KEY INFORMATION
A. [Reserved]
B. Capitalization
and indebtedness
Not applicable.
C. Reasons
for the offer and use of proceeds
Not applicable.
D.
Risk Factors
The following risk factors, among others, could affect our business,
results of operations or financial condition and cause our actual results to differ materially from those expressed in forward-looking
statements made by us. These forward-looking statements are based on current expectations and we assume no obligation to update this information.
You should carefully consider the risks described below, in addition to the other information contained elsewhere in this annual report.
The following risk factors are not the only risk factors that the Company faces, and as such, additional unknown risks and uncertainties
that we currently deem immaterial may also affect our business. Our business, financial condition and results of operations could be seriously
harmed if any of the events underlying any of these risks or uncertainties actually occur. In such an event, the market price for our
ordinary shares could decline.
Below are some, but not all, of the main risks factors and challenges
that we have been facing and may further face, which could have an adverse effect on our business, results of operations and financial
condition (the list below is not exhaustive, and investors should read this “Risk factors” section in full):
• the effects of global economic trends, including recession, rising inflation, rising interest rates, commodity price increases and fluctuations, commodity shortages and exposure to economic slowdown;
• the effect of the concentration of a major portion of our business on large mobile operators;
• the impact of delays in generational technology transitions and their rollout;
• the significant volatility to which our business is primarily subject due to fluctuations in market demand;
• competition from other wireless transport equipment providers and from other communication solutions that compete with our wireless solutions;
• merger and acquisition activities that expose us to risks and liabilities;
• risks related to our forward-looking forecasts, with respect to which there is no assurance that such forecasts will materialize as we predicted;
• increased breaches of network or information technology security along with an increase in cyber-attack activities, either on our or our customers’ networks, could have an adverse effect on our business;
• our reliance on third-party manufacturers, suppliers and service providers, and such reliance may disrupt the proper and timely management of deliveries of our products, a risk that is intensified in the case of a single source supplier;
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• the global supply of electronic components, including integrated circuits, has experienced, and may continue to experience, an increase in demand while production capacity remains limited;
• if we fail to effectively cope with the high volatility in the supply needs of our customers, we may be unable to timely fulfill our customer commitments (for example, delivery issues due to long lead time and availability of components and manufacturing power);
• we may be exposed to inventory-related losses on inventory purchased by our contract manufacturers and other suppliers, or to increased expenses should unexpected production ramp up be required due to inaccurate forecasts or business changes. In addition, part of our inventory may be written off, which would increase our cost of revenues;
• risks related to fluctuations in currency exchange rates and restrictions related to foreign currency exchange controls;
• the expansion of our service offering to new areas, including managed services and software offerings that might pose product development, marketing, sales, operation, implementation and support challenges;
• risks related to expansion into new fields, such as the private networks market, the development and commercialization of new products, and the rapid change in the markets for our products and in related technologies and operational concepts development;
• risks relating to the failure to attract or retain qualified and skilled “talents” and personnel and the intense competition for such “talents” and personnel;
• our engagement in providing installation or rollout projects for our customers and end users whether directly or via third party prime contractor, which are long-term projects that are subject to inherent risks, including early delivery of our products with delayed payment terms, delays or failures in acceptance testing procedures, and potential significant collection risk from our customers all of which may result in substantial period-to-period fluctuations in our results of operations, cash flow and financial condition;
• We are exposed to risks associated with integrating AI tools into our products, solutions, and operations;
• changes in privacy and data protection laws and regulations could have an adverse effect on our business prospects, results of operations, and financial condition;
• the impact of complex and evolving regulatory requirements in which we operate, on our business, results of operations and financial condition;
• We have significant operations globally, including in countries that may be adversely affected by political or economic instability, major hostilities or acts of terrorism, which expose us to risks and challenges associated with conducting business internationally;
• Our products and certain components they are comprised of are subject to certain export controls and sanctions regimes that could adversely impact our competitive position and our business;
• risks relating to disagreements with tax authorities regarding tax positions that we have taken which may result in increased tax liabilities;
• the occurrence of international, political, regulatory or economic events in emerging markets, where the majority of our sales are made;
• the impact of industry downturn, reduction in our customers’ profitability due to increased regulation or new mobile services requirements; and
• risks relating to attempts for a hostile takeover, or shareholder activism, which may, divert our management’s and Board’s attention and resources from our business and could give rise to perceived uncertainties as to our future direction, could result in the loss of potential business opportunities, limit our ability to raise funds and make it more difficult for us to attract and retain qualified personnel for positions in both management and Board levels.
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These and other risk factors are further described and elaborated
herein below. You should carefully read and consider the full description of the risk factors as described below, in addition to the other
information contained elsewhere in this annual report:
Risks Relating to Our Business
Our global operation exposes us to the effects
of global economic trends, including recession, rising inflation, rising interest rates, commodity price increases and fluctuations, commodity
shortages and exposure to economic slowdown.
The global nature of our activity and our global presence and operation
in different countries, regulatory, legal and financial regimes, exposes us to a wide spread of customers, suppliers, subcontractors and
contractors, and, in turn, to global and local macro and micro developments. In response to rising inflation in recent years, central
banks in the markets in which we operate, including the United States Federal Reserve, have tightened their monetary policies and raised
interest rates, and such measures may continue. While interest rates have begun to decline and inflation is lower than in past quarters
in the U.S., costs of labor, capital, employee compensation, and other similar effects have increased in the recent past. Our suppliers
may raise their prices, and in the competitive markets in which we operate, we may not be able to make corresponding price increases to
preserve our gross margins and profitability due to market conditions and competitive dynamics. Additionally, any such increase in prices,
even if possible, may not be accepted by our customers, and there is no assurance that we will be able to increase our pricing to offset
our increased costs, or that our operations will not be materially impacted by rising inflation and its broader effects on the markets
in which we operate in the future. Further, elevated or rising interest rates, lead us, and our customers, to experience higher financing
costs, which may, in turn, negatively affect our business, financial condition and results of operations. The global economy has also
been impacted by fluctuating foreign exchange rates and geopolitical tensions. As we have substantial international operations, fluctuations
in exchange rates between the currencies in which we operate and the U.S. dollar could decrease our revenues or increase our operating
costs and financial expenses and adversely affect our results of operations, profits and cash flows. The duration, extent and volatility
of inflation, interest rates, foreign exchange rate fluctuations, geopolitical tensions and other macroeconomic headwinds are uncertain
and we cannot accurately predict whether we will be able to effectively mitigate their impact on our business. Such developments might
have direct or indirect impacts on our business and results of operations, which are hard to predict, monitor or assess, causing uncertainties
and high volatility with respect to our estimated or expected results of operations, and, could have an adverse effect on our business,
results of operations and financial condition. Our business, and our customers’ businesses, are sensitive to macroeconomic conditions.
Economic factors, such as interest rates, inflation, currency exchange rates, changes
in monetary and related policies, market volatility, customer confidence, recession or recessionary indicators, supply chain issues, unemployment
rates and real wages, are among the most significant factors that impact customer spending behavior. Specifically, due to the complexity
of our supply chain, we have experienced and may continue to experience increase in shipment costs, due to macroeconomic and geopolitical
issues, regulatory actions, including sanctions, tariffs, and trade restrictions, labor disturbances and approval delays, which impacted
our ability to timely meet demand in certain instances. For example, since February 28, 2026, the war situation between Iran and Israel,
the U.S., and other countries in the region has contributed to disruptions to regional air travel and to maritime traffic through critical
routes, including increased risk and disruption around the Strait of Hormuz, and broader impacts on energy and freight markets. In addition,
following the February 28, 2026 strikes, Houthi officials indicated an intent to resume missile and drone attacks against commercial shipping
in and around the Red Sea and Gulf of Aden, which could lead to diversions, longer transit times, and higher shipping and insurance costs.
To date, we have successfully managed our supply chain, but if these factors continue or become more severe, they may have an adverse
effect on our supply chain and on our ability to fulfill customer orders in a timely manner, which could in turn have an adverse effect
on our position in the market and on our business and operations. Additionally, geopolitical developments in East Asia, including any
assertion of control by the People’s Republic of China over Taiwan, could significantly disrupt semiconductor supply chains, as
well as impact demand to our products by local customers. Global tariff regimes have also adversely affected our cost structure and pricing,
negatively impacted our results in 2025, and may continue to affect us in 2026 depending on future trade policy and enforcement.
Additionally, elevated global demand for AI infrastructure may
divert wafer, substrate, memory and advanced packaging capacity toward AI-related products, creating shortages, longer lead times and
price increases for components we require; certain suppliers may reallocate or suspend production lines accordingly. We are monitoring
such developments closely and conducting a supply-chain risk-mapping exercise to address these exposures, however, there can be no assurance
that this initiative will be successful or that any mitigation measures identified will be implemented on the anticipated timeline or
will effectively reduce these risks. These adverse market forces have a direct impact on our overall performance. Any such disruptions
could have a material adverse impact on our business and our results of operation and financial condition.
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A major portion of our business
concentrates on a limited number of large mobile operators. The significant weight of their ordering, compared to the overall ordering
by other customers, coupled with inconsistent ordering patterns, could negatively affect our business, financial condition and results
of operations.
A significant portion of our business is concentrated with certain customers. In 2025,
approximately 47.9% of our total revenues were attributed to three customers, in 2024, approximately 49.2% of our total revenues were
attributed to three customers and in 2023, approximately 44.8% of our total revenues were attributed to two customers. The loss of
significant customers or any material reduction in orders from them, in the absence of gaining new significant customers to replace such
lost business, has adversely affected, and in the future could adversely affect, various aspects of our results of operations and our
financial condition.
In addition, we have difficulty in projecting future revenues from
these customers, since (i) our sales are mostly generated from case-by-case purchase orders rather than long-term contracts, our customers
are not obligated to purchase from us a fixed amount of products or services over any period of time, and may terminate or reduce their
purchases from us at any time without prior notice or penalty; (ii) customers might not be bound by any minimum quota; (iii) the ordering
pattern and volume of business directed to us by such customers may fluctuate as a result of numerous parameters, including changing spending
policies, changes in prices, rollout strategy and local market conditions and (iv) the delivery schedule to such customers may be changed
by them and adversely affect our revenue working capital and cash flow. Any credit crunch, distressed financial situation or insolvency
on the part of such customers, may adversely affect our ability to collect the balance due from them and further expend the variation
in our revenues and operating results. This risk is heightened in India, in which government actions relating to the rollout of cellular
networks affect the demand for our products from customers and increase the difficulty to project future revenues.
Furthermore, since a significant portion of our business is derived
from specific countries, our business could be negatively impacted should certain events occur in these countries, such as a slowdown
in investments and expansion of communication networks due to the cyclical characteristic of the investment in this industry, as well
as changes in local legislation, governmental controls and regulations (including those specifically related to the communication industry)
and tariffs and taxes, as well as trade restrictions, a downturn in economic or financial conditions, or an outbreak of natural calamities.
Also, an outbreak of hostilities, political or economic instability, as well as any other extraordinary events having an adverse effect
on the economy or business environment in these countries, may harm the operations of our customers in these countries, and result in
a significant decline of business coming from those countries.
In addition, the telecommunications industry has experienced certain
consolidation among its participants, and we expect this trend to continue. Some operators in this industry have experienced financial
difficulty and have filed, or may file, for bankruptcy protection. Other operators may merge and one or more of our competitors may supply
products to the customers of the combined company following those mergers. This consolidation could result in purchasing decision delays
and decreased opportunities for us to supply products to companies following any consolidation. This consolidation may also result in
lost opportunities for cost reduction and economies of scale and could generally reduce our opportunities to win new customers to the
extent that the number of potential customers decreases. Furthermore, as our customers become larger, they may have more leverage to negotiate
better pricing which could adversely affect our revenues and gross margins.
To mitigate the abovementioned risks, we are actively pursuing
strategies to diversify our customer base and revenue streams. These efforts include expanding our presence across additional geographic
markets, targeting new customer segments beyond large mobile operators, and developing new products and solutions designed to appeal to
a broader range of customers in the telecommunications ecosystem. By pursuing these diversification strategies, we seek to reduce our
dependence on any single customer or group of customers and create a more balanced and resilient revenue base over time. However, there
can be no assurance that these efforts will be successful or that we will be able to sufficiently diversify our customer base to reduce
the risks associated with customer concentration.
Realization of any of these risks could result in a material reduction
in orders and could adversely affect our results of operations, including gross margin and cash flow, and our financial condition. Although
some of these risks derive inherently from the concentration of our business, certain risks may be attributed also to the geographical
territories in which we operate as detailed under the risk “Due to the volume of our sales in emerging
markets, we are susceptible to a number of political, economic and regulatory risks that could have a material adverse effect
on our business, reputation, financial condition and results of operations. This includes
the business practices in such emerging markets, that may expose us to legal and business conduct-related regulatory risks”.
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Delays in generational technology transitions
and their rollout may negatively impact on our revenues, financial condition and results of operation.
We consider generational transitions in wireless technology, including
the ongoing transition from 4G to 5G and the anticipated future evolution to 6G, to be among our main growth engines in the foreseeable
future. Thus, the development roadmap of our products is designed to introduce 5G-based products to the market and to position us
to capitalize on emerging 6G technologies as they develop. Nonetheless, the pace of the transition to 5G technologies and 5G rollout,
as well as the timeline for 6G development, is hard to predict, as it depends on numerous factors which are uncertain and beyond our control
including, economic factors, financial conditions of operators and the development of 5G use cases. Further delays in 5G technologies'
deployment and rollout, or slower-than-anticipated development and adoption of 6G technologies, could have an adverse effect on our future
revenues, profitability and cash flow and cause our results to materially differ from our expectations.
Moreover, the timing and pace of generational transitions create
uncertainty regarding optimal investment allocation between current and emerging technologies. If we invest heavily in products for one
technology generation and the market transitions to the next generation more quickly than anticipated, or if we invest prematurely in
next-generation technologies before the market is ready, we may not achieve anticipated returns on our investments. These investment allocation
decisions are particularly challenging given the significant resources required to develop and commercialize products for each technology
generation.
Our business is subject
to significant volatility, primarily due to fluctuations in market demand. Consequently, during periods of low demand, we may experience
a reduction in bookings and a slower conversion to revenue in accordance with our customers' requirements. This volatility can result
in incurred losses and negative cash flows. Our guidance for revenue and profitability are based on certain assumptions regarding market
behavior. However, there is no assurance that the market will behave as anticipated, which could adversely affect our revenue, results
of operations, and cash flow. Additionally, we cannot guarantee that we will be able to convert our current or future backlog into profitability
and positive operating cash flows. Should trends of volatility, losses, or negative cash flows persist, our results of operations and
cash flow may be significantly and adversely impacted.
