturing of products that incorporate know-how developed with the IIA-funded outside of Israel by us or by another entity may be subject to certain approvals and\or limitations, and if we fail to obtain the required approval, we may be subject to fines and/or an acceleration of our royalty obligation.
● Know-How transfer limitation
● The Innovation Law restricts the ability to transfer know-how funded by the IIA outside of Israel. Transfer of IIA-funded know-how outside of Israel requires prior approval of the IIA and may be subject to additional payments to the IIA, calculated according to formulae provided under the Innovation Law. If we wish to transfer IIA-funded know-how, the terms for approval will be determined according to the nature of the transaction and the consideration paid to us in connection with such a transfer.
● Approval of transfer the of IIA-funded know-how to another Israeli company may be granted only if the recipient abides by the provisions of the Innovation Law and related regulations, including the restrictions on the transfer of know-how and manufacturing rights outside of Israel.
● Change of Control. 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 the chief executive officer, or (iii) serves as one of our directors or as our chief executive officer, is required to notify the IIA and undertake to comply with the Innovation Law and the rules and regulations thereunder as applicable to the grant programs of the IIA, including the restrictions on transfer described above.
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
certain conditions on any arrangement under which it permits us to transfer IIA-funded know-how or manufacturing out of Israel.
The consideration available to our shareholders
in a future transaction involving the transfer outside of Israel of know-how developed with IIA funding (such as a merger or similar transaction)
may be reduced by any amounts that we are required to pay to the IIA.
Our Restated Articles contain a forum selection
clause for substantially all disputes between us and our shareholders under the Israeli Companies Law and the Israeli Securities Law,
which could limit our shareholders’ ability to bring claims and proceedings against us, our directors, officers, and other employees.
Enforcement of a U.S. judgment against us or our officers and directors in Israel or the United States, or assertion of a U.S. securities
law claim in Israel or serving process on our officers and directors, may also be difficult.
Under our Restated Articles, the competent courts
of Tel Aviv, Israel, will be the exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any
action asserting a claim of breach of fiduciary duty owed by any director, officer, or other employee to us or our shareholders, or (iii) any
action asserting a claim arising pursuant to any provision of the Israeli Companies Law or the Israeli Securities Law, 1968-5728
(the “Israeli Securities Law”). This exclusive forum provision is intended to apply to claims arising under Israeli law and
would not apply to claims brought pursuant to the Securities Act or the Exchange Act. Our Restated Articles also provide that, unless
we consent in writing to the selection of an alternative forum and the Company consents in writing to the selection of an alternative
forum, the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting
a cause of action arising under the Securities Act, including all causes of action asserted against any defendant to such a complaint.
This provision does not affect any other claim for which federal district courts in the United States would have exclusive jurisdiction
and expressly does not apply to causes of action arising under the Securities Exchange Act. Such exclusive forum provision in the Restated
Articles will not relieve us of our duties to comply with federal securities laws and the rules and regulations thereunder, and our shareholders
will not be deemed to have waived their compliance with these laws, rules, and regulations. This exclusive forum provision may limit a
shareholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us, our directors, officers, or other
employees, which may discourage lawsuits against us, our directors, officers, and employees. Investors cannot waive compliance with the
federal securities laws and the rules and regulations thereunder, including the provisions of the Securities Act that provide that state
and federal courts in the United States both have jurisdiction over claims based on the Securities Act. A United States court may not
enforce the provision in our Restated Articles that provides for exclusive jurisdiction of the federal district courts in actions under
the Securities Act.
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Another obstacle to the assertion of claims against
us or our directors or officers is the fact that most of them are not residents of the United States, and most of their and our assets
are located outside the United States. Service of process upon us or our non-U.S. resident directors and officers and enforcement
of judgments obtained in the United States against us or our non-U.S. directors and executive officers may therefore be difficult
to effect within the United States. It may be difficult to assert claims under U.S. securities laws in original actions instituted
in Israel or obtain a judgment based on the civil liability provisions of U.S. federal securities laws. Israeli courts may refuse
to hear a claim based on a violation of U.S. securities laws against us or our non-U.S. officers and directors because Israel
may not be the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine
that Israeli law and not U.S. law are applicable to the claim. If U.S. law is found to be applicable, the content of applicable
U.S. law must be proven as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed
by Israeli law. There is little binding case law in Israel addressing these matters.
Additionally, the acceptance of foreign judgment
in Israel is mainly regulated in the Foreign Judgment Enforcement Law, 5718-1958, pursuant to which Israeli courts might not enforce judgments
obtained in the United States against us or our non-U.S. directors and executive officers, which may make it difficult to collect
on judgments rendered against us or our non-U.S. officers and directors. An Israeli court will not enforce a non-Israeli judgment
if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases),
if our enforcement is likely to prejudice the sovereignty or security of the State of Israel, if it was obtained by fraud or in the absence
of due process, if it is at variance with another valid judgment that was given in the same matter between the same parties, or if a suit
in the same matter between the same parties was pending before a court or tribunal in Israel at the time the foreign action was brought.
