{"url_path":"/sec/eltk/10-k/2026/item-3","section_key":"item-3","section_title":"Item 3 KEY INFORMATION","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-03-26","source_url":"https://www.sec.gov/Archives/edgar/data/1024672/0001178913-26-001768-index.html","accession_number":"0001178913-26-001768","cik":"0001024672","ticker":"ELTK","issuer_name":"ELTEK LTD","edgar_url":"https://www.sec.gov/Archives/edgar/data/1024672/0001178913-26-001768-index.html","primary_entity_key":"0001024672","primary_entity_name":"ELTEK LTD"},"word_count":14744,"has_tables":true,"body_markdown":"ITEM 3.\n\nKEY INFORMATION\n\n \n\nA.          Reserved\n\n \n\nB.          Capitalization and Indebtedness\n\n \n\nNot applicable.\n\n \n\nC.          Reasons for the Offer and Use of Proceeds\n\n \n\nNot applicable.\n\n \n\nD.          Risk Factors\n\n \n\nInvesting in our ordinary shares involves a\nhigh degree of risk and uncertainty.  You should carefully consider the risks and uncertainties described below before investing\nin our ordinary shares.  Our business, prospects, financial condition and results of operations could be adversely affected due to\nany of the following risks.  In that case, the value of our ordinary shares could decline, and you could lose all or part of your\ninvestment.  These risk factors include:\n\n \n\nRisks Related to Our Business and Our Industry\n\n \n\n•\n\nWe are dependent on one-of-a-kind machinery that may malfunction and may not be easily replaced.\n\n \n\n•\n\nKey customers account for a significant portion of our revenues.\n\n \n\n•\n\nWe are dependent upon a select number of suppliers for timely delivery of key raw materials.\n\n \n\n•\n\nOur business insurance policies may become more limited in scope and our premiums may increase.\n\n \n\n•\n\nWe are subject to environmental laws and regulations.\n\n \n\n•\n\nOur products and related manufacturing processes are often highly complex and therefore our deliveries may be delayed.\n\n \n\n•\n\nWe are affected by the growing demand for AI services, which have caused shortages of raw materials.\n\n \n\n•\n\nBreaches of network or information technology security, natural disasters or terrorist attacks.\n\n \n\n•\n\nWe may require additional capital in the future, which may not be available to us.\n\n \n\n•\n\nCompetition in the PCB market is intense.\n\n \n\n•\n\nOur results of operations may be adversely affected by currency fluctuations.\n\n1\n\n \n\n•\n\nChanges in international trade policies, tariffs and geopolitical tensions may adversely affect our business.\n\n \n\n•\n\nWe are subject to claims and litigation relating to environmental matters.\n\n \n\n•\n\nIncreased regulation associated with climate change and greenhouse gas emissions.\n\n \n\n•\n\nRapid changes in the Israeli and international electronics industries and recessionary pressures.\n\n \n\n•\n\nWe may not succeed in our efforts to further expand our activity in the U.S. and other foreign markets.\n\n \n\n•\n\nWe may become subject to the requirements of the National Industrial Security Program Operating Manual.\n\n \n\n•\n\nWe may fail to detect violations of anti-corruption and anti-money laundering laws.\n\n \n\n•\n\nWe may encounter difficulties with our international operations and sales, with military agencies.\n\n \n\n•\n\nDamage to our manufacturing facilities due to fire, natural disaster, or other events.\n\n \n\n•\n\nWe are vulnerable to the general economic effects of epidemics, pandemics and other public health crises.\n\n \n\n•\n\nOur quarterly operating results fluctuate significantly.\n\n \n\n•\n\nOur products and product components need to meet certain industry standards.\n\n \n\n•\n\nOur operating margins may be affected as a result of price increases for our principal raw materials.\n\n \n\n•\n\nWe compete with PCB manufacturers in Asia whose manufacturing costs are lower than ours.\n\n \n\n•\n\nOur enterprise resource planning system is no longer being fully supported.\n\n \n\n•\n\nWe may fail to maintain effective internal control over financial reporting\n\n \n\n•\n\nTechnological change may adversely affect the market acceptance of our products.\n\n \n\n•\n\nThe measures we take in order to protect our intellectual property may not be effective or sufficient.\n\n \n\n•\n\nClaims that our products infringe upon the intellectual property of third parties.\n\n \n\n•\n\nWe are affected by increasing global inflation and higher interest rates.\n\n \n\nRisks Related to Our Human Capital\n\n \n\n•\n\nIf our workforce will be represented by a labor union, we could incur additional costs.\n\n \n\n•\n\nUnder current Israeli law, we may not be able to enforce covenants not to compete.