INFORMATION ON THE COMPANY. A. History and Development of the Company Our legal and commercial name is Silicom Ltd. We were incorporated under the laws of the State of Israel in 1987, and we operate under Israeli law and legislation. Our registered and principal executive offices are located in Israel at 14 Atir Yeda Street, Kfar Sava, Israel 4464323, and our telephone number is +972-(0)9-764-4555. Our shares have been listed on the NASDAQ Global Select Market since January 2, 2014 under the ticker symbol "SILC." Prior thereto our shares were listed on the NASDAQ Global Market (previously known as the NASDAQ National Market) under the ticker symbol "SILC" (and previously "SILCF") from February 11, 2008. Prior thereto, our shares were listed on the NASDAQ Capital Market (previously known as the NASDAQ Small-Cap). On December 20, 2005, we obtained the approval of the Tel Aviv Stock Exchange, or TASE, for the listing of our shares on TASE. Trading of our shares on TASE commenced on December 27, 2005. On October 26, 2015, our Board of Directors resolved to act to delist the Company's shares from trading on the TASE. Consequently, we applied to the TASE and requested that TASE initiate the delisting process. On October 29, 2015, the TASE announced to the TASE members on the TASE electronic filing site, the MAYA, and on the ISA electronic filing site, the MAGNA, that the last trading day in the Company's shares on the TASE shall be January 26, 2016 and that on January 28, 2016, the Company's shares shall be delisted from trading on the TASE. Accordingly, the last trading day in our shares on the TASE was January 26, 2016, and on January 28, 2016, our shares were delisted from trading on the TASE. Our shares are currently listed only on the NASDAQ Global Select Market. See "Item 9 – The Offer and Listing – Markets and Share Price History." In December 2014, we purchased all of the share capital of Fiberblaze A/S (now Silicom Denmark (Fiberblaze A/S)), a provider of high-performance application acceleration solutions for the mobile, telecommunication, network monitoring, cyber security, financial and related industries ("Fiberblaze"). In September 2015, we, together with our wholly owned subsidiary, Silicom Connectivity Solutions, Inc., purchased the assets of ADI Engineering, Inc. ("ADI"), a US company which provides Intel®-based products targeted at SDN, NFV, IoT ('Internet of Things'), Cloud computing and Virtualization. On July 1st, 2022, Mr. Shaike Orbach, the Company's President and Chief Executive Officer for the past 21 years, became Executive Vice Chairman of the Board of Directors, and Liron Eizenman, who served as the Company's Chief Operating Officer, took over as the Company's new President and Chief Executive Officer. Principal capital expenditures and divestitures From January 1, 2025, to December 31, 2025, our capital expenditures totaled to approximately US$ 1,334 thousand (compared to US$ 1,395 thousand during 2024 and US$ 1,276 thousand during 2023), of which approximately US$ 1,325 thousand (compared to US$ 1,379 thousand during 2024 and US$ 1,162 thousand during 2023) can be attributed to machinery and equipment, and approximately US$ 26 thousand (compared to US$ 16 thousand during 2024 and US$ 114 thousand during 2023) can be attributed to office furniture and equipment and leasehold improvements. We have financed our capital expenditures from our available internal resources and expect to continue to finance our capital expenditures in a similar manner in 2025. 32 B. Business Overview Overview We are an industry-leading provider of high-performance networking and data infrastructure solutions. Designed to optimize performance and efficiency in Cloud, Data Center and Edge environments, our solutions increase throughput and minimize latency, serving as the infrastructure backbone for today’s most critical technologies. Our innovations empower high-demand workloads across Artificial Intelligence (AI) inference, SD-WAN, SASE, cyber security, fabric switching, NFV, and more. Our comprehensive portfolio, including high-speed server adapters, advanced hardware offloading and acceleration engines, AI NICs, FPGA-based smart cards, Post Quantum Cryptography (PQC) hardware accelerators, white label switches and Edge CPEs, is used by Tier-1 customers throughout the world, including cloud players, service providers and OEMs, to enable their networks to scale efficiently. With engineering excellence, a strong financial position and a legacy of over 400 active Design Wins, we serve as the "go-to" connectivity and performance partner for technology leaders around the globe, and drive the next generation of infrastructure. Strategic Growth Initiatives We have identified three structural shifts in technology infrastructure that we believe serve as incremental growth engines for the Company. 1. AI Inference Solutions We are actively addressing the shift in AI economics from training-centric to inference-driven models. As the market focus moves to deployment, we believe that fragmented inference deployments create a critical demand for specialized solutions to resolve latency bottlenecks between chipsets, cards, and servers, and to overcome the "hardware lottery" imposed by rigid compute architectures. We offer inference-optimized FPGA-based solutions that provide reconfigurable hardware adaptability, and are currently designing inference-specific Network Interface Cards (NICs) based on a leading high-performance networking chip. Our approach leverages deep IP and know-how to deliver the ultra-low latency and architectural flexibility required for efficient inference infrastructure. 