The rights and responsibilities of our shareholders
will be governed by Israeli law, which may differ in some respects from the rights and responsibilities of shareholders of U.S. corporations.
Because we are incorporated under Israeli law,
the rights and responsibilities of our shareholders are governed by our Restated Articles and the Israeli Companies Law, with minor exceptions
pertaining to U.S. securities laws. These rights and responsibilities differ in some respects from the rights and responsibilities of
shareholders in typical U.S. corporations. In particular, pursuant to the Israeli Companies Law, each shareholder of an Israeli company
has to act in good faith in exercising such shareholder’s rights and fulfilling such shareholder’s obligations toward the
company and other shareholders and to refrain from abusing such shareholder’s power in the company, including, among other things,
in voting at the general meeting of shareholders and class meetings on amendments to a company’s articles of association, increases
in a company’s authorized share capital, mergers, and transactions requiring shareholders’ approval under the Israeli Companies
Law. In addition, a controlling shareholder of an Israeli company or a shareholder who knows that it possesses the power to determine
the outcome of a shareholder vote, who has the power to appoint or prevent the appointment of a director or officer in the company, or
who has other powers toward the company, has a duty to act in fairness towards the company. Moreover, a shareholder also has a general
duty to refrain from discriminating against other shareholders. These provisions may be interpreted to impose additional obligations and
liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.
Provisions of Israeli law and our Restated
Articles may delay, prevent, or make undesirable an acquisition of all or a significant portion of our shares or assets.
Certain provisions of Israeli law and our Restated
Articles could have the effect of delaying or preventing a change in control, may make it more difficult for a third party to acquire
us or our shareholders to elect different individuals to our board of directors, even if doing so would be beneficial to our shareholders,
and may limit the price that investors may be willing to pay in the future for our ordinary shares. Among other things:
● Israeli Companies Law regulates acquisitions and requires that a tender offer be effected when certain thresholds of percentage ownership of voting power in a company are exceeded (subject to certain conditions);
● The Israeli Companies Law requires special approvals for certain transactions involving directors, officers, or significant shareholders and regulates other matters that may be relevant to these types of transactions;
● The Israeli Companies Law does not provide for shareholder action by written consent for public companies, thereby requiring all shareholder actions to be taken at a general meeting of shareholders;
● Our Restated Articles divide our directors into three classes, each of which is elected for a three-year term once every three years;
● Our Restated Articles provide that certain articles can be amended or changed only by the majority of at least sixty percent (60%) of the total voting power of the shareholders.
● Our Restated Articles do not permit a director to be removed except by a vote of a majority of the voting power of the shareholders represented at a general meeting in person or by proxy and voting thereon, as one class, and disregarding abstentions from the count of the voting power of the shareholders present and voting; and
● Our Restated Articles provide that director vacancies may be filled by our board of directors.
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Further, Israeli tax considerations may make potential
transactions undesirable to us or to some of our shareholders, especially whose country of residence does not have a tax treaty with Israel
granting tax relief to such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to
the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes
the deferral contingent on the fulfillment of numerous conditions, including a restrictive period of two years from the date of the
transaction during which certain sales and dispositions of shares of the participating companies are restricted. Moreover, with respect
to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if the
shares have not been disposed of. See the section titled “Material Israeli Tax Considerations — Taxation of Our
Shareholders.”
Our board of directors has sole discretion as
to whether to pay dividends. If our board of directors decides to pay dividends, the form, frequency, and amount will depend upon our
future, operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions, and other factors
that our directors may deem relevant. The Israeli Companies Law imposes restrictions on our ability to declare and pay dividends. See
the section titled “Item 10.B Additional Information—Dividend and Liquidation Rights” for additional information.
Payment of dividends may also be subject to Israeli withholding taxes. See the section titled “Material Israeli Tax Considerations”
for additional information.
We are subject to the Israeli Privacy Protection
Law and its regulations
We are subject to the Israeli Privacy Protection
Law, 5741-1981, and the regulations promulgated thereunder and guidelines issued by the Israeli Privacy Protection Authority with
respect to the manner in which personal data is processed, maintained, transferred, disclosed, accessed, and secured. In this respect,
the privacy regulations governing information security may require us to adjust certain data protection and data security practices, information
security measures, certain organizational procedures, applicable positions, and other technical and organizational measures. Failure to
comply with the Israeli privacy laws may expose us to administrative fines, civil claims (including class actions), and, in certain
cases, criminal liability. An amendment to the Israeli Privacy Protection Law, which came into effect in August 2025, increases the legal
obligations of controllers and processors of personal data, and empowers the Israeli Privacy Protection Authority’s authorities
and enables it to impose administrative sanctions, including in monetary sanctions in significant amounts.
As a foreign private issuer, under
Nasdaq rules, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly
from Nasdaq corporate governance listing standards, which, if we follow such practices, may afford our shareholders less protection than
they would enjoy if we complied with the Nasdaq corporate governance standards.
