A. [Reserved.]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
You should carefully consider
the risks described below, together with all of the other information in this annual report on Form 20-F. The risks described below are
not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial
may also materially and adversely affect our business operations. If any of these risks actually occurs, our business and financial condition
could suffer and the price of our ADSs could decline. These disclosures reflect our beliefs and opinions as to factors that could materially
and adversely affect us and our securities in the future. References to past events are provided by way of example only and are not intended
to be a complete listing or a representation as to whether or not such factors have occurred in the past or their likelihood of occurring
in the future.
1
Risks Related to Our Business and Industry
The data collection markets are rapidly
evolving within the increasingly challenging landscape. If the industry does not continue to develop as we anticipate, our sales will
not grow as quickly as expected and our share price could decline.
We operate in a rapidly evolving
industry focused on providing organizations data collection solutions and products. We experience intense competition from current competitors
and smaller new players and need to constantly adapt our solutions to the new technologies and growing and constantly changing challenges.
It is therefore difficult to predict how large the markets will be for our solutions. If solutions such as ours are not viewed by organizations
as necessary, or if business or consumer customers do not recognize the benefit of our solution as a critical layer of an effective security
strategy, then our revenues may not grow as quickly as expected, or may decline, and our share price could suffer.
If we are unable to expand the number of
and diversify types of customers, we may face a material effect on our operating margins, our profitability, our sales and our results
of operations as a result of a loss of a significant customer, or a material reduction in sales to a significant customer.
Our significant customers
change from year to year, depending on the use of our solutions and products. During the year ended December 31, 2025, our top
6 customers accounted for approximately 49% of our revenue. A reduction in purchases of our solutions and products by or the loss of one
of our larger customers for any reason, loss of a customer as a result of the acquisition of such customer by a purchaser who
uses a competitor, in-sourcing by customers, a transfer of business to a competitor, an economic downturn, insolvency of a customer,
failure to adequately service our clients, decreased production or a strike or for other reasons, could have a material adverse effect
on our operating margins, our profitability, our sales and our results of operations.
As a result of our reliance
on a limited number of customers, we may face pricing and other competitive pressures, which may have a material adverse effect on our
future revenues and operating results. The volume of solutions and products sold to specific customers varies from year to year, especially
since we are not the exclusive provider for any customers. In addition, there are a number of factors, other than our performance, that
could cause the loss of a customer or a substantial reduction in the solutions and products we provide to any customer and that
may not be predictable. For example, our customers may decide to reduce spending on our solutions and products, or a customer may no longer
need our solutions and products following the completion of a project. The loss of any one of our major customers, a decrease in the volume
of sales to these customers or a decrease in the price at which we sell our products to them could materially adversely affect our profits
and our revenues.
In addition, this customer
concentration may subject us to perceived or actual leverage that our customers may have in negotiations with us, given their relative
size and importance to us. If our customers seek to negotiate their agreements on terms less favorable to us and we accept such unfavorable
terms, such unfavorable terms may have a material adverse effect on our business, financial condition and results of operations. Accordingly,
unless and until we diversify and expand our customer base, our future success will significantly depend upon the timing and volume of
business from our largest customers and the financial and operational success of these customers.
2
We are engaged in on-going development of
our current and future products. Our research and development efforts may not produce successful products or enhancements to our solution
that result in significant revenue or other benefits in the near future, if at all.
We expect to continue to dedicate
significant financial and other resources to our research and development efforts in order to continuously evolve the development of our
products and maintain our competitive position. As a result, our business is significantly dependent on our ability to successfully complete
the development of our next- generation products. Investing in research and development personnel, developing new products, and enhancing
existing products is expensive and time consuming, and there is no assurance that such activities will result in successful development
of our products, significant new marketable products or enhancements to our products, design improvements, cost savings, revenues or other
expected benefits. If we spend significant time and effort on research and development and are unable to generate an adequate return on
our investment, our business and results of operations may be materially and adversely affected.
If we fail to effectively manage our growth,
our business and operations will be negatively affected, and as we invest in the growth of our business, we expect our operating and net
profit margins to decline in the near-term.
We have experienced rapid
growth in the last five years and intend to continue to grow our business. Our annual operating expenses may continue to increase as we
invest in sales, marketing, research and development. Our growth to date has placed significant demands on our management, sales, operational
and financial infrastructure, and our growth will continue to place significant demands on these resources. We may not be able to successfully
implement these improvements in a timely or efficient manner, and our failure to do so may materially impact our projected growth rate.
We may also not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational
mistakes, loss of business opportunities, failure to deliver and timely deliver our products to customers, loss of employees and reduced
productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources
from other projects, such as the development of current and additional new products. If our management is unable to effectively manage
our growth, our expenses may increase more than expected, our ability to generate and/or grow revenue could be reduced, and we may not
be able to implement our business strategy.
As we invest in the growth
of our business, we expect that these investments will result in increased costs and may impact our short and mid-term operating and net
profit margins. A failure to meet market expectations regarding our profitability and our position as a growth company has had and could
continue to have an adverse effect on the price of our Ordinary Shares and ADSs.
Our quarterly and annual results of operations
may fluctuate for a variety of reasons.
Our operating results and
financial condition may fluctuate from quarter to quarter and year to year and may continue to vary due to several factors, many of which
will not be within our control. If our operating results do not meet the guidance that we provide to the market or the expectations of
securities analysts or investors, the market price of our Ordinary Shares and the ADSs will likely decline. Fluctuations in our operating
results and financial condition may be due to several factors:
● the degree of market acceptance of our solutions and products;
● our ability to attract and retain new customers;
● our ability to sell additional products to current customers;
● changes in consumers’, enterprises’ or channel partners’ requirements and utilization of our products;
3
● changes in the growth rate of the data collection solutions markets;
● the timing and success of new product and service introductions by us or our competitors or any other change in the competitive landscape of the data collection markets, including consolidation among our customers or competitors;
● a disruption in, or termination of, our relationship with partners;
● our ability to successfully expand our business globally;
● changes in our pricing policies or those of our competitors and our responses to price competition;
● general economic conditions in our markets, including political, economic and military instability due to the Israel-Hamas, Israel-Iran and Israel-Hezbollah conflicts in Israel;
● unexpected changes in regulatory practices, laws, regulations and the court systems of certain jurisdictions;
● future accounting pronouncements or changes in our accounting policies or practices;
● the amount and timing of our operating costs;
● a change in our mix of solutions and products; and
● increases or decreases in our expenses caused by fluctuations in foreign currency exchange rates.
Any of the above factors,
individually or in the aggregate, may result in significant fluctuations in our financial and other operating results from period to period.
These fluctuations could result in our failure to meet our operating plan or the expectations of investors or analysts for any period.
If we fail to meet such expectations for these or other reasons, the market price of our Ordinary Shares and the ADSs could fall substantially,
and we could face costly lawsuits, including securities class action suits.
Our revenues may fluctuate from month to
month and from quarter to quarter due to variability in customer usage of our solutions and products.
A portion of our revenues
is generated based on the level of consumption or usage of our solutions and products by our customers. Even when we maintain ongoing
relationships with customers, the volume of solutions and products consumed by our customers may vary significantly during any given period
depending on their business needs and activities. For example, customers may increase or decrease their usage due to changes in project
scope or duration, internal priorities, budgetary considerations, regulatory developments, technological changes, market conditions, or
the completion, delay or cancellation of specific initiatives.
As a result, the level of
usage by our customers may fluctuate from month to month and from quarter to quarter, which may cause corresponding variability in our
revenues and operating results during those periods. These fluctuations may occur even when our overall customer base remains stable and
may make it difficult for us to accurately predict our future revenues and operating results. If customer usage declines in any period,
our revenues, profitability and financial results could be adversely affected.
4
Our reputation and business could be harmed
based on real or perceived shortcomings, defects or vulnerabilities in our solution or the failure of our solution to meet customers’
expectations.
Organizations and consumers
are facing increasingly sophisticated and targeted cyber threats, including the growing threat of cyber terrorism throughout the world.
If we fail to identify and respond to new and increasingly complex methods of attack and update our products to detect or prevent such
threats, our business and reputation will suffer. In particular, we may suffer significant adverse publicity and reputational harm if
a significant breach occurs generally or if any breach occurs at a high-profile customer. Moreover, if our solutions are adopted by an
increasing number of enterprises and consumers, it is possible that attackers will begin to focus on finding ways to defeat our solutions.
An actual or perceived security breach or theft of our customers’ sensitive business or personal data, regardless of whether the
breach or theft is attributable to the failure of our products, could adversely affect the market’s perception of the efficacy of
our solutions and current or potential customers may look to our competitors for alternatives to our solutions. The failure of our products
may also subject us to lawsuits and financial losses stemming from indemnification demands of our partners and other third parties, as
well as the expenditure of significant financial resources to analyze, correct or eliminate any vulnerabilities. Any claim brought against
us, regardless of its merit, could result in material expense, diversion of management time and attention, and damage to our reputation,
and could cause us to fail to retain or attract customers. Costs or payments made in connection with warranty and product liability claims
and product recalls, or other claims could materially affect our financial condition and results of operations. It could also cause us
to suffer reputational harm, lose existing customers or deter them from purchasing additional solutions and products and prevent new customers
from purchasing our solutions.
False detection of threats,
while typical in our industry, may reduce perception of the reliability of our products and may therefore adversely impact market acceptance
of our products. If our solutions restrict legitimate privileged access by authorized personnel to IT systems and applications by falsely
identifying those users as an attack or otherwise unauthorized, or fail to provide privacy and security web browsing to consumers, our
customers’ businesses could be harmed. There can be no assurance that, despite testing by us, errors will not be found in existing
and new versions of our products, resulting in loss of or delay in market acceptance. In such an event, we may be required, or may choose,
for customer relations or other reasons, to expend additional resources in order to help correct the problem. In addition, the network
of data collection solutions is built on a mix of IPs, which we source from various providers and technologies. A significant portion
of our IP pool is sourced from third-party IP proxy providers and ISPs around the world from which we lease and then resell. We have separate
agreements with each provider. If such a provider chooses to terminate the agreement, we will be at a risk of reducing the size of our
IP pool and might not be able to support the demands of our customer base.
If we are unable to acquire new customers,
our future revenues and operating results will be harmed.
Our success depends on our
ability to acquire new customers. The number of customers that we add in a given period impacts both our short-term and long-term revenues.