2. Post-Quantum Cryptography (PQC) Cybersecurity We view the transition to PQC as a mandatory global upgrade driven by the security risks quantum computing poses to existing public-key cryptography. We believe governments and enterprises will be required to transition to quantum-resistant standards to mitigate potential threats. We provide hardware-based accelerator solutions for PQC. Building on our legacy as an established supplier of hardware accelerators for encryption, our FPGA-based solutions are designed to allow for flexible updates as cryptographic standards evolve, offering backward compatibility and what we believe to be clear economic advantages over alternative approaches. 33 3. White-Label Switching (WLS) The networking market is experiencing a structural shift toward disaggregation, where we see network operators transitioning from proprietary hardware to flexible, white-label solutions. This trend is expanding beyond hyperscalers to enterprise and service providers driven by demand for flexibility and cost efficiency. Leveraging our established expertise in Edge servers, SD-WAN, and SASE platforms, we are delivering White-Label Switching platforms designed for modularity and cost-efficiency. Core Business Portfolio Our growth initiatives are supported by our core business operations. Our products are used by major Cloud players, service providers, telecommunications companies ("Telcos"), and Original Equipment Manufacturers (OEMs) as components of their infrastructure offerings. Server Network Interface Cards (Server Adapters): We have developed a comprehensive line of Server Adapters that facilitate interaction between servers and switches, enabling communication with high performance. These products allow server-based systems to exploit the potential of high speed, high throughput, high bandwidth Ethernet networking. Some of these products include bypass functionality to ensure traffic continuity during server failure. Smart Cards: Our Smart Cards are intelligent, programmable adapters designed to offload tasks from the server CPU. • Offload & Acceleration: We offer high-performance cards that independently execute encryption and data compression tasks, which are increasingly important in the cyber security and storage markets. • FPGA-Based Solutions: Utilizing components from the leading FPGA providers Altera and AMD, our FPGA-based solutions address specialized markets including Packet Capturing, AI Inference, and High Frequency Trading (HFT). For HFT, we provide super low latency networking products, and allow our customers to embed proprietary code, while our "Packet Mover" framework enables customers to integrate applications with optimized interfaces. Smart Platforms (Edge Products): Our Smart Platforms function as full computing platforms within networking-intensive environments, primarily serving as Customer-Premises Equipment (CPE) and Edge devices. These devices are deployed for SD-WAN, SASE, NFV, and Telco-dedicated routers. The portfolio ranges from entry-level devices to rack-mounted units for large-scale branches, offering modular designs and secured management features. Integrated Solutions: We also market hybrid platforms that combine functionalities from our Server Adapters, Smart Cards, and Smart Platforms, such as our Intelligent Bypass Switches (IBS). On May 28, 2025, we issued a press release on Form 6-K regarding a new Fortune 500 cloud-based service provider awarding us a Design Win for an FPGA Smart NIC. 34 On July 7, 2025, we issued a press release on Form 6-K regarding our first Design Win with a new U.S.-based provider of Edge-based networking solutions for multi-site businesses, for an advanced Edge device. On September 4, 2025, we issued a press release on Form 6-K regarding a long-term network optimization customer selecting our Edge systems as its next-generation platforms. On September 29, 2025, we issued a press release on Form 6-K regarding an application delivery market leader awarding us a Design Win for an advanced FPGA Smart Card for cryptography hardware acceleration. On October 28, 2025, we issued a press release on Form 6-K regarding a leading provider of Secure Access Service Edge (SASE) solutions awarding us a Design Win for our Edge Networking system combined with a Silicom Network Interface Card (NIC). On January 5, 2026, we issued a press release on Form 6-K regarding global networking and security-as-a-service leader expanding its deployment of our Edge systems across multiple additional use cases. On February 9, 2026, we issued a press release on Form 6-K regarding an existing customer, a Tier-1 cyber security leader, selecting one of our Edge systems as the platform for its next generation of a high-end product line. On March 12, 2026, we issued a press release on Form 6-K regarding one of the world’s largest streaming service providers selecting a high-speed Silicom network adapter for deployment in its proprietary streaming infrastructure. On