As an Israeli corporation that meets the definition
of a foreign private issuer, we are generally subject to the Nasdaq corporate governance listing standards. However, Nasdaq rules permit
a foreign private issuer like us to follow the corporate governance practices of our home country, which is Israel, in lieu of Nasdaq
corporate governance requirements relating to independent directors and the formation and composition of board committees, with respect
to the disclosure of third-party director and nominee compensation and the requirement to distribute annual and interim reports. These
corporate governance practices in Israel may differ significantly from Nasdaq corporate governance listing standards. Currently, we do
not rely on the home country practice exemption with respect to our corporate governance, other than (i) the quorum requirements,
(ii) the Nasdaq requirement of obtaining shareholder approval for certain issuances of 20% or more of our ordinary shares at a price less
than the market price, as defined by Nasdaq, or (iii) the Nasdaq requirement of shareholder approval for stock option plans. Our Restated
Articles provide that two shareholders holding 25% of the voting shares constitute a quorum, as contrasted with the Nasdaq requirement
of a minimum of one-third of a company’s outstanding voting securities. In addition, our board has the authority to issue ordinary
shares without obtaining shareholder approval under circumstances where shareholder approval would be required under the Nasdaq corporate
governance regulations. Our Restated Articles do not require shareholder approval for stock issuances or for the adoption of a stock option
plan. If we choose to take advantage of other home country practices in the future, our shareholders may be afforded less protection than
they otherwise would enjoy under Nasdaq corporate governance listing standards applicable to U.S. domestic issuers.
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The SEC has issued a concept release relating
to potential changes in the definition of foreign private issuer which could make it more difficult for a foreign company to be able to
meet the definition of foreign private issuer. Depending on the nature of any change which the SEC adopts in the definition, we may cease
to meet the definition of foreign private issuer, which could both increase our costs and make it more difficult for us to raise capital.
A foreign private issuer is defined as “any foreign issuer other
than a foreign government except an issuer meeting the following conditions as of the last business day of its most recently completed
second fiscal quarter:
“(i) More than 50 percent of the outstanding voting securities
of such issuer are directly or indirectly owned of record by residents of the United States; and
“(ii) Any of the following:
“(A) The majority of the executive officers or directors
are United States citizens or residents;
“(B) More than 50 percent of the assets of the issuer
are located in the United States; or
“(C) The business of the issuer is administered
principally in the United States.”
Although the SEC concept release did not include
any specific changes in the definition of private foreign issuer, and we cannot predict what changes, if any, the SEC will make to the
definition of foreign private issuer, the concept release states that there have been several developments since the SEC last conducted
a broad review of reporting foreign private issuers and the eligibility criteria for foreign private issuer status. These developments
have prompted the SEC to consider whether the current definition should be revised so that it better represents the issuers that the SEC
intended to benefit from current foreign private issuer accommodations while continuing to protect investors and promote capital formation.
Possible changes include, but are not limited to, lowering the percentage of outstanding securities owned by residents of the United States
and revising the tests in paragraph (ii) in the definition of foreign private issuers. We cannot predict what changes the SEC will make
and whether we will continue to meet the tests for foreign private issuer under any revised definition. In the event that we cease to
meet the definition of foreign private issuer, among other consequences, we will be required to file annual reports on 10-K and quarterly
reports on 10-Q based on the reporting schedule for such reports, our officers directors and 10% shareholders will be subject to the reporting
and short-swing profit rules of Section 16 of the Exchange Act (in addition to the requirement that, commencing March 18, 2026, our directors
and executive officers, but not 10% shareholders, file ownership reports), and we will no longer be able to take advantage of the home
country exception to certain Nasdaq corporate governing requirements. The Nasdaq rules with respect to which we are using the home country
exception are summarized in the preceding risk factor. During 2025 and 2024, we raised a gross total of approximately $33 million and
$15 million, respectively, in the sale of securities in transactions not involving a public offering without shareholder approval by taking
advantage of the home country exception to the Nasdaq requirement that we obtain shareholder approval for issuing 20% or more of our ordinary
shares at a price less than the minimum price, as defined by Nasdaq.
Risks Related to our Ordinary Shares
The dual listing of our ordinary shares
on the Tel Aviv Stock Exchange may affect the trading dynamics of our ordinary shares
Our ordinary shares are listed on both the Nasdaq
Stock Market and the Tel Aviv Stock Exchange (“TASE”) and are subject to the rules of both exchanges. Companies traded on
both exchanges benefit from reporting exemptions under Israeli regulations governing relief to companies listed in Nasdaq. However, the
trading dynamics of dual listing can lead to price discrepancies between the two markets. These discrepancies arise from differences in
trading currencies - U.S. dollars on Nasdaq and NIS on TASE, as well as trading hours, time zones and holidays. Additionally, exchange
rate fluctuations and market activity on one exchange can influence share prices on the other.
Market conditions may adversely affect the
liquidity and price of our securities.
The price of our securities may fluctuate significantly.
