OPERATING AND FINANCIAL REVIEW AND PROSPECTS General Overview Silicom was incorporated in Israel and commenced operations in 1987. We are currently engaged in the design, manufacture, marketing and support 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. We primarily sell our products to major Cloud players, service providers, telcos and OEMs and, to a lesser extent, through independent distributors (on a non-exclusive basis). In 2023, 2024 and 2025 we recorded sales from all of our networking and data infrastructure solutions of approximately, US$ 124.1million, US$ 58.1 million and US$ 61.9 million respectively. 45 Recent Accounting Pronouncements In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. The standard requires entities to disclose specific categories in the rate reconciliation and to provide additional information for reconciling items that meet a quantitative threshold. It also requires entities to disclose certain information about income taxes paid and other disclosures related to income and income tax expense from continuing operations. The standard is effective for fiscal years beginning after December 15, 2024 for public business entities. We adopted this ASU on a prospective basis effective January 1, 2025. In November 2024, the FASB issued ASU 2024-03 “Income Statement: Reporting Comprehensive Income - Expense Disaggregation Disclosures,” The standard requires more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation, amortization, and depletion) included in certain expense captions presented on the face of the income statement, as well as disclosures about selling expenses. The standard is effective for fiscal years beginning after December 15, 2026. We are currently evaluating the impact of ASU 2024-03 on our consolidated financial statements. In July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides a practical expedient when estimating credit losses on accounts receivable and contract assets arising from transactions accounted for under ASC 606, Revenue from Contracts with Customers. Under this practical expedient, an entity is allowed to assume that the current conditions it has applied in determining credit loss allowances for current accounts receivable and current contract assets remain unchanged for the remaining life of those assets. The ASU is effective for annual periods beginning after December 15, 2025, and interim periods within those annual reporting periods. Effective January 1, 2025, we early adopted ASU 2025-05 on a prospective basis. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures. A. Operating Results You should read the following management’s discussion and analysis of our financial condition and operating results in conjunction with the consolidated financial statements and the related notes thereto included in this annual report. The following table sets forth, for the periods indicated, the relationship (in percentages) of items from our Consolidated Statement of Operations Data to our total sales: Year Ended December 31, 2023 2024 2025 Sales 100% 100% 100% Cost of sales 76.9 71.4 69.4 Gross profit 23.1 28.6 30.6 Research and development expenses 16.6 33.6 32.4 Sales and marketing expenses 5.6 10.3 10.5 General and administrative expenses 3.4 7.5 7.4 Impairment of goodwill 20.6 - - Operating Loss (23.1) (22.8) (19.8) Financial income, net 1.1 3.4 2.7 Loss before income taxes (22.0) (19.5) (17.1) Income tax expenses (benefit) (0.7) 4.1 1.4 Net Loss (21.3) (23.6) (18.5) 46 Sales in 2025 increased by 6.6% to US$ 61,926 thousand compared to US$ 58,114 thousand in 2024, reflecting mainly resilient core business demand and the initial ramp-up of a few of the design wins achieved during 2025. Sales in 2024 decreased by 53.2% to US$ 58,114 thousand compared to US$ 124,131 thousand in 2023, reflecting mainly the continued negative impact of the excess inventories built by many of our customers in previous years, whether in reaction to supply chain disruptions only, or in combination with slower-than-expected sales of their new products and services. Gross profit in 2025 was US$ 18,926 thousand compared to US$ 16,598 thousand in 2024. Gross profit as a percentage of sales in 2025 was 30.6%, compared to 28.6% in 2024. The increase in the gross profit percentage in 2025 compared to 2024 was mainly attributed to changes in the mix of products that we sold in 2025, on which our gross profit is largely dependent. Gross profit was also affected by write-downs of inventory made with respect to any slow moving or obsolete inventory we can no longer use. Inventory write-downs as a percentage of sales in 2025 decreased to 4.5%, compared to 6.3% in 2024. Gross profit in 2024 was US$ 16,598 thousand compared to US$ 28,689 thousand in 2023. Gross profit as a percentage of sales in 2024 was 28.6%, compared to 23.1% in 2023. The change in the gross profit percentage in 2024 compared to 2023, when neutralizing the one-time effect of impairment of intangible assets as well as the related write-down of inventory in 2023, was mainly attributed to the mix of products that we sold in 2024, on which our gross profit is