April 15, 2026, we issued a press release on Form 6-K regarding securing a Design Win with a European provider of advanced encryption and secure communication solutions for organizations requiring the highest level of protection for sensitive information. Principal Markets The principal markets in which we compete are set forth more particularly in, and are incorporated by reference to Note 14A to the consolidated financial statements set forth in Item 18 of this annual report. In 2023, 2024 and 2025 approximately, 85%, 76% and 74% of our sales, respectively, were in North America, 13%, 16% and 18% of our sales, respectively, were in Europe, and 2%, 8% and 8% of our sales, respectively, were in Asia-Pacific. Our main business is not seasonal, and we believe that there are sufficient sources and raw materials available to sustain it. Manufacturing and Suppliers Our manufacturing operations consist primarily of producing finished goods on our own, with assistance from sub-contractors, from (i) components purchased from third parties, and (ii) sub-assemblies manufactured by sub-contractors. In addition, we perform testing and quality assurance procedures with respect to the components and sub-assemblies which are incorporated into our final products and to the final products themselves. 35 We seek to monitor quality with respect to each stage of the production process including, but not limited to, the selection of component suppliers, warehouse procedures and final testing, packaging, and shipping. We have been certified as complying with "ISO-28001:2022", "ISO 9001:2015", "ISO 27001:2013", and "ISO 14001:2015", which are the standards used in our industry. We believe that our quality assurance procedures have been instrumental in achieving a high degree of reliability for our products. We intend to continue to maintain and improve the efficiency of such procedures. Although we generally use standard parts and components for our products, certain key components used in our products are currently available from only one source, and others are available from a limited number of sources, on which we are dependent. For example, some key components in many of our products are manufactured by Intel® and Broadcom. We believe that during regular supply periods we maintain a sufficient inventory of these components to protect against delays in deliveries. For additional information see the risk factor entitled "Loss of our sources for certain key components could harm our operations" under Item 3.D – "Risk Factors." Firm purchase orders for our products generally include an agreed supply date for the supply of our products. In addition, we may agree to fill orders for our products within short periods of time after receipt of a firm purchase order based on the immediate availability of our products and/or components in our inventory. Consequently, we need to maintain inventory at levels that are in accordance with our forecasts and those of our customers. There can be no assurance that such forecasts will indeed materialize into firm purchase orders and consequently we cannot guarantee that the full volume of such inventory will be delivered against firm purchase orders and not remain unused. The Dodd-Frank Wall Street Reform and Consumer Protection Act includes disclosure requirements regarding the use of "conflict" minerals mined from the DRC and procedures regarding a manufacturer's efforts to prevent the sourcing of such "conflict" minerals. These requirements will require companies to undertake due diligence, disclose and report on whether or not such "conflict" minerals originate from the DRC. This implementation of these requirements could adversely affect the sourcing, availability and pricing of minerals such as cassiterite, wolframite, columbite-tantalite (coltan), gold and/or their derivatives (tantalum, tin, and tungsten) which are used in the manufacture of certain components used in our products, as well as affect the companies we use to manufacture components of our products. As a result, this could limit the pool of suppliers who can provide us DRC "conflict free" components and parts, and we may not be able to obtain DRC "conflict free" products or supplies in sufficient quantities for our operations. In circumstances where conflict minerals in our products are found to be sourced from the DRC, we may take actions to change materials or designs to reduce the possibility that our purchase of conflict minerals may fund armed groups in the region. These actions could add engineering and other costs to the manufacture of our products, and we may not be able to obtain "conflict free" products or supplies in sufficient quantities for our operations. In addition, we incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products, as further elaborated below. Also, because our supply chain is complex, we may face reputational challenges with our customers, shareholders and other stakeholders if we are unable to sufficiently verify the origins for the minerals used in our products. In such event, we may also face difficulties in satisfying customers who require that all of the components of our products are certified as conflict mineral free. There can be no assurance that we will not experience delays in the supply of critical components in the future or that we will have a sufficient inventory of critical components at such time to produce products at full capacity. If we do experience such delays and there is an insufficient inventory of critical components at that time, our operations and financial results would be adversely affected. 