An active trading market for our securities may not be sustained on either Nasdaq or the TASE. In addition, the price of our securities
can vary due to general economic conditions and forecasts, our general business condition, and the release of our financial reports. Additionally,
if our securities become delisted from Nasdaq and TASE and are quoted on the OTC Markets (an inter-dealer automated quotation system for
equity securities that is not a national securities exchange), the liquidity and price of our securities may be more limited than if we
were quoted or listed on the NYSE, Nasdaq, TASE or another national securities exchange, in which event you may be unable to sell your
securities unless a market can be established or sustained.
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We anticipate that we will redeem our outstanding
convertible bonds.
In June 2024, we issued convertible bonds in the
principal amount of NIS 110,000,000 (approximately $30 million) to Israeli investors. These bonds are listed for trade on the TASE. The
proceeds from the sale of bonds were placed in an escrow account, and will be released to the Company upon and subject to satisfaction
of the following release conditions or earlier upon conversion of the bonds:
● We win a tender or contract to supply our products as a single supplier of chips of imaging radar (directly or through one of the international Tier 1 manufacturers) to one of ten named major automobile manufactures.
● The average closing trading price of our ordinary shares on Nasdaq is not less than $3.10 per share during 30 consecutive trading days, and the average combined trading volume on Nasdaq and TASE during such 30 trading days is at least 300,000 shares per day.
● The closing price of our ordinary shares on Nasdaq on the date we present to the Trustee the documentation confirming the fulfillment of the above-mentioned conditions precedent, is not less than $3.10.
The above release conditions were originally to
be satisfied by March 31, 2025, but following an extension dated March 20, 2025 and a second extension dated December 22, 2025, which
were approved by the holders of a majority of the outstanding principal amount of bonds, we have until December 31, 2026 to meet the conditions.
If we do not meet the release conditions by December
31, 2026, we will be required to effect an early redemption of the remaining bonds which will result in the use of the funds in the escrow
account to pay the bonds and we will be required to pay to the Trustee such additional amounts as are required to pay the interest and
any payment due as a result of the differential in the exchange rate.
On December 22, 2025, the holders of a majority
of the outstanding bonds approved amendments to the deed of trust which include: (i) an extension of the maturity date to December 31,
2026; (ii) a reduction of the annual interest rate from 6.5% to 4.35%, effective January 1, 2026; and (iii) the addition of a voluntary
early redemption mechanism effective as of January 16, 2026, pursuant to which bondholders may elect early redemption and receive the
outstanding principal together with an accrued interest and applicable U.S. dollar indexation adjustments.
On December 30, 2025, we completed a private placement
and issued convertible bonds in the principal amount of NIS 57,600,000 (approximately $15,700,000), through a follow-on offering as an
expansion of our existing convertible bonds. The additional bonds were issued on the same terms as the convertible bonds, as amended,
including the revised interest rate, the Trustee’s holding of the proceeds in escrow, and trade as an aggregated single series on
the TASE.
If any bonds are converted, the funds in the escrow account that are
associated with the converted bonds are released to us immediately. During 2025, bonds in the principal amount of NIS 78,462,180 were
voluntarily converted into Ordinary Shares and approximately $22.4 million (including interest) was released to us from the escrow account.
On January 16, 2026, bonds
with an aggregate principal amount of NIS 836,842 were voluntarily redeemed for approximately $230,000 out of the amounts held in
escrow.
As of the date of this report, we did not meet
the release conditions, and unless we meet the conditions by December 31, 2026, the remaining funds in the escrow account, together with
any interest and other payments we are required to pay to the trustee, will be used to redeem the remaining bonds other than any bonds
which may be converted.
In the event that any bonds are converted into
ordinary shares, the funds in the escrow account that relate to the converted bonds will be released to us provided that the amount remaining
in the escrow account after the payment to us is not less than the principal amount of the outstanding bonds.
As long as the bonds are outstanding, we will
remain subject to restrictive covenants under the deed of trust, limiting our operational and financial flexibility. These include negative
pledges prohibiting floating charges or secured debt (except unsecured debt up to $2 million), issuing additional bonds unless compliant,
and certain restrictions on dividend distributions. Some of the foregoing restrictions will be terminated if the principal amount of the
outstanding bonds equal to less than NIS 10 million (approximately $2.7 million). The deed of trust also includes default provisions such
as covenant breaches, TASE delisting, and an unapproved merger, which may trigger a bondholders’ meeting to consider the requirement
for an immediate repayment.
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Our internal controls over financial reporting
may not be effective, which could have a significant and adverse effect on our business and reputation.
The Sarbanes-Oxley Act requires, among
other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing
to develop and refine our disclosure controls, internal control over financial reporting, and other procedures that are designed to ensure
that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized, and reported
within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Exchange Act is
accumulated and communicated to our principal executive and financial officers. If we are not able to protect our computer system, including
our financial records and client and personnel information, against cybersecurity attacks, including ransomware attacks, we may not be
able to maintain effective disclosure controls or internal controls over financial reporting. In our financial statements for the year
ended December 31, 2024, we corrected the diluted net loss per ordinary share for the year ended December 31, 2023 and for the year ended
December 31, 2022, which resulted in a reduction in the applicable net loss per ordinary share, due to an increase in the average shares
outstanding for from the numbers shown in our financial statements that we filed as part of our Form 20-F for the year ended December
31, 2023. The adjustment in diluted earnings per ordinary share in the year ended December 31, 2023, and diluted earnings per ordinary
share in the year ended December 31, 2022 take into consideration warrant liabilities revaluations used in determining diluted loss per
ordinary share.