We are exposed to high volatility in our revenue that is driven
by different risks as described and detailed separately in this section. In 2025 we incurred a net loss of $2.1 million, and in 2024
and 2023 we incurred a net income of $24.1 million and $6.2 million, respectively. We generated positive cash flow from operations of
$31.6 million in 2025, $26.2 million in 2024 and $30.9 million in 2023. Business volatility may adversely impact our profitability cash
flow and working capital needs. We cannot assure you that the trend in the last three years will continue.
Additionally, while in 2025, 2024 and 2023 we have taken measures
to improve our gross profit, reduce our operating expenses, improve our working capital management and secure more booking, the implementation
of such measures is lengthy, may be delayed as a result of the other risks and uncertainties detailed in this Annual Report on Form 20-F
and there is no assurance that such measures will be sufficient or successful or that we will be able to preserve the increase in our
revenues, and not return to experiencing a decline in our revenues, incur substantial losses and generate negative cash flows or that
a decline, losses and negative cash flow will not occur. Any adverse change in our revenue levels may result in an adverse impact on our
businesses, and in the event that our revenues decline and we experience losses and negative cash flow, our results of operations will
be significantly adversely impacted. We may need to consider taking additional measures such as reducing costs, which may impact our ability
to compete in the market and serve our working capital needs as planned. Furthermore, our working capital needs may require additional
or alternate cash resources. If we are unable to obtain such resources nor generate positive cash flow from our operations, our liquidity
and ability to fund operations could be impaired.
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We face intense competition from
other wireless equipment providers and from other communication solutions that compete with our wireless solutions. If we fail to
compete effectively, we may experience a decline in the demand for our products and our business, financial condition and results of operations
could be materially adversely affected.
The market for wireless transport equipment is rapidly evolving,
highly competitive and subject to rapid changes.
Our main competitors include companies such as Huawei Technologies
Co., Ltd., L.M. Ericsson Telephone Company, Nokia Corporation and ZTE Corporation, commonly referred to as “generalists”,
each providing a vast wireless solutions portfolio, which includes a wireless transport solution within their portfolio. These generalists
may also compete with us on “best-of-breed” projects, in which operators invest resources and efforts to select the best wireless
transport solution. In addition to these primary competitors, a number of smaller wireless transport specialists, mainly including Aviat
Networks Inc. (“Aviat”) and SIAE Microelectronica S.P.A., offer, or are developing, competing products. We also face competition
in the private networks field from mobile operators, system integrators and hardware vendors.
In addition, the industry generalists are substantially larger
than us, have longer operating histories and possess greater financial, sales, service, marketing, distribution, technical, manufacturing
and other resources. These generalists have greater name recognition, a larger customer base and may be able to respond more quickly
to changes in customer requirements and evolving industry standards.
To our knowledge, many of these generalists also have well-established
relationships with our current and potential customers and may have extensive knowledge of our target markets, which may give them additional
competitive advantages. In addition, to our knowledge, these generalists focus more on selling services and bundling the entire network
as a full-package service offering, and therefore some of our customers, which seek “best-of-breed” solutions like ours, may
prefer to purchase “bundled” solutions from the generalists. Moreover, as these generalists are usually financially stronger
than us, they may be able to offer customers more attractive pricing and payment terms, as well as customer credit programs, which may
increase the appeal of their products in comparison to ours.
In addition, our products compete with other high-speed communications
solutions, including fiber optic lines and other wireless technologies. Some of these technologies utilize existing installed infrastructure
and have achieved significantly greater market acceptance and penetration than wireless technologies. Moreover, as more and more data
demands are imposed on existing network frameworks coupled with growing demand for additional bandwidth as a result of massive use of
remote services and work from home modes of operation, and due to consolidation of fixed and mobile operators, operators may be more motivated
to invest in more expensive high-speed fiber optic networks to meet current needs and remain competitive. Some of the principal disadvantages
of point-to-point and point-to-multipoint wireless technologies that may make other technologies more appealing include suboptimal operations
in extreme weather conditions and limitations in connection with the need to establish line of sight between antennas and limitations
in site acquisition for multiple links, or the perception that fiber-optic solutions are more “environmentally-friendly” predominantly
in populated areas, favoring other technologies.
The development and expansion of Low Earth Orbit (LEO) satellite
networks represent a competitive risk to our business. As these networks become more capable of providing backhaul connectivity for cellular
networks, there is a potential for network operators to favor satellite-based solutions over our microwave transmission products. This
shift could be driven by the broader coverage and the improving cost efficiencies associated with LEO satellite networks. If cellular
network providers increasingly adopt LEO satellite solutions for backhaul purposes, the demand for our microwave products may decrease,
adversely affecting our sales and market position.
The rise of LEO satellite systems as a contender in providing direct-to-consumer
broadband connectivity presents an additional risk to our business. These satellite networks could sidestep the necessity for widespread
terrestrial cellular infrastructure by offering an alternate mode of connectivity directly to consumers. Consequently, mobile operators
might assess their infrastructure strategies and opt to scale back investments in terrestrial networks. Such a strategic shift could result
in decreased demand for microwave backhaul solutions, thereby interrupting traditional growth and upgrade patterns for microwave backhaul
infrastructure. This reevaluation by mobile operators could lead to a contraction in the market for our products, negatively impacting
our revenue and growth prospects.
To the extent that these competing communications solutions reduce
demand for our wireless transmission products, there may be a material adverse effect on our business and results of operations.
Moreover, some of our competitors can benefit from currency fluctuations
as their costs and expenses are primarily denominated in currencies other than the U.S. dollar. In case the U.S. dollar strengthens against
these currencies these competitors might offer their products and services for a lower price and capture market share from us, which might
adversely affect our business and negatively influence our results of operation and financial condition.
We expect to face continuing competitive pressures in the future.
If we are unable to compete effectively, our business, financial condition and results of operations would be materially adversely affected.
For more information on the “best-of-breed” market, please refer to Item 4. INFORMATION ON THE COMPANY; B. Business Overview
– “Wireless Transport; Short-haul, Long-haul and Small Cells Transport”.
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Merger and acquisition activities expose us
to risks and liabilities, which could also result in integration problems and adversely affect our business.
We continue to explore potential merger and acquisition opportunities
within our wireless transport market or as a diversification effort in order to create a growth engine and implement a growth strategy.
In addition, we also explore merger and acquisition opportunities aimed at obtaining technological improvement of our products, adding
new technologies to our products and to diversify our business. During January 2025, we completed the acquisition by merger of E2E, a
systems integration and software development company.
We are unable to predict whether or when any prospective deals
will be completed.
In addition, these strategic transactions involve numerous risks,
which can jeopardize or even eliminate the benefits entailed in such transactions, such as:
• we may not be able to discover, or the target company may fail to provide us with, all relevant information and documents in relation to the transaction, which could lead to a failure to achieve the objectives of acquisition and to a substantial loss;
• we may fail to reveal that the due diligence materials and documents provided contain untrue statements of material facts or omit to state a material fact necessary to make the statements therein not misleading, hence fail to achieve the objectives of acquisition and suffer a substantial loss;
• we may fail to correctly assess the due diligence investigation findings, establish a correct investment thesis or establish a correct post-merger integration plan;
• the process of integrating an acquired business including, for example, the operations, systems, technologies, products, and personnel of the combined companies, particularly companies with large and widespread operations and/or complex products, may be prolonged due to unforeseen difficulties;
• the implementation of the transaction may distract and divert management’s attention from the normal daily operations of our business;
• we may sustain and record significant expenditure and costs associated with outstanding transactions that either did not or will not materialize or would fail to achieve its objectives;
• there will be increased expenses associated with the transaction, and we may need to use a substantial portion of our cash resources or incur debt in order to cover such expenses; expenses which the combined merged companies may not be sufficient to offset;
• we may generate negative cash flow as a result of such transaction, which may require fund raising that may not be available for us;
• we may incur unexpected accounting and other expenses associated with the transaction, such as tax expenses, write offs, amortization expenses related to intangible assets, restructuring costs, litigation costs or such other costs derived from the acquisition;
• the transaction may harm our business as currently conducted (for example, there may be a temporary loss of revenues, we may experience loss of current key employees, customers, resellers, vendors and other business partners or companies with whom we engage today or which relate to any acquired company);
• we may be required to issue ordinary shares as part of the transaction, which would dilute our current shareholders;
• we may need to assume material liabilities of the merged entity;
• in certain cases, mergers and acquisitions require special approvals, or are subject to scrutiny by the local authorities, and failing to comply with such requirements or to receive such approvals, may prevent or limit our ability to complete the acquisitions as well as expose us to legal proceedings prior or following the consummation of such acquisitions. In some cases, such proceedings, if initiated, may conclude in a requirement to divest portions of the acquired business;
• contingent consideration or earn-out arrangements may not be achieved and may require adjustments or renegotiation over time, which could impact our results of operations due to remeasurement of such obligations, disputes with sellers regarding the achievement of milestones, or diversion of management attention;
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• the failure to successfully complete the integration associated with the transaction (including integrating any acquired technology into our products), which may cause new markets we were aiming for not to materialize or in which competitors may have a stronger market position; or
• we may fail to effectively obtain the technological improvement.
Specifically, if we are unable to successfully or effectively integrate
our current acquisition by merger of E2E, our ability to grow our business or to operate our business effectively could be reduced, and
our business, financial condition and operating results could suffer. Even after we have completed the transaction, we cannot assure that
we will be able to integrate the operations of the acquired business without encountering difficulty regarding different business strategies
with respect to marketing and integration of personnel with disparate business backgrounds and corporate cultures. The integration of
E2E is still in progress.
As a result, the anticipated benefits or cost savings of such mergers
and acquisitions or other restructuring activities may not be fully realized, or at all, or may take longer to realize than expected. Acquisitions
involve numerous risks, any of which could harm our business, results of operations, cash flow and financial condition as well as the
price of our ordinary shares.
Our business depends on accurately forecasting
market trends and customer demand, securing and executing customer orders as planned, and managing a highly variable mix of products,
geographies, and services; if our forecasts prove inaccurate, if customers defer or cancel orders, or if our revenue and margin mix differ
from expectations, our revenue, gross margin, cash flows, and operating results could fluctuate significantly and be materially and adversely
affected.
Our strategic, corporate, marketing, and product planning relies
on forward‑looking assessments of market developments, including anticipated use cases, business concepts, technologies, and customer
needs. We shape our network architecture, technological and operational solutions, and services to align with these projections, including
initiatives focused on Open RAN and disaggregated architectures. There is no assurance that these concepts will gain market acceptance,
that market trends will develop as we anticipate, or that our solutions will meet future demand. If our forecasts are inaccurate or our
offerings fail to address evolving requirements, we could experience reduced demand, reputational harm, and significant losses, any of
which could materially and adversely affect our business, financial condition, results of operations, and cash flows.
Even when we secure customer orders, there is no assurance they
will be fulfilled in their original schedules. Customers may defer delivery dates, delay implementation timelines, or halt orders on short
notice due to changes in their plans, budget constraints, regulatory developments, vendor‑related timing issues, or shifting priorities.
Such actions can occur with little or no warning and may cause pronounced quarterly revenue volatility, resource underutilization, supply‑chain
and inventory inefficiencies, and challenges in operational and financial planning. Similar events may recur and could adversely impact
our working capital, collections, and liquidity, particularly where we have increased production or inventory in anticipation of scheduled
deliveries.
Our gross margin is inherently difficult to predict and is subject
to significant fluctuations driven by changes in geographical revenue mix, product mix, and the proportion of software and services. Gross
margin percentages and deal economics can vary materially among regions, countries, customers, and transactions depending on deal size,
scope, delivery terms and timelines, and other commercial provisions. A shift toward lower‑margin regions, offerings, or service
components may reduce our gross margin, while the opposite may increase it; because actual mix frequently deviates from our expectations
and may change late in a period, our reported margins can vary significantly from quarter to quarter.
Our revenue and operating results are also affected by the timing
of revenue recognition, which depends on multiple factors that may differ from expectations, including delivery schedules, completion
of related services, customer acceptance testing, project timetables, and the aggregation of contract‑specific revenue recognition
requirements. A significant portion of our revenue has historically been generated toward the end of each quarter, which heightens the
impact of any late‑period delays on our reported results. In addition, a meaningful portion of our business is concentrated with
certain customers who are not obligated to purchase minimum volumes and may reduce or terminate purchases without notice or penalty, change
desired delivery schedules, or encounter financial distress or insolvency.
These dynamics make forecasting difficult, may adversely impact
our revenues, gross margins, working capital, cash flows, and collections, and can cause our actual results to differ materially from
our guidance or internal expectations for any given period.
10
Increased breaches of network
or information technology security could have an adverse effect on our business.
Cyber-attacks or other breaches of network or IT security may cause
equipment failures or disrupt our systems and operations, expose us to ransom demands or sensitive data leaks. We were subject to an immaterial
intrusion to our networks in 2025 and might be subject to additional attempts to breach the security of our networks and IT infrastructure
through cyber-attacks, malware, computer viruses and other means of unauthorized access. While we maintain insurance coverage for some
of these events, we cannot be certain that our coverage will be adequate for liabilities actually incurred. While we take cybersecurity
measures and maintain redundancy and disaster recovery practices for our critical services, we cannot assure you that our cybersecurity
measures and technology will adequately protect us from these and other risks. Furthermore, our inability to operate our facilities as
a result of such events, even for a limited period of time, may result in significant expenses or the loss of market share to our competitors.
We may expend significant resources or modify our products to try to protect against security incidents. The integration of E2E’s
information systems poses cybersecurity risks that, if not properly managed, could result in unauthorized access to sensitive data, operational
disruptions, and potential financial liabilities.
Maintaining the security of our products, computers and networks
is a critical issue for us and our customers. Therefore, each year we invest additional resources and technologies to better protect
our assets. However, security researchers, criminal hackers and other third parties regularly develop new techniques to penetrate computer
and network security measures. In addition, hackers also develop and deploy viruses, worms, Trojan horses and other malicious software
programs, some of which may be specifically designed to attack our products, systems, computers or networks. Moreover, due to current
labor market trends, a significant number of our employees or employees of our vendors, suppliers and service providers, have moved to
work from their homes and remotely access our or such vendors’, suppliers’ or service providers’ IT networks. Such remote
working mode creates the risk of attacking the end-point user stations, connection channels and gateways. We have seen a significant increase
of cyberattacks on enterprises and individuals in recent years and we assume that we shall further be exposed to such threats going forward.