36 Marketing Channels The principal market sectors for our products are: (i) Providers of applications on Network appliances, including mostly SD-WAN, SASE, Cyber Security (including Post-Quantum Cryptography), and Application Delivery applications; (ii) Service providers and Telcos deploying CPEs/Edge for SD-WAN, SASE and NFV, as well as disaggregated networking solutions such as White-Label Switches; (iii) "Cloud"service providers; and (iv) Emerging AI chip companies and infrastructure providers requiring specialized hardware acceleration for AI Inference. Our main business model for our line of products is called the Design Win Model. The following are the main aspects of this model: • We approach a potential customer or are approached by such customer. • If the potential customer shows interest in the products and we believe that achievement of a business relationship with the potential customer is possible, we ship products for such potential customer's evaluation. • During the evaluation process the potential customer receives a few units of the relevant product for initial basic testing. If the evaluation process is successful, we ship products for qualification. • During the qualification process the potential customer usually purchases a larger amount of our products for more specific testing, which may include certain adaptations of our products to its needs. • If the qualification process is successful, we enter into negotiations regarding the terms of a business relationship. • In some cases, typically with the larger customers and with respect to Smart Cards and Smart Platforms, the evaluation and qualification process may take 12 months or more. Once all phases mentioned above are successfully concluded, the customer will purchase products from us by placing purchase orders (under which our products are to be sold to such customer) in order to either (i) incorporate such products within its systems, and thereafter sell or deploy such systems with our cards embedded in them, or, (ii) deploy our Smart Platform products within a network. 37 The sale or deployment of our products within such systems or network, as applicable, is the objective of our Design Win Model. In most cases, once we secure a Design Win, our customer will continue to buy our products for as long as it (i) continues to sell or deploy its system in which our products are incorporated, or (ii) continues to deploy our Smart Platform as part of its network. For all of our Server Adapters and for some of our Smart Cards and Smart Platforms, our sales and marketing have been mostly carried out through a network of strategic relationships with leading OEMs that sell our products, generally as a part of their systems and sometimes under their own private labels. Our current OEM customers are mostly active in the SD-WAN market, Cyber Security market (including addressing the Post-Quantum Cryptography transition), AI Inference infrastructure market, Data Storage market, Application Delivery market, Traffic Management market, Network Monitoring market, WAN Optimization market and other server-based applications markets. Our OEM customers sell their products to Service providers, Telcos, Governments, Enterprises (headquarter and branch) and to Data Centers (regular and virtualized, including to the Cloud). Our strategy of carrying out strategic relationships with OEM customers continues to be a significant part of our strategy. We believe that these relationships enable us to take advantage of the superior financial resources and market presence of these companies to increase our sales and establish, maintain and strengthen our position and reputation in the market. In addition, we believe that relationships with OEMs improve access to new technologies developed by such OEMs, thereby ensuring smooth integration of our products and technology with those of the OEMs. In addition, due to the trends that we see in our industry, including primarily the shift to the Cloud and the trend of Disaggregation (non-proprietary standards that allow separate parts of the network to be purchased separately) and Decoupling of Hardware and Software, we are also implementing an additional marketing strategy which involves our direct sales to major Service providers, Telcos, and Cloud players. This direct sales channel is becoming increasingly relevant for our strategic growth engines, specifically for White-Label Switching opportunities and large-scale deployments of AI Inference and PQC solutions, where direct engagement with the infrastructure operator is often required. In some cases, such sales involve a relationship with an independent software vendor, which is the case in some of our SD-WAN Edge Platforms and PQC related sales. The main aspects of the OEM business model, by which in most cases our customer will continue to buy our cards for as long as it continues to sell or deploy its system, are similar in our business model when we sell directly to Telcos or other service providers. Our