Our current controls and any new controls that
we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our internal controls may be
discovered in the future. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation
or improvement, could adversely affect our operating results, or cause us to fail to meet our reporting obligations and may result in
a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal controls could also
adversely affect the results of operations. Ineffective disclosure controls and procedures and internal control over financial reporting
could also cause investors to lose confidence in our reported financial and other information.
In order to maintain and improve the effectiveness
of our disclosure controls and procedures and internal control over financial reporting, we have expended and are continuing to expend
significant resources, including accounting-related costs, and provide significant management oversight. Any failure to maintain the adequacy
of our internal controls, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating
costs and materially and adversely affect our ability to operate our business. In the event that our internal controls are perceived as
inadequate or that we are unable to produce timely or accurate financial statements, investors may lose confidence in our operating results,
and the stock price of our ordinary shares could decline. In addition, if we are unable to continue to meet these requirements, we may
not be able to maintain listings on Nasdaq.
Our independent registered public accounting firm
is not required to attest to the effectiveness of our internal controls over financial reporting and will not be required to attest to
such effectiveness as long as we continue to be an emerging growth company. Under the present definition of emerging growth company, we
will cease to be an emerging growth company with the year beginning January 1, 2027. At such time as our independent registered public
accounting firm is required to attest to the effectiveness of our internal controls, such firm may issue a report that our internal controls
are not effective if it is not satisfied with the level at which our controls are documented, designed, or operating. Any failure to maintain
effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business and
operating results.
We may issue additional ordinary shares
or other securities without shareholder approval, which would dilute existing ownership interests and may depress the market price of
our ordinary shares.
We may issue additional ordinary shares or other
securities (including convertible securities) in the future in connection with, among other things, our equity incentive plan without
shareholder approval, although we require shareholder approval for the creation of a class or series of preferred shares. Our issuance
of additional ordinary shares would have the following effects:
● Our existing shareholders’ proportionate ownership interest may decrease;
● The amount of cash available per share, including for the payment of dividends in the future, may decrease;
● The relative voting strength of each previously outstanding ordinary share may be diminished; and
● The market price of our ordinary shares may decline.
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Because our executive officers and directors
and their affiliate beneficially own or control approximately 10% of our ordinary shares, they may be able to control significant percentage
requiring shareholder approval.
Our executive officers and directors and their
affiliates beneficially own or control the voting rights with respect to approximately 10% of our ordinary shares. They will have the
power to control significant percentage for which shareholder approval is required or sought by us, particularly since our Restated Articles
provide that a quorum for action by shareholders at a meeting called by the board of directors is two shareholders holding at least 25%.
Because we have a classified board of directors,
it may be more difficult for a third party to obtain control of us.
Our Restated Articles provide for a classified
board of directors, with each class of directors being elected for a term of three years. As a result, the shareholders will vote
for only one-third of the board each year. A classified board of directors may make it more difficult for a third party to gain control
of us, which may affect the opportunity of our shareholders to receive any potential benefit that could be available from a third party
seeking to obtain control over us.
Certain outstanding warrants are accounted
for as liabilities, and the changes in value of these warrants could have a material effect on our financial results.
In connection with the October 2021 merger with
Industrial Tech Acquisitions Inc. (“ITAC”), we issued ordinary shares and warrants to the holders of ITAC common stock and
warrants. We treat the 3,112,080 warrants issued in exchange for ITAC’s private warrants as liabilities. E. Scott Crist, one of
our directors, holds 2,303,031 of these warrants. Under GAAP, the remeasurement of the fair value of such derivatives at each balance
sheet date, with a resulting non-cash gain or loss related to the change in the fair value being recognized in earnings in the statements
of operations. As a result of the recurring fair value measurement, as long as the warrants are outstanding, our financial statements
and results of operations may fluctuate quarterly based on factors that are outside of our control. Due to the recurring fair value measurement,
we will recognize non-cash gains or losses on the private warrants each reporting period based on the change in the derivative liability,
and the amount of such gains or losses could be material. Further, the gain or loss on the derivative liability, which will not be related
to our operations, could result in our reporting a loss in a period in which our operations are profitable and net income in a period
in which we have a significant loss from operations. Since the amount of the warrant liability reflects the market price of our ordinary
shares, to the extent that the market price of our ordinary shares increases from period to period, we are likely to recognize a financial
expense, and to the extent that the market price of our ordinary shares declines from period to period, we would recognize financial income.
The Pre-Funded Warrants to purchase 3,956,043 ordinary shares, the Tranche A Warrants to purchase up to 8,250,000 ordinary shares, and
Tranche B Warrants to purchase 8,250,000 ordinary shares which were issued in our November 2024 financing are treated as permanent equity
and not as liabilities. The Pre-Funded Warrants, the Tranche A Warrants and the Tranche B Warrants are described in Item 12.