largely dependent. Gross profit was also affected by, among other factors, write-downs of inventory made with respect to any slow moving or obsolete inventory we can no longer use. The inventory write-downs as a percentage of sales in 2024 increased to 6.3%, compared to 5.2% (of which 3.5% is attributed to a one-time write-down of inventory related to an impairment of intangible assets) in 2023. Research and development expenses in 2025 increased by 2.8% to US$ 20,054 thousand compared to US$ 19,508 thousand in 2024. This increase was mainly attributed to an increase of approximately US$ 1,621 thousand in payroll and related expenses resulting from the depreciation of the U.S. Dollar against the New Israeli Shekel and the Danish Krone (since a significant portion of our research and development payroll expenses are incurred in New Israeli Shekels and Danish Krone), offset by (i) a decrease in the use of subcontracted work of approximately US$ 520 thousand, (ii) a decrease in depreciation expenses of approximately US$ 465 thousand and (iii) a decrease in various research and development costs accumulating to approximately US$ 90 thousand. 47 Research and development expenses in 2024 decreased by 5.5% to US$ 19,508 thousand compared to US$ 20,638 thousand in 2023. This decrease was mainly attributed to (i) a decrease in payroll and related expenses due to a reduction in the number of employees which amounted to approximately US$ 925 thousand, (ii) a strengthening of the US Dollar against the New Israeli Shekel and the Danish Krone (since a significant portion of our research and development expenses are incurred in New Israeli Shekels and Danish Krone), which reduced expenses by approximately US$ 209 thousand, (iii) a decrease in the use of subcontracted work of approximately US$ 444 thousand, as well as a decrease in various research and development costs of approximately US$ 276 thousand, offset by a decrease of capitalization of internal software development costs of approximately US$ 365 thousand in 2024, compared to US$ 1,092 thousand in 2023. Sales and marketing expenses in 2025 increased by 8.5% to US$ 6,528 thousand compared to US$ 6,014 thousand in 2024. This increase was mainly attributed to an increase of approximately US$ 379 thousand in payroll and related expenses resulting from the depreciation of the U.S. Dollar against the New Israeli Shekel and the Danish Krone (since a significant portion of our sales and marketing payroll expenses are incurred in New Israeli Shekels and Danish Krone), as well as an increase of approximately US$ 135 thousand, attributed to various sales and marketing costs. Sales and marketing expenses in 2024 decreased by 13.3% to US$ 6,014 thousand compared to US$ 6,935 thousand in 2023. This decrease was mainly attributed to a decrease in payroll and related expenses due to a reduction in the number of employees of approximately US$ 651 thousand, as well as a decrease of approximately US$ 270 thousand, attributed to various sales and marketing costs. General and administrative expenses in 2025 increased by 5.8% to US$ 4,605 thousand compared to US$ 4,354 thousand in 2024. This increase was mainly attributed to an increase of approximately US$ 357 thousand in payroll and related expenses resulting from the depreciation of the U.S. Dollar against the New Israeli Shekel and the Danish Krone (since a significant portion of our general and administrative payroll expenses are incurred in New Israeli Shekels and Danish Krone), offset by a decrease of approximately US$ 96 in share-based compensation expenses. General and administrative expenses in 2024 increased by 3% to US$ 4,354 thousand compared to US$ 4,229 thousand in 2023. This increase was mainly attributed to various general and administrative costs of approximately US$ 190 thousand, offset by a strengthening of the US Dollar against the New Israeli Shekel and the Danish Krone (since a significant portion of our research and development expenses are incurred in New Israeli Shekels and Danish Krone), which reduced expenses by approximately US$ 65 thousand. 48 Financial income, net in 2025 amounted to US$ 1,653 thousand compared to financial income, net of US$ 1,961 thousand in 2024. The change is mainly attributed to a depreciation of the U.S. Dollar against the New Israeli Shekel and the Danish Krone, which created net financial expenses in U.S. Dollars from exchange rate differences (a portion of our balance sheet assets and obligations are denominated in New Israeli Shekels as well as Danish Kroner) of US$ 918 thousand in 2025 compared to financial expenses from exchange rate differences of US$ 625 thousand in 2024. Financial income, net in 2024 amounted to US$ 1,961 thousand compared to financial income, net in 2023 of US$ 1,372 thousand. The change is mainly attributed to an increase in income from investment in marketable securities and bank deposits, which was attributed to an increase in funds available for investment, and which amounted to US$ 2,597 thousand in 2024 compared to US$ 1,254 thousand in 2023, offset by financial expense in US Dollars from exchange rate