\n\n \n\n•\n\nWe depend on key personnel for the success of our business.\n\n \n\n•\n\nOur ability to maintain our directors’ and officers’ insurance may be curtailed.\n\n \n\n•\n\nWe may be required to make payments to satisfy our indemnification obligations.\n\n2\n\nRisks Related to Our Ordinary Shares\n\n \n\n•\n\nOur share price has been volatile in the past and may continue to be in the future.\n\n \n\n•\n\nThe voting interest of our controlling shareholder may conflict with the interests of other shareholders.\n\n \n\n•\n\nWe may in the future be classified as a passive foreign investment company, or PFIC.\n\n \n\n•\n\nWe do not guarantee that dividends will continue to be distributed in the future.\n\n \n\nRisks Related to Our Organization and Location in Israel\n\n \n\n•\n\nPolitical, economic and military instability in Israel, including due to the current conflicts.\n\n \n\n•\n\nObligation of our personnel to perform military reserve service.\n\n \n\n•\n\nService and enforcement of legal process on us and our directors and officers may be difficult.\n\n \n\n•\n\nProvisions of Israeli law may prevent or make difficult a change of control.\n\n \n\n•\n\nThe rights and responsibilities of our shareholders are governed by Israeli law and differ to U.S. law.\n\n \n\n•\n\nWe may follow certain home country corporate governance practices.\n\n \n\n•\n\nExpenses incurred by public companies have been increasing.\n\n \n\n•\n\nThe termination or reduction of tax and other incentives that the Israeli government provides.\n\n \n\nRisks Related to Our Business and Our Industry\n\n \n\nWe are dependent on one-of-a-kind machinery that may malfunction\nand may not be easily replaced.\n\n \n\nThe proper function of our manufacturing equipment is an important\nelement in our effectively operating our business. We own and use several unique manufacturing machines, some of which are aging and sometimes\nmalfunction, causing disruptions and occasionally even cessation of our manufacturing activities, which adversely affects our business.\nAlthough we are currently implementing an investment plan to replace the majority of the aging machinery, it is possible that additional\nfunds will be required to repair or replace other production machinery, for which replacements or replacement parts may not be readily\navailable to us. Machinery failure could cause a cessation of our manufacturing activities for a significant period of time, which may\nhave a material adverse effect on our business, financial condition and results of operations.\n\n \n\nWhile the installation of new machinery is under way, it may take\nmore time than planned and have an adverse impact on our profitability. Furthermore, even after completion of the planned investments,\nwe will continue to be dependent on a limited number of machines, and a malfunction in any of these machines would halt production for\na period ranging from several days to several months.  In addition, we cannot be certain that we will be able to obtain insurance\ncoverage for the risk of mechanical breakdown of any of these machines, including coverage with respect to interruptions to our business.\n\n \n\nKey customers account for a significant portion\nof our revenues. The loss of a key customer would have an adverse impact on our financial results.\n\n \n\nIn the years ended December 31, 2025, 2024 and 2023, a group of\naffiliated companies accounted for 18.3%, 8.3% and 13.7% of our total revenues, respectively, and another group of affiliated companies\naccounted for 6.0%, 15.5% and 14.0% of our total revenues, respectively. We expect that a significant portion of our future revenues will\ncontinue to be dependent on a small number of customers. Many of our key customers operate under approved vendor list (AVL) frameworks,\nunder which suppliers are periodically evaluated based on performance criteria such as quality, delivery and reliability. During 2025,\nwe experienced certain shipment delays due to operational challenges we encountered in connection with the construction and installation\nof new equipment. These delays resulted in a temporary reduction in our AVL rating status with a customer. While this did not have a material\nimpact on the overall volume of orders received from this customer and its affiliates during the period, there can be no assurance that\nsimilar issues will not arise in the future or that our AVL ratings will not be adversely affected. If our standing with customers under\nsuch AVL frameworks were to decline, or if we are unable to maintain or improve our performance metrics, this could, over time, affect\nthe level of business we receive from such customers. In addition, if we are unable maintain our level of business with our key customers,\nor attract sufficient new business to offset any reduction, our results of operations and financial condition could be adversely affected.