Any projections, forecasts, or guidance
that we may issue may not be an indication of the actual results of the transaction or our future results.
From time to time, we issue guidance as to our
estimated results. Any such guidance is prepared based on numerous variables and assumptions that are inherently uncertain and may be
beyond our control. Furthermore, they may exclude, among other things, certain material items such as transaction-related expenses, and
they may include a non-GAAP measure. Any such forecasts are subject to the risks, including those described in these risk factors, and
should not be relied upon as an indicator of future results.
Sales of our ordinary shares by investors
may adversely affect the market price of our ordinary shares.
Substantially all of our outstanding ordinary
shares may be publicly sold, either because they were issued pursuant to an effective registration statement or were issued more than
six months ago and may be sold to the public pursuant to Rule 144, although Rule 144 places some limitations on sales by affiliates. In
addition, ordinary shares issuable upon exercise or conversion of warrants are also saleable either because the underlying shares were
registered under the Securities Act and may be sold pursuant to Rule 144, In addition, we may raise funds through the issuance of ordinary
shares and convertible debt securities. The sale or anticipated sales of such ordinary shares or convertible debt securities may adversely
affect the market price of our ordinary shares.
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Because the price of our ordinary shares
on Nasdaq is less than $1.00 per share, there is a risk that we may be delisted from Nasdaq, which would have a material adverse affect
on the market price of and the market for our ordinary shares.
In order for our ordinary shares to continue to
be listed on the Nasdaq Stock Market, we must continue to meet all of the requirements for the continued listing. One of these requirements
is that the minimum bid price for our ordinary shares be at least $1.00. Since on or about February 25, 2026, the closing bid price of
our ordinary shares has been less than $1.00.
Under the Nasdaq rules, if the closing bid price
of our ordinary shares remains below $1.00 for 30 consecutive business days, Nasdaq will deem that we are not compliant with the continued
listing requirements and will send us a deficiency notice, which we will disclose in a filing on Form 6-K. We will be granted an automatic
180-day extension to become compliant. The closing bid price for our ordinary shares must be at least $1.00 for ten consecutive business
days during the cure period for us to become compliant, although Nasdaq may exercise its discretion to impose a longer period of up to
20 days. If we are not compliant with the minimum bid requirement at the end of the 180-day cure period, we may be eligible for an additional
180 days by notifying Nasdaq of our intent to cure the price deficiency. To be eligible for the second 180-day period, we would be required
to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq
Capital Market, with the exception of the bid price requirement, and will need to provide written notice of our intention to cure the
deficiency during the second compliance period, by effecting a reverse stock split, if necessary. Any reverse stock split would require
approval of our shareholders at a general meeting, and may affect our convertible securities such as convertible bonds, warrants and RSUs.
Any delisting from Nasdaq or any suspension of
the trading of our ordinary shares would have a material adverse effect on both the market price of our ordinary shares and the market
for our ordinary shares and our convertible bonds. A delisting from Nasdaq could substantially decrease trading in the ordinary shares,
adversely affect the market liquidity of the ordinary shares as a result of the loss of market efficiencies associated with Nasdaq and
the loss of federal preemption of state securities laws, adversely affect our ability to obtain financing on acceptable terms, and may
result in the potential loss of confidence by investors, suppliers, customers and employees and fewer business development opportunities.
Additionally, the market price of our ordinary shares may decline further, and shareholders may lose some or all of their investment.
Delisting from Nasdaq will not automatically result
in our ordinary shares delisted from the TASE, where the minimum price per share requirement is 0.30 ILS (~0.096$), allowing us certain
flexibility to accommodate the adverse effect of the delisting from Nasdaq as aforesaid. However, under such circumstances we will lose
our eligibility to be exempt from certain provisions under the Israeli Companies Law and the Israeli Securities Law, and in particular
may force us to apply the Israeli reporting and corporate governance regime instead of the current regime under Nasdaq, which is more
favorable due to statutory exemptions that we are entitled to under both U.S. and Israeli securities laws. Without such entitlement, we
may be subject to increased cost for obtaining compliance with such additional requirements.
In addition, delisting from Nasdaq may cause our
convertible bonds to be in default under the deed of trust relating to the convertible bonds. In such circumstances, the trustee or the
holders shall be entitled to demand immediate repayment of the bonds in accordance with the terms set forth in the deed of trust.
The market price of our ordinary shares
has been and may be volatile and subject to wide fluctuations.
The trading price of our ordinary shares has been
and could be volatile and subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the
factors listed below could have a material adverse effect on your investment in our securities, and our securities may trade at prices
significantly below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience
a further decline.