If we are unable to attract a sufficient number of new customers, we may be unable to generate revenue growth at desired rates. The markets
we operate in are competitive and many of our competitors have substantial financial, personnel, and other resources that they utilize
to develop products and attract customers. As a result, it may be difficult for us to add new customers to our customer base. Competition
in the marketplace may also lead us to win fewer new customers or result in us providing discounts and other commercial incentives. Additional
factors that impact our ability to acquire new customers include the perceived need for cyber security, the size of our prospective customers’
infrastructure budgets, the utility and efficacy of our existing and new offerings, whether proven or perceived, our ability to reach
a significant portion of the consumer market, and general economic conditions. These factors may have a meaningful negative impact on
future revenues and operating results. With respect to our enterprise access business, while many companies understand the problem of
doing competitive analysis, data collection, and other privacy-related use cases, widespread awareness of the need for access solutions
is still lacking. Proxy networks are well understood, and virtual private networks are commonly popular, but access solutions are still
in the early adoption phase among companies and individuals that stand to benefit from them. This restraint accounts for not all enterprise
access vendors having the marketing budgets to promote themselves.
If key customers or groups of customers
reduce their consumption of our solutions and products due to technological changes in the market, such as new restrictions, policies,
or regulations imposed by major digital platforms, or as a result of other factors, such as industry changes, shifts in customer business
priorities, or specific customer decisions, it may negatively impact our revenue and financial performance.
Our business relies significantly
on a limited number of key customers, and any reduction in their consumption of our solutions and products could adversely affect our
financial performance. Changes in market conditions, including technological advancements and evolving regulations, create additional
risks that may impact our customer relationships. For instance, new policies, restrictions, or regulatory changes imposed by major digital
platforms could alter how our solutions or products are used, limiting their scope or effectiveness for certain customers. Additionally,
changes within our customers’ industries, shifts in their business priorities, or their specific business decisions may influence
their ongoing demand for our offerings.
5
Furthermore, the decision
by our clients to utilize our products may be influenced by other factors, including:
● the cost of our products;
● the success of our sales and marketing efforts;
● the performance of our products;
● the responsiveness and professionalism of our support team; and
● customer confidence, which may be impacted by economic and political conditions.
If key customers reduce or
cease their purchases due to any of these factors, whether in response to regulatory developments, strategic adjustments, prices, support
issues or shifts in industry standards, our revenue, operations, and financial performance could be significantly affected. We continually
strive to improve our products’ performance, marketing efforts efficiency and our support team professionalism and response, while
monitoring the evolving market conditions, aiming to adapt to both regulatory shifts and technological advancements to support stable
and enduring customer relationships. Nonetheless, the pace and unpredictability of these changes remain outside our control, presenting
a potential risk to our business stability and growth trajectory.
If we are unable to sell additional solutions
and products to our existing customers, our future revenues and operating results will be harmed.
Our revenues are also generated
from sales to existing customers. Our future success depends, in part, on our ability to obtain recurring sales to our existing customers.
However, we face customer retention challenges due to fierce competition in the market. We devote significant efforts to developing, marketing
and selling additional products to existing customers and rely on these efforts for a portion of our revenues. These efforts require a
significant investment in building and maintaining customer relationships, as well as significant research and development efforts in
order to provide product upgrades and launch new products. The rate at which our existing customers purchase additional solutions and
products depends on a number of factors, including, but not limited to, the perceived need for additional access solutions or products,
the fit and efficacy of our solutions and the utility of our new offerings, whether proven or perceived, our customers’ budgets,
general economic conditions, our customers’ overall satisfaction with the maintenance and professional services we provide and the
continued growth and economic health of our customer base to require incremental users and servers to be covered. If our efforts to sell
additional solutions and products to our customers are not successful, our future revenues and operating results will be harmed.
We face intense competition from data collection
vendors, some of which are larger and better known than we are, and we may lack sufficient financial or other resources to maintain or
improve our competitive position.
The markets in which we operate
are characterized by intense competition, constant innovation and evolving security threats. We compete with companies that offer a broad
array of web data collection products. Our current and potential future competitors include providers of data collection solutions, such
as Bright Data Ltd., or Bright Data, Oxylabs Networks Pvt. Ltd., BiScience Inc. and others. Some of our competitors are larger than
us and may have the technical and financial resources and broad customer bases needed to bring competitive solutions to the market and
already have existing relationships as a trusted vendor for other products. Such companies may use these advantages to offer solutions
and products that are perceived to be as effective as ours at a lower price or for free as part of a larger product package or solely
in consideration for maintenance and support fees. They may also develop different products to compete with our current solutions and
respond more quickly and effectively than we do to new or changing opportunities, technologies, standards, or client requirements. Additionally,
from time to time we may compete with smaller regional vendors that offer products with a more limited range of capabilities that purport
to perform functions similar to our solution. Such companies may enjoy stronger sales and service capabilities in their particular regions.
We face the emergence of small competitors in this field due to high profitability margins, which can result in pressure on prices to
decline. Furthermore, these margins can lead also to competition from bigger companies that can invest larger human, cash and technological
resources into this industry. Such increased competition can lead to lower margins and, consequently, impact our revenues, profitability
and business.
6
Our competitors may enjoy
potential competitive advantages over us, such as:
● greater name recognition, a longer operating history and a larger customer base;
● larger sales and marketing budgets and resources;
● broader distribution and established relationships with channel and distribution partners and customers;
● greater customer support resources;
● greater resources to make acquisitions;
● larger intellectual property portfolios; and
● greater financial, technical and other resources.
Our current and potential
competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their resources.
Current or potential competitors may be acquired by third parties with greater available resources. As a result of such acquisitions,
our current or potential competitors might be able to adapt more quickly to new technologies and customer needs, devote greater resources
to the promotion or sale of their solutions and products, initiate or withstand substantial price competition, take advantage of other
opportunities more readily or develop and expand their product and service offerings more quickly than we do. Larger competitors with
more diverse product offerings may reduce the price of products that compete with ours in order to promote the sale of other products
or may bundle them with other products, which would lead to increased pricing pressure on our products and could cause the average sales
prices for our products to decline.
We may not be able to successfully
anticipate or adapt to changing technology or customer requirements on a timely basis, or at all. If we fail to keep up with technological
changes or to convince our customers and potential customers of the value of our solution even in light of new technologies, our business,
results of operations and financial condition could be materially and adversely affected.
We may experience pricing pressure in our
markets, and any decline in the prices of our solutions and products could adversely affect our revenues and margins.
Broader market dynamics may
lead to declines in the prices we can charge for our products, which could adversely affect our revenues and margins. Prices for data
collection products and solutions and for proxy network solutions may decrease over time as a result of several industry factors, including
increased supply from new or expanding providers, price reductions or aggressive discounting by competitors, or shifts in customer expectations
toward lower-cost access solutions. As the market evolves, customers may also seek higher volumes at lower average selling prices, expect
bundled or usage-based pricing models, or negotiate more aggressively based on the growing number of alternatives available to them. Even
when demand for our products remains strong, these market forces may limit our ability to maintain or increase prices, which could negatively
impact our gross margins. Sustained pricing pressure may also affect our ability to invest in product development, infrastructure, and
customer support at the levels we believe are necessary to remain competitive. Any significant decline in pricing, whether driven by increased
supply, competitive actions, or broader market trends, could adversely affect our revenues, profitability, and long-term growth prospects.
7
If our internal network system is compromise
by cyber attackers or other malicious cyber activity, or if our hosting and infrastructure fails, public perception of our solutions and
products will be harmed.
We
will not succeed unless the marketplace is confident that we provide effective cybersecurity protection. Further, we may be targeted by
cyber terrorists because we are an Israeli company or otherwise. For example, in January 2023, we experienced an immaterial breach, which
resulted in the hacker gaining temporary access to our database. In response, we secured all exposed servers to prevent further breaches
and engaged a Chief Information Security Officer (CISO) to provide security consultation and strengthen our defenses. Although such incident
did not have an adverse effect on us or our customers and we have not had a cybersecurity incident since then, if we experience another
actual or perceived breach of our network and our internal systems, it could adversely affect the market perception of our solutions and
products. In addition, we may need to devote more resources to address security vulnerabilities in our solution, and the cost of addressing
these vulnerabilities could reduce our operating margins. If we do not address security vulnerabilities or otherwise provide adequate
security features in our products, certain customers, particularly government customers, may delay or stop purchasing our products. Further,
a security breach could impair our ability to operate our business, including our ability to provide maintenance and support solutions
to our customers. If this happens, our revenues could decline, and our business could suffer. If we experience short period hosting/infrastructure
failures, or longer periods of disconnection blocking of our network of IPs to access certain websites, and do not offer our customers
various immediate alternatives, some customers may choose to delay or stop purchasing our products.
In the ordinary course of
our business, we rely on information technology systems, networks and services, including internet sites, data hosting and processing
tools, hardware (including laptops and mobile devices), software, and technical platforms and applications, to process, store and transmit
data and to help us manage our business and to collect and store the Company’s sensitive data, including intellectual property,
personal information and proprietary business information. The secure maintenance and transmission of this information is critical to
our operations and business strategy. We rely on commercially available systems, software, tools, and domestically available monitoring
to provide security for processing, transmitting and storing this sensitive data. As part of our implemented efficiency and cost-saving
measures, we are using cloud service providers. While benefits for using cloud computing services are well documented and are mostly related
to resources sharing, on-demand self-services, rapid scalability, improved economies of scale and collaboration, there are risks that
could outweigh the expected benefits, and require close attention and management. For example, there is no guarantee that the features
we use will be provided for the same price in the future, there is a risk in relying on a cloud service for business-related tasks because
no service can guarantee 100% uptime and there is always a risk of data leakage when a company’s data is held by a third-party vendor.
Information technology systems,
including those managed or hosted by third parties, could be subject to sophisticated cyber-attacks (including phishing and ransomware
attacks) and threats by external or internal parties’ intent on disrupting business processes or otherwise extracting or corrupting
information. In recent years, ransomware attacks against organizations have become more frequent and while we continue to implement additional
protective measures to reduce the risk of and detect cyber incidents, cyber-attacks are becoming more sophisticated and frequent, and
the techniques used in such attacks change rapidly. We may also face increased cybersecurity risks due to the number of our employees
and our third-party providers who are (and may continue to be) working remotely, which creates additional opportunities for cybercriminals
to launch attacks and exploit vulnerabilities in non-corporate IT environments. Unauthorized access to our systems could disrupt our business,
and/or lead to theft, loss or misappropriation of critical assets or to outside parties having access to confidential information, including
privileged data, personal data or strategic information. Such information could also be made public in a manner that harms our reputation
and financial results and, particularly in the case of personal data, could lead to regulators imposing significant fines on us.