In addition, our and our vendors’, suppliers’ and service providers’ networks and IT systems are increasingly being
moved to cloud-based platforms such as IaaS (Infrastructure as a Service) and SaaS (Software as a Service) IT solutions. These cloud-based
arena poses risks of attack on and from the end-point user stations, connection channels and gateways as well as the IaaS and SaaS infrastructures
of our service providers. Additionally, external parties may attempt to fraudulently induce our employees or users of our products to
disclose sensitive information in order to gain access to our data or our customers’ data. These potential breaches of our security
measures and the accidental loss, inadvertent disclosure or unauthorized dissemination of proprietary information or sensitive, personal
or confidential data about us, our employees or our customers, including the potential loss or disclosure of such information or data
as a result of hacking, fraud, trickery or other forms of deception, could expose us, our employees, our customers or the individuals
affected, to a risk of loss or misuse of this information, result in litigation and potential liability or fines for us, damage to our
brand and reputation or otherwise harm our business. Furthermore, the increasingly growing capabilities of AI and its availability for
public use and adoption, may be used to identify vulnerabilities in our systems craft sophisticated cyberattacks. The rising adoption
of AI and Generative AI in daily operations, research and development activities, and products poses additional and new risks, including,
without limitation, data privacy and security risks, intellectual property infringement or leakage, ownership issues and/or confidentiality
issues. Threats include potential data leaks, social engineering attacks, and decision-making based on manipulated information. Growing
regulatory requirements for information security and data protection add to the challenge. Furthermore, cyberattacks and security incidents
are expected to accelerate in both frequency and impact as the use of AI increases and attackers become increasingly sophisticated and
utilize tools and techniques that are designed to circumvent controls, avoid detection, and remove or obfuscate forensic evidence.
Unauthorized use or behavior on part of our vendors’, suppliers’
and service providers’ employees or taking insufficient cybersecurity measures by them, could result with data leaks and penetration
to our databases that are located or installed in their network. In addition, the shift to software solutions coupled with requirement
to move data to cloud-based and open-source environments impose enhanced cybersecurity challenges that can make our vendors, suppliers
and service providers more vulnerable to cyber-attacks.
In addition, due to the direct hostilities between Israel, Iran
and other Iranian proxies, Israeli and Israeli associated companies have become more frequently the target of cyberattacks. Since the
escalation of the heated relationship with Iran in June 2025, and more predominantly during February to March 2026, attackers associated
with Iran have led a wave of cyberattacks against Israeli public institutions as well as private companies. As such, the risk of a cyberattack
against our information technology systems and data security may become heightened.
11
Cyber-attacks on our customers’ networks
involving our products could have an adverse effect on our business.
Maintaining the security of our products (including newly introduced
software products) which are installed with our customers is a critical issue for us, therefore each year we invest additional resources
and technologies to better protect our assets. However, security researchers, criminal hackers and other third parties regularly develop
new techniques to penetrate computer and network security measures. Cyber-attacks, or other breaches of security on our customers’
networks, may be initiated at any network location or device including initiation through our products. Although we maintain high levels
of cyber-security aware development processes, we cannot assure that such attacks, or other breaches of security through our products,
will fail and therefore may negatively affect our customers’ business. Moreover, criminal hackers or hackers associated with national
governments, may target a customer of ours or even try to get access to a wider group of the communication network users while devoting
immense resources for long-term access to industry, economy or critical infrastructure users, gather intelligence and develop the means
to disable their systems, which attacks are hard to detect, prevent and illuminate. Such attacks could be highly sophisticated, such as
slipping malware and Trojan horses and warms into software updates or systematically search for vulnerabilities in our products or in
the components we use even before it supplies to us, or using the Company’s networks as a vector to spread malware, might lead to
widespread damage and compromised security to the customers. While we maintain insurance coverage for some of these events, we cannot
be certain that our coverage will be adequate for liabilities actually incurred. In addition, these events could also result in damage
to our reputation which will further negatively impact on our business.
Unauthorized use or behavior on part of our customers’ employees
or taking insufficient cybersecurity measures by certain customers, could result in data leaks and penetration to our systems that are
located or installed in its network. In addition, the shift to software solutions coupled with the requirement to move data to cloud-based
and open-source environments impose enhanced cybersecurity challenges that can make our products and services more vulnerable to cyber-attacks.
The rising adoption of AI and Generative AI in daily operations and products among our customers, as well as among cyber-attackers, as
described above, poses additional and new risks, including, without limitation, data privacy and security risks, intellectual property
infringement or leakage, ownership issues and/or confidentiality issues.
These potential breaches of our security measures could expose
our customers to network failures or other related risks, result in litigation and potential liability or fines for us, damage to our
brand and reputation or otherwise harm our business.
Relying on third-party manufacturers, suppliers
and service providers may disrupt the proper and timely management of deliveries of our products, a risk that is intensified in the case
of a single source supplier.
We outsource our manufacturing and the majority of our logistics
operations and purchase ancillary equipment for our products from contract and other independent manufacturers. Although during 2025 ,
we have invested efforts in diversifying our manufacturers and suppliers base, including through our initiative to shift certain manufacturing
operations to India, and despite our policy to maintain at least a second source for all of our products’ components, disruption
in deliveries or in operations of these and other third-party suppliers or service providers, as a result of, for example, capacity constraints,
production disruptions, price increases, regulatory restrictions, force majeure events, as well as quality control problems related to
components, may all cause such third parties not to comply with their contractual obligations to us. This could have an adverse effect
on our ability to meet our commitments to customers and could increase our operating costs. For additional information see “The
global supply of electronic components, including integrated circles, has experienced, and
may continue to experience, an increase in demand, while production capacity remains limited, which had, and may continue to have, an
adverse effect on the lead-time for our components and increase their prices”.
Although we believe that our contract manufacturers and logistics
service providers have sufficient economic incentive to perform our manufacturing and logistics services requirements, the resources devoted
to these activities are not within our control. We cannot assure you that manufacturing, or logistics problems will not occur in the future
due to insufficient resources devoted to our requirements by such manufacturers and logistics service providers, or due to insolvency
or other circumstances that could have a material adverse effect on those manufacturers and logistics service providers’ operations.
In addition, we cannot assure that we will have the ability or be in the position to demand from our contract manufacturers to assume
our obligations to our customers, apply the same terms back-to-back to our contract manufacturers and suppliers, a risk that is intensified
in the case of a single source supplier. Furthermore, our initiative to expand manufacturing operations in India, while intended to diversify
our manufacturing footprint and reduce geographic concentration risk, may present additional challenges, including establishing relationships
with new contract manufacturers, navigating local regulatory requirements, managing quality control across geographically dispersed operations,
and potential delays or inefficiencies as new manufacturing capabilities are developed and scaled.
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In addition, some of our contract manufacturers currently obtain
key components from a limited number of suppliers. Our contract manufacturers’ dependence on a single or sole source supplier, or
on a limited number of suppliers, subjects us to the following risks:
• The component suppliers may experience shortages in components and interrupt or delay their shipments to our contract manufacturers. Consequently, these shortages could delay the manufacture of our products and shipments to our customers.
• The component suppliers could discontinue the manufacture or supply of components used in our systems. In such an event, we or our contract manufacturers may be unable to develop alternative sources for the components necessary to manufacture our products, which could force us to redesign our products or buy a large stock of the component into inventory before it is discontinued. Any such redesign of our products would likely interrupt the manufacturing process and could cause delays in our product shipments. Moreover, a significant modification in our product design may increase our manufacturing costs and bring about lower gross margins. In addition, we may be exposed to excess inventory of such component, which we will have to write-down in case the demand is not as high as we anticipated at the time of buying these components.
• The component suppliers may significantly increase component prices at any time and particularly if demand for certain components increases dramatically in the global market which would have an adverse effect on the Company’s business.
• The component suppliers may significantly increase the time to produce and deliver their components at any time resulting in an immediate effect. These lead time increases would delay our products’ delivery timetable and could expose us to shortage in supply or late supplies that may trigger penalties, orders cancellation and losing some of our customers.
• The component suppliers may refuse or be unable to further supply such component for various reasons, including, among other things, their prioritization, focus, regulations, force majeure events or financial situation.
The materialization of the risks detailed above could result in
delays in deliveries of our products to our customers, which could subject us to penalties payable to our customers or cancellation of
orders, increased warranty costs as well as increases in manufacturing and shipment expenses in the case of expedited deliveries, and
damage to our reputation. If any of these problems occur, we may be required to seek alternate manufacturers or logistics service providers
and we may not be able to secure such alternate manufacturers or logistics service providers that meet our needs and standards in a timely
and cost-effective manner. Consequently, such occurrences, extra costs and penalties could significantly reduce our gross margins and
profitability. The above-mentioned risks are exacerbated in the case of raw materials or component parts that are purchased from a single-source
supplier.
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The global supply of electronic components,
including integrated circles, has experienced, and may continue to experience an increase in demand, while production capacity remains
limited, which had, and may continue to have, an adverse effect on the lead-time for our components and increase in their prices.
The global demand for electronic components, including digital
components, chipsets and semiconductors, has experienced an increase in the past several years, with a growing number of industries increasing
their demand and consumption. This, together with the effect of trade embargos (and other factors effecting global shipment detailed under
“Our global operation exposes us to the effects of global economic trends, including recession,
rising inflation, rising interest rates, commodity price increases and fluctuations, commodity shortages and exposure to economic slowdown”),
have led to longer lead-time of electronic components, with many cases of a lead time longer than a year. The lack of sufficient production
facilities and capacity of the semiconductor foundry industry to meet such demand, which created a shortage in chipsets, electronic equipment
and components, has already caused, and may continue to cause, price increases and extensions of delivery time. Additionally, elevated
global demand for AI infrastructure may divert wafer, substrate, memory and advanced packaging capacity toward AI-related products, creating
further shortages, longer lead times and price increases for components we require; certain suppliers may reallocate or suspend production
lines, accordingly, exacerbating these supply constraints. As a result of this situation, we may be unable to obtain essential components
in a timely manner and at a reasonable cost that is necessary for us to remain competitive. During such times, supplier-specific or industry-wide
lead times for delivery can be as long as twelve months or more. If we are unable to obtain components in a timely manner to fulfill our
customers’ demand, or at a reasonable cost, we may be unable to meet commitments under our contracts with customers, which could
expose us to substantial liquidated damages and other claims and could materially and adversely affect our results of operations, financial
condition, business and prospects. Additionally, an increase in lead time and the shortage in chipsets may result in delays in the delivery
of our products and in meeting the timetables for the execution of our projects, which may trigger penalties, cancellation of orders and
loss of some of our customers or market share. This has adversely affected, and may continue to adversely affect, our costs (including
a significant increase in production costs) and to erode our gross margin. Furthermore, as our new Systems-on-Chip (SoC) commercialization
and commencement of mass production is highly dependent on the timely delivery of the chipsets, these delays may also adversely affect
the commercialization and mass production timetable, causing a delay in our ability to introduce and commercialize our new SoC-based products
and safeguard and maintain our position and market share as leaders in the introduction of advanced 5G solution.
We experience high volatility in the supply
needs of our customers, which from time to time lead to delivery issues due to long lead time and availability of components and manufacturing
power. If we fail to effectively cope with such volatility and short-noticed supply demands of our customers, we may be unable to timely
fulfill our customer commitments which would adversely affect our business and results of operations.
The delivery requirements of our customers are unevenly spread
throughout the year. We may receive very large orders that were not forecasted, or that were expected with a different timing requirement.
In addition, we offer our products to our customers in a wide variety of product variations and configurations, and our inability to forecast
the quantities or mix of the delivery demands for our products may result in underestimating our material purchasing needs, as well as
production capacity requirements. If we fail to effectively manage our deliveries to the customers in a timely manner, or otherwise
fulfill our contractual obligations to them - for example if we are unable to synchronize our supply chain and production process in cases
of rapidly increasing production needs - the cost of our material purchasing, manufacturing and logistics may increase and we may also
be obligated to pay expediting fees to our contract manufacturers or penalties to our customers for delays, and may be subject to order
cancelation, all of which would adversely affect our business, financial results and our relationship with our customers. This risk is
heightened with the expansion of our service offering, which allows us to access new customers, whose business practices and supply needs
we are not familiar with yet.
Due to inaccurate forecasts or business changes,
we may be exposed to inventory-related losses on inventory purchased by our contract manufacturers and other suppliers, or to increased
expenses should unexpected production ramp up be required. In addition, part of our inventory may be written off, which would increase
our cost of revenues.
Our contract manufacturers and other suppliers are required to
purchase inventory based on manufacturing projections we provide to them. If the actual orders from our customers are lower than projected,
or the mix of products ordered changes, or if we decide to change our product line and/or our product support strategy, our contract manufacturers
or other suppliers will have excess inventory of raw materials or finished products, which we would typically be required to purchase,
thus incurring additional costs and our gross profit and results of operations could be adversely affected.
Further, we require our contract manufacturers and other suppliers
from time to time, to purchase more inventory than is immediately required and with respect to our contract manufacturers, to partially
assemble components, in order to shorten our delivery time in case of an increase in demand for our products. In the absence of such increased
demand, we may need to make advance payments, compensate our contract manufacturers or other suppliers, or even buy the redundant inventory,
as needed. We also may purchase components or raw materials from time to time for use by our contract manufacturers in the manufacturing
of our products. This may cause additional write offs and may have a negative impact on our results of operations and cash flow.
14
Alternatively, if we underestimate our requirements and our actual
orders from customers are significantly larger than our planned forecast, we may be required to accelerate the production and purchase
of supplies, which may result in additional costs of buying components at less attractive prices, paying expediting fees and excess shipment
costs, overtime and other manufacturing expenses. As a result, our gross margins and results of operations could be adversely affected.
Inventory of raw materials, work in-process or finished products
located either at our warehouses or our customers’ sites as part of the network build-up may accumulate in the future, and we may
encounter losses due to a variety of factors, including:
• new generations of products replacing older ones, including changes in products because of technological advances and cost reduction measures; and
• the need of our contract manufacturers to order raw materials that have long lead times, our need to order a Last Time Buy of end of life components and our inability to estimate exact amounts and types of items thus needed.
Further, our inventory of finished products located either at our
warehouse or our customers’ sites as part of a network build-up may accumulate if a customer were to cancel an order or refuse to
physically accept delivery of our products, or in rollout projects, which include acceptance tests, refuse to accept the network. The
rate of accumulation may increase in a period of economic downturn.
Our international
operations expose us to the risk of fluctuations in currency exchange
rates and restrictions related to foreign currency exchange controls.
We are a global company operating in a multi-currency environment.
Although we derive a significant portion of our revenues in U.S. dollars, a portion of our revenues are derived from customers operating
in local currencies other than the U.S. dollar. Therefore, devaluation in the local currencies of our customers relative to the U.S. dollar
could cause our customers to cancel or decrease orders or to delay payment, which could have a negative impact on our revenues and results
of operations. We are also subject to other foreign currency risks including repatriation restrictions in certain countries, particularly
in Latin America, Asia Pacific and in Africa or significant costs in converting local currencies to U.S. dollars. See the risk of “Due
to the volume of our sales in emerging markets, we are susceptible to a number of political,
economic and regulatory risks that could have a material adverse effect on our business,
reputation, financial condition and results of operations”.