\n\n3\n\n \n\nWe are dependent upon a select number of suppliers\nfor timely delivery of key raw materials and the loss of one or more of these suppliers or delays in supply of these raw materials would\nadversely affect our manufacturing ability.  If these suppliers delay or discontinue the manufacture or supply of these raw materials,\nwe may experience delays in production and shipments, increased costs and cancellation of orders for our products.\n\n \n\nWe currently obtain our key raw materials from a select number\nof suppliers. We do not have long-term supply contracts with our suppliers and our principal suppliers may not continue to supply raw\nmaterials to us at current levels or at all. Any delays in delivery or shortages in these raw materials could interrupt and delay manufacturing\nof our products and may result in the cancellation of orders for our products.\n\n \n\nAs the majority of PCB manufacturing is centered in South-East\nAsia, raw material suppliers may focus their attention and give higher priority to manufacturers in those areas, which may interrupt the\nsupply of raw materials to us.  In addition, these suppliers could discontinue the manufacture or supply of these raw materials at\nany time. During the year ended December 31, 2025, our purchases from two (2) suppliers accounted for 22.6% and 12.4% of our total of\nconsolidated raw material costs, respectively. In the event such raw materials are not readily available to us, we may not be able to\nidentify and integrate alternative sources of supply in a timely fashion. Any transition to alternate suppliers may result in delays in\nproduction and shipment and increased expenses and may limit our ability to deliver products to our customers.\n\n \n\nIf a raw material or component supplier fails to satisfy our product\nquality standards, including standards relating to “conflict minerals” it could harm our customer relationships. Furthermore,\nif we are unable to identify an alternative source of supply, we may have to modify our products or a large portion of our production\nprocess to use a substitute raw material, which requires customers’ consent of use of such materials and which may cause delays\nin production and shipments, increased design and manufacturing costs and increased prices for our products.\n\n \n\nOur business insurance policies may become\nmore limited in scope and our premiums may increase. As a result, we may incur uninsured losses.\n\n \n\nThe coverage limits and scope of our insurance policies may not\nbe sufficient to cover future potential claims. The insurance coverage we may obtain may contain large deductibles or insufficient coverage\nor fail to cover certain risks or potential losses, including interruptions to our business resulting from mechanical breakdown of our\nmachinery. In addition, our insurance policies are subject to annual review by our insurers and may not be renewed on similar or favorable\nterms, including with respect to coverage, deductibles or premiums, or at all. If we suffer future machinery failure, fires or floods,\nor product liability claims, we may be unable to maintain adequate insurance at satisfactory rates, or at all. Such insurance claims could\nnegatively affect our manufacturing process and therefore, sales, or require a change in the design or manufacturing process, any of which\ncould harm our relationship with our customers and have a material adverse impact on our reputation and business, financial condition,\nresults of operations and prospects.\n\n \n\nOur insurance does not cover losses that may occur as a result\nof an event associated with the security situation in the Middle East or for any resulting disruption in our operations. Although the\nIsraeli government has in the past covered the reinstatement value of direct damages that were caused by terrorist attacks or acts of\nwar, we cannot be assured that this government coverage will be maintained or, if maintained, will be sufficient to compensate us fully\nfor damages incurred and the government may cease providing such coverage or the coverage might not suffice to cover potential damages.\nAny losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability\nin the region would likely negatively affect business conditions generally and could harm our results of operations.\n\n4\n\n \n\nWe are subject to environmental laws and regulations.