Also, our information technology
networks and infrastructure may still be vulnerable to damage, disruptions, or shutdowns due power outages, computer viruses, telecommunication
or utility failures, systems failures, natural disasters or other catastrophic events. Any such compromise could disrupt our operations,
damage our reputation, and subject us to additional costs and liabilities, any of which could adversely affect our business. See “Item
16.K. Cybersecurity” for additional information.
8
If we do not effectively expand, train and
retain our sales force, we may be unable to acquire new customers or sell additional solutions and products to existing customers, and
our business will suffer.
We depend significantly on
our sales force to attract new customers and expand sales to existing customers. As a result, our ability to increase our revenues depend
in part on our success in recruiting, training and retaining sufficient numbers of sales personnel to support our growth. We expect to
continue to expand our sales personnel and face a number of challenges in achieving our hiring and integration goals. There is intense
competition for individuals with sales training and experience. In addition, the training and integration of a large number of sales personnel
in a short time requires the allocation of internal resources. We invest significant time and resources in training new sales force personnel
to understand our solutions and growth strategy. Based on our past experience, it takes an average of approximately six to nine months
before a new sales force member operates at target performance levels. However, we may be unable to achieve or maintain our target performance
levels with large numbers of new sales personnel as quickly as we have done in the past. Our failure to hire a sufficient number of qualified
sales force members and train them to operate at target performance levels may materially and adversely impact our projected growth rate.
If our products fail to ensure customer
compliance with government regulations and industry standards, our business and results could be materially impacted.
The legality of scraping publicly
available web data was upheld in late 2019, when the Ninth Circuit Court of Appeals ruled in hiQ Labs, Inc., or hiQ, v. LinkedIn Corporation
that scraping publicly accessible data did not violate the Computer Fraud and Abuse Act. However, the hiQ litigation did not ultimately
result in a definitive nationwide rule. The U.S. Supreme Court vacated an earlier Ninth Circuit opinion in 2021, and although the Ninth
Circuit reaffirmed its position in 2022, hiQ later entered bankruptcy and the case was ultimately resolved without a final merits ruling.
As a result, the hiQ decisions remain influential but create continued legal uncertainty rather than a settled precedent. More broadly,
large online platforms have intensified their efforts to restrict scraping. For example, X Corp. (formerly Twitter) has filed multiple
lawsuits against parties accused of scraping its platform without consent, and Meta Platforms, Inc. has pursued litigation against Bright
Data Ltd., arguing that automated collection of publicly available data violates user agreements and intellectual property rights. Courts
have reached mixed conclusions in these and similar cases, with some rulings supporting contractual limitations on automated access. This
trend reflects an increasingly aggressive enforcement posture by major platforms toward data collection activities. As the web continues
to evolve as a vast source of information, the debate over data accessibility versus privacy has intensified, including heightened scrutiny
of automated software tools, large-scale data collection, and AI-related data sourcing practices. Regulatory or judicial developments
may materially affect the methods or feasibility of providing certain data-driven solutions.
International regulatory bodies
are increasingly focused on online privacy issues and user data protection. In particular, the General Data Protection Regulation, or
the GDPR, in the European Union, or EU, and the UK intends to strengthen and unify data protection for all individuals within the EU.
Supervisory authorities in the EU have also taken a more assertive approach toward enforcement in recent years, including investigations
involving large-scale scraping of publicly accessible personal data. Where scraped data includes personal information, GDPR obligations
regarding lawful processing, purpose limitation, transparency, and Data Protection Impact Assessments may apply.
In addition to the GDPR, an
expanding number of privacy laws in the United States—such as those enacted in California (the California Consumer Privacy Act of
2020, or the CCPA/the California Privacy Rights Act, or the CPRA), Virginia, Colorado, Connecticut, Utah, Texas, and other states—impose
obligations relating to personal data handling, automated decision-making, and cybersecurity. These regimes create a complex and evolving
compliance landscape for data-driven businesses.
The GDPR also imposes strict
requirements on the transfer of personal data outside the EU and UK, including the need for appropriate safeguards for cross-border data
flows. These rules add another layer of complexity for data-driven services that may involve accessing or processing information across
multiple jurisdictions.
In Israel, the Privacy Protection
Law of 1981 and its regulations — including amendments and guidance issued by the Israeli Privacy Protection Authority — impose
additional obligations concerning database registration, data security, breach notification, and the handling of personal information.
Ongoing legislative reform efforts may further expand data protection obligations and increase enforcement activity.
These industry standards may
change with little or no notice, including changes that could make them more or less onerous for businesses. Any inability to adequately
address privacy and security concerns or comply with applicable privacy and data security laws, rules and regulations could have an adverse
effect on our business prospects, results of operations and/or financial position. In addition, governments may also adopt new laws or
regulations, or make changes to existing laws or regulations, that could impact whether our solution enables our customers to maintain
compliance with such laws or regulations. If we are unable to adapt our solution to changing government regulations and industry standards
in a timely manner, or if our solution fails to expedite our customers’ compliance initiatives, our customers may lose confidence
in our products and could switch to products offered by our competitors. In addition, if government regulations and industry standards
related to the access sectors are changed in a manner that makes them either more or less stringent, our customers may adjust the priority
they place on compliance, and our customers may be less willing to purchase our solutions and products. In either case, our sales and
financial results would suffer.
9
Our model for long-term growth
depends upon the introduction of new products. If we are unable to develop new products or if these new products are not adopted by customers,
our growth will be adversely affected.
Our business depends on the
successful development and marketing of new products, including adding complementary offerings to our current products. Development and
marketing of new products require significant up-front research, development and other costs, and the failure of new products we develop
to gain market acceptance may result in a failure to achieve future sales and adversely affect our competitive position. There can be
no assurance that any of our new or future products will achieve market acceptance or generate revenues at forecasted rates or that the
margins generated from their sales will allow us to recoup the costs of our development efforts.
If we do not successfully anticipate market
needs and enhance our existing products or develop new products that meet those needs on a timely basis, we may not be able to compete
effectively and our ability to generate revenues will suffer.
Our customers operate in markets
characterized by rapidly changing technologies and business plans, which require them to adapt to increasingly complex IT infrastructures
that incorporate a variety of hardware, software applications, operating systems and networking protocols. As our customers’ technologies
and business plans grow more complex, we expect them to face new and increasingly sophisticated methods of attack. We face significant
challenges in ensuring that our solutions effectively identify and respond to these advanced and evolving attacks without disrupting the
performance of our customers’ IT systems. As a result, we must continually modify and improve our products in response to changes
in our customers’ IT and industrial control infrastructures.
We cannot guarantee that we
will be able to anticipate future market needs and opportunities or be able to develop product enhancements or new products to meet such
needs or opportunities in a timely manner, if at all. Even if we are able to anticipate, develop and commercially introduce enhancements
and new products, there can be no assurance that enhancements or new products will achieve widespread market acceptance.
Our product enhancements or
new products could fail to attain sufficient market acceptance for many reasons, including:
● delays in releasing product enhancements or new products;
● failure to accurately predict market demand and to supply products that meet this demand in a timely fashion;
● inability to interoperate effectively with the existing or newly introduced technologies, systems or applications of our existing and prospective customers;
● inability to protect against new types of attacks or techniques used by cyber attackers or other data thieves;
● defects in our products, errors or failures of our solutions to secure privileged accounts;
● negative publicity about the performance or effectiveness of our products;
● introduction or anticipated introduction of competing products by our competitors;
● installation, configuration or usage errors by our customers; and
● easing or changing of regulatory requirements related to IT / cybersecurity / privacy.
10
If we fail to anticipate market
requirements or fail to develop and introduce product enhancements or new products to meet those needs in a timely manner, it could cause
us to lose existing customers and prevent us from gaining new customers, which would significantly harm our business, financial condition,
and results of operations.
Defects and bugs in products could give
rise to product returns, cancellation of orders or product liability, warranty or other claims that could result in material expenses,
diversion of management time and attention, and damage to our reputation.
Even if we are successful
in introducing our products to the market, our products may contain undetected defects or errors that, despite testing, are not discovered
until after a product has been used. Our software could have, or could be alleged to have, defects, bugs or other errors or failures.
This could result in cancellation of orders, difficulties in maintaining business relations with customers that use our software, delayed
market acceptance of those products, claims from distributors, end-users or others, increased end-user service and support costs and warranty
claims, damage to our reputation and business and the ability to attract new customers, or significant costs to correct the defect or
error. We may from time to time become subject to warranty or product liability claims that could lead to significant expenses as we need
to compensate affected end-users for costs incurred related to product quality issues.
Any claim brought against
us, regardless of its merit, could result in material expense, diversion of management time and attention, and damage to our reputation,
and could cause us to fail to retain or attract customers.
Economic instability, geopolitical events,
and market disruptions may impact our access to capital and adversely affect our business and share price.
Market events and conditions,
including disruptions in the financial markets and deteriorating global economic conditions, could increase the cost of capital or impede
our access to capital. Economic and geopolitical events, as well as global outbreaks of contagious diseases, such as the Russia-Ukraine
war, may create uncertainty in global financial and equity markets. Such disruptions could make it more difficult for us to obtain capital
and financing for our operations, or increase the cost of it, among other things. If we do not raise capital when we need it, or access
it on reasonable terms, it could have a material adverse effect on our business, results of operations, financial condition and the Company’s
Ordinary Shares or ADSs price. If the negative economic conditions persist or worsen, it could lead to increased political and financial
uncertainty, which could result in regime or regulatory changes in the jurisdictions in which we operate. High levels of volatility and
market turmoil could have an adverse effect on our business, results of operations, financial condition and the Company share price.
If we are unable to hire, retain and motivate
qualified personnel, our business will suffer.
Our future success depends,
in part, on our ability to continue to attract and retain highly skilled personnel. Our inability to attract or retain qualified personnel
or delays in hiring required personnel, particularly in sales and software engineering, may seriously harm our business, financial condition
and results of operations. Any of our employees may terminate their employment at any time. Competition for highly skilled personnel is
frequently intense, especially in Israel, where we are headquartered. Moreover, certain of our competitors or other technology businesses
may seek to hire our employees. There is no assurance that any equity or other incentives that we grant to our employees will be adequate
to attract, retain and motivate employees in the future. If we fail to attract, retain and motivate highly qualified personnel, our business
will suffer. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly
solicited or divulged proprietary or other confidential information.
We are exposed to fluctuations in currency
exchange rates, which could negatively affect our financial condition and results of operations.
Our functional and reporting
currency is the U.S. dollar, and we generate a majority of our revenues in U.S. dollars. A material portion of our operating expenses
is incurred outside the United States, mainly in NIS and are subject to fluctuations due to changes in foreign currency exchange rates,
particularly changes in NIS. Our foreign currency-denominated expenses consist primarily of personnel, rent and other overhead costs.