A substantial portion of our operating expenses are denominated
in NIS, and to a lesser extent, other non-U.S. dollar currencies. Our NIS-denominated expenses consist principally of salaries and related
costs as well as other related personnel expenses. In addition, our lease and Israeli facility-related expenses and certain engagements
with other Israeli vendors are denominated in NIS as well. We anticipate that a portion of our expenses will continue to be denominated
in NIS. Devaluation of the U.S. dollar against the NIS, as experienced in recent months, could have a negative impact on our results of
operations.
We used, and may use in the future, derivative financial instruments,
such as foreign exchange forward contracts, to mitigate the risk of changes in foreign exchange rates on our balance sheet accounts in
various currencies and also to hedge our forecasted NIS denominated cash flows. Each type of derivative instrument may have different
effect on our financial statements as explained in Note 2.q to our Consolidated Financial Statements. We do not use derivative financial
instruments or other “hedging” techniques to cover all our potential exposure and may not purchase derivative instruments
that adequately insulate us from foreign currency exchange risks. In some countries, we are unable to use “hedging” techniques
to mitigate our risks because hedging options are not available for certain government restricted currencies. Moreover, derivative instruments
are usually limited in time and as a result, cannot mitigate currency risks for the longer term. During 2025, we incurred losses in the
amount of $2.0 million as a result of exchange rate fluctuations that have not been fully offset by our hedging policy. The volatility
in the foreign currency markets may make it challenging to hedge our foreign currency exposures effectively.
In some cases, we may face regulatory, tax, accounting or corporate
restrictions on money transfer from the country from which consideration should have been paid to us (or to our respective selling subsidiary)
or revenues could have accumulated and allocated to us or could face general restrictions on foreign currency transfer outside of such
country. Inability to collect and receive amounts that are already due and payable, could have a negative impact on our results of operations.
15
We are expanding our service
and software offerings into new areas and entering new market fields, which present distinct operational, execution, and market challenges
that could result in significant losses and adversely affect our business, financial condition, and operating results. Until such expansions
mature, our continued concentration in a single market domain increases our sensitivity to demand fluctuations, which could negatively
impact on our financial performance.
We are expanding the services we offer to new areas including managed
services and software-based tools and services (including SaaS solutions) to support design, implementation, operation, monitoring and
maintenance of wireless communication networks. These new offerings pose significant product development, marketing, sales, operation,
implementation and support challenges. The fundamental risk lies in whether we can successfully execute these new initiatives and achieve
the capabilities needed to succeed in these areas. Software solutions carry inherent risks such as cybersecurity vulnerability, unexpected
integration challenges, debugging requirements, and underpricing. New products are more prone to bugs and software failures, which may
adversely affect our ability to ramp up this activity, meet customer commitments, or satisfy customer expectations, and may cause us to
incur additional costs or expose us to penalties. There is no assurance that we have successfully forecasted market trends and needs,
that markets will accept our solutions as anticipated, or that we will achieve our revenue targets in these fields.
We are also expanding into new market fields, including the private
networks market, to diversify our operations and customer base. These new market fields are characterized by longer sales and implementation
cycles, which can be compounded by the fact that these solutions are new for our customers as well, potentially resulting in prolonged
decision-making processes and delayed revenue realization. This expansion involves risks including uncertain market acceptance, brand
development challenges, the need to expand customer service capabilities, regulatory compliance requirements, increased competition from
established players, and substantial sales and marketing efforts with uncertain effectiveness. If we invest substantial time and resources
into such expansion and are unable to achieve the desired results, our business, financial condition, and operating results could be adversely
affected.
Although we have updated our strategy to focus on the private networks
field and software-based solutions and managed services, which we believe will make our Annual Recurring Revenues (ARR) more meaningful,
it will take time for these initiatives to materialize and mature. Until recently, we focused primarily on the "best-of-breed" segment
of the wireless transport market, and we remain more sensitive to reductions in demand for point-to-point wireless transport products
compared to companies with more diversified product lines.
If this market segment or service providers enter a negative cycle,
or our market share shrinks before our new business strategy is fully implemented, our sales and revenues may decline, and our results
of operations and cash flow may be significantly and adversely affected. If decreased demand for our specific technology is not offset
by mature new offerings, we may need to take cost reduction measures that could adversely impact our research and development, operations,
marketing and sales activities, and our ability to compete effectively.
Developing and commercializing
new products may not be successful and could adversely affect our business, financial condition, and operating results, and if we fail
to timely develop and market new products that keep pace with technological developments, changing industry standards, and our customers'
needs, we may lose market share or may not be able to sustain our business.
Our business performance depends on our ability to develop and
successfully commercialize new products. The development of new products, such as our new SoC-based products, is a highly speculative
endeavor and may not be adequately forecasted. There can be no assurance that we will be successful in bringing any new products to market
or that such products will generate revenues sufficient to justify our investments or achieve the desired profitability.
The wireless transport equipment industry is characterized by rapid
technological developments, changing customer needs that expect increases in product performance, evolving industry standards, and increasing
pressure to produce more cost-effective products. These rapid technological developments could either render our products obsolete or
require us to modify our products, necessitating significant investment, both in time and cost, in new technologies, products, and solutions.
Our success depends on our ability to maintain an agile infrastructure capable of adapting to such changes in a timely manner, but we
cannot assure you that any such development or production ramp-up will be completed in a timely or cost-effective manner, or how the market
will receive or adopt our products compared to our competitors' products. We consider the wireless market transition from 4G to 5G technologies
to be one of our main growth engines in the foreseeable future. If our competitors or new market entrants develop products for this market
that are, or are perceived to be, more advantageous to our customers from a technological or financial perspective, or if they introduce
and market their products prior to us doing so, they may be able to better position themselves in the market, and we may lose potential
or existing market share, which could have a material adverse effect on our business, financial results, and financial condition.
16
We are continuously seeking to develop new products and enhance
our existing products. In 2024, we expanded our product portfolio of the IP-50 family with the new IP-50CX and IP-50EX. We also penetrated
and improved the Siklu by Ceragon product line (Etherhaul and Multihaul family), which is intended to deliver solutions to various use
cases in the private networks domain. In 2025, we significantly expanded our E-band portfolio with three new products that allow us to
offer suitable products in this important field. In addition, we have released two new indoor devices that enhance our offering in the
Split-Mount field. Furthermore, in 2025 we launched our new SoC-based IP-100E platform, the 25Gbps E-band radio. However, the mass production
and productization of the IP-100E platform is planned for late 2026, and therefore, we do not expect significant commercialization of
the IP-100E platform before that time. Any delays in the launch of new SoC-based products may cause us to lose our competitive advantage.
Our market is also characterized by a growing demand for more sophisticated and rich software-based capabilities within the network IP
layer (layer 3 routing/MPLS), some of which may require us to utilize and embed additional components, either in hardware or software
(including third-party software), in the solutions we provide. We cannot assure you that we will continue to be successful in providing
these necessary software-based capabilities in a cost-effective manner, which could affect our business performance. Additionally, we
have established technological cooperation with third parties to address some of these capabilities, but we cannot assure that such cooperation
will be successful or achieve the expected results. If such cooperation is not successful, we will have to consider other alternatives,
and such investigation and entering into new cooperation in lieu of the failed ones might cause a delay in the introduction of such capabilities.
The process of developing new products is lengthy, complex, and
uncertain, requiring significant research, development, and testing, all of which may fail to result in viable products. Our R&D efforts
may not yield new products that can be commercialized, and there is a risk that new products may not achieve market acceptance if our
target markets are not receptive to our new products or competitors offer superior or more cost-effective alternatives. We cannot assure
that we will successfully forecast technology trends or that we will anticipate innovations made by other companies and respond with our
own innovation in a timely manner, which could affect our competitiveness in the market. There is also the risk associated with protecting
new intellectual property and potential infringement upon the intellectual property rights of others, and if we cannot adequately protect
our intellectual property or if we infringe upon the rights of others, our competitive position may suffer.
We may encounter difficulties in scaling up production to meet
demand, including problems involving production yields, quality control and assurance, and shortages of essential components. There could
be pricing pressure from competitors and difficulty in obtaining adequate reimbursement for new products, which could affect their profitability.
New products are also susceptible to defects, which could lead to liability and harm our reputation. In addition, new products and new
versions of existing products are more prone to technical problems which may, among other things, adversely affect our ability to ramp
up and to meet delivery commitments to our customers in a timely manner, and may cause us to incur additional manufacturing, development,
and repair costs.
The failure to successfully develop, produce, market, and sell new products could
have a material adverse effect on our business, financial condition, and results of operations. Even if our new products are successful,
they may not generate revenues sufficient to justify our investments, and we may not achieve the desired profitability in selling these
products.
If we fail to attract or retain qualified and
skilled “talents” and personnel, our business, operations and product development efforts may be materially adversely
affected.
Our products require sophisticated research and development, marketing
and sales, and technical customer support. Our success depends on our ability to attract, train and retain qualified personnel in all
these professional areas while also taking into consideration varying geographical needs and cultures. We compete with other companies
for personnel in all of these areas, both in terms of profession and geography, and we may not be able to hire sufficient personnel to
achieve our goals or support the anticipated growth in our business. The market for the highly trained personnel we require globally is
competitive, due to the limited number of people available with the necessary technical skills and understanding of our products and technology.
We experience competition on talent, predominantly among R&D and technological personnel, or employees having experience or expertise
in high-tech and traded companies.
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As the demand for qualified and highly skilled personnel is in
constant demand, our ability to retain existing “talents” and recruit new ones is becoming more challenging. Consequently,
we may have to face with increasing employment costs for existing and new personnel in professions characterized with high demand, and
might have to increase our equity-based long-term incentive programs, which in turn could result in the dilution of our shareholders due
to the exercise of such rights. Loss of senior level “talents”, including as a result of recent organizational changes, may
cause delays in our development efforts and operational challenges as well as shortage in, and loss of, knowhow, knowledge, domain expertise
and capabilities which cannot always be immediately mitigated.
These risks are heightened in light of the recently initiated restructuring
of our human resources and employee structure, including the establishment of new research and development centers in additional countries
and management personnel shifting and organizational changes. Integrating new employees and establishing new research and development
centers, particularly in countries where we have limited operating experience, poses substantial management and operational challenges.
Furthermore, our ability to realize the benefits of our new research and development centers hinges on recruiting a substantial number
of qualified employees in countries where these facilities are being established. We may face competition for talent in these markets,
and there is no guarantee we will be successful in attracting and retaining the necessary skilled workforce. The restructuring process
and the assimilation of a new workforce may cause disruptions to our existing operations and human resources management. Failure to manage
these factors and disruptions could lead to higher attrition rates, decrease in employee morale, and a loss of productivity.
If we fail to attract and retain qualified personnel due to compensation
or other factors, or to manage or successfully perform in the above human resources related projects and disruptions, our business, operations
and product development and cost reduction efforts would suffer.
We are engaged in providing installation
or rollout projects for our customers and end users, whether directly
or via third party prime contractor, which are long-term projects that are subject to inherent risks, including early delivery of our
products with delayed payment terms, which expose us to our customers’ default, insolvency, or other adverse effects on our customers’
ability to pay us, delays or failures in acceptance testing procedures
and other items beyond our control, all of which could have a material adverse effect on our results
of operations or financial condition.
Our offering includes long term projects for our customers and
end-users, such as the networks rollout, managed services, and related projects, whether directly or via a third party prime contractor.
Some of those projects are characterized by providing customers’ credit and long payment terms. This has an adverse effect on our
working capital and exposes us to the risks of default, insolvency, or other adverse effect on the customer’s ability to pay us.
Although we hedge or insure some of those risks, the entire exposure cannot be covered. This may result in significant losses and may
adversely affect our financial results.
In certain projects, we serve as an integrator and prime contractor
of end-to-end rollout projects, which include installation and other services for our customers. In this context, we may act as the prime
contractor and equipment supplier for network build-out projects, providing installation, supervision and commissioning services required
for these projects, or we may provide such services and equipment (or part thereof) for projects handled by others, primarily system integrators.
These rollout projects often require us to deliver products and
services representing an important portion of the contract price before receiving any significant payment from the customer, as significant
amounts are to be paid by our customers over time, which expose us to our customers’ default, insolvency, or other adverse effects
on our customers’ ability to pay us. In cases where we do not serve as prime contractors as aforesaid, and acting as subcontractors
to a prime contractor, and the full project is handled by others, even if we have delivered to our commitments, there is a risk that we
will not be able to receive payments in a timely fashion due to failure or default on part of the prime contractor or other issues which
are not related to the performance of our portion of the project, causing payment delays by the end customers. Therefore, rollout projects
could cause us to experience significant collection issues and as a result substantial period-to-period fluctuations in our results of
operations, cash flow and financial condition.
Once a purchase order has been executed, the timing and amount
of revenue may remain difficult to predict. The completion of the installation and testing of the customer’s networks and the completion
of all other suppliers’ network elements are subject to the customer’s timing and efforts, and other factors outside our control,
such as site readiness for installation or availability of power and access to sites, which may prevent us from making predictions of
revenue with any certainty.
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Also, as we usually engage subcontractors, third party service
providers and temporary employees to perform a significant part of the work (such as installation, supervision, on-site testing, commissioning,
repair and replacement services), we are dependent on such service providers’ and temporary employees’ timely and quality
performance, including with respect to the fulfillment of or default under their back-to-back obligations to those we may have undertaken
vis-à-vis our customers, as well as pricing that may fluctuate significantly due to various factors. All these factors may affect
our ability to accurately project our costs and profits in providing these services and may result in significant deviations from our
projections, which may adversely affect our financial results. In addition, we may be subject to other risks that may apply to our subcontractors
or associated with their businesses.
In some of these projects, we may need to provide bank guarantees
to ensure successful completion of the rollout services, to secure an advance payment we have received, in case we fail to meet our obligations,
or to secure our warranty obligations. As a result, in these projects we assume greater financial risk.
In addition, typically in rollout projects, we are dependent on
the customer to issue acceptance certificates to generate and recognize revenue. In such projects, we bear the risks of loss and
damage to our products until the customer has issued an acceptance certificate upon successful completion of acceptance tests. Moreover,
we are not always the prime integrator in these projects and in such cases, the acceptance may be delayed even further since it depends
on the acceptance of other network elements not in our control. The early deployment of our products during a long-term project reduces
our cash flow, as we generally collect a significant portion of the contract price after successful completion of an acceptance test.