\nCompliance with those laws and regulations requires us to incur costs and we are subject to fines or other sanctions for non-compliance.\n\n \n\nOur operations are regulated under various environmental laws and\nregulations that govern, among other things, the discharge of hazardous materials to the environment, as well as the handling, storage\nand disposal of such materials.  Compliance with these laws and regulations is a major consideration for PCB manufacturers because\nmetals and chemicals classified as hazardous substances are used in the manufacturing process.  Since May 2003, our environmental\nmanagement system has been ISO 14001 certified. This certification was based on successful implementation of environmental management\nrequirements and includes ongoing monitoring of our processes, raw materials and products. The certification is subject to periodic compliance\naudits conducted by the Standards Institution of Israel. If, in the future, we are found to be in violation of environmental laws or regulations,\nwe could be liable for damages, costs of remedial actions, may be subject to criminal prosecution including a range of potential penalties,\nand could also be subject to administrative fines and revocation of permits necessary to conduct our business or any part thereof. \nAny such liability or revocation could have a material adverse effect on our business, financial condition and results of operations.\nEnvironmental laws could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated\nwith a violation, including, inter alia, in view of the Integrated Environmental Permitting Reform, that is entering into force gradually,\nwhich is based on consolidating the air emissions permit, the poison permit, and the additional conditions for the business license issued\nby the Ministry of Environmental Protection into a single consolidated permit, and aligning the regulation with the European standard.\n\n \n\nThe cost of compliance with environmental laws and regulations\ndepends in part on the requirements of such laws and regulations and on the method selected to implement them.  If new or more restrictive\nstandards are imposed, the cost of compliance could be very high and have an adverse impact on our revenues and results of operations\nif we cannot recover those costs through the rates that we charge our customers.\n\n \n\nOur customers are also required to comply with various government\nregulations, legal requirements and industry standards, including many of the industry-specific regulations discussed above.  Our\ncustomers’ failure to comply could affect their businesses, which in turn would affect our sales to them.  In addition, if\nour customers are required by regulation or other requirements to make changes in their product lines, these changes could significantly\ndisrupt particular programs for these customers and create inefficiencies in our business.\n\n \n\nOur products and related manufacturing processes\nare often highly complex and therefore our deliveries may  be delayed. Our products may at times contain manufacturing defects, which\nmay subject us to product liability and warranty claims.\n\n \n\nOur business involves highly complex manufacturing processes that are subject to periodic\nfailure.  Process failures have occurred in the past and have resulted in delays in product shipments, and process failures may occur\nin the future.  Furthermore, we face an inherent business risk of exposure to warranty and product liability claims, which are likely\nto be substantial in light of the use of our products in business-critical applications.  Our products may fail to perform as expected\nor may be alleged to result in bodily injury or property damage. If we were to manufacture and deliver products to our customers that\ncontain defects, whether caused by a design, manufacturing or component failure, or by deficiencies in the manufacturing processes, it\nmay result in delayed shipments to customers and reduced or cancelled customer orders.  In addition, if any of our products are or\nare alleged to be defective, we may be required to participate in a recall of such products. Over the years we have been involved in claims\nor litigation relating to allegedly defective products. A successful warranty or product liability claim against us in excess of our established\nwarranty and legal reserves or available insurance coverage, or a requirement that we participate in a product recall may have a material\nadverse effect on our business, financial condition, results of operations or cash flows and may harm our business reputation, which could\nlead to customer cancellations or non-renewals.