cooperation with Intel and Altera has resulted in material benefits to our selling process. Due to these close relationships, they provide us with assistance in the sales process, mostly with Smart Cards and Smart Platforms, and FPGA-based solutions for AI and PQC. 38 The loss of some of our customers, or any single key customer, may have a material adverse effect on our operations and financial results and we cannot assure you that we will be able to enter into strategic relationships with any such customer in the future. Payment terms of our customers are, on average, approximately 60 days net. Approximately 95% of our international sales are denominated in U.S. Dollars and may be subject to government controls and other risks, including, in some cases, export licenses, federal restrictions on export, currency fluctuations, political instability, trade restrictions and changes in tariffs and freight rates. We have experienced no material difficulties to date as a result of these factors. Our arrangements with our customers (and distributors and resellers when applicable) are generally non-exclusive. We have generally experienced good relations with our customers and are not aware of any pending material terminations other than with respect to products that newer technologies have eliminated the need for. Our customers, distributors and resellers are not under our control. They are not obligated to purchase products from us and may use or represent other lines of products. A reduction in sales effort or discontinuance of sales of our products by our customers could lead to reduced sales and could materially adversely affect our operating results. In addition, our business model also entails the risk that our customers will build up inventories, either in anticipation of a growth in deployments or sales, or as a result of a tighter global supply chain incentivizing customers to build up significant inventories. If such growth does not occur as anticipated, or if customers have built up significant inventories, these customers may substantially decrease the number of products ordered from us in subsequent quarters, as they draw down on accrued inventories, discontinue product orders, or even attempt to return unused or unsold products. The loss of a major or key customer or group of customers, a loss or ineffectiveness of some of our relationships at approximately the same time, or a customer’s shift of its business focus away from the solutions that we had previously sold towards solutions in areas in which we do not operate, may have a material adverse effect on us. Patents and Licenses Our success and ability to compete are dependent to a significant degree on our technology. In order to establish and protect the technology we develop and/or acquire to use in our products, we primarily rely on a combination of non-disclosure agreements and technical measures, and to a lesser degree on patents. These measures afford only limited protection, and accordingly, there can be no assurance that the steps we take will be adequate to prevent misappropriation of our technology or the independent development of similar technologies by others. Despite our efforts to protect our technology, unauthorized parties may attempt to copy aspects of our products and develop similar hardware or software or to obtain and use information that we regard as proprietary. In addition, there can be no assurance that one or more parties will not assert infringement claims against us. The cost of responding to claims could be significant, regardless of whether the claims are valid. We cannot assure that the scope of any issued patent will adequately protect our intellectual property rights, or that patents will not be challenged, invalidated, or circumvented, or that the rights granted under the patents will provide us with meaningful protection or any commercial advantage. 39 On April 8, 2010, we filed a patent application with the United States Patents and Trademarks Office, or the USPTO, for the ‘Server-Based Network Appliance’. On June 12, 2012 we were issued patent No. 8,199,523 entitled ‘Server-Based Network Appliance’ from the United States Patent and Trademark Office, which relates to a server-based network appliance in which a computer motherboard is mounted in a case with the bus slots of the motherboard adjacent to the rear side of the case. On September 16, 2013, we acquired all of the intellectual property related to the unique Virtualization Off-Load Engine developed by Net Perform Technology, Ltd., a privately held company registered in Hong Kong, China. Despite perceived exclusive access to this product, and our best efforts during the acquisition process to secure the same, internal or external parties may assert a claim of infringement regarding such intellectual property. We do not consider this intellectual property to be material for our operations. On February 8, 2015, we filed a patent application in the USPTO with respect to Hybrid Networking Application Switch. On January 2, 2018, we were issued patent No. 9,858,227 entitled ‘Hybrid Networking Application Switch’ from the United States Patent and Trademark Office. The patent relates to a unique solution for combining functionalities of a rack mounted networking switch and a rack mounted server