If our products are damaged or stolen, if the network we install does not pass the acceptance tests or if the customer does not or will
not issue an acceptance certificate, the end user or the system integrator could refuse to pay us any balance owed and we would incur
substantial costs, including fees owed to our installation subcontractors, increased insurance premiums, transportation costs and expenses
related to repairing or manufacturing the products. In such a case, we may not be able to repossess the equipment, thus suffering additional
losses.
Our service offering includes full design and implementation of
wireless communication networks, while also using technologies of third-party vendors. The complexity of such projects and the reliance
on third parties’ performance is increasing the risk of not meeting our performance obligations. As a result, the completion of
such projects may be delayed, or the outcome may not be to the full satisfaction of the customer, who may in turn, impose penalties or
exercise any other remedy available to customers in the service contract. In addition, the cost of such projects may be higher than planned.
This may result in significant losses and may adversely affect our financial results.
We
are exposed to risks associated with integrating AI tools into our products, solutions, and operations.
Ceragon integrates artificial intelligence and machine learning
("AI/ML") technologies into two key areas of its business: (i) our products and solutions, such as network optimization and predictive
maintenance tools; and (ii) our internal operations, where employees use AI/ML, including Generative AI, to support decision-making and
workflow efficiency. We also rely on AI/ML models hosted or developed by third-party providers. These technologies are subject to the
risks and uncertainties described below, many of which are beyond our control. Any of these risks, alone or in combination, could have
a material adverse effect on our business, financial condition, and results of operations.
Our future success depends in part on our ability to integrate
AI/ML technologies effectively into our products, solutions, including network planning, deployment, optimization, and maintenance. The
market for AI-enhanced solutions in our industry is evolving rapidly. If our competitors adopt AI/ML more quickly or more successfully
than we do, our competitive position could be impaired. Likewise, if we fail to adopt AI/ML within our operation in a timely and effective
manner, our operational efficiency, service quality, and competitiveness could suffer. In addition, adopting and maintaining AI/ML technologies
may require significant capital expenditures and increase operational costs due to computing demands, infrastructure requirements, and
the need for specialized expertise, and there can be no assurance that such investments will yield the anticipated benefits or a positive
return.
The deployment of AI/ML technologies, whether by us or by our vendors,
subcontractors, or other third parties on whom we rely, introduces inherent and evolving risks of misuse, error, and noncompliance. AI/ML
models may produce biased, flawed, incomplete, or inaccurate outputs, some of which may appear correct. This may occur if the inputs that
the model relied on were themselves inaccurate, incomplete, or flawed - including if a bad actor "poisons" the AI/ML with bad inputs or
logic - or if the underlying logic of the model is flawed. If we or our personnel rely on such outputs without adequate human oversight,
the consequences could include faulty network optimizations, poor decision-making, or harm to our customers or their networks. Any failure
of our AI/ML technologies to perform as intended could adversely affect our business and results of operations, damage our reputation,
erode customer confidence, and expose us to liability. We may also incur substantial costs defending or settling litigation or regulatory
proceedings related to the use of AI/ML, including as a result of flawed outputs, alleged intellectual property infringement, or violations
of applicable law.
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The use of AI/ML also
creates data privacy, cybersecurity, confidentiality, and intellectual property risks that may not be fully predictable. Sensitive information
we input into a third-party AI/ML platform could be leaked or disclosed to others - for example, if the third party uses that information
to train its models. AI/ML models may also infer or reveal additional sensitive information based on data they have ingested. We
may not be able to fully monitor or control how third-party providers process, store, or use data inputted into their AI/ML platforms,
and any failure by such providers to adequately safeguard our data could expose us to significant liability.
The legal and regulatory
landscape surrounding AI is rapidly evolving and remains uncertain. Changes in legal or regulatory frameworks surrounding AI usage, including
the adoption of new or more restrictive laws, regulations, or industry standards, may pose compliance risks, increase our costs, or limit
our ability to develop, deploy, or benefit from these technologies. Many U.S. federal and state and foreign government bodies and agencies
have introduced or are currently considering additional laws and regulations governing the use of AI technologies. Any such changes could
require us to expend significant resources to modify our products, solutions, business processes, or operations to ensure compliance or
remain competitive, and could expose us to fines, penalties, or other enforcement actions in the event of non-compliance. We cannot predict
the timing, scope, or impact of future regulatory developments, and there is no assurance that we will be able to adapt to such changes
in a timely or cost-effective manner.
We are subject to various
regulations and standards relating to data privacy and security. Failure to comply with any applicable privacy, security, data protection
laws, regulations, standards or other requirement could have an adverse effect on our business prospects, results of operations, and financial
condition.
As a public company with significant operations in Israel,
the United States, Europe and many other countries, we are subject to regulation and must comply with reporting and other requirements
in a number of jurisdictions, and may from time to time be reviewed and investigated by the relevant authorities. As such reviews progress,
the regulating agencies may determine that we are and have been in compliance with applicable rules, or they may determine to pursue enforcement
actions or other sanctions against us for alleged noncompliance. The regulatory framework for data and privacy protection issues is rapidly
evolving worldwide. Comprehensive data protection laws, including the General Data Protection Regulation (GDPR), imposes stricter obligations
and provides for greater penalties for noncompliance. Additionally, laws in all 50 U.S. states require businesses to provide notice to
parties whose personally identifiable information has been disclosed as a result of a data breach. The laws are not consistent, and compliance
in the event of a widespread data breach is costly. In addition, failure to comply with the Israeli Privacy Protection Law 1981 and its
regulations (PPL), as well as the guidelines of the Israeli Privacy Protection Authority, may expose us to administrative fines, civil
claims (including class actions) and, in certain cases, criminal liability. In August 2025, a comprehensive amendment to the PPL became
effective. This amendment enhanced the Israeli Privacy Protection Authority’s enforcement powers, granting it significant authority
to impose administrative fines for non-compliance. The amendment also introduced broader oversight capabilities, alongside mechanisms
for monitoring adherence to privacy guidelines, thereby heightening the compliance requirements for organizations that handle personal
data in Israel. As a result, there has been a noticeable increase in enforcement activity by the Privacy Protection Authority in this
area. While we have invested in, and intend to continue to invest in, reasonably necessary resources to comply with these evolving privacy
standards, to the extent that we fail to adequately comply, that failure could have an adverse effect on our business, financial conditions,
results of operations and cash flows.
We are subject to complex and evolving regulatory
requirements that may be difficult and expensive to comply with and that could adversely impact our business, results of operations and
financial condition.
Our business and operations are subject to regulatory requirements
in Israel and in other jurisdictions where we operate or where our subsidiaries’ offices are located, including, among other things,
with respect to government contracts, global trade compliance, export controls, trade sanctions, labor, tax, anti-bribery, anti-corruption,
and data privacy and protection. In addition, certain countries have put regulations in place requiring local manufacturing of goods,
while foreign-made products are subject to pricing penalties or even bans from participation in public procurement auctions. Compliance
with these regulatory requirements may be onerous, time-consuming, and expensive, especially where these requirements vary from jurisdiction
to jurisdiction or where the jurisdictional reach of certain requirements is not clearly defined or seeks to reach across national borders. Regulatory
requirements in one jurisdiction may make it difficult or impossible to do business in another jurisdiction. Moreover, the cross-border
nature of our business operations may trigger not only a responsibility to comply with Israeli trade compliance and export control legislation
but also a responsibility to comply with certain applicable foreign trade and export control regulations. Certain of such requirements
may also vary from the jurisdiction in which we operate to jurisdictions in which our suppliers, customers or resellers are operating.
If we or our suppliers fail to obtain any required export licenses, or where existing licenses are revoked or become subject to export
restrictions, our ability to manufacture, market and sell our products and services could be adversely affected, all of which could have
a material adverse effect on our results of operations or financial condition.
Additionally, we may be limited in our ability to transfer or outsource
certain aspects of our business to certain jurisdictions, and may be limited in our ability to undertake research, development, or sales
activities in certain jurisdictions, or we may be unsuccessful in obtaining permits, licenses or other authorizations required to operate
our business, such as for the marketing, sale, import or export of products, solutions and services, which may adversely affect our business,
operations and results. We rely on a global supply chain and on certain marketing channels that may be similarly affected by these regulatory
requirements. We cannot assure you that despite our efforts we will be able to successfully or effectively assure that all of our suppliers,
agents and resellers will adhere, or will succeed in making sure that their suppliers or customers adhere, to the regulatory requirements
that flow down to them. Further, these regulatory requirements are subject to change and governments around the world are adopting a growing
number of compliance and enforcement initiatives. In particular, the pace and scope of changes to global trade control regulations has
increased dramatically over the past years, in multiple jurisdictions relevant to our business. These regulations may continue to increase
and change at an unusually rapid pace. It has been and may continue to be increasingly difficult to keep up with the pace and scope of
these changes. Violations of applicable laws or regulations, including by our officers, employees, contractors or agents, may harm our
reputation and deter governments and governmental agencies and other existing or potential customers or partners from purchasing our solutions.
Furthermore, non-compliance with applicable laws or regulations could result in fines, damages, civil penalties, or criminal penalties
against us, our officers or our employees, restrictions on the conduct of our business, and damage to our reputation. While we make efforts
to comply with such regulatory requirements, we cannot assure you that we will be fully successful in our efforts, or that that regulatory
changes will not negatively affect our ability to develop, manufacture and sell the products, solutions and services we offer.
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Our business is subject
to numerous laws and regulations designed to protect the environment, and the failure to comply with current or future environmental requirements
could expose the Company to criminal, civil and administrative charges.
Our business is subject to numerous laws and regulations designed
to protect the environment, including with respect to discharge management of hazardous substances. Although we believe that we comply
with these requirements and that such compliance does not have a material adverse effect on our results of operations, financial condition
or cash flows, the failure to comply with current or future environmental requirements could expose the Company to criminal, civil and
administrative charges. Due to the nature of our business and environmental risks, we cannot provide assurance that any such material
liability will not arise in the future.
Our wireless communications products emit electromagnetic radiation.
While we are currently unaware of any negative effects associated with our products, there has been publicity regarding the potentially
negative direct and indirect health and safety effects of electromagnetic emissions from wireless telephones and other wireless equipment
sources, including allegations that these emissions may cause cancer. Health and safety issues related to our products may arise that
could lead to litigation or other actions against us or to additional regulation of our products, and we may be required to modify our
technology without the ability to do so. Even if these concerns prove to be baseless, the resulting negative publicity could affect our
ability to market these products and, in turn, could harm our business and results of operations. Claims against other wireless equipment
suppliers or wireless service providers could adversely affect the demand for our transport solutions.
We have significant operations globally, including
in countries that may be adversely affected by political or economic instability, major hostilities or acts of terrorism, which expose
us to risks and challenges associated with conducting business internationally.
Some of the regions where we operate may be more susceptible to
political and economic instability, such as the Middle East. The recent escalation of hostilities involving Israel, Iran, the United States
and other regional actors, including military operations referred to by Israel as “Operation Roaring Lion” and by the United
States as “Operation Epic Fury,” has increased geopolitical uncertainty and could result in military escalation, disruptions
to shipping and energy markets, restrictions on trade or travel, and broader economic instability. Additionally, ongoing conflicts addition
regions relevant to our activities could result in a loss of sales and business in such regions, and may prevent us from participating
in certain governmental and private tenders or other competitive procurement procedures. The invasion of Ukraine by Russia has had numerous
adverse effects on the global and European markets in which we operate. Sanctions and export controls imposed by the U.S. U.K. and E.U.
countries significantly limit trade with Russia-related entities and individuals. Furthermore, as Russia is a global source of raw materials,
oil and gas and additional goods and commodities, the ongoing war and hostility also disrupts the supply of these resources (in addition
to the imposition of sanctions and embargoes), causes price increases, shortage, disruption to deliveries, shipping and transportation.
These disruptions are reflected both in price increases and shortages impacting our contract manufacturers and suppliers, and adversely
affect our production and supply chain costs and timelines.
The international environment in which we operate is affected by
international trade agreements and tariffs. As a result of recent revisions in the U.S. administrative policy there are, and may be additional,
changes to existing trade agreements, greater restrictions on free trade and significant increases in tariffs on goods imported into the
United States. Therefore, there is current uncertainty about the future relationship between the United States and other countries with
respect to trade policies, taxes, government regulations, and tariffs, and we cannot predict whether, and to what extent, U.S. trade policies
will change in the future. Future actions of the U.S. administration and that of foreign governments, with respect to tariffs or international
trade agreements and policies, remain currently unclear.
The duration, severity and global implications (including potential
inflation and devaluation consequences) of these and other geopolitical conflicts that may arise in the future, cannot be predicted at
this time and could have an effect on our business, exchange rate exposure, supply chain, operational costs and commercial presence in
these markets.
Significant portions of our operations are conducted outside the
markets in which our products are sold, and accordingly we often import a substantial number of products into such markets. We may, therefore,
be denied access to our customers or suppliers or denied the ability to ship products as a result of a closing of the borders of the countries
in which we sell our products, or in which our or our suppliers’ operations are located, due to economic, legislative, political
and military conditions, including hostilities and acts of terror, in such countries.
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Our corporate headquarters and a portion of our manufacturing activities
are located in Israel. Our Israeli operations are dependent upon materials imported from outside Israel. Accordingly, our operations and
information technology systems could be materially and adversely affected by acts of terrorism, including through cybersecurity threats,
or if trade between Israel and its present trading partners were materially impaired due to escalating hostilities in the Middle East,
including as a result of acts of terrorism in the United States or elsewhere. The recent escalation of hostilities involving Israel, Iran,
the United States, and the military activity and regional conflicts, may result in disruption to our operations and facilities, such as
our manufacturing and R&D facilities located in Israel, and impact our employees, some of which are military reservists being called
to active military duty, and impact the economic, social and political stability of Israel.
Our products and certain components they are
comprised of are subject to certain export controls and sanctions regimes that could adversely impact our competitive position and our
business
Because we incorporate encryption functionality into our products,
they are currently subject to Israeli export controls. Some of our products may also be subject to similar export controls in other jurisdictions
relevant to our operations, which place certain licensing requirements on some of our exports and limit our marketing possibilities. In
addition, export controls and related regulations in jurisdictions from which we source components may limit or delay our ability to obtain
certain components necessary for our products, as these might be deemed sensitive our restricted, or may require us to obtain particular
licenses, and any delays or failures in obtaining such components or mandatory licenses could cause us to lose business opportunities
or otherwise disrupt our operations. For example, components incorporating encryption functionality may require export licenses from the
jurisdictions in which they are manufactured. Additional limitations on the sales and servicing of our products apply through U.S. economic
sanctions and other similar sanctions regimes that may be applicable to our global operations. If we fail to comply with appliable
sanctions or licensing requirements we could be subject to substantial civil and criminal penalties, loss of export privileges, and loss
of certain business partners. Obtaining export licenses for some of our sales may be time consuming and may result in loss of sales opportunities.