differences (a portion of our balance sheet assets and obligations are denominated in New Israeli Shekels as well as Danish Krone) of US$ 625 thousand in 2024 compared to financial income of US$ 163 thousand in 2023. In 2025 we recorded current income tax expenses of US$ 772 thousand and deferred income tax expenses of US$ 82 thousand compared to current income tax expenses of US$ 692 thousand and deferred income tax benefit of US$ 2,345 thousand in 2024. The increase in our current income tax expenses was mainly attributed to an increase in our taxable income. The change in the deferred income taxes was mainly attributed to valuation allowance in relation to loss carry forwards in the amount of US$ 2,918 thousand in 2024, compared to an increase in loss carry forwards in the amount of US$ 896 thousand in 2025. In 2024 we recorded current income tax expenses of US$ 692 thousand and deferred income tax expenses of US$ 2,345 thousand compared to current income tax expenses of US$ 1,122 thousand and deferred income tax benefit of US$ 1,885 thousand in 2023. The decrease in our current income tax expenses was mainly attributed to a decrease in our income and the resulting taxable income. The change in the deferred income taxes was mainly attributed to a deferred income tax benefit relating to tax loss carryforwards, which amounted to US$ 1,064 thousand in 2024 compared to deferred income tax benefit which amounted to US$ 306 thousand in 2023, offset by: (i) a valuation allowance which amounted to US$ 2,918 thousand compared to US$ 0 in 2023, (ii) deferred income tax expenses related to acquired goodwill, which amounted to US$ 327 thousand in 2024 compared to deferred income tax benefit in the amount of US$ 1,893 thousand in 2023. In addition, in 2024 we recorded an income tax benefit relating to prior years in the amount of US$ 646 thousand, compared to an income tax benefit relating to prior years in the amount of US$ 126 thousand in 2023. In 2025 we recorded net loss of US$ 11,479 thousand compared to net loss of US$ 13,708 thousand in 2024. The decrease in net loss was mainly attributed to a decrease in our operating loss as well as to a decrease in our tax expenses. In 2024 we recorded net loss of US$ 13,708 thousand compared to net loss of US$ 26,413 thousand in 2023. The loss in 2024 was mainly attributed to a decrease in our activity. 49 Impact of Inflation and Currency Fluctuations on Results of Operations, Liabilities and Assets Since the majority of our revenues are denominated and paid in U.S. Dollars, we believe that inflation in Israel and in Denmark and fluctuations in the U.S. dollar exchange rates do not have any material effect on our revenue. Inflation in Israel or Denmark and the Israeli and Danish currency as well as U.S. dollar exchange rate fluctuations, may however, have an effect on our expenses and, as a result, on our net income/loss. The cost of our Israeli and Danish operations, as expressed in U.S. Dollars, is influenced by the extent to which any change in the rates of inflation in Israel or Denmark are not offset (or are offset on a lagging basis) by a change in valuation of the NIS or DKK in relation to the U.S. dollar. We do not presently engage in any hedging or other transactions intended to manage the risks relating to foreign currency exchange rate or interest rate fluctuations. However, we may in the future undertake such transactions, if management determines that it is necessary to offset such risks. B. Liquidity and Capital Resources As of December 31, 2025, we had working capital of US$ 85,862 thousand and our current ratio (current assets to current liabilities) was 4.15. Cash and cash equivalents as of December 31, 2025 decreased by US$ 16,127 thousand to US$ 35,156 thousand, compared to US$ 51,283 thousand as of December 31, 2024. Short-term bank deposits increased by US$ 6,000 thousand to US$ 6,000 as of December 31, 2025, compared to US$ 0 as of December 31, 2024. Short-term marketable securities decreased by US$ 13,902 thousand to US$ 6,958 thousand, compared to US$ 20,860 thousand as of December 31, 2024, and long-term marketable securities increased by US$ 18,679 thousand to US$ 25,518 thousand, compared to US$ 6,839 thousand as of December 31, 2024. The net decrease of US$ 5,350 thousand in these four balance sheet items in 2025 was mainly attributed to the following factors: (i) negative cash used in operating activities in the amount of US$ 2,160 thousand, (ii) payments in relation to purchase of property, plant and equipment which amounted to US$ 1,189 thousand, and (iii) purchase of treasury shares in the amount of approximately US$ 1,659 thousand. Trade receivables decreased to US$ 9,194 thousand as of December 31, 2025, compared to US$ 11,748 thousand as of December 31, 2024. This decrease was mainly attributed to shorter customer payment cycles, as averaged out. Other receivables decreased to US$ 3,155 thousand as of December 31, 2025, compared to US$ 4,839 thousand as of December 31, 2024. Trade payables increased to US$ 11,116 thousand as of December 31, 2025, compared to US$ 6,477 thousand as of December 31, 2024. This increase was mainly attributed to the increase in our purchasing of inventory. Other payables and accrued liabilities increased to US$ 14,116 thousand as of December 31, 2025, compared to US$ 6,945 thousand as of December 31, 2024. This increase was mainly attributed to an increase in our accrued expenses as well as to an increase in our Advances from customers. 