into a single rack mounted enclosure comprising a hybrid networking application switch or an accelerated hybrid networking application switch. For additional information regarding the risks to the Company with respect to patents and other intellectual property rights see the risk factor entitled “We may not be able to protect our intellectual proprietary rights” under Item 3.D. – “Risk Factors.” Competition The networking and data infrastructure solutions industry is highly competitive. We face competition from numerous companies, some of which are more established, benefit from greater market recognition, and have greater financial, production, and marketing resources than we do. We cannot guarantee that our present or any contemplated products will continue to be distinguishable from those of our competitors or that the marketplace will find our products preferable to those of our competitors. Furthermore, there can be no assurance that competitive pressures will not result in price reductions that could materially adversely affect our business and financial condition and the results of our operations. We believe that our expanded feature set, coupled with our customization capabilities and the general wide spectrum of solutions we offer, give us a competitive edge. Core Business Competition Server Adapters: Our main competitors are Nvidia, Intel, and Broadcom. However, these companies seem to be targeting mostly major accounts with their somewhat limited offering of standard cards and rarely offer customized solutions. We target accounts of all sizes with a broader product offering with various interfaces and form factors while providing a very fast and efficient path to customized solutions required by customers. Although the situation may change in the future, we believe that our competition in areas which are not being pursued by the large companies is less significant. 40 Smart Cards: In the Smart Cards products sector, our competition is fragmented and differs with respect to the specific solution being offered by us. In this sector, Marvell, Nvidia, Netronome, Napatech, BittWare, Lanner, and Caswell compete with certain of our Smart Cards. In some cases of FPGA-based cards, AMD also compete with our Smart Cards; however, as with the Server Adapters space, they target mostly the biggest accounts and only with mainstream products, while for other accounts they cooperate with us. Smart Platforms: In the Smart Platforms products sector, our main competitors are Caswell, Lanner, Advantech, and Nexcom. We believe that we provide a fast and efficient path to customized Smart Platforms frequently required by customers, which, coupled with our well-established technical and business relationships with Intel (the major supplier of the main building block of these Smart Platforms’ x86-based CPUs), provides us with an advantage over our main competitors in this area. Strategic Growth Markets Competition As we expand into additional strategic markets, namely AI Inference, Post-Quantum Cryptography (PQC), and White-Label Switching markets, we face distinct competitive landscapes populated by both established incumbents and specialized emerging players. AI Inference Solutions: In the AI inference market, we do not primarily compete against AI chip makers; rather, we position ourselves as a key infrastructure partner to them. We primarily offer our products to emerging AI chip companies who require specialized hardware to deploy their proprietary acceleration technologies. For some customers, we provide the FPGA platform necessary to load and execute their hardware code, enabling them to circumvent the "hardware lottery" by adapting their physical computing infrastructure to novel machine learning algorithms in near real-time; for others, we provide high-speed, high-bandwidth, and low-latency networking solutions to resolve critical connectivity bottlenecks. In this specific capacity, our main competitors are specialized hardware platform vendors and SmartNIC providers such as Napatech and BittWare. We also compete with the internal hardware engineering teams of our potential customers (the AI chip startups), who may decide to design and build their own network interface cards or acceleration platforms in-house rather than outsourcing to a specialized partner like Silicom. While the broader AI market is dominated by giants like Nvidia and AMD, our strategy is to enable the ecosystem of challengers emerging to compete with these incumbents. We believe our ability to provide a "production-ready" platform that solves both the "latency wall" and the "hardware lottery"—specifically tailored for the high-bandwidth and reconfigurable needs of inference clusters—allows our customers to focus on their core silicon differentiation rather than networking and hardware complexity. Post-Quantum Cryptography (PQC): In the emerging market for Post-Quantum Cryptography, we face competition from two primary sources. 