Since a significant portion of our expenses is incurred in NIS and is substantially greater than our revenues in NIS, any appreciation
of the NIS relative to the U.S. dollar would adversely impact our net income or net loss, as relevant. During 2025, the NIS appreciated
by 12.5% against the dollar. We are therefore exposed to foreign currency risk due to fluctuations in exchange rates. This may result
in gains or losses with respect to movements in exchange rates which may be material and may also cause fluctuations in reported financial
information that are not necessarily related to its operating results. We expect that most of our revenues will continue to be generated
in U.S. dollars with the balance in NIS for the foreseeable future, and that a significant portion of our expenses will continue to be
denominated in NIS. To date, foreign currency transaction gains and losses and exchange rate fluctuations have not been material to our
consolidated financial statements, and we have not engaged in any foreign currency hedging transactions. See “Item 11. Quantitative
and Qualitative Disclosure About Market Risk—Foreign Currency Exchange Risk.”
11
We may acquire other businesses, which could
require significant management attention, disrupt our business, dilute shareholder value, and adversely affect our results of operations.
As part of our business strategy
and in order to remain competitive, we are evaluating acquiring or making investments in complementary companies, products or technologies
on an on-going basis. We have completed two main acquisitions to date – the acquisitions of NetNut and CyberKick. Going forward,
we may not be able to find suitable acquisition candidates, and we may not be able to complete such acquisitions on favorable terms, if
at all. If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals, and any acquisitions
we complete could be viewed negatively by our customers, analysts and investors. In addition, if we are unsuccessful at integrating such
acquisitions or the technologies associated with such acquisitions, our revenues and results of operations could be adversely affected.
Any integration process may require significant time and resources, and we may not be able to manage the process successfully. We may
not successfully evaluate or utilize the acquired technology or personnel, or accurately forecast the financial impact of an acquisition
transaction, including accounting charges. We may have to pay cash, incur debt, or issue equity securities to pay for any such acquisition,
each of which could adversely affect our financial condition or the value of our Ordinary Shares. The sale of equity or issuance of debt
to finance any such acquisitions could result in dilution to our shareholders. The incurrence of indebtedness would result in increased
fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our operations.
We are subject to governmental export and
import controls that could subject us to liability in the event of non-compliance or impair our ability to compete in international
markets.
We are subject to U.S. and
Israeli export control and economic sanctions laws, which prohibit the delivery and sale of certain products to embargoed or sanctioned
countries, governments, and persons. Our products could be exported to these sanctioned targets by our channel partners despite the contractual
undertakings they have given us, and any such export could have negative consequences, including government investigations, penalties,
and reputational harm. Any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement
or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could
require export licenses or result in decreased use of our products by, or in our decreased ability to export or sell our products to,
existing or potential customers with international operations or cessation of export or sale of our products in sanctioned countries or
to sanctioned persons. Any decreased use of our products or limitation on our ability to export or sell our products would likely adversely
affect our business, financial condition, and results of operations.
We may be subject to geopolitical events
and resulting macroeconomic consequences.
Geopolitical risks and associated
military action may result in, among other things, global security issues that may adversely affect international business and economic
conditions, and economic sanctions which may impact the global economy. For example, the outbreak of hostilities between Russia and Ukraine
in February 2022 led to global sanctions that have impacted the international economy and given rise to potential global security
issues that may adversely affect international business and economic conditions. Additional geopolitical and macroeconomic consequences
of this invasion and associated sanctions cannot be predicted, and future geopolitical events, including further hostilities in Ukraine
or elsewhere, could negatively impact global financial markets our business as it may limit our ability to provide our solutions and products
in those and in neighboring countries and cause the price of our ordinary shares to decline. See also “Political, economic
and military instability due to the Israel-Hamas, Israel-Iran and Israel-Hezbollah conflicts, as well as the risk of attacks from Iran
on Israel, where our headquarters, members of management, production facilities and employees are located, may adversely affect our results
of operations.”
12
Our use of third-party software
and other intellectual property may expose us to risks.
Some of our solutions and
products include software or other intellectual property licensed from third parties, and we otherwise use software and other intellectual
property licensed from third parties in our business. This exposes us to risks over which we may have little or no control. For example,
a licensor may have difficulties keeping up with technological changes or may stop supporting the software or other intellectual property
that it licenses to us. There can be no assurance that the licenses we use will be available on acceptable terms, if at all. In addition,
a third party may assert that we or our customers are in breach of the terms of a license, which could, among other things, give such
third party the right to terminate a license or seek damages from us, or both. Our inability to obtain or maintain certain licenses or
other rights or to obtain or maintain such licenses or rights on favorable terms, or the need to engage in litigation regarding these
matters, could result in delays in releases of new products, and could otherwise disrupt our business, until equivalent technology can
be identified, licensed, or developed.
Our use of open-source software could negatively
affect our ability to sell our software and subject us to possible litigation.
We use open-source software
and expect to continue to use open-source software in the future. Some open-source software licenses require users who distribute or make
available as a service open-source software as part of their own software product to publicly disclose all or part of the source code
of the users’ software product or to make available any derivative works of the open-source code on unfavorable terms or at no cost.
We may face ownership claims of third parties over, or seeking to enforce the license terms applicable to, such open-source software,
including by demanding the release of the open-source software, derivative works or our proprietary source code that was developed using
such software. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional
research and development resources to change our software, any of which would have a negative effect on our business and results of operations.
In addition, if the license terms for the open-source code change, we may be forced to re-engineer our software or incur additional
costs.
Under applicable employment laws, we may
not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise
of some of our former employees.
We generally enter into non-disclosure
and non-competition agreements with our employees. These agreements prohibit our employees from competing directly with us or working
for our competitors or customers for a limited period after they cease working for us. We may be unable to enforce these agreements under
the laws of the jurisdictions in which our employees work, and it may be difficult for us to restrict our competitors from benefiting
from the expertise that our former employees or consultants developed while working for us. For example, Israeli courts have required
employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former
employee will harm one of a limited number of material interests of the employer that have been recognized by the courts, such as the
secrecy of a company’s confidential commercial information or the protection of its intellectual property. If we cannot demonstrate
that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former employees
or consultants and our ability to remain competitive may be diminished.
Risks Related to Our Financial Condition and
Capital Requirements
We maintain some of our cash balances at financial
institutions that may exceed federally insured limits.
A small portion of our cash
is held in accounts at U.S. banking institutions that we believe are of high quality. Cash held in non-interest-bearing and interest-bearing
operating accounts may exceed the Federal Deposit Insurance Corporation, or FDIC, insurance limits. If such banking institutions were
to fail, we could lose all or a portion of those amounts held in excess of such insurance limitations. In addition, a substantial portion
of our cash and cash equivalents is held in accounts with Israeli banking institutions. While we believe these institutions are of high
quality, deposits held with Israeli banks are not insured by the U.S. Federal Deposit Insurance Corporation, and are subject to the credit
risk of the relevant financial institutions. If any such institution were to experience financial difficulties or failure, we could lose
all or a portion of the cash held with such institution, which could adversely affect our liquidity and financial condition. Any such
loss or limitation on access to our cash could impair our ability to meet our working capital requirements, satisfy our financial obligations
as they become due, or fund our operations and strategic initiatives.
13
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain
effective patent rights for our products, we may not be able to compete effectively in our markets. If we are unable to protect the confidentiality
of our trade secrets or know-how, such proprietary information may be used by others to compete against us.
Our reverse access technology
is patent protected in several jurisdictions: United States, Europe (including Austria, Switzerland, Germany, Spain, France, United Kingdom
and Italy), Israel, China and Hong-Kong.
There is no guarantee that
pending or future patent applications will result in patent grants. Failure to file patent applications or obtain patent grants may allow
other entities to manufacture our products and compete with them.
Further, there is no assurance
that all potentially relevant prior art relating to our patent applications has been found, which can invalidate a patent or prevent a
patent from being issued from a pending patent application. Even if patents are successfully issued, and even if such patents cover our
products, third parties may challenge their validity, enforceability, or scope, which may result in such patents being narrowed, found
unenforceable or invalidated. Furthermore, even if they are unchallenged, our patent applications and any future patents may not adequately
protect our intellectual property, provide exclusivity for our new products, or prevent others from designing around our claims. Any of
these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.
If we cannot obtain and maintain
effective patent rights for our products, we may not be able to compete effectively, and our business and results of operations may be
harmed.
If our trademarks and trade names are not
adequately protected, we may not be able to build name recognition in our markets of interest and our business may be affected.
We have filed for trademark
registration of certain marks relating to our branding. If our unregistered trademarks and trade names are not adequately protected,
we may not be able to build name recognition in our markets of interest and our business may be affected. Our trademarks or trade names
may be challenged, infringed, circumvented, or declared generic or determined to be infringing on other marks. Competitors may adopt trade
names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In
addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks
that incorporate variations of our trademarks or trade names. In the long term, if we are unable to successfully register trademarks and
trade names and establish name recognition based on such trademarks and trade names, then we may not be able to compete effectively, and
our business may be affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names,
copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could
impact our financial condition or results of operations.
If we are unable to maintain effective proprietary
rights for our products, we may not be able to compete effectively in our markets.
Historically, we have relied
on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not
to patent; processes that are not easily known, knowable or easily ascertainable, and for which patent infringement is difficult to monitor
and enforce; and any other elements of our product candidate discovery and development processes that involve proprietary know-how, information
or technology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology
and processes, in part, by entering into confidentiality agreements with our employees, consultants, advisors, and contractors. We also
seek to preserve the integrity and confidentiality of our data, trade secrets and intellectual property by maintaining physical security
of our premises and physical and electronic security of our IT systems. Agreements or security measures may be breached, and we may not
have adequate remedies for any breach. In addition, our trade secrets and intellectual property may otherwise become known or be independently
discovered by competitors.
14
We cannot provide any assurances
that our trade secrets and other confidential proprietary information will not be disclosed in violation of our confidentiality agreements
or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information
and techniques. Also, misappropriation or unauthorized and unavoidable disclosure of our trade secrets and intellectual property could
impair our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken to maintain our
trade secrets and other confidential information are deemed inadequate, we may have insufficient recourse against third parties for misappropriating
any trade secret.
Intellectual property rights of third parties
could adversely affect our ability to commercialize our products, and we might be required to litigate or obtain licenses from third parties
in order to develop or market our product candidates. Such litigation or licenses could be costly or not available on commercially reasonable
terms.