50 Inventories increased to US$ 52,650 thousand as of December 31, 2025, compared to US$ 41,060 thousand as of December 31, 2024. This increase was mainly attributed to an increase in our inventory level needed to support our customers' orders. Cash used in operating activities in 2025 amounted to US$ 2,160 thousand compared to cash provided by operating activities in the amount of US$ 18,288 thousand in 2024. The cash used in operating activities was mainly attributed to an increase in our inventory, offset by an increase in our trade accounts payable and other accounts payable. Capital expenditures on property and equipment for the year ended December 31, 2025 were US$ 1,334 thousand, compared to US$ 1,395 thousand as of December 31, 2024. We have cash and cash equivalents that we believe are sufficient for our present requirements. Furthermore, our cash resources are sufficient to fund our operating needs for at least the next twelve months. Other Long-Term Liabilities Reflected on the Company's Balance Sheet: The liability for employee’s severance benefits amounted to approximately US$ 3,049 thousand as of December 31, 2025. The liability for employees’ severance benefits is calculated on the basis of the latest monthly salary paid to each employee multiplied by the number of years of employment. The liability is covered by the amounts deposited by us into employee ’'manager’' insurance and/or pension fund accounts in respect of severance obligations to such employees, including accumulated income thereon as well as by the unfunded provision reflected on the balance sheet. While the timing of such obligations cannot be pre-determined, such liability will be removed, either by termination of employment or retirement. C. Research and Development, Patents and Licenses, etc. Since we commenced operations, we have conducted extensive research, development and engineering activities. Our efforts emphasize the development of new products, cost reduction of current products, and the enhancement of existing products, generally in response to rapidly changing customer preferences, technologies and industry standards. Because the market for our products is characterized by rapidly changing technology and evolving industry standards, our success depends upon our ability to select, develop, manufacture and market new and enhanced products in a timely manner to meet changing market needs. As such, we invest significant resources in research and new product development, enhancements to existing products, and the development of new networking and connectivity technologies, and we expect to continue to do so. As of June 2012, we have a 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. 51 On September 16, 2013, we acquired all of the intellectual property related to the unique Virtualization Off-Load Engine developed during the last two years by Net Perform Technology, Ltd., a privately held company registered in Hong Kong, China. As of December 2014, we own or have licenses or similar rights with respect to Silicom Denmark (Fiberblaze A/S), including Silicom Denmark (Fiberblaze A/S’'s high performance OEM hardware platform for Ethernet and network interface product family, registered names and domain name. As of October 2015, we own all intellectual property and intellectual property rights in which ADI has an ownership interest or have licenses or similar right where ADI has such licenses or rights, including with respect to custom embedded, communications and networking products based on the latest Intel® silicon, registered names and domain name. As of January 2018, we have a patent No. 9,858,227 entitled 'Hybrid Networking Application Switch' from the United States Patent and Trademark Office, which 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. We cannot assure you 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. 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 right” under Item 3.D. –“Risk Factors” The Government of Israel encourages research and development projects oriented towards products for export or projects which will otherwise benefit the Israeli economy. In each of the three fiscal years from 1999 to 2001, we received grants from the Office of the Chief Scientist, replaced by the IIA, for the development of systems and products. We have received from the IIA up to 30% of certain research and development expenditures for particular projects. Under the terms of Israeli Government participation, a royalty usually at the rate of 3% of sales of products developed from a project funded by the IIA must be paid, beginning with the commencement of sales of products developed with grant funds and ending when a dollar-linked amount generally equal to 100% of such grants without