41 Hardware Competitors: We compete with other hardware vendors who offer hardware-based acceleration cards, Hardware Security Modules (HSMs), and cryptographic offload solutions. Key competitors in this space include large security and semiconductor vendors that may design and offer PQC hardware accelerators, as well as specialized FPGA-based accelerator providers like BittWare and Napatech. Software/CPU Alternatives: We also face competition from an alternative architectural approach: the use of higher-power Central Processing Units (CPUs) with significantly increased core counts to perform PQC acceleration entirely in software. While the software-only alternative eliminates the need for specialized add-on hardware, it places a heavy computational load on the server. We believe our hardware-based FPGA solutions offer a distinct cost and efficiency advantage over the high-core-count CPU alternative. By offloading these intensive mathematical operations from the host CPU, our solutions free up expensive core resources for primary applications and offer superior performance-per-watt efficiency, resulting in a lower Total Cost of Ownership (TCO). Furthermore, our FPGA-based approach allows for "crypto-agility" -the ability to update cryptographic algorithms in hardware as standards evolve - which differentiates us from fixed-function hardware competitors. White-Label Switching (WLS): In the White-Label Switching market, we compete against established Original Design Manufacturers (ODMs) such as Edgecore Networks, Quanta Cloud Technology (QCT), Celestica, and Delta Electronics. We also face indirect competition from traditional proprietary networking incumbents like Cisco, Juniper, and Arista, who are increasingly challenged by the disaggregation trend. Governmental Regulation Affecting the Company We are affected by the terms of research and development grants we have received from the IIA. Under the R&D Law, research and development programs approved by the Research Committee of the IIA (the “Research Committee”) are eligible for “Benefits” which include grants, loans, exemptions, discounts, guarantees and additional means of assistance, but with the exclusion of purchase of shares, provided under various tracks promulgated by the Council body (the “Tracks”). Most Tracks require the repayment of the Benefits in the form of the payment of royalties from the sale of the product developed or provision of related services, in accordance with the published Track guidelines and subject to other restrictions. Once a project is approved, the IIA awards grants generally of up to 50% of the project’s expenditures in return for royalties, usually at the rate of 3% of sales of products developed with such grants. For projects approved after January 1, 1999, the amount of royalties payable was up to a dollar-linked amount equal to 100% of such grants plus interest at LIBOR or other applicable interest rate, such as the 12 month Secured Overnight Financing Rate (SOFR) rates, as published on the first trading day of the year by the CME Group (or any other institution authorized by the Federal Reserve), or in alternative publication by the Bank of Israel, with certain adjustments. 42 The terms of these grants prohibit the manufacture outside of Israel of the product developed in accordance with the program without the prior consent of the Research Committee. Such approval is generally subject to an increase in royalty rates, as well as in the total amount to be repaid to the IIA to between 120% and 150% (and in some cases 300%) of the amount granted, depending on the extent of the manufacturing that is conducted outside of Israel. The R&D Law also provides that know-how from the research and development and any derivatives thereof, cannot be transferred or licensed to Israeli third parties without the approval of the Research Committee. The R&D Law stresses that it is not just transfer of know-how that is prohibited, but also transfer of any rights in such know-how. Approval of the transfer and/or license could be granted only if the Israeli transferee or licensee undertook to abide by all of the provisions of the R&D Law and regulations promulgated thereunder, including the restrictions on the transfer of know-how and the obligation to pay royalties, if applicable. Generally, royalty payments by the transferor are required in connection with the transfer to an Israeli third party. The know-how from the research and development and any derivatives thereof cannot be transferred to non-Israeli third parties without the approval of the Research Committee, whose approval is generally contingent on payment of a significant penalty of up to six times the dollar-linked grant amount plus LIBOR or other applicable interest rate (such as the SOFR with certain adjustments) and minus any royalties paid, subject to depreciation in accordance with the published rules. Such restriction does not apply to exports from Israel of final products developed with such technologies. The approval of out-licensing arrangements and other arrangements for granting of an authorization to an entity outside of Israel to use know-how developed under research and development programs funded by the IIA and any derivatives thereof is generally subject to payment of a “License Fee” to the IIA, at a rate that will be determined by the IIA in accordance with the IIA’s licensing rules, of up to six times the dollar-linked amount plus LIBOR or other applicable interest rate (such as the SOFR with certain adjustments) and minus any royalties paid, subject to depreciation. In addition, we receive certain tax benefits and reduced tax rates from the