It is inherently difficult
to conclusively assess our freedom to operate without infringing on third party rights. Our competitive position may be adversely affected
if existing patents or patents resulting from patent applications issued to third parties or other third-party intellectual property rights
are held to cover our products or elements thereof or uses relevant to our development plans. In such cases, we may not be in a position
to develop or commercialize products or our product candidates unless we successfully pursue litigation to nullify or invalidate the third-party
intellectual property right concerned or enter a license agreement with the intellectual property right holder, if available on commercially
reasonable terms. There may also be pending patent applications that if they result in issued patents, could be alleged to be infringed
by our new products. If such an infringement claim should be brought and be successful, we may be required to pay substantial damages,
be forced to abandon our new products, or seek a license from any patent holders. No assurances can be given that a license will be available
on commercially reasonable terms, if at all.
It is also possible that we
have failed to identify relevant third-party patents or applications. For example, U.S. patent applications filed before November 29,
2000, and certain U.S. patent applications filed after that date that will not be filed outside the United States, remain confidential
until patents issue. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing
for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications
covering our new products or technology could have been filed by others without our knowledge. Additionally, pending patent applications
which have been published can, subject to certain limitations, be later amended in a manner that could cover our technologies, our new
products, or the use of our new products. Third party intellectual property right holders may also actively bring infringement claims
against us. We cannot guarantee that we will be able to successfully settle or otherwise resolve such infringement claims. If we are unable
to successfully settle future claims on terms acceptable to us, we may be required to engage in or continue costly, unpredictable, and
time-consuming litigation and may be prevented from or experience substantial delays in pursuing the development of and/or marketing our
new products. If we fail in any such dispute, in addition to being forced to pay damages, we may be temporarily or permanently prohibited
from commercializing our new products that are held to be infringing. We might, if possible, also be forced to redesign our new products
so that we no longer infringe the third-party intellectual property rights. Any of these events, even if we were ultimately to prevail,
could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business.
15
Third-party claims of intellectual property
infringement may prevent or delay our development and commercialization efforts.
Our commercial success depends
in part on our avoiding infringement of the patents and proprietary rights of third parties. Numerous U.S. and foreign issued patents
and pending patent applications, which are owned by third parties, exist in the fields in which we are developing our products. As our
industries expand and more patents are issued, the risk increases that our products may be subject to claims of infringement of the patent
rights of third parties.
Third parties may assert that
we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims
to systems, apparatuses or methods related to the use of our products. There may be currently pending patent applications that may later
result in issued patents that our products may infringe. In addition, third parties may obtain patents in the future and claim that the
use of our technologies infringes upon these patents.
If any third-party patents
were held by a court of competent jurisdiction to cover aspects of our formulations, processes for designs, or methods of use, the holders
of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtain a
license or until such patent expires or is finally determined to be invalid or unenforceable. In either case, such a license may not be
available on commercially reasonable terms or at all.
Parties making claims against
us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one
or more of our products. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be
a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may
have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign
our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary
expenditure.
Patent policy and rule changes could increase
the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of any issued patents.
Changes in either the patent
laws or interpretation of the patent laws in the United States and other countries may diminish the value of any patents that may issue
from our patent applications or narrow the scope of our patent protection. Publications of discoveries in the scientific literature often
lag the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18
months after filing, or in some cases not at all. We therefore cannot be certain that we were the first to file the inventions claimed
in our patents or pending applications, or that we were the first to file for patent protection of such inventions. Assuming all other
requirements for patentability are met, in the United States prior to 2013, the first patent applicant to invent the claimed invention
without undue delay in filing, is entitled to the patent, while for the most part outside the United States, the first inventor to file
a patent application is entitled to the patent. After 2013, the United States has moved to a first-inventor-to-file system. The United
States patent system is frequently changing, however, as are other international patent systems, and thus we may experience uncertainties
and costs surrounding the prosecution of our patent applications and the enforcement or defense of any issued patents, all of which could
have a material adverse effect on our business and financial condition.
We may be involved in lawsuits to protect
or enforce our intellectual property, which could be expensive, time-consuming, and unsuccessful.
Competitors may infringe our
intellectual property. If we were to initiate legal proceedings against a third party to enforce a patent covering one of our products,
the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation
in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge
could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, or non-enablement,
among others. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld
relevant information from the U.S. Patent and Trademark Office, or the USPTO, or made a misleading statement, during prosecution. The
validity of U.S. patents may also be challenged in post-grant proceedings before the USPTO. The outcome following legal assertions of
invalidity and unenforceability is unpredictable.
16
In 2014, the U.S. Supreme
Court addressed the question of whether patents related to software are patent eligible subject matter. The Supreme Court did not rule
that patents related to software were per se invalid or that software-related inventions were unpatentable. The Supreme Court outlined
a test that the courts and the USPTO must apply in determining whether software-related inventions qualify as patent eligible subject
matter. The decision and other decisions following that decision have resulted in many software patents having been found invalid as not
claiming patent eligible subject matter. Our U.S. patents, like all U.S. patents, are presumed valid, but that does not mean that
our issued patents cannot be challenged on grounds of patent eligibility, or other grounds.
Derivation proceedings initiated
by third parties or brought by us may be necessary to determine the priority of inventions and/or their scope with respect to our patents
or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to
attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license
on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in
substantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation could have
a material adverse effect on our ability to raise the funds necessary to effectively market our products, continue our research programs,
license necessary technology from third parties, or enter into development partnerships that would help us bring our new products to market.
Furthermore, because of the
substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential
information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results
of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative,
it could have a material adverse effect on the price of our Ordinary Shares.
We may be subject to claims challenging
the inventorship of our intellectual property.
We may be subject to claims
that former employees, collaborators or other third parties have an interest in, or right to compensation, with respect to our current
patent and patent applications, future patents or other intellectual property as an inventor or co-inventor. For example, we may have
inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our products. Litigation
may be necessary to defend against these and other claims challenging inventorship or claiming the right to compensation. If we fail in
defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive
ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even
if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management
and other employees.
In addition, under the Israeli
Patent Law, 5727-1967, or the Patent Law, inventions conceived by an employee in the course and as a result of or arising from his or
her employment with a company are regarded as “service inventions,” which belong to the employer, absent 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, or the Committee, a body constituted
under the Patent Law, shall determine whether the employee is entitled to remuneration for his inventions. Recent 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 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 Patent Law). Although we generally enter
into assignment-of-invention agreements with our employees pursuant to which such individuals assign to us 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. Because of such claims, we could be required to pay additional remuneration or royalties to our current and former employees,
or be forced to litigate such claims, which could negatively affect our business.
17
We may not be able to protect our intellectual
property rights.
Filing, prosecuting, and defending
patents on products, as well as monitoring their infringement in all countries throughout the world, would be prohibitively expensive,
and our intellectual property rights in some countries can be less extensive than those in the United States. In addition, the laws of
some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States.
Competitors may use our technologies
in jurisdictions where we have not obtained patent protection to develop their own products and may also export otherwise infringing products
to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete
with our products. Future patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered
significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries,
particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection,
which could make it difficult for us to stop the marketing of competing products in violation of our proprietary rights generally. Proceedings
to enforce our patent rights in foreign jurisdictions, whether successful, could result in substantial costs and divert our efforts and
attention from other aspects of our business, could put our future patents at risk of being invalidated or interpreted narrowly and our
patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits
that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to monitor
and enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the
intellectual property that we develop or license.
Enforcing intellectual property
rights can be expensive, time-consuming, and uncertain. Although we may choose to pursue litigation or other enforcement actions to protect
our patents and other intellectual property, such actions may require significant resources and may not always be economically justified.
In some circumstances, we may evaluate third-party litigation funding as a way to manage risk or allocate capital more efficiently. However,
there is no assurance that such funding will be available on commercially acceptable terms, or at all. Decisions by potential funding
sources typically depend on their assessment of the merits of the case, the likelihood of success, the potential recovery, and other factors
outside our control. Even if funding is obtained, there is no guarantee that enforcement actions will be successful or that any recovery
will be material. Patent litigation is inherently unpredictable; trial courts and juries may have difficulty evaluating complex technologies,
and appeals can be costly and lengthy. Additionally, defendants in such actions may assert counterclaims, and courts may impose costs
or attorneys’ fees in certain circumstances. We also rely on the ability to retain qualified legal counsel, which may be affected
by conflicts of interest or fee arrangements. Any adverse rulings, sanctions, or unexpected costs related to intellectual property enforcement
could negatively impact our financial results.
18
Risks Related to the Ownership of Our ADSs or
Ordinary Shares
We cannot guarantee
that we will continue to comply with Nasdaq requirement. If we fail to comply with Nasdaq requirements, our ADSs could be delisted from
Nasdaq, and as a result we and our shareholders could incur material adverse consequences, including a negative impact on our liquidity,
our shareholders’ ability to sell shares and our ability to raise capital.
We
cannot guarantee that we will continue to comply with Nasdaq requirements. For example, in 2022, we failed to comply with Nasdaq’s
requirement that the closing bid price of our ADSs exceed $1.00. We subsequently changed the ratio of our ADSs to our Ordinary Shares
and regained compliance with Nasdaq’s minimum bid requirement. If we fail to demonstrate compliance with the minimum bid requirement
or any other Nasdaq requirement and satisfy Nasdaq’s conditions for continued listing, our Ordinary Shares could be delisted. Delisting
from Nasdaq could have an adverse effect on our business and on the trading of our Ordinary Shares. If a delisting of our Ordinary Shares
were to occur, such shares may trade in the over-the-counter market such as on the OTC Bulletin Board or on the “pink sheets.”
The over-the-counter market is generally considered to be a less efficient market, and this could diminish investors’ interest in
our Ordinary Shares as well as significantly impact the price and liquidity of our Ordinary Shares. Any such delisting may also severely
complicate trading of our Ordinary Shares by our shareholders or prevent them from re-selling their Ordinary Shares at/or above the price
they paid.
The issuance of a significant amount of
additional Ordinary Shares due to the exercise or conversion of outstanding equity awards, warrants and/or substantial future sales of
our Ordinary Shares may depress our share price.
As of March 13, 2026, we had
approximately 72.5 million Ordinary Shares issued and outstanding and approximately 9.1 million of additional Ordinary Shares which are
issuable upon exercise or vesting of outstanding warrants and employee equity awards. The issuance of a significant amount of additional
Ordinary Shares on account of these outstanding securities will dilute our current shareholders’ holdings and may depress our share
price. If these or other shareholders sell substantial amounts of our Ordinary Shares and/or ADSs, including shares issuable upon
the exercise or conversion of outstanding warrants or employee options, or if the perception exists that our shareholders may sell a substantial
number of our Ordinary Shares and/or ADSs, we cannot foresee the impact of any potential sales on the market price of these additional
Ordinary Shares, but it is possible that the market price of our Ordinary Shares would be adversely affected. Any substantial sales of
our shares in the public market might also make it more difficult for us to sell equity or equity related securities in the future at
a time and on terms we deem appropriate. Even if a substantial number of sales do not occur, the mere existence of this “market
overhang” could have a negative impact on the market for, and the market price of, our Ordinary Shares.