interest, for projects approved prior to January 1999, and plus interest at LIBOR or other applicable interest rate, for amounts received after that date, is repaid. The terms of Israeli Government participation also place restrictions on the location of the manufacturing of products developed with government grants, which, in general, must be performed in Israel, and on the transfer or license to third parties of technologies developed through projects in which the government participates. The IIA has previously provided funding in relation to our research and development efforts. As of the date hereof, we have received funding from the IIA in the aggregate amount of approximately US$ 4,388,000 and have paid the IIA an aggregate amount of approximately US$ 1,428,000 in royalties in relation thereto. See “Item 4.B. – Information on the Company – Business Overview – Governmental Regulation Affecting the Company” 52 In August 2005, we received approval for a US$54 thousand-dollar grant from the Korea-Israel Industrial Research and Development Foundation, or Koril-RDF, in connection with the joint development of a certain product with a Korean company. Under the terms of this grant we are required to repay the amounts received at a rate of 2.5% per year of our gross sales of the product developed with the grant in each such year, until 100% of the grant (and any other sums received from Koril-RDF) are repaid. We received approximately 20%-30% of certain research and development expenditures for two projects in 2003 and 2004. As of January 2006, and to date, our research and development activities have been sponsored and funded by us, and we did not participate in any new encouragement programs or received any additional grants from the IIA or Koril-RDF. We have closed all our IIA funded programs, and do not anticipate having any sales of products funded by IIA grants or be required to pay any royalties to the IIA with respect thereto. We expect that we will continue to commit resources to research and development in the future. As of March 31, 2026, we had 123 employees engaged primarily in research and development and design activities of which 69 employees were based in Israel, 28 in Denmark and 26 in the U.S. In 2023, 2024 and 2025 our research and development expenses were US$ 20,638 thousand, US$ 19,508 thousand and US$ 20,054 thousand respectively, constituting approximately 16.63%, 33.57% and 32.38% respectively, of our sales. The increase in our research and development expenses in 2025 compared to 2024 was mainly attributed to an increase of approximately US$ 1,621 thousand in payroll and related expenses resulting from the depreciation of the U.S. Dollar against the New Israeli Shekel and the Danish Krone (since a significant portion of our research and development payroll expenses are incurred in New Israeli Shekels and Danish Krone), offset by (i) a decrease in the use of subcontracted work of approximately US$ 520 thousand, (ii) a decrease in depreciation expenses of approximately US$ 465 thousand and (iii) a decrease in various research and development costs accumulating to approximately US$ 90 thousand. D. Trend Information Overview of Industry Trends In today's network-based environment, the rate at which traffic is generated is continuously growing, creating a continuous demand for network scalability. This demand drives several trends that have a significant impact on our business. Trends Impacting Core Business: Cloud Shift, Disaggregation, and Decoupling The primary trend reshaping our industry is the shift to the Cloud, encompassing both public and private cloud infrastructures. A key driver of this shift is the requirement for standardization, which is essential for achieving scalability. Standardization has catalyzed two critical structural changes: Disaggregation and Decoupling. • Disaggregation involves disconnecting proprietary interfaces between various network components, allowing them to be procured separately from different vendors. 53 • Decoupling refers to the separation of Hardware from Software, enabling distinct procurement efforts for each and fostering a multi-vendor ecosystem. These trends have expanded beyond the Cloud into the Service Provider and Telecommunications ("Telco") sectors, where operators increasingly purchase Hardware platforms separately from the Software. This transition began with SD-WAN applications and has extended to Network Function Virtualization (NFV), both of which increasingly utilize standard Hardware platforms for deployment. These trends impact our product lines differently: • Server Adapters: The Cloud trend has created a gradual shift in demand for our Server Adapters, as traditional appliance vendors—our historical channel—face pressure to sell to Cloud players who often prefer purchasing Software-only solutions. Even in private or On-Premise Cloud environments, the reliance on standard components creates headwinds for specialized Server Adapters. • Smart Cards: Conversely, standardization increases demand for our Smart Cards. Standard servers, which constitute the Cloud infrastructure, require acceleration and offloading capabilities to enhance performance, driving the need for our intelligent adapter solutions. • Edge Devices: The Disaggregation and Decoupling trends have generated significant demand from Service Providers and Telcos for Customer Premises Equipment (CPE) devices used in SD-WAN, SASE, Telco-dedicated Routers, and NFV deployments. During the last few years we witness increasing demand for our CPE devices resulting from these market shifts. Emerging Structural Trends: Strategic Growth Markets Beyond our core business, we see three specific technological shifts that we believe represent significant emerging opportunities: Artificial Intelligence (AI), Post-Quantum Cryptography (PQC), and White-Label Switching. 