Israeli government due to our status as a “Preferred Technological Enterprise” under the Law for the Encouragement of Capital Investments-1959, as amended. See “Item 10.E. – Additional Information – Taxation.” The entitlement to these benefits is conditional upon our fulfillment of the conditions stipulated by the law and the regulations promulgated thereunder. In the event of failure to comply with these conditions, the benefits could be canceled, and we would be required to refund the amount of the benefits, in whole or in part, with the addition of linkage differences and interest. Our total outstanding contingencies in respect of IIA or IIA royalty-bearing participations received or accrued, net of royalties paid or accrued before interest, amounted to approximately US$ 2,960 thousand as of December 31, 2025, which are attributable to sales of certain discontinued products. As of the date of this annual report, all of our IIA programs have been closed per our request. We are not anticipating any sales of our products developed with IIA funding and accordingly do not expect to be required to pay any royalties to the IIA. In the unlikely event we do sell products developed using IIA funding, we will be required to pay royalties to the IIA as set forth in the R&D Law and directives published by the IIA. 43 C. Organizational Structure We have the following two wholly owned subsidiaries: • Silicom Connectivity Solutions, Inc. – a private company incorporated in the United States; and • Silicom Denmark (Fiberblaze A/S) – a private company incorporated in Denmark. D. Property, Plant and Equipment We do not own any real property, but we lease property at five locations. Our manufacturing plant and additional storage space are located in in Yokne’am, Israel, our executive offices are located in Kfar Sava, Israel, our marketing and sales offices are located in our Kfar Sava, Israel, in Søborg, Denmark, and in Paramus, New Jersey, the United States, and our research and development facilities are located in Kfar Sava, Israel, in Søborg, Denmark, and in Charlottesville, Virginia, the United States. Our executive offices in Kfar Sava are approximately 2,000 square meters in size. The remaining lease period is approximately four years, ending February 28, 2030. Our monthly rental payments for this office space (which include various maintenance services) are equal to approximately US$ 62,150. We have conducted our manufacturing in Yokne’am, Israel since 2000. In March 2020, we entered into a lease agreement for the lease of an approximately 4,000 square meter manufacturing facility, as well as an approximately 360 square meters of storage space, in Yokne’am, Israel, for a period of up to 120 months. The monthly rental payments (which include various payments including maintenance services) will vary during the remaining lease period from between approximately US$ 91,000 to approximately US$ 92,300. In October 2019, we entered into a commercial lease agreement to lease office space in Charlottesville, Virginia, in the United States for a 37-month period commencing on December 1, 2019. The lease agreement includes two options for the extension of the lease for 24-months each. In July 2022, we exercised the first option to extend the lease agreement for a period of 24 months, commencing on January 1, 2023. In May 2024, we exercised the second option to extend the lease agreement for a period of 24 months, commencing on January 1, 2025. The facility is approximately 606 square meters in size and the monthly payments are approximately US$ 9,300 per month in the first 12 months and approximately US$ 9,500 per month in the following 12 months. In February 2026, we entered into an addendum to the lease agreement to further extend the lease for an additional period of 24 months, commencing on January 1, 2027 and ending on December 31, 2028. The monthly lease payments under this extension are approximately US$ 9,675 for the first 12 months and approximately US$ 9,868 for the following 12 months. The lease agreement also includes additional renewal options beyond this period, subject to certain conditions. 44 Since April 2017, we have leased office space of approximately 2,500 square feet in Paramus, New Jersey. Our current lease is until June 2027. Currently, the monthly rental payments (including utilities) for this space are US$ 4,820. In addition, we lease office space in Søborg, Denmark. In February 2025, we entered into an amendment to the lease agreement, pursuant to which the leased premises were reduced in size from approximately 1,800 square meters to approximately 1,400 square meters, including the vacation of one floor. While the term of the initial lease period expired on November 1, 2025, the lease continues in effect, subject to standard termination provisions, including a six-month prior notice period. The monthly rental payment (including maintenance services) for this space is approximately US$ 20,600. We believe that our facilities in Israel, the United States and Denmark are suitable and adequate for our operations as currently conducted. In the event that additional facilities are required, or we need to seek alternative rental properties, we believe that we could obtain such additional or alternative facilities at commercially reasonable prices.