Holders of ADSs may not receive the same
distributions or dividends as those we make to the holders of our Ordinary Shares, and, in some limited circumstances, holders of ADSs
may not receive dividends or other distributions on our Ordinary Shares and may not receive any value for them, if it is illegal or impractical
to make them available to holders of ADSs.
The depositary for the ADSs
has agreed to pay to ADS holders the cash dividends or other distributions it or the custodian receives on Ordinary Shares or other deposited
securities underlying the ADSs, after deducting its fees and expenses. Although, we do not currently anticipate paying any dividends,
if we do, the ADS holders will receive these distributions in proportion to the number of Ordinary Shares your ADSs represent. However,
the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of
ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration
under the Securities Act of 1933, as amended, or the Securities Act, but that are not properly registered or distributed under an applicable
exemption from registration. In addition, conversion into U.S. dollars from foreign currency that was part of a dividend made in respect
of deposited Ordinary Shares may require the approval or license of, or a filing with, any government or agency thereof, which may be
unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities”
or may seek to effect a substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary
deems an equitable and practicable substitute. We have no obligation to register under U.S. securities laws any ADSs, Ordinary Shares,
rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution
of ADSs, Ordinary Shares, rights, or anything else to holders of ADSs. In addition, the depositary may withhold from such dividends or
distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes it is required
to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our
Ordinary Shares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal
or impractical for us to make them available to you. These restrictions may cause a material decline in the value of the ADSs.
19
We do not anticipate paying any cash dividends
in the foreseeable future.
We have never declared or
paid cash dividends, and we do not anticipate paying cash dividends in the foreseeable future. In addition, Israeli law limits our ability
to declare and pay dividends, and may subject our dividends to Israeli withholding taxes, and our payment of dividends (out of tax-exempt
income) may subject us to certain Israeli taxes, to which we would not otherwise be subject.
Holders of ADSs may not have the same voting
rights as the holders of our Ordinary Shares and may not receive voting materials in time to be able to exercise the right to vote.
Holders of the ADSs may not
be able to exercise voting rights attached to the Ordinary Shares underlying the ADSs on an individual basis. Instead, holders of the
ADSs appoint the depositary or its nominee as their representative to exercise the voting rights attaching to the Ordinary Shares in the
form of ADSs. Holders of ADSs may not receive voting materials in time to instruct the depositary to vote, and it is possible that they,
or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote.
Furthermore, the depositary will not be liable for any failure to carry out any instructions to vote, for the manner in which any vote
is cast or for the effect of any such vote. As a result, you may not be able to exercise voting rights and may lack recourse if your ADSs
are not voted as requested.
Holders of ADSs must act through the depositary
to exercise their rights as shareholders of our company.
Holders of our ADSs do not
have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying Ordinary Shares in accordance
with the provisions of the deposit agreement for the ADSs. Under Israeli law and our articles of association, the minimum notice period
required to convene a shareholders meeting is generally no less than 35 calendar days, but in some instances, 21 or 14 calendar days,
depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders of our ADSs may
not receive sufficient notice of a shareholders’ meeting to permit them to withdraw their Ordinary Shares to allow them to cast
their vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions
to holders of our ADSs or carry out their voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary
to extend voting rights to holders of our ADSs in a timely manner, but we cannot assure holders that they will receive the voting materials
in time to ensure that they can instruct the depositary to vote their Ordinary Shares underlying the ADSs. Furthermore, the depositary
and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast
or for the effect of any such vote. As a result, holders of our ADSs may not be able to exercise their right to vote and they may lack
recourse if their ADSs are not voted as they requested. In addition, in their capacity as a holder of ADSs, they will not be able to call
a shareholders’ meeting.
As a “foreign private issuer”
we are permitted to follow certain home country corporate governance practices instead of otherwise applicable SEC and Nasdaq requirements,
which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.
Our status as a foreign private
issuer also exempts us from compliance with certain SEC laws and regulations and certain regulations of the Nasdaq Stock Market, including
the proxy rules, the short-swing profits recapture rules, and certain governance requirements such as independent director oversight of
the nomination of directors and executive compensation. In addition, we will not be required under the Exchange, to file current reports
and consolidated financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered
under the Exchange Act, and we will generally be exempt from filing quarterly reports with the SEC. Also, although the Israeli Companies
Law 5759-1999, or the Israeli Companies Law, requires us to disclose the annual compensation of our five most highly compensated officers
on an individual basis, this disclosure is not as extensive as that required of a U.S. domestic issuer. For example, the disclosure required
under Israeli law would be limited to compensation paid in the immediately preceding year without any requirement to disclose option exercises
and vested stock options, pension benefits or potential payments upon termination or a change of control. Furthermore, as a foreign private
issuer, we are also not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act.
These exemptions and leniencies
will reduce the frequency and scope of information and protections to which you are entitled as an investor.
20
We may be a “passive foreign investment
company”, or PFIC, for U.S. federal income tax purposes in the current taxable year or may become one in any subsequent taxable
year. There generally would be negative tax consequences for U.S. taxpayers that are holders of our ADSs or Ordinary Shares if we are
or were to become a PFIC.
Based on the projected composition
of our income and valuation of our assets, we do not expect to be a PFIC for 2025, and we do not expect to become a PFIC in the future,
although there can be no assurance in this regard. The determination of whether we are a PFIC is made on an annual basis and will depend
on the composition of our income and assets from time to time. We will be treated as a PFIC for U.S. federal income tax purposes in any
taxable year in which either (1) at least 75% of our gross income is “passive income” or (2) on average at least 50% of our
assets by value produce passive income or are held to produce passive income. Passive income for this purpose generally includes, among
other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or
exchange of property that gives rise to passive income. Passive income also includes amounts derived by reason of the temporary investment
of funds, including those raised in a public offering. In determining whether a non-U.S. corporation is a PFIC, a proportionate share
of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is considered.
The tests for determining PFIC status are applied annually, and it is difficult to make accurate projections of future income and assets
which are relevant to this determination. In addition, our PFIC status may depend in part on the market value of our ADSs or Ordinary
Shares. Accordingly, there can be no assurance that we currently are not or will not become a PFIC in the future. If we are a PFIC in
any taxable year during which a U.S. taxpayer holds our ADSs or Ordinary Shares, such U.S. taxpayer would be subject to certain adverse
U.S. federal income tax rules. In particular, if the U.S. taxpayer did not make an election to treat us as a “qualified electing
fund,” or QEF, or make a “mark-to-market” election, then “excess distributions” to the U.S. taxpayer, and
any gain realized on the sale or other disposition of our ADSs or Ordinary Shares by the U.S. taxpayer: (1) would be allocated ratably
over the U.S. taxpayer’s holding period for the ADSs or Ordinary Shares; (2) the amount allocated to the current taxable year and
any period prior to the first day of the first taxable year in which we were a PFIC would be taxed as ordinary income; and (3) the amount
allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of
taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable
to each such other taxable year. In addition, if the U.S. Internal Revenue Service, or the IRS, determines that we are a PFIC for a year
with respect to which we have determined that we were not a PFIC, it may be too late for a U.S. taxpayer to make a timely QEF or mark-to-market
election. U.S. taxpayers that have held our ADSs or Ordinary Shares during a period when we were a PFIC will be subject to the foregoing
rules, even if we cease to be a PFIC in subsequent years, subject to exceptions for U.S. taxpayer who made a timely QEF or mark-to-market
election. A U.S. taxpayer can make a QEF election by completing the relevant portions of and filing IRS Form 8621 in accordance with the
instructions thereto. We do not intend to notify U.S. taxpayers that hold our ADSs or Ordinary Shares if we believe we will be treated
as a PFIC for any taxable year to enable U.S. taxpayers to consider whether to make a QEF election. In addition, we do not intend to furnish
such U.S. taxpayers annually with information needed to complete IRS Form 8621 and to make and maintain a valid QEF election for any year
in which we or any of our subsidiaries are a PFIC. U.S. taxpayers that hold our ADSs or Ordinary Shares are strongly urged to consult
their tax advisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them
of making a QEF or mark-to-market election with respect to our ADSs or Ordinary Shares if we are a PFIC. See “Item 10.E. Taxation—U.S.
Federal Income Tax Considerations—Passive Foreign Investment Companies” for additional information.
ADSs holders may not be entitled to a jury
trial with respect to claims arising under the deposit agreement, which could result in less favorable results to the plaintiff(s) in
any such action.
The deposit agreement governing
the ADSs representing our Ordinary Shares provides that holders and beneficial owners of ADSs irrevocably waive the right to a trial by
jury in any legal proceeding arising out of or relating to the deposit agreement or the ADSs, including claims under federal securities
laws, against us or the depositary to the fullest extent permitted by applicable law. If this jury trial waiver provision is prohibited
by applicable law, an action could nevertheless proceed under the terms of the deposit agreement with a jury trial. To our knowledge,
the enforceability of a jury trial waiver under the federal securities laws has not been finally adjudicated by a federal court. However,
we believe that a jury trial waiver provision is generally enforceable under the laws of the State of New York, which govern the deposit
agreement, by a court of the State of New York or a federal court, which have non-exclusive jurisdiction over matters arising under the
deposit agreement, applying such law. In determining whether to enforce a jury trial waiver provision, New York courts and federal courts
will consider whether the visibility of the jury trial waiver provision within the agreement is sufficiently prominent such that a party
has knowingly waived any right to trial by jury. We believe that this is the case with respect to the deposit agreement and the ADSs.
In addition, New York courts will not enforce a jury trial waiver provision in order to bar a viable setoff or counterclaim sounding in
fraud or one which is based upon a creditor’s negligence in failing to liquidate collateral upon a guarantor’s demand, or
in the case of an intentional tort claim (as opposed to a contract dispute), none of which we believe are applicable in the case of the
deposit agreement or the ADSs. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder
or beneficial owner of ADSs or by us or the depositary of compliance with any provision of the federal securities laws. If you or any
other holder or beneficial owner of ADSs brings a claim against us or the depositary in connection with matters arising under the deposit
agreement or the ADSs, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which
may have the effect of limiting and discouraging lawsuits against us and / or the depositary. If a lawsuit is brought against us and /
or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be
conducted according to different civil procedures and may result in different results than a trial by jury would have had, including results
that could be less favorable to the plaintiff(s) in any such action, depending on, among other things, the nature of the claims, the judge
or justice hearing such claims, and the venue of the hearing.