1. The Shift to AI Inference, the "Latency Wall", and the “Hardware Lottery”: We observe a fundamental structural shift in the Artificial Intelligence market as the industry transitions from an initial focus on model training toward an "inference-first" economy, where the deployment and day-to-day operation of AI models generate the majority of computing demand. This transition to inference at scale exposes two critical, parallel infrastructure challenges: the "latency wall" and the "hardware lottery." Unlike centralized training, inference is highly distributed and sensitive to latency, causing standard networking infrastructure to hit a latency wall that creates bottlenecks between chipsets, accelerator cards, and servers. Simultaneously, the rapid evolution of AI algorithms is increasingly constrained by the “hardware lottery”, a phenomenon where the success of novel machine learning models is limited by rigid, standard computing architectures. We believe these dual dynamics drive a critical and growing need for our specialized solutions—specifically ultra-low-latency Network Interface Cards (NICs) and FPGA-based acceleration. By utilizing our FPGAs as a reconfigurable extension of software rather than a fixed hardware constraint, we allow our customers to bypass the “hardware lottery”, enabling them to co-design their software stack, implement novel ML optimizations, and adapt the underlying computing hardware in near real-time. We view the combined mitigation of the latency wall and the circumvention of the “hardware lottery” as a durable, long-term trend that significantly expands the addressable market for our high-performance connectivity solutions. 54 2. The Transition to Post-Quantum Cryptography (PQC): The cybersecurity landscape is undergoing a mandatory evolution driven by the advent of quantum computing. The potential for quantum computers to break existing public-key encryption standards has catalyzed a global regulatory push toward Post-Quantum Cryptography (PQC). We are witnessing governments and regulatory bodies planning the process towards mandating the migration to quantum-resistant standards to mitigate "harvest now, decrypt later" threats. This regulatory pressure is forcing enterprises and public sector entities to initiate long-term infrastructure upgrade cycles. We believe this trend necessitates hardware-based cryptographic accelerators that offer not only performance but also the flexibility to adapt to evolving cryptographic standards - a requirement that favors programmable FPGA-based solutions over fixed-function hardware. 3. The Extension of Disaggregation to Switching: The trend of Disaggregation, which has already reshaped the server and edge markets, is now extending into the switching layer. We see a growing trend of "White-Label Switching," where network operators seek to replace proprietary, closed switching systems with open, disaggregated hardware platforms. This shift is driven by the same economic and operational factors, namely cost efficiency, vendor independence, and flexibility, that drove the commoditization of servers, providing an opportunity for hardware-neutral vendors to capture market share from incumbent proprietary providers. E. Critical Accounting Estimates The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of the financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and could potentially result in materially different results under different assumptions and conditions. We believe that our critical accounting policies are limited to those described below. Capitalization of software development costs (mainly salary) related to programmable components incorporated into our products, are charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. We have determined that technological feasibility for our software components of hardware products is reached after all high-risk development issues have been resolved through coding and testing. Amortization begins once the software is ready for its intended use, generally based on the pattern in which the economic benefits will be consumed. The amortization of these costs is included in cost of revenue over the estimated life of the products. Other costs incurred in the research and development of our products are expensed as incurred. We are not a party to any other material off-balance sheet arrangements or contingent obligations. 55