\n\n \n\nWe are affected by the growing demand for AI\nservices, which have caused shortages of raw materials and may adversely affect our operations and profitability.\n\n \n\nWe are currently experiencing a significant shortage in the supply\nof rigid laminates and prepreg (a composite material consisting of reinforcing fibers (carbon, glass, or aramid) pre-impregnated with\na thermoplastic or thermoset resin matrix) based on electronics grade glass fibers, which are critical raw materials in our manufacturing\nprocesses. This shortage has resulted in suppliers imposing monthly allocation limits, restricting the quantities available to us. In\naddition, prices have increased significantly and have become highly volatile and unpredictable.\n\n5\n\n \n\nThe shortage is primarily driven by a sharp increase in global\ndemand for electronics grade glass fibers, including demand associated with artificial intelligence (AI) infrastructure, such as data\ncenters and related technologies, which require substantial quantities of composite and insulation materials. As a result, competition\nfor available supply has intensified.\n\n \n\nIf these supply constraints persist or worsen, we may be unable\nto procure sufficient quantities of raw materials on commercially reasonable terms, or at all. This could disrupt our production schedules,\ndelay customer deliveries, increase our cost of goods sold, and negatively impact our margins and results of operations. Furthermore,\nwe may not be able to fully pass increased raw material costs on to our customers, which could further adversely affect our profitability.\n\n \n\nAlthough we are actively seeking alternative suppliers and implementing\nmitigation measures, there can be no assurance that such efforts will fully offset the impact of the current shortage.\n\n \n\nBreaches of network or information\ntechnology security, natural disasters or terrorist attacks could have an adverse effect on our\nbusiness.\n\n \n\nCyber-attacks or other breaches of network or IT security, natural\ndisasters, terrorist acts or acts of war may cause equipment failures or disrupt our systems and operations. We have been subject, and\nwill likely continue to be subject, to attempts to breach the security of our networks and Information Technology, or IT, infrastructure\nand our products and services through cyber-attack, malware, computer viruses and other means of unauthorized access, which could also\nimpact the operation of our products and services. Our inability to operate our facilities as a result of such events, even for a limited\nperiod of time, may result in significant expenses or loss of market share to other competitors in the global PCB industry. In addition,\na failure to protect the privacy of customer and employee confidential data against breaches of network or IT security could result in\ndamage to our reputation. In response to past threats and attacks, we have implemented further controls and taken preventive actions.\nWe also plan to further strengthen our IT infrastructure against future attacks. However, we cannot assure that such measures will provide\nabsolute security, that we will be able to react in a timely manner in the future, or that our remediation efforts following past or future\nattacks will be successful. Consequently, our financial performance and results of operations would be materially adversely affected.\n\n \n\nWe may require additional capital in the future, which\nmay not be available to us.\n\n \n\nAs of December 31, 2025, we had $12.1 million in cash and cash\nequivalents and short-term bank deposits and working capital of 25.0 million. The lack of sufficient working capital in the future could\nnegatively impact our ability to compete effectively in the future or to expand our production facilities, including with respect to our\ninvestment plans. To the extent that we incur operating losses in the future or are unable to generate free cash flows from our business,\nwe may not have sufficient working capital to fund our operations and will be required to obtain additional financing. Our working capital\nrequirements and cash flow provided by our operating and financing activities are likely to vary greatly from quarter to quarter, depending\non the following factors: (i) the timing of orders and deliveries; (ii) net profit in the period; (iii) the purchase of new equipment;\n(iv) the build‑up of inventories; (v) the payment terms offered to our customers; (vi) the payment terms offered by our suppliers;\nand (vii) ability to obtain additional lines of credit and long-term loans from banks and other lenders. The lack of sufficient working\ncapital could negatively impact our ability to compete effectively in the future.