Furthermore, even though we take precautions, the pace of changes, the complexity, and the immediate effect of the sanctions and export
controls pose a risk of failure to timely respond, adjust, implement or comply therewith. Among other things Israel has recently changed
its regulatory framework for the export control of items with encryption functionality, and this new framework may increase our regulatory
burden with respect to certain export activities related to our products.
Additional tax liabilities could materially
adversely affect our results of operations and financial condition.
As a global corporation, we are subject to income and other taxes
both in Israel and in various foreign jurisdictions including indirect as well as withholding taxes, and significant judgment is required
in determining our provision for income taxes. Our domestic and international tax liabilities are subject to the allocation of revenues
and expenses in different jurisdictions and differentiation in the timing of recognizing revenues and expenses. Our tax expense includes
estimates or additional tax, which may be incurred for tax exposures and reflects various estimates and assumptions, including assessments
of our future earnings that could impact the valuation or recognition of our deferred tax assets. From time to time, we are subject to
income and other tax audits, the timing of which is unpredictable. Our future results of operations could be adversely affected by changes
in our effective tax rate as a result of a change in the mix of earnings in countries with differing statutory tax rates, changes in our
overall profitability, changes in local tax legislation and rates, changes in tax treaties, changes in international tax guidelines (such
as the OECD Base Erosions and Profit Shifting project – known as BEPS), changes in generally accepted accounting principles, changes
in the valuation or recognition of deferred tax assets and liabilities, the results of audits and examinations of previously filed tax
returns and continuing assessments of our tax exposures. While we believe we comply with applicable tax laws, there can be no assurance
that a governing tax authority will not have a different interpretation of the law and impose additional taxes. In 2025 we received two
tax assessments from local tax authorities in two territories in which we operate. The Company is in the process of challenging such new
assessments, however if these tax assessments are accepted, we may be required to pay penalties in addition to the specific tax payment
demand. Although we believe our estimates are reasonable, the ultimate outcome of tax audits, assessments and related litigation could
be different from our provision for taxes including the reserve provided for uncertain tax positions and may have a material adverse effect
on our consolidated financial statements and cash flows. Should we be assessed with additional taxes, there could be a material adverse
effect on our results of operations and financial condition.
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Due to the volume of our sales
in emerging markets, we are susceptible to a number of political, economic
and regulatory risks that could have a material adverse effect on our
business, reputation, financial condition and results of operations. This
includes the business practices in such emerging markets, that may expose us to legal and business conduct-related regulatory risks.
A majority of our sales are made in emerging economies in Latin
America, India, Asia Pacific and Africa. For each of the years ended December 31, 2025 and 2024, sales in these regions accounted for
approximately 57% and 63% of our revenues, respectively. As a result, the occurrence of international,
political, regulatory or economic events in these regions could adversely affect our business and result in significant revenue shortfalls
and collection risk. Any such revenue shortfalls and/or collection risks could have material adverse effects on our business, financial
condition and results of operations. Furthermore, other governmental action related to tariffs or international trade agreements,
changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing,
development and investment in the territories and countries, where our customers are located, could adversely affect our business, financial
condition, operating results and cash flows.
Below are the main risks and challenges that we face as a result
of operating in emerging markets:
• unexpected or inconsistent changes in regulatory requirements, including security regulations, licensing and allocation processes;
• unexpected changes in or imposition of tax, tariffs, customs levies or other barriers and restrictions;
• fluctuations in foreign currency exchange rates;
• restrictions on currency and cash repatriation;
• the burden of complying with a variety of foreign laws, including foreign import restrictions which may be applicable to our products;
• difficulties in protecting intellectual property;
• laws and business practices favoring local competitors;
• collection delays and uncertainties;
• difficulties in transferring or obtaining funds from certain countries within these emerging markets;
• requirements to do business in local currency; and
• judicial systems that do not apply the principles of natural justice with regard to disputes with foreign nationals.
In addition, local business practices in jurisdictions in which
we operate, and particularly in emerging markets, may be inconsistent with international regulatory requirements, such as anti-corruption
and anti-bribery laws and regulations, to which we are subject. It is possible that, notwithstanding our strict policies and in violation
of our instructions, employees of ours, subcontractors, agents or business partners may violate such legal and regulatory requirements,
which may expose us to criminal or civil enforcement actions. If we fail to comply with or effectively enforce such legal and regulatory
requirements, our business and reputation may be harmed, and we might be exposed to civil and criminal penalties or sanctions.
All of these risks could result in increased costs or decreased
revenues, either of which could have a materially adverse effect on our profitability.
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An industry downturn, reduction in our customers’
profitability due to increased regulation or new mobile services requirements, may cause investments in networks to slow, be delayed or
stop, which could harm our business.
We are exposed to changing network models that affect operator
and government spending on infrastructure as well as trends in investment cycles of telecom operators and other service providers. The
changes include but are not limited to: (i) further expansion of coverage; expansion out of metro, as well as other urban and suburban
areas to rural areas; (ii) densification and optimization of the 4G networks to provide faster speeds; (iii) introduction of 5G services
as well as expansion and densification of the 5G networks; and (iv) 2G and/or 3G networks shutdown, which is already taking place and
designed to free spectrum for the delivery of 5G services.
We are also exposed to private networks investment coming from
businesses, governmental entities and other public domains. Private networks can be an alternative to the Public Networks and may alternatively
support owners’ objectives, such as coverage, capacity, speed, security, and others. The demand for investments in private networks
is dynamic and slowdown or delay in such investments may have an adverse effect on our business, operating results and financial condition.
The proliferation of strategic options for service providers, as
outlined above, coupled with uncertain development path and clarity as to the future standards and mass-market use cases, may cause service
providers to prolong evaluations of services and network strategies, resulting in slower and smaller budget spent in the next several
years, which may negatively affect our business. In addition, the intensification of use of “over-the-top services” - which
make use of the operators’ network to deliver rich content to users but do not generate revenue to operators - is causing operators
to lose a substantial portion of their potential revenues. In addition, changes in regulatory requirements in certain jurisdictions around
the world are allowing smaller operators to enter the market, which may also reduce our customers’ pricing to their end-users, further
causing them to lose revenues. This has made operators more careful in their spending on infrastructure upgrades and buildouts.
As a result, operators are looking for more cost-efficient solutions
and network architectures, which will allow them to break the linearity of cost, coverage, capacity and costs of service delivery through
more efficient use of existing infrastructure and assets. If operators fail to monetize new services, fail to introduce new business models
or experience a decline in operator revenues or profitability, their willingness or ability to invest further in their network systems
may decrease, which will reduce their demand for our products and services and may have an adverse effect on our business, operating results
and financial condition.
Our sales cycles in connection
with competitive bids or to prospective customers are lengthy.
It typically takes from three to eighteen months after we first
begin discussions with a prospective customer, before we receive an order from that customer, if an order is received at all. In some
instances, we participate in competitive bids, in tenders issued by our customers or prospective customers, and these tender processes
can continue for many months before a decision is made by the customer. In addition, even after the initial decision is made, there may
be a lengthy testing and integration phase or contract negotiation phase before a final decision to purchase is made. In some cases, even
if we have signed a contract and our products were tested and approved for usage, it could take a significant amount of time until the
customer places purchase orders, if at all. As a result, we are required to devote a substantial amount of time and resources to secure
sales. In addition, the lengthy sales cycle results in greater uncertainty with respect to any particular sale, as events that impact
customers’ decisions occur during such cycle and in turn, increase the difficulty of forecasting our results of operations and may
cause an increase in inventory levels and our liability to our suppliers, and a risk for inventory write downs and write-offs.
If we fail to obtain regulatory
approval for our products, or if sufficient radio frequency spectrum is
not allocated for use by our products, our ability to market our products
may be restricted.
Generally, our products must conform to a variety of regulatory
requirements and international treaties established to avoid interference among users of transmission frequencies and to permit interconnection
of telecommunications equipment. Any delays in compliance with respect to our future products could delay the introduction of those products.
Also, these regulatory requirements may change from time to time, which could affect the design and marketing of our products as well
as the competition we face from other suppliers’ products, which may not be affected as much from such changes. Delays in the allocation
of new spectrum for use with wireless transport communications, such as the E, V, D and W bands in various countries, at prices which
are competitive for our customers, may also adversely affect the marketing and sales of our products.
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In addition, in most jurisdictions in which we operate, users of
our products are generally required to either have a license to operate and provide communications services in the applicable radio frequency
or must acquire the right to do so from another license holder. Consequently, our ability to market our products is affected by the allocation
of the radio frequency spectrum by governmental authorities, which may be by auction or other regulatory selection. These governmental
authorities may not allocate sufficient radio frequency spectrum for use by our products. We may not be successful in obtaining regulatory
approval for our products from these authorities and as we develop new products either our products or some of the regulations will need
to change to take full advantage of the new product capabilities in some geographies. Historically, in many developed countries, the lack
of available radio frequency spectrum has inhibited the growth of wireless telecommunications networks. If sufficient radio spectrum is
not allocated for use by our products, our ability to market our products may be restricted, which would have a materially adverse effect
on our business, financial condition and results of operations. Additionally, regulatory decisions allocating spectrum for use in wireless
transport at frequencies used by our competitors’ products, could increase the competition we face. In addition, the 5G rollout
could be contingent upon the allocation of the radio frequency spectrum by governmental authorities which could cause a delay in the ramp
up of those activities.
Other areas of regulation and governmental restrictions, including
tariffs on imports and technology controls on exports or regulations related to licensing and allocation processes, could adversely affect
our operations and financial results.
Our products are used in critical communications
networks, which may subject us to significant liability claims.
Since our products are used in critical communications and private
networks, we may be subject to significant liability claims if our products do not work properly. The terms of agreements with our customers
do not always provide sufficient protection from liability claims. In addition, any insurance policies we have may not adequately cover
our exposure with respect to such claims. We warrant to our current customers that our products will operate in accordance with our product
specifications, but if our products fail to conform to these specifications, our customers could require us to remedy the failure or could
assert claims for damages. Liability claims could require us to spend significant time and money on litigation or to pay significant damages.
Such exposure to claims may be heightened in the private networks sector, as a substantial portion of these networks are mission-critical.
These include networks operated by electricity companies, oil and gas companies, police departments, and other essential services. An
outage in these networks carries a significantly higher business impact and potentially even societal consequences. Any such claims, successful
or not, would be costly and time-consuming to defend, and could divert management’s attention and seriously damage our reputation
and our business.
Our failure to establish and maintain effective
internal control over financial reporting could result in material misstatements in our financial statements or a failure to meet our
reporting obligations. This may expose us to fines and damages and cause investors to lose confidence in our reported financial information,
which could result in a decline of the trading price of our shares.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. If we conclude
in the future that our internal controls over financial reporting are not effective, we may fail to meet our future reporting obligations
on a timely basis, our financial statements may contain material misstatements, our operating results may be negatively impacted, and
we may be subject to litigation and regulatory actions, causing investor perceptions to be adversely affected and potentially resulting
in a decline in the market price of our shares. Even if we conclude that our internal controls over financial reporting are adequate,
any internal control or procedure, no matter how well designed and operated, can only provide reasonable assurance of achieving desired
control objectives and cannot prevent all mistakes or intentional misconduct or fraud.
We could be adversely affected by our failure
to comply with the covenants in our credit agreement or by the failure of any bank to provide us with credit under committed credit facilities.
We have a committed credit facility available for our use from
a syndicate of several banks. Our credit agreement contains financial and other covenants. Any failure to comply with the covenants, including
due to poor financial performance, may constitute a default under the credit facility, which may have a material adverse effect on our
financial condition. In addition, the payment may be accelerated, and the credit facility may be cancelled upon an event, in which a current
or future shareholder acquires control (as defined under the Israeli Securities Law) of us. For more information, please refer to Item
5: “OPERATING AND FINANCIAL REVIEW AND PROSPECTS; B. Liquidity and Capital Resources.”
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In addition, the credit facility is provided by the syndication
with each bank agreeing severally (and not jointly) to make its agreed portion of the credit loans to us. If one or more of the banks
providing the committed credit facility were to default on its obligation to fund its commitment, the portion of the committed facility
provided by such defaulting bank would not be available to us.
In the event that the credit facility is terminated in
accordance with its terms, including due to breach of covenants by us, or if it is not renewed and we are not able to secure alternative
financing, we could experience distressed cash flow or cash flow challenges that could harm our business operations and prospects, results
of operations, cash flow and financial position.
If we are unable to protect our intellectual
property rights, our competitive position may be harmed.
Our ability to compete will depend, in part, on our ability to
obtain and enforce intellectual property protection for our technology internationally. We currently rely upon a combination of trade
secret, patent, trademark and copyright laws, as well as contractual rights, to protect our intellectual property. However, as our patent
portfolio may not be as extensive as those of our competitors, we may have limited ability to assert any patent rights in negotiations
with, or in counterclaims against, competitors who assert intellectual property rights against us.
We also enter into confidentiality, non-competition and invention
assignment agreements with our employees and contractors engaged in our research and development activities, as well as non-disclosure
agreements with our suppliers and certain customers so as to limit access to and disclosure of our proprietary information. We cannot
assure you that any steps taken by us will be adequate to deter misappropriation or impede independent third-party development of similar
technologies. These risks might be more severe in territories in which we have recently established research and development centers.
Moreover, under current law, we may not be able to enforce the non-competition agreements with our employees to their fullest extent.
We cannot assure you that the protection provided for our intellectual
property by the laws and courts of foreign nations will be substantially similar to the remedies available under U.S. law. Furthermore,
we cannot assure you that third parties will not assert infringement claims against us based on foreign intellectual property rights and
laws that are different from those established in the United States. Any such failure or inability to obtain or maintain adequate protection
of our intellectual property rights, for any reason, could have a material adverse effect on our business, results of operations and financial
condition.
Defending against intellectual property infringement
claims could be expensive and could disrupt our business.
The wireless equipment industry is characterized by vigorous protection
and pursuit of intellectual property rights, which has resulted in often protracted and expensive litigation. We have been exposed
to infringement allegations in the past, and we may in the future be notified that we or our vendors, allegedly infringed certain
patent or other intellectual property rights of others. Any such litigation or claim could result in substantial costs and diversion of
resources. In the event of an adverse result of any such litigation, we could be required to pay substantial damages (including potentially
punitive damages and attorney’s fees should a court find such infringement willful), or to cease the use and licensing of allegedly
infringing technology and the sale of allegedly infringing products (including those we purchase from third parties). We may be forced
to expend significant resources to develop non-infringing technology, obtain licenses for the infringing technology or replace infringing
third party equipment. We cannot assure you that we would be successful in developing such non-infringing technology, that any license
for the infringing technology would be available to us on commercially reasonable terms, if at all, or that we would be able to find a
suitable substitute for infringing third party equipment.