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Factors affecting the trading price of our securities
may include:
● actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to them;
● changes in the market’s expectations about our operating results or about the market introduction of vehicles that use our technology;
● public sales by us of our stock in negotiated transactions at a discount from the market price to investors who may immediately sell the shares;
● success of competitors;
● the market’s attitude toward Israel and Israeli technology companies;
● our operating results failing to meet the expectations of securities analysts or investors in a particular period;
● changes in financial estimates and recommendations by securities analysts concerning us or the market or potential market for driverless cars and other vehicles;
● operating and share price performance of other companies that investors deem comparable to us;
● the market’s perception of our ability to develop and market our products;
● the market’s perception as to our ability to develop and maintain any perceived technological advantage it may have;
● actions by social media users to seek to increase activity in our securities;
● changes or anticipated changes in laws and regulations affecting our business;
● our ability to meet compliance requirements, including compliance with the Nasdaq continued listing requirements;
● commencement of, or involvement in, litigation involving us or the automotive industry in general;
● changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
● the volume of our ordinary shares available for public sale;
● changes in trading patterns resulting from social media action not related to the results of our business;
● the effect of our ordinary shares being dual listed on Nasdaq and the TASE;
● any major change in our board or management;
● sales of substantial amounts of our ordinary shares by our directors, executive officers, or significant shareholders, or the perception that such sales could occur;
● general economic and political conditions such as recessions, interest rates, international currency fluctuations, and acts of war or terrorism; and
● all of the risks described in these Risk Factors.
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Broad market and industry factors may materially
harm the market price of our securities, irrespective of our operating performance. Global stock markets in general including both the
Nasdaq and the TASE, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating
performance of the particular companies affected. The trading prices and valuations of these stocks and our securities are not predictable.
A loss of investor confidence in the market for retail stocks or the stocks of other companies that investors perceive to be similar to
us could depress our share price regardless of our business, prospects, financial conditions, or results of operations. Moreover, since
our ordinary shares are traded on both Nasdaq and TASE in different currencies and time zones, price discrepancies between the two markets
may occur due to factors such as exchange rate fluctuations, variations in liquidity, or differing investor sentiment in each market.
A decline in the market price of our securities could also adversely affect our ability to issue additional securities and our ability
to obtain additional financing in the future.
Our Articles and Israeli law could prevent
a takeover that shareholders could consider favorable and could also reduce the market price of our ordinary shares.
Certain provisions of Israeli law and our Restated
Articles could have the effect of delaying or preventing a change in control and may make it more difficult for a third party to acquire
us or for our shareholders to elect different individuals to our board of directors, even if doing so would be beneficial to our shareholders,
and may limit the price that investors may be willing to pay in the future for our ordinary shares. For example, Israeli corporate law
regulates mergers, requires that a tender offer be effected when certain thresholds of percentage ownership of voting power in a company
are exceeded (subject to certain conditions), and establishes a high ownership threshold to squeeze out minority shareholders in a full
tender offer. Further, Israeli tax considerations may make potential transactions undesirable to us or to some of our shareholders, especially
whose country of residence does not have a tax treaty with Israel granting tax relief to such shareholders from Israeli tax. See the section
titled “Material Israeli Tax Considerations — Taxation of Our Shareholders.”
We do not intend to pay dividends in the
foreseeable future. Accordingly, you may not receive any return on investment unless you sell your ordinary shares for a price greater
than the price you paid for your ordinary shares or, if you purchased ITAC common stock prior to the Merger with ITAC, the price you paid
for your ITAC common stock.
We currently intend to retain all available funds
and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our ordinary shares in
the foreseeable future. Consequently, you may be unable to realize a gain on your investment only if you are able to sell such shares
at a price that is greater than your purchase price, which may never occur.
Our board of directors has broad discretion about
whether to pay dividends. If our board of directors decides to pay dividends, the form, frequency, and amount will depend upon our future,
operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions, and other factors that
our directors may deem relevant. The Companies Law imposes restrictions on our ability to declare and pay dividends.
If securities or industry analysts do not
publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding
our ordinary shares adversely, then the price and trading volume of our ordinary shares could decline.
The trading market for our ordinary shares is
influenced by the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts
or the content and opinions included in their reports. As a young public company, we may be slow to attract research coverage, and the
analysts who publish information about our ordinary shares may have had relatively little experience with us, which could affect their
ability to accurately forecast our results and make it more likely that we fail to meet their estimates. If any of the analysts who cover
us issue an inaccurate or unfavorable opinion regarding it, our share price will likely decline. In addition, the share prices of many
companies in the technology industry have declined significantly after those companies failed to either meet or significantly exceed,
the financial guidance publicly announced by the companies or the expectations of analysts. If our financial results fail to meet or significantly
exceed, our announced guidance or the expectations of analysts or public investors, analysts could downgrade our ordinary shares or publish
unfavorable research about it. If one or more of these analysts cease coverage of us or fail to publish reports on it regularly, our visibility
in the financial markets could decrease, which in turn could cause our share price or trading volume to decline.
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The IRS may not agree that we should be
treated as a non-U.S. corporation for U.S. federal income tax purposes.