21
Risks Related to Israeli Law and Our Operations
in Israel
Provisions of Israeli law and our articles
of association may delay, prevent, or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change
of control, even when the terms of such a transaction are favorable to us and our shareholders.
As a company incorporated
under the law of the State of Israel, we are subject to Israeli law. Israeli corporate law regulates mergers, requires tender offers for
acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant
shareholders and regulates other matters that may be relevant to such types of transactions. For example, a merger may not be consummated
unless at least 50 days have passed from the date on which a merger proposal is filed by each merging company with the Israel Registrar
of Companies and at least 30 days have passed from the date on which the shareholders of both merging companies have approved the merger.
In addition, a majority of each class of securities of the target company must approve a merger. Moreover, a tender offer for all of a
company’s issued and outstanding shares can only be completed if the acquirer receives positive responses from the holders of at
least 95% of the issued share capital and a majority of the offerees that do not have a personal interest in the tender offer approves
the tender offer, unless, following consummation of the tender offer, the acquirer would hold at least 98% of the company’s outstanding
shares. Under the Israeli law, a potential bidder for the company’s shares, who would as a result of a purchase of shares hold either
25% of the voting rights in the company when no other party holds 25% or more, or 45% of the voting rights in the company where no other
shareholders holds 45% of the voting rights, would be required to make a special purchase offer as set out in the provisions of the Israeli
law. The Israeli law requires a special purchase offer to be submitted to shareholders for a pre-approval vote. A majority vote is required
to accept the offer. An offeror who is regarded as a ‘controlling shareholder’ under Israeli law, as well as those who control
the offeror, those who have a personal interest in the acceptance of the special purchase offer, or those who holds 25% of the voting
rights in the company, or those on behalf of those or the offeror, including their relatives or corporations under their control, cannot
vote on the resolution and the procedure includes a secondary vote of the non-voting shareholders and the shareholders who rejected the
offer at pre-approval level. A special purchase offer may not be accepted unless shares that carry 5% of the voting rights in the target
company are acquired. Furthermore, the shareholders may, at any time within six months following the completion of the tender offer, claim
that the consideration for the acquisition of the shares does not reflect their fair market value, and petition an Israeli court to alter
the consideration for the acquisition accordingly, other than those who indicated their acceptance of the tender offer in case the acquirer
stipulated in its tender offer that a shareholder that accepts the offer may not seek such appraisal rights, and the acquirer or the company
published all required information with respect to the tender offer prior to the tender offer’s response date. In addition, our
articles of association provide for a staggered board of directors, which mechanism may delay, defer or prevent a change of control of
the Company. See “Item 10.B Memorandum and Articles of Association — Provisions Restricting Change in Control of Our Company”
for additional information.
Israeli tax considerations
also may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with
Israel exempting 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 a number of conditions, including, in some cases, a holding period of two years from the date of the
transaction during which sales and dispositions of shares of the participating companies may be subject to certain restrictions and additional
terms. 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 no disposition of the shares has occurred. See “Item 10.E. Taxation—Israeli Tax Considerations
and Government Programs” for additional information.
The rights and responsibilities of a holder
of our securities will be governed by Israeli law, which differs in some material respects from the rights and responsibilities of shareholders
of U.S. companies.
The rights and responsibilities
of the holders of our Ordinary Shares (and therefore indirectly, the ADSs and the warrants) are governed by our articles of association
and by Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders
in typical U.S.-based corporations. In particular, a shareholder of an Israeli company has certain duties to act in good faith in a customary
manner in exercising its rights and performing its obligations towards the company and other shareholders and to refrain from abusing
its power in the company including, among other things, in voting at the general meeting of shareholders on certain matters, such as an
amendment to the company’s articles of association, an increase of the company’s authorized share capital, a merger of the
company, and approval of related party transactions that require shareholder approval. A shareholder also has a general duty to refrain
from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder who knows that it possesses the
power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of an officer of the company has a duty
to act in fairness towards the company with regard to such vote or appointment. However, Israeli law does not define the substance of
this duty of fairness. There is limited case law available to assist us in understanding the nature of this duty or the implications of
these provisions. These provisions may be interpreted to impose additional obligations on holders of our Ordinary Shares that are not
typically imposed on shareholders of U.S. corporations. See “Item 6.C. Board Practices—Duties of Shareholders” for additional
information.
22
It may be difficult to enforce a judgment
of a U.S. court against us and our officers and directors and the Israeli experts named in this annual report on Form 20-F in Israel or
the United States, to assert U.S. securities laws claims in Israel or to serve process on our officers and directors and these experts.
We were incorporated in Israel
and our corporate headquarters are located in Israel. The vast majority of our executive officers and directors and the Israeli experts
named in this annual report on Form 20-F are located in Israel. All of our assets and most of the assets of these persons are located
in Israel. Therefore, a judgment obtained against us, or any of these persons, including a judgment based on the civil liability provisions
of the U.S. federal securities laws, may not be collectible in the United States and may not necessarily be enforced by an Israeli court.
It also may be difficult to affect service of process on these persons in the United States or to assert U.S. securities law claims in
original actions instituted in Israel. Additionally, it may be difficult for an investor, or any other person or entity, to initiate an
action with respect to U.S. securities laws in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S.
securities laws reasoning that Israel is not the most appropriate forum in which 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 is 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 by expert witnesses, 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 that addresses
the matters described above. As a result of the difficulty associated with enforcing a judgment against us in Israel, you may not be able
to collect any damages awarded by either a U.S. or foreign court.
Political, economic and military instability
due to the Israel-Hamas, Israel-Iran and Israel-Hezbollah conflicts, as well as the risk of attacks from Iran on Israel, where our headquarters,
members of management, production facilities and employees are located, may adversely affect our results of operations.
Our executive offices, corporate
headquarters and research and development facilities are located in Israel. In addition, all of our key employees, officers and directors
are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect
our business. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners,
or a significant downturn in the economic or financial condition of Israel, could affect adversely our operations. Ongoing and revived
hostilities or other Israeli political or economic factors could harm our operations, product development and results of operations.
On October 7, 2023, an unprecedented
attack was launched against Israel by terrorists from the Hamas terrorist organization that infiltrated Israel’s southern border
from the Gaza Strip and in other areas within the state of Israel attacking civilians and military targets while simultaneously launching
extensive rocket attacks on the Israeli population. In response, the Security Cabinet of the State of Israel declared war against Hamas.
Although on October 13, 2025, Israel reached a ceasefire agreement with Hamas, the situation in Gaza remains highly unstable and hostilities
may resume at any time.
Following the attack by Hamas
on Israel’s southern border, Hezbollah, a terrorist organization in Lebanon, has also launched missile, rocket, and shooting attacks
against Israeli military sites, troops, and Israeli towns in northern Israel. In response to these attacks, the Israeli army has carried
out a number of targeted strikes on sites belonging to Hezbollah in southern Lebanon, and in October 2024, the Israeli military initiated
a ground operation in Lebanon, primarily near the Israel-Lebanon border. The continuation of the conflict has led to heightened security
concerns, potential disruptions to business operations, and economic instability. In November 2024, Israel entered into a ceasefire arrangement
with Hezbollah, which reduced hostilities along the northern border until early March 2026 when hostilities renewed again as described
below.
In connection with the Israeli
security cabinet’s declaration of war against Hamas and possible hostilities with Hezbollah and other organizations, several hundred
thousand Israeli military reservists were drafted to perform immediate military service. To date, only a small number of our employees
and only one of our current directors in Israel were called to active military duty, which we define as continuous military duty of over
two weeks. Employees of such service providers or contractual counterparties may be called for service in current or future wars or other
armed conflicts and such persons may be absent from their positions for a period of time. Currently, we have not been impacted by any
absences of personnel at our service providers or counterparties located in Israel. However, military service call ups that result in
absences of personnel from us, our service providers or contractual counterparties in Israel may disrupt our operations and absences for
an extended period of time may materially and adversely affect our business, prospects, financial condition and results of operations.
23
On June 13, 2025, Israel launched
a strike against Iran, aimed to disrupt Iran’s capacity to coordinate or launch hostilities against Israel. Iran has retaliated
in response, firing missiles and drones at Israeli military and civilian infrastructure. More recently, in February 2026, hostilities
between Israel and Iran escalated again. In late February 2026, Israel, together with the United States, conducted a major joint military
campaign of air and missile strikes against targets in Iran, which triggered a broad Iranian response and contributed to significant regional
instability. In addition, in early March 2026, Israel has been engaged with Hezbollah in Lebanon, that has been launching missile, rocket,
and shooting attacks against Israeli military sites, troops, and Israeli towns. In response to these attacks, Israel has carried out a
number of targeted strikes on sites associated with Hezbollah in Lebanon. The situation remains highly fluid, and we are unable to predict
when, or on what terms, this escalation will be resolved. Further escalation, whether involving direct confrontation between Israel and
Iran or through regional proxy groups, could result in additional mobilization of reserve personnel, further restrictions on movement
or commerce, damage to infrastructure, supply chain interruptions, disruptions to global energy markets, and heightened cybersecurity
threats. Any of the foregoing could materially and adversely affect our operations, financial condition, and results of operations, particularly
if disruptions are prolonged or recur.
In December 2024, Ba’athist
Syria, led by President Bashar al-Assad, collapsed during a major offensive by opposition forces made up of several competing rebel groups.
In response, the Israeli Defense Forces took control over a United Nations-designated buffer zone over Mount Hermon that separates Israel
and Syria. Simultaneously, Israel conducted targeted military strikes against military assets in Syria, aiming to eliminate any chemical
weapons storage sites that could be used by rebel groups and further weaken Iran’s operational capabilities in the region. While
the transitional government of Syria has indicated that it is interested in reconstruction and stability rather than a continuation of
conflicts with Israel, there are no guarantees that there will be no future escalation of hostilities or that Syria will not permit other
neighboring countries to launch attacks at Israel from its territory. The regional situation involving Syria also remains unstable, and
shifts in control among various armed groups could lead to renewed threats along Israel’s northern and northeastern borders.
It is possible that other
terrorist organizations, including Palestinian military organizations in the West Bank, as well as other hostile countries, will join
the hostilities. Additionally, Iran may continue its direct aggression against Israel. Such hostilities may include terror and missile
attacks. Any hostilities involving Israel, or the interruption or curtailment of trade between Israel and its trading partners could adversely
affect our operations and results of operations. Even during periods of ceasefire or relative calm, the risk of sudden escalation remains
significant, and any such developments may adversely affect our operations.