We occasionally use Open Source codes during
our development process and in our software products. An unintentional breach of Open Source licenses might compel us to publish certain
confidential and proprietary codes, incur damages, and result with intellectual property infringement claims that could be expensive and
could disrupt our business.
We occasionally use open source software component under open source
licenses. As certain open source copyright licenses may be categorized as “copyleft licenses” that place certain requirements
and restrictions on users, we maintain a process to assure the use of permissive licenses that guarantee the freedom to use, modify and
redistribute, and creating proprietary derivative works, in order to avoid any limitations on our IPs and exposure of confidential proprietary
software. Nonetheless, if we shall not correctly monitor and manage those licenses, fail to maintain their terms (for example, to provide
adequate copyright notices, or avoid modifications) or otherwise fail in identifying limited open source codes, we might be subject to
third party copyright and to reciprocity obligation requiring us to make our code open for use by others as well. Such claims may harm
our development efforts and competitive advantage and expose us to copyright infringement claims that could be expensive and could
disrupt our business.
26
Risks Relating to Our Ordinary Shares
Holders of our ordinary shares who are U.S.
residents may be required to pay additional U.S. income taxes if we are classified as a passive foreign investment company (“PFIC”)
for U.S. federal income tax purposes.
There is a risk that we may be classified as a PFIC. Our treatment
as a PFIC could result in a reduction in the after-tax return for U.S. holders of our ordinary shares and may cause a reduction in the
value of our shares. For U.S. federal income tax purposes, we will generally be classified as a PFIC for any taxable year in which either:
(1) 75% or more of our gross income is passive income, or (2) at least 50% of the average value (determined on a quarterly basis) of our
total assets for the taxable year produce, or are held for the production of, passive income. Based on our analysis of our income, assets,
activities and market capitalization, we do not believe that we were a PFIC for the taxable year ended December 31, 2025. However, there
can be no assurance that the United States Internal Revenue Service (“IRS”) will not challenge our analysis or our conclusion
regarding our PFIC status. There is also a risk that we were a PFIC for one or more prior taxable years or that we will be a PFIC in future
years, including 2026. If we were a PFIC during any prior years, U.S. shareholders who acquired or held our ordinary shares during such
years will generally be subject to the PFIC rules. The tests for determining PFIC status are applied annually and it is difficult to make
accurate predictions of our future income, assets, activities and market capitalization, which are relevant to this determination. If
we were determined to be a PFIC for U.S. federal income tax purposes, highly complex rules would apply to U.S. holders owning our ordinary
shares and such U.S. holders could suffer adverse U.S. tax consequences.
For more information, please see Item 10. ADDITIONAL INFORMATION
– Taxation - “U.S. Federal Income Tax Considerations” – “Tax Consequences if We Are a Passive Foreign Investment
Company.”
The price and trading volume of our ordinary
shares are subject to volatility. Such volatility could limit investors’ ability to sell our shares at a profit, could limit our
ability to successfully raise funds and may expose us to class actions against the Company and its senior executives.
The stock market in general, and the market price of our ordinary
shares in particular, are subject to fluctuation. As a result, changes in our share price and trading volumes may be unrelated to our
operating performance. In addition, smaller market cap companies have historically been more volatile than stocks of larger companies.
The price of our ordinary shares and the trading volumes in our ordinary shares have experienced volatility in the past and may continue
to do so in the future, which may make it difficult for investors to predict the value of their investment, to sell shares at a profit
at any given time, or to plan purchases and sales in advance. In the two-year period ended December 31, 2025, the price of our ordinary
shares has ranged from a high of $5.48 per share to a low of $1.84 per share. A variety of factors may affect the market price and trading
volume of our ordinary shares, including:
• announcements of technological innovations or new commercial products by us or by our competitors;
• announcement of significant deals won by us or by our competitors;
• competitors’ positions and other events related to our market;
• changes in the Company’s estimations regarding forward looking statements and/or announcement of actual results that vary significantly from such estimations;
• the announcement of corporate transactions, merger and acquisition activities or other similar events by companies in our field or industry;
• changes and developments effecting our field or industry;
• period to period fluctuations in our results of operations and cash flow;
• changes in financial estimates by securities analysts;
27
• our earnings releases and the earnings releases of our competitors;
• our ability to show and accurately predict revenues;
• our need to raise additional funds and the success or failure thereof;
• other announcements, whether by the Company or others, referring to the Company’s financial condition, results of operations and changes in strategy;
• changes in senior management or the board of directors;
• the general state of the securities markets (with a particular emphasis on the technology and Israeli sectors thereof);
• the general state of the credit markets, the volatility of which could have an adverse effect on our investments;
• developments concerning material proprietary rights, including material patents;
• whether we or our competitors receive or are denied regulatory approvals; and
• global and local macroeconomic developments, components shortage, effects of the Russia-Ukraine war, the conflict between China and Taiwan, and the state of war declared in Israel in October 2023, the military confrontation between Israel and Iran, and other global occurrences, such as an outbreak of pandemic with similar effect.
Many of these factors are beyond our control, and we believe that
period-to-period comparisons of our financial results will not necessarily be indicative of our future performance.
All these factors and any corresponding price fluctuations may
materially and adversely affect the market price of our ordinary shares and may result in substantial losses to our investors.
In addition to the volatility of the market price of our shares,
the stock market in general and the market for technology companies in particular, has been highly volatile and at times thinly traded.
These broad market and industry factors may seriously harm the market price of our ordinary shares, regardless of our operating performance.
Investors may not be able to resell their shares following periods of volatility.
In addition, the volatility of the market price of our share, especially
when market price is perceived to be very low, may stimulate hostile activities against us such as capital markets’ “activists”
trying to influence our operations and hostile takeover attempts by competitors (or other potential stakeholders), as we have recently
experienced (see below under “Attempts for a hostile takeover or shareholder activism, may negatively
affect our business”). This may cause a significant distraction of management attention in executing against our plans and
adversely impact our business and financial results.
Moreover, the market prices of equity securities of companies
that have a significant presence in Israel may also be affected by changes in the Middle East, including political and economic changes,
and particularly in Israel. As a result, these companies may experience volatility in their share prices and/or difficulties in raising
additional funds required to effectively operate and grow their businesses. Thus, market and industry-wide fluctuations and political,
economic and military conditions in the Middle East and Israel, may adversely affect the trading price of our ordinary shares, regardless
of our actual operating performance. For further details see below under “Conditions in the Middle
East and in Israel may adversely affect our operations”.
Further, as a result of the volatility of our stock price,
we could be subject, and are currently subject, to securities litigation, which could result in substantial costs and divert management’s
attention and Company resources from our business. On January 6, 2015, the Company was served with a motion to approve a purported class
action, naming the Company, its Chief Executive Officer and its directors as defendants (the “Defendants”).
The motion was filed with the District Court of Tel-Aviv (the “Court”). The purported
class action alleges breaches of duties by making false and misleading statements in the Company’s SEC filings and public statements.
The class action claimed amount is approximately $75,000,000. On May 27, 2021, following a lengthy procedure that included filing of various
pleadings and affidavits, evidentiary hearings, and submission of summaries, the Court ruled to certify the motion as a class action,
while applying the Israeli Law (the “Ruling”). According to the Ruling, the class action
shall include several causes of action according to the Israeli Securities Act and the Israeli Torts Ordinance, concerning the alleged
misleading statements in the Company's SEC filings. On September 12, 2021, the Defendants filed a motion for a rehearing on behalf of
the Defendants in order to revert the Ruling (the “Rehearing Motion”). On January 27,
2022, a judgment was rendered in the Rehearing Motion. The Court ruled that the Ruling was erroneous as it applied Israeli Law, instead
of foreign law, and held accordingly that the law that will apply is U.S. law. The Court further held that the case will be returned to
the first judicial instance and will be adjudicated as a class claim under U.S. law. The Court commented that the Company’s claims
based upon the Statute of Limitations should prima facie also be adjudicated under U.S. law. On March 20, 2022, following the Court’s
decision, the Plaintiff filed to the first judicial instance, an amended class action claim, based on provisions of U.S. law. The Plaintiff
estimated the amended claim amount at $52,099,000. For more information see below in Item 8. “FINANCIAL INFORMATION – Legal
Proceedings”.
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If we sell ordinary shares
in future financings, shareholders may experience immediate dilution and as a result our share price may decline.
In order to raise additional capital, we may at any time offer
additional ordinary shares or other securities convertible into or exchangeable for our ordinary shares at prices that may not be the
same as the price paid for our ordinary shares by our shareholders. We have a shelf registration statement on Form F-3 on file with the
SEC1 which allows us to offer and sell, from time to time,
in one or more offerings, our ordinary shares, rights, warrants, debt securities and units comprising any combination of these securities
with an aggregate offering price of up to U.S.$150 million (the “Shelf Registration Statement”). The price per share at which
we will sell additional ordinary shares, or securities convertible or exchangeable into ordinary shares, in future transactions, including
under the Shelf Registration Statement, may be higher or lower than the price per share paid by our existing shareholders. If we issue
ordinary shares or securities convertible into ordinary shares, our shareholders would experience additional dilution and, as a result,
our share price may decline.
In addition, as opportunities present themselves, we may enter into financing or similar
arrangements in the future, including the issuance of debt or equity securities with or without additional securities convertible or exchangeable
into ordinary shares. Whether or not we issue additional shares at a discount, any issuance of ordinary shares will, and any issuance
of other equity securities may result in additional dilution of the percentage ownership of our shareholders and could cause our share
price to decline. New investors could also gain rights, preference and privileges senior to those of our shareholders, which could cause
the price of our ordinary shares to decline. Debt securities may also contain covenants that restrict our operational flexibility or impose
liens or other restrictions on our assets, which could also cause the price of our ordinary shares to decline.
Attempts for a hostile takeover or shareholder
activism may negatively affect our business.
In recent years, shareholder activists have become involved in
numerous public companies. We experienced such involvement in 2022 by our competitor Aviat that launched a hostile takeover attempt against
us. Shareholder activists could propose involving themselves in the governance, strategic direction and operations of a company. While
shareholders’ activism might be, in certain cases, an efficient course of action taken by financial investors in order to enhance
market efficiency and financial performance, other shareholders might have hostile intentions towards the company and may provoke actions
which are intended to damage its business and reputation.
Shareholder activism in general, and hostile takeover attempts
in particular, including proxy contests, divert our management’s and Board’s attention and resources from our business, could
give rise to perceived uncertainties as to our future direction, could result in the loss of potential business opportunities, limit our
ability to raise funds and make it more difficult for us to attract and retain qualified personnel for positions in both management and
Board levels. In addition, if nominees advanced by activist shareholders are elected or appointed to our Board with a specific agenda,
it may adversely affect our ability to effectively and timely implement our strategic plans or to realize long-term value from our assets.
Also, we may be required to incur significant expenses, including legal fees, related to hostile takeover, or shareholder activism matters.
Further, our share price could be subject to significant fluctuations or otherwise be adversely affected by the events, risks and uncertainties
associated with any shareholder activism in general, and hostile takeover attempts in particular.
29
Risks Relating to Operations in Israel
Conditions in the Middle East and in Israel
may adversely affect our operations.
As of the date hereof, Israel is engaged in operation “Roaring
Lion", a joint military operation with the United States against the Iranian regime that commenced in February 2026. The operation, codenamed
“Epic Fury”" by the United States, is aimed at removing existential threats to the State of Israel by targeting Iran's nuclear
program, ballistic missile infrastructure, air defense systems, and regime leadership. In the opening strikes of the operation, Israel
eliminated Supreme Leader Ayatollah Ali Khamenei, along with dozens of senior officials, military commanders, and nuclear scientists.
Iran has responded with ballistic missile barrages targeting Israel and U.S. allied facilities in the Gulf region, causing civilian casualties
and infrastructure damage in Israel. The outcome of this ongoing operation, including its duration and ultimate effects on the Iranian
regime, Israel’s security environment, and regional stability, remains uncertain and may have material adverse effects on our operations
and the Israeli economy.
In June 2025, Israel conducted operation “Rising Lion”,
a 12-day military campaign against Iran that eliminated key elements of Iran’s nuclear program. The operation, conducted with significant
U.S. military support including U.S. airstrikes, also targeted Iran’s ballistic missile production capabilities and senior military
and scientific personnel.
The “Swords of Iron” war began in October 2023, following
a surprise attack on Israel led by Hamas that included massacres, terrorism and crimes against humanity. Following 15 months of conflict,
a ceasefire agreement between Israel and Hamas took effect in January 2025. However, the ceasefire did not hold, and fighting resumed
after negotiations for a subsequent phase failed. A second ceasefire was reached in October 2025, which included the release of all remaining
hostages and a partial Israeli withdrawal from Gaza. Hostilities with the Hezbollah terrorist organization, which escalated into an Israeli
invasion of Lebanon in late 2024, resulted in a 60-day ceasefire agreed to in November 2024. While Israel largely withdrew from Lebanon
in February 2025, it maintained military outposts in southern Lebanon, and Hezbollah has now rejoined hostilities in connection with operation
Roaring Lion.
The Houthi movement in Yemen, an Iranian-backed proxy, has targeted
marine vessels in the Red Sea, affecting those enroute to Israel or partly owned by Israeli businesses. This has led shipping companies
to reroute or halt shipments to Israel. The Red Sea is crucial for Israel's trade, and disruptions could cause delays in supplier deliveries,
longer lead times, and increased costs for freight, insurance, materials, and labor, and have a general adverse effect on the Israeli
market.
In addition, Israel has been involved in an armed operations with
armed groups in the West Bank, which also included mobilization of armed forces.
The ongoing military operations and regional instability have had
and are expected to continue to have significant adverse effects on the Israeli economy, including damage to infrastructure, mobilization
of reservists affecting the labor force, disruption of business operations, and increased costs. The outcome and duration of these conflicts
remain uncertain, and any escalation could have material adverse effects on our operations.
Our facilities did not sustain any damage and in accordance with
the instructions of the Israeli National Emergency Management Authority, there is currently no limitation or denial of access or activity
limitation in our facilities. None of our employees were directly harmed as a result of the war. As of the date hereof, we operate continuously,
and so far, the situation in Israel has not had a material effect on our operations and business. We monitor closely the directives of
the Israeli National Emergency Management Authority and where needed, make required adjustments to our operations in accordance with such
directives, including by instructing our workforce to work remotely.