Although we are incorporated and tax residents
in Israel, the IRS may assert that we should be treated as a U.S. corporation for U.S. federal income tax purposes pursuant
to Section 7874 of the Code. For U.S. federal income tax purposes, a corporation is generally considered a U.S. “domestic”
corporation if it is created or organized in or under the laws of the U.S., any state thereof, or the District of Columbia. Because we
are not so created or organized (but are instead incorporated only in Israel), we would generally be classified as a foreign corporation
(that is, a corporation other than a U.S. “domestic” corporation) under these rules. Section 7874 of the Code provides
an exception under which a corporation created or organized under foreign law may, in certain circumstances, be treated as a U.S. corporation
for U.S. federal income tax purposes.
As more fully described in Item 10.E in the
section titled “Certain Material U.S. Federal Income Tax Considerations — U.S. Federal Income Tax
Treatment of Arbe — Tax Residence of Arbe for U.S. Federal Income Tax Purposes,” based on the terms of the
October 2021 merger with ITAC (the Merger”), the rules for determining share ownership under Code Section 7874, and the
Treasury regulations promulgated under Code Section 7874 (the “Section 7874 Regulations”), and certain factual
assumptions, we are not currently expected to be treated as a U.S. corporation for U.S. federal income tax purposes under
Code Section 7874. However, the application of Section 7874 of the Code is complex, is subject to detailed regulations
(the application of which is uncertain in various respects and would be impacted by changes in such U.S. tax laws and
regulations with possible retroactive effect) and is subject to certain factual uncertainties. Accordingly, there can be no
assurance that the IRS will not challenge our status as a foreign corporation under Code Section 7874 or that such a challenge
would not be sustained by a court.
If the IRS were to successfully challenge under
Code Section 7874 our status as a foreign corporation for U.S. federal income tax purposes, we and certain of our shareholders
could be subject to significant adverse tax consequences, including a higher effective corporate income tax rate on us and future withholding
taxes on certain of our shareholders, depending on the application of any income tax treaty that might apply to reduce such withholding
taxes. In particular, holders of our ordinary shares and/or warrants would be treated as holders of stock and warrants of a U.S. corporation.
See Item 10.E, “Certain Material U.S. Federal
Income Tax Considerations — U.S. Federal Income Tax Treatment of Arbe — Tax Residence of Arbe for
U.S. Federal Income Tax Purposes,” for a more detailed discussion of the application of Code Section 7874 to the Merger.
Investors should consult their own advisors regarding the application of Code Section 7874 to the Merger.
U.S. Holders of our ordinary shares
and/or warrants may suffer adverse tax consequences if we are treated as a passive foreign investment company.
A non-U.S. corporation generally will be
treated as a “passive foreign investment company,” or a PFIC, for U.S. federal income tax purposes, in any taxable year
if either (1) at least 75% of its gross income for such year is passive income (such as interest, dividends, rents, and royalties
(other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of assets giving
rise to passive income) or (2) at least 50% of the value of its assets (based on an average of the quarterly values of the assets)
during such year is attributable to assets that produce or are held for the production of passive income. Although based on the current
and anticipated composition of the income, assets, and operations of us and our subsidiaries, we do not believe we will be treated as
a PFIC for U.S. federal income tax purposes for our current taxable year and do not expect to become one for U.S. federal income
tax purposes in the near future, this is a factual determination that depends on, among other things, the composition of our income and
assets and the market value of our shares and assets, including the composition of income and assets and the market value of shares and
assets of our subsidiaries, from time to time. Accordingly, a complete determination can only be made annually after the close of each
taxable year. Thus, no assurance can be given as to whether we will be a PFIC in 2025 or for any future taxable year. In addition, our
U.S. counsel does not express any opinion with respect to our PFIC status for 2025 or future taxable years.
If we are a PFIC for any taxable year, a U.S. Holder
of our ordinary shares and/or warrants may be subject to adverse tax consequences and may incur certain information reporting obligations.
Under the PFIC rules, unless such U.S. Holder makes an election available under the Code (which election could itself have adverse
consequences for such U.S. Holder), such U.S. Holder may be subject to U.S. federal income tax at the then prevailing maximum
rates on ordinary income and possibly an “interest” charge, in respect of “excess distributions” and upon any
gain from the disposition of our ordinary shares and/or warrants, as if the excess distribution or gain had been recognized ratably over
such U.S. Holder’s holding period of our ordinary shares and/or warrants. Certain elections, including a qualified electing
fund election (a QEF election) or a mark-to-market election, that may be available to U.S. Holders of our ordinary shares to mitigate
some of the adverse tax consequences resulting from PFIC treatment, however, are not available with respect to our warrants. Additionally,
there can be no assurance that we will have timely knowledge of our status as a PFIC in the future or that we will timely provide information
that would be required in order for a U.S. Holder to make a QEF election. For a further discussion, see Item 10.E, “Certain
Material U.S. Federal Income Tax Considerations — U.S. Federal Income Tax Consequences of the Ownership and
Disposition of ordinary shares and Warrants to U.S. Holders — Passive Foreign Investment Company Rules.”
U.S. Holders of our ordinary shares and/or warrants are strongly encouraged to consult their own advisors regarding the potential
application of these rules to us and the ownership of our ordinary shares and/or warrants.
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