Our insurance policies do
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 that are 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. Any losses or damages incurred by us could have
a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business
conditions and could harm our results of operations.
Several countries, principally
in the Middle East, still restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions
on doing business with Israel and Israeli companies, whether as a result of hostilities in the region or otherwise. Also, the Israeli
government imposes restrictions on doing business with certain countries. In addition, there have been increased efforts by activists
to cause companies and consumers to boycott Israeli goods and cooperation with Israeli-related entities based on Israeli government policies.
Such actions, particularly if they become more widespread, may adversely impact our ability to collaborate with other third parties. Any
hostilities involving Israel, any interruption or curtailment of trade or scientific cooperation between Israel and its present partners,
or a significant downturn in the economic or financial condition of Israel could adversely affect our business, financial condition and
operations. Moreover, we cannot predict how this war will ultimately affect Israel’s economy in general, which may involve a downgrade
in Israel’s credit rating by rating agencies. While Moody’s downgraded Israel’s sovereign credit rating from A2 to Baa1,
it revised its credit outlook from a negative outlook to stable and continues to hold this rating as of February 2026. S&P Global
Ratings has maintained Israel’s sovereign credit rating at A with a stable outlook as of November 2025; however, such ratings could
again be downgraded in the future. We may also be targeted by cyber terrorists specifically because we are an Israeli-related company.
Public debate regarding potential
changes to Israel’s judicial system during 2023–2024 created periods of political uncertainty, civil unrest, and market volatility,
including concerns expressed by investors, rating agencies, and business groups about possible impacts on Israel’s institutional
stability and economic outlook. While these reform initiatives have largely been paused and are not currently advancing, the issue remains
politically sensitive. Any renewed efforts to promote judicial reforms, renewed public protests, or further political polarization could
affect investor confidence, foreign investment levels, currency stability, or Israel’s broader macroeconomic conditions. If such
effects were to occur, they could indirectly impact our operations, business environment, or financial results.
24
General Risk Factors
Our securities are traded on more than one
market or exchange, and this may result in price variations.
Our Ordinary Shares have been
trading on the TASE, since January 2000. Our ADSs representing our Ordinary Shares have been trading on the Nasdaq Capital Market and
TASE since August 17, 2018. Trading in our ADSs and Ordinary Shares takes place in different currencies (dollars on the Nasdaq and NIS
on the TASE), and at different times (resulting from different time zones, trading days, and public holidays and Israel). The trading
prices of our securities on these two markets may differ due to these and other factors. Any decrease in the price of our Ordinary Shares
on the TASE could cause a decrease in the trading price of our Ordinary Shares on the Nasdaq.
Raising additional capital would cause dilution
to holders of our equity securities and may affect the rights of existing holders of equity securities.
We may seek additional capital
through a combination of private and public equity offerings, debt financing and collaborations and strategic and licensing arrangements.
To the extent that we raise additional capital through the issuance of equity or convertible debt securities, your ownership interest
will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a holder of the ADSs.
We are subject to a number of risks associated
with global sales and operations.
Business practices in the
global markets that we serve may differ from those in the United States and may require us to include non-standard terms in
customer contracts, such as extended payment or warranty terms. To the extent that we enter into customer contracts that include non-standard terms
related to payment, warranties, or performance obligations, our results of operations may be adversely impacted.
Additionally, our global sales
and operations are subject to a number of risks, including the following:
● greater difficulty in enforcing contracts and managing collections, as well as longer collection periods;
● higher costs of doing business globally, including costs incurred in maintaining office space, securing adequate staffing and localizing our contracts;
● fluctuations in exchange rates between the NIS and foreign currencies in markets where we do business;
● management communication and integration problems resulting from cultural and geographic dispersion;
● risks associated with trade restrictions and foreign legal requirements, including any importation, certification, and localization of our platform that may be required in foreign countries;
● greater risk of unexpected changes in regulatory practices, tariffs, and tax laws and treaties;
● compliance with anti-bribery laws, including, without limitation, compliance with the U.S. Foreign Corrupt Practices Act and the U.K. Anti-Bribery Act;
● heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities in, consolidated financial statements;
● reduced or uncertain protection of intellectual property rights in some countries;
● social, economic and political instability, terrorist attacks and security concerns in general, and specifically the impact of the war between Israel and Hamas;
25
● an outbreak of a contagious disease, such as coronavirus, which may cause us, third party vendors and manufacturers and/or customers to temporarily suspend our or their respective operations in the affected city or country;
● laws and business practices favoring local competition;
● being subject to the laws, regulations and the court systems of many jurisdictions; and
● potentially adverse tax consequences.
These and other factors could
harm our ability to generate future global revenues and, consequently, materially impact our business, results of operations and financial
condition.
Weakened global economic conditions may affect our industry,
business and results of operations.
Our overall performance depends
on worldwide economic conditions. These conditions affect the rate of information technology spending and could adversely affect our customers’
ability or willingness to purchase our secure access solutions, delay prospective customers’ purchasing decisions, reduce the value
or duration of their subscription contracts, or affect renewal rates, all of which could adversely affect our operating results. In addition,
in a weakened economy, companies that have competing products may reduce prices which could also reduce our average selling prices and
harm our operating results.
The increasing use of social media platforms and new technologies
present risks and challenges for our business and reputation.
We increasingly rely on social
media, new technologies and digital tools, such as artificial intelligence, or AI, to communicate about our products, or to provide our
solutions. The use of these media requires specific attention, monitoring programs and moderation of comments. Political and market pressures
may be generated by social media because of rapid news cycles. This may result in commercial harm, overly restrictive regulatory actions
and erratic share price performance. In addition, unauthorized communications, such as press releases or posts on social media, purported
to be issued by the Company, may contain information that is false or otherwise damaging and could have an adverse impact on our image
and reputation and on our share price. Negative or inaccurate posts or comments about the Company, our business, directors or officers
on any social networking website could seriously damage our reputation. In addition, our employees and partners may use social media and
other technologies inappropriately, which may give rise to liability for Alarum, or which could lead to breaches of data security, loss
of trade secrets or other intellectual property or public disclosure of sensitive information. Such uses of social media and other technologies
could have an adverse effect on our reputation, business, financial condition and results of operations. In addition, the increasing use
and regulation of AI technologies may create legal, regulatory, operational and reputational risks for our business. Regulatory frameworks
governing AI are rapidly evolving and may impose new compliance obligations or restrict certain uses of data or automation, including
by our customers. Moreover, the use of AI tools by us, our customers or third-party providers in connection with our solutions may result
in unintended outcomes, inaccuracies, misuse of data or increased scrutiny, which could adversely affect our business, reputation and
results of operations.
Unsuccessful management of environmental,
social and governance matters could adversely affect our reputation, and we may experience difficulties meeting the expectations of our
stakeholders.
Companies are increasingly
expected to behave in a responsible manner on a variety of environmental, social and governance, or ESG, matters, by governmental and
regulatory authorities, counterparties such as vendors and suppliers, customers, investors, the public at large and others. This context,
driven in part by a rapidly changing regulatory framework in the U.S. and in Europe, is raising new challenges and influencing strategic
decisions that companies must take if they wish to optimize their positive impact and mitigate their negative impact on ESG matters. As
a software company, our Code of Ethics reflects the values of our business and operations, and we have adopted ESG measures that aim at
minimizing the impact of our activities and products on the climate and the environment. As part of our commitment to social responsibility,
we actively seek opportunities to support marginalized communities and champion inclusivity in all aspects of our operations. However,
despite our strong commitment we could be unable to meet ESG or other strategic objectives in an efficient and timely manner, or at all.
We may also be unable to meet the ever more demanding criteria used by rating agencies in their ESG assessments process, leading to a
downgrading in our rating. Financial investments in companies which perform well in ESG assessments are increasingly popular, and major
institutional investors have made known their interest in investing in such companies. Depending on ESG assessments and on the rapidly
changing views on acceptable levels of action across a range of ESG topics, we may be unable to meet our stakeholders’ expectations,
our reputation may be harmed, we may face increased compliance or other costs and demand our securities may decrease.
26
The price of the ADSs may be volatile.
The market price of
the ADSs has fluctuated in the past. Consequently, the current market price of the ADSs may not be indicative of future market prices,
and we may be unable to sustain or increase the value of your investment in the ADSs. During the first quarter of 2026 and up to March
13, 2026, the market price of our ADSs has fluctuated from a low of $6.41 per ADS to a high of $9.98 per ADS, and our ADS price continues
to fluctuate, as does the daily volume of trading of our ADSs. The market price of our ADSs and volume of trading may continue to fluctuate
significantly in response to numerous factors, some of which are beyond our control, such as:
● our ability to grow our revenue and customer base;
● the announcement of new products or product enhancements by us or our competitors;
● variations in our and our competitors’ results of operations;
● successes or challenges in our funding sources;
● developments in the industries we operate;
● future issuances of ADSs or other securities;
● the addition or departure of key personnel;
● announcements by us or our competitors of acquisitions, investments or strategic alliances; and
● general market conditions and other factors, including factors unrelated to our operating performance.
Further, the stock market
in general, and the market for technology companies in particular, has recently experienced extreme price and volume fluctuations. The
volatility of our ADSs is further exacerbated due to its low trading volume, which has only recently increased. Continued market fluctuations
could result in extreme volatility in the price of our ADSs which could cause a decline in the value of our ADSs and the loss of some
or all of your investment.
We may be subject to securities litigation,
which is expensive and could divert management attention.
In the past, companies that
have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the
target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s
attention and resources, which could seriously hurt our business. Any adverse determination in litigation could also subject us to significant
liabilities. For example, as described in Item 8.A, we have recently been subject to class action litigation in multiple jurisdictions,
which was dismissed at an early stage, although it nevertheless required management attention and the incurrence of legal costs. We may
also not be able to maintain and effectively comply with the Minimum Bid Requirement.
27
If securities or industry analysts do not
publish or cease publishing research or reports about us, our business, or our market, or if they adversely change their recommendations
or publish negative reports regarding our business or our shares, the share price and trading volume of our Ordinary Shares and ADSs could
decline.
The trading market for our
ADSs or Ordinary Shares will be influenced by the research and reports that industry or securities analysts may publish about us, our
business, our market, or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts
will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding our
ADSs or Ordinary Shares, or provide more favorable relative recommendations about our competitors, our share price would likely decline.
If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility
in the financial markets, which in turn could cause the share price or trading volume of our ADSs or Ordinary Shares to decline.