Our headquarters, a substantial part of our research and development
facilities and some of our contract manufacturers’ facilities are located in Israel. Accordingly, we are directly influenced by
the political, economic and military conditions affecting Israel. Specifically, we could be adversely affected by:
• hostilities involving Israel;
• the interruption or curtailment of trade between Israel and its present trading partners;
• a downturn in the economic or financial condition of Israel; and
• a full or partial mobilization of the reserve forces of the Israeli army.
All of the above raise a concern as to the stability in the region
which may affect the security, social, economic and political landscape in Israel and therefore could adversely affect our business, financial
condition and results of operations.
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In addition, there are concerns that companies and businesses will terminate, and may
have already terminated, certain commercial relationships with Israeli companies following ongoing efforts by countries, activists and
organizations to boycott the State of Israel and related entities and companies. The foregoing efforts, particularly if they become more
widespread, as well as rulings by the International Court of Justice, International Criminal Court and other international tribunals,
may adversely impact on our ability to cooperate with research institutions and collaborate with other third parties. Further deterioration
of Israel’s relationship with the Palestinians or countries in the Middle East could expand the disruption of international trading
activities in Israel, may materially and negatively affect our business conditions, could harm our results of operation and adversely
affect the Company’s share price.
Our business may also be disturbed by the obligation of personnel to perform military
service. Our employees who are Israeli citizens are generally subject to a periodic obligation to perform reserve military service, until,
in general, they reach the age of 45 (or older, for reservists with certain occupations), but during military conflicts, these employees
may be called to active duty for longer periods of time, as occurred, and may continue to occur, during the “Swords of Iron”
war. In response to the increase in violence and terrorist activity in the past years, and especially during the “Swords of Iron”
war, there have been, and may continue to be, periods of significant call-ups for military reservists. In case of further regional instability
such employees, who may include one or more of our key employees, may be absent for extended periods of time, which may materially adversely
affect our business.
Furthermore, our Company’s insurance does not cover loss
arising out of events related to the security situation in the Middle East. While the Israeli government generally covers the reinstatement
value of direct damages caused by acts of war or terror attacks, we cannot be certain that such coverage will be maintained.
Another risk for political, social and economic instability in
Israel is associated with the extensive changes which began in early 2023 by the current Israeli government with respect to Israel’s
judicial system. In response to such developments, individuals, organizations and financial institutions, both within and outside of Israel,
have voiced concerns that the proposed changes may negatively impact the business environment in Israel. Such proposed changes may also
adversely affect the labor market in Israel or lead to political instability or civil unrest. To the extent that any of these negative
developments do occur, they may have an adverse effect on our business, our results of operations and our ability to raise additional
funds, if deemed necessary by our management and board of directors, and to attract or retain qualified and skilled “talents”
and personnel.
Moreover, after several credit rating downgrades in recent years,
in November 2025, S&P Global Ratings revised its outlook on Israel to “stable” from “negative”, while affirming
the “A” rating. Despite this stabilization in outlook by S&P, other agencies, including Moody’s, continued to maintain
a negative outlook as of late 2025, citing persistent exposure to geopolitical risks and a polarized political system.
We can give no assurance that the political, economic and security
situation in Israel will not have a material adverse effect on our business in the future.
We received grants from the IIA that may require
us to pay royalties and restrict our ability to transfer technologies or know-how outside of Israel.
In prior years we have received government grants from the Israel
Innovation Authority (the “IIA”) for the financing of a portion of our research and development expenditures in Israel. Under
royalty-bearing financing programs, we are obligated to repay the grants by way of royalty payments from revenues generated by the sale
of products and/or services developed in the framework of the approved R&D program using financing from such grants (“Financed
Know-How”). Such royalties are payable until 100% of the amount of the grant (as adjusted for fluctuation in the USD/NIS exchange
rate) is repaid with applicable interest. In December 2006, Ceragon entered into an agreement with IIA under which Ceragon paid its debt
to the IIA and since than Ceragon is exempt from royalty payments to the IIA, except for the programs of Siklu Communication Ltd. (“Siklu”)
(following this arrangement with the IIA, Ceragon is considered as “Technological Innovation Investment-Abundant Corporation”
and can apply for grants only under non-royalty-bearing programs).
Notwithstanding the full repayment of any IIA grants (together
with the applicable interest) by Ceragon, unless otherwise agreed by IIA, we must continue to comply with the requirements of the Israeli
Law for the Encouragement of Industrial Research and Development, 1984 and regulations promulgated thereunder (the “R&D Law”)
with respect to technologies that were developed using Financed Know-How.
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In accordance with certain grant plans, in addition to the obligation to pay royalties
to the IIA, the R&D Law requires that products which incorporate Financed Know-How be manufactured in Israel and prohibits the transfer
of Financed Know-How and any right derived therefrom to third parties, unless otherwise approved in advance by the IIA. Such prior approval
may be subject to payment of increased royalties. Failure to comply with the requirements under the R&D Law may subject us to
financial sanctions, to mandatory repayment of grants received by us (together with interest and penalties), as well as expose us to criminal
proceedings. Although such restrictions do not apply to the export from Israel of the Company’s products developed with such Financed
Know-How, they may prevent us from engaging in transactions involving the sale, outsource or transfer of such Financed Know-How or of
manufacturing activities with respect to any product or technology based on Financed Know-How, outside of Israel, which might otherwise
be beneficial to us. Furthermore, the consideration available to our shareholders in a transaction involving the transfer outside of Israel
of Financed Know-How (such as a merger or similar transaction) may be reduced by any amounts that we are required to pay to the IIA. Moreover,
the government of Israel may from time to time audit sales of products which it claims incorporate Financed Know-How and this may lead
to royalties being payable on additional products, and may subject such products to the restrictions and obligations specified hereunder.
Siklu is a part of royalty-bearing financing programs of the IIA.
Following the acquisition of Siklu, we have assumed additional restrictions and liabilities arising out of Siklu’s Financed Know-How.
For more information regarding the restrictions imposed by the
R&D Law and regarding grants received by us from the IIA, please see Item 4. “INFORMATION ON THE COMPANY- B. Business Overview
- The Israel Innovation Authority.”
The tax benefits to which the Company believes
it should be entitled from the approved enterprise program, require us to satisfy specified conditions, which, if we fail to meet,
might deny us from these benefits in the future. Further, if such tax benefits are rejected, reduced or eliminated in the future,
we may be required to pay increased taxes.
The Company has certain capital investment programs that have been
granted approved enterprise status by the Israeli government (the “Approved Programs”), pursuant to Israel’s Law for
the Encouragement of Capital Investments, 1959 (the “Encouragement Law”). The Company has three capital investment programs
that have been granted Approved Enterprise status, under the Law. The benefit period under Approved Enterprise starts with the first year
the benefited enterprise earns taxable income, provided that 14 years have not passed since the approval was granted and 12 years have
not passed since the enterprise began operating. As of December 31, 2025, the 14 years have passed pateit will continue to be eligible
to enjoy the tax benefits in accordance with the provisions of the Law for the Encouragement
of Capital Investments, 1959 (the “Investment Law”). Once it begins to generate taxable income from these approved enterprise
programs, the portion of its income derived from these programs will be tax exempt for a period of two years. The benefits available to
an approved enterprise program are dependent upon the fulfillment of conditions stipulated under the Encouragement Law and in the certificates
of approval or in rulings obtained from the Israeli Tax Authorities. If we fail to comply with these conditions, in whole or in part,
we may be required to pay additional taxes for the period(s) in which we benefited from the tax exemption and would likely be denied these
benefits in the future. The amount by which our taxes would increase, will depend on the difference between the then-applicable corporate
tax rate and the rate of tax, if any, that we would otherwise pay as an approved enterprise, and on the amount of any taxable income that
we may earn in the future.
In addition, the Israeli government may reduce, or eliminate in
the future, tax benefits available to approved enterprise programs. Our Approved Programs and the resulting tax benefits may not continue
in the future at their current levels or at any level. The termination or reduction of these tax benefits would likely increase our tax
liability. The amount, if any, by which our tax liability would increase will depend upon the rate of any tax increase, the amount of
any tax rate benefit reduction, and the amount of any taxable income that we may earn in the future. For a description of legislation
regarding “Preferred Enterprise” see Item 10. “ADDITIONAL INFORMATION”.
On December 31, 2025, Israel enacted legislation implementing the
OECD Pillar Two global minimum tax, effective for fiscal years beginning on or after January 1, 2026. The rules introduce a Qualified
Domestic Minimum Top‑Up Tax (QDMTT) for multinational groups with consolidated revenues of at least €750 million whose effective
tax rate in Israel is below 15%.
The Company is currently below the revenue threshold and therefore
not in scope of the relevant Pillar Two rules. Management will continue to monitor developments and assess any future implications for
the Company’s tax position and related disclosures as additional guidance becomes available.
32
Being a foreign private issuer exempts us from
certain SEC requirements and Nasdaq Rules, which may result in less protection than is afforded to investors under rules applicable to
domestic issuers.
We are a “foreign private issuer” within the meaning
of rules promulgated by the SEC. As such, we are exempt from certain provisions under the Exchange Act applicable to U.S. public companies,
including:
• the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q and current reports on Form 8-K;
• the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of securities registered under the Exchange Act, including extensive disclosure of compensation paid or payable to certain of our highly compensated executives as well as disclosure of the compensation determination process;
• the provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; and
• the sections of the Exchange Act establishing insider liability for profit realized from any “short-swing” trading transaction (a purchase and sale, or sale and purchase, of the issuer’s equity securities within less than six months).
In June 2025, the SEC published a concept release inviting public
comment on whether, and how, it should revise the definition of foreign private issuer in light of changes in the demographics of foreign
private issuers in the years since the definition was originally adopted. As of the date of this Annual Report, changes to the foreign
private issuer definition have not been enacted, however any such change, if applicable to us, could have significant implications on
our ability to maintain our foreign private issuer status. In addition, we are permitted to follow certain home country corporate governance
practices and laws in lieu of certain Nasdaq Rules applicable to U.S. domestic issuers. For instance, we have relied on the foreign private
issuer exemption with respect to shareholder approval requirements for equity-based incentive plans for our employees and the requirement
to have a formal charter for our Compensation Committee. Following our home country governance practices rather than the Nasdaq Rules
that would otherwise apply to a U.S. domestic issuer, may provide less protection to investors. For the list of the specific exemptions
that we have chosen to adopt, please see Item 16G. “CORPORATE GOVERNANCE”.
We may lose our status as a foreign private issuer, which would
increase our compliance costs and could negatively impact on our operations results.
We may lose our foreign private issuer status if (a) a majority
of our outstanding voting securities are either directly or indirectly owned of record by residents of the United States and (b) one or
more of (i) a majority of our executive officers or directors are United States citizens or residents, (ii) more than 50% of our assets
are located in the United States or (iii) our business is administered principally in the United States. In such case, we would be required
to, among other things, file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more extensive
than the forms available to a foreign private issuer, follow U.S. proxy disclosure requirements, including the requirement to disclose,
under U.S. law, more detailed information about the compensation of our senior executive officers on an individual basis, modify certain
of our policies to comply with accepted governance practices associated with U.S. domestic issuers and we would lose our ability to rely
upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers,
as described in the previous risk factor above. All of the above would cause us to incur substantial additional internal and external
costs, including for outside legal and accounting support.
It may be difficult to enforce a U.S. judgment
against us or our officers and directors, or to assert U.S. securities laws claims in Israel.
We are incorporated under the laws of the State of Israel. Service
of process upon our directors and officers, almost all of whom reside outside the United States, may be difficult to obtain within the
United States. Furthermore, because the majority of our assets and investments, and almost all of our directors and officers are located
outside the United States, any judgment obtained in the United States against us or any of them may not be collectible within the United
States.
Additionally, it may be difficult for an investor, to assert U.S.
securities law claims in original actions instituted 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 to bring such a claim. In addition, even if an Israeli
court agrees to hear such a claim, it is not certain if Israeli law or U.S. law will be applicable to the claim. If U.S. law is found
to be applicable, the content of applicable U.S. law must be proved as a fact by an expert witness, which can be a time-consuming and
costly process. Certain matters of procedure will also be governed by Israeli law. A judgement granted by US Courts may be enforced in
Israel subject to various statutory requirements which are procedural in essence.
33
Your rights and responsibilities as a shareholder
will be governed by Israeli law which differs in some respects from the rights and responsibilities of shareholders of U.S. companies.
Since we are incorporated under Israeli law, the rights and responsibilities
of our shareholders are governed by our Articles of Association as in effect from time to time (the “Articles of Association”),
and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in United
States-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and 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 a company’s articles of association, an increase of a company’s authorized share capital, a merger of a company and approval
of interested 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 shareholders’ vote or to appoint or prevent the appointment of an office holder in a company, or has another power
with respect to a company, has a duty to act in fairness towards such company. Israeli law does not define the substance of this duty
of fairness and 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 and liabilities on our shareholders that are not
typically imposed on shareholders of U.S. corporations.
Provisions of Israeli law may delay, prevent,
or make undesirable an acquisition of all or significant portion of our shares or assets.
Israeli corporate law regulates mergers and acquisitions and requires
that a tender offer be effected when certain thresholds of percentage ownership of voting power in a company are exceeded (subject to
certain conditions), which may have the effect of delaying, preventing or making more difficult a merger with, or acquisition of, us.
Further, Israeli tax considerations may make potential transactions undesirable to us, or to some of our shareholders, if the country
of residence of such shareholder does not have a tax treaty with Israel (thus not granting relief from payment of Israeli taxes). With
respect to mergers, Israeli tax law provides tax deferral in certain circumstances but makes the deferral contingent on the fulfillment
of numerous conditions, including a holding period of two years from the date of the transaction, during which certain sales and dispositions
of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is
limited in time, and when such time expires, the tax becomes payable even if no actual disposition of the shares has occurred. See Exhibit
2.1 Item 10.B. – “Mergers and Acquisitions under Israeli Law”.
In addition, in accordance with the Israeli Economic Competition
Law, 1988 (the “Economic Competition Law”), and the R&D Law, to which we are subject due to our receipt of grants from
the IIA, a change in control in the Company (such as a merger or similar transaction) may be subject to certain regulatory approvals in
certain circumstances. For more information regarding such required approvals please see Item 4. “INFORMATION ON THE COMPANY - B.
Business Overview - The Israel Innovation Authority”.
In addition, as a corporation incorporated under the laws of the
State of Israel, we are subject to the Economic Competition Law and the regulations promulgated thereunder, under which we may be required
in certain circumstances to obtain the approval of the Israel Competition Authority in order to consummate a merger or a sale of all or
substantially all of our assets.
These provisions of Israeli law could have the effect of delaying
or preventing a change in control and may make it more difficult for a third party to acquire us, even if doing so would be beneficial
to our shareholders, and may also adversely affect the price that investors may be willing to pay in the future for our ordinary shares.