\n\n \n\nAs of December 31, 2025, we did not have any outstanding long-term\nloans from banks and had unutilized revolving lines of credit aggregating NIS 8.7 million (approximately $2.7 million). These credit facilities\nmay not remain available to us in the future. All of our assets are pledged as security for our liabilities to our banks, whose consents\nare required for any future pledge of such assets.\n\n \n\nBecause competition in the PCB market is intense,\nour business, operating results and financial condition may be adversely affected.\n\n \n\nThe global PCB industry is highly fragmented and intensely competitive.\nIt is characterized by rapidly changing technology, frequent new product introductions and rapidly changing customer requirements. We\ncompete principally in the market for complex, flex-rigid and rigid multi-layer PCBs.  In the Israeli market we mainly compete with\nPCB Technologies Ltd. and major international PCB exporters, mainly from South Korea, India Europe and North America.\n\n6\n\n \n\nWe have numerous competitors in the European and North American\nmarkets. Many of these competitors have significantly greater financial and marketing resources than us. Our current competition in the\nrigid PCB segment is mainly from PCB manufacturers in Asia (mainly in China, South Korea, India and Thailand), which have substantially\nlower production costs than us. Continued competitive pressure could cause us to lose significant market share.\n\n \n\nIn addition, these competitors may respond more quickly to new\nor emerging technologies or adapt more quickly to changes in customer requirements than we do. We must continually develop improved manufacturing\nprocesses to meet our customers’ needs for complex products, and our manufacturing process technology is generally not subject to\nsignificant proprietary protection. During recessionary periods in the electronics industry, our strategy of providing quick-turn services,\nan integrated manufacturing solution, and responsive customer service may take on reduced importance to our customers. As a result, we\nmay need to compete more on the basis of price, which would cause our gross margins to decline.\n\n \n\nOur results of operations may be adversely affected by currency\nfluctuations.\n\n \n\nOur revenues and expenses are denominated in NIS, US dollars and\nEuros. Due to the different proportions of currencies our revenues and expenses are denominated in, fluctuations in rates of exchange\nbetween NIS and other currencies may affect our operating results and financial condition. The NIS value of our dollar and euro denominated\nrevenues are negatively impacted when these currencies depreciate against the NIS. The average exchange rate for the NIS against the dollar\nwas approximately 7% lower in 2025 than in 2024, which had a material impact on our operating results in 2025. Because our financial statements\nare presented in U.S. dollars, a depreciation of the dollar against the NIS increases the dollar-reported amount of our NIS-denominated\nexpenses, even when those expenses remain unchanged in NIS terms, which could adversely affect our reported results.\n\n \n\nWe currently do not engage in hedging transactions. If we were to decide to enter\ninto any hedging transactions in the future in order to protect ourselves in part from currency fluctuations, we may not be successful\nin our hedging efforts, or such transactions, if entered into, may not materially reduce the effect of foreign currency exchange rate\nfluctuations on our results of operations. Such hedging transactions may not necessarily mitigate the longer-term impact of currency fluctuations\non the operating costs of our business operations and may result in additional expenses.\n\n \n\nChanges in international trade policies, tariffs,\nand geopolitical tensions may adversely affect our business, competitiveness and supply chain.\n\n \n\nOur business is affected by global trade policies, tariffs, export\ncontrols and other governmental actions that impact international commerce. Changes in trade regulations, including the imposition or\nincrease of tariffs, duties or other trade restrictions by the United States, the European Union, Israel or other jurisdictions, could\nincrease the cost of raw materials, components or equipment used in our manufacturing processes. Such measures could also increase the\ncost of our products in certain markets, which may reduce our competitiveness compared to local manufacturers or suppliers operating in\njurisdictions not subject to the same trade restrictions.\n\n \n\nIn addition, tariffs or other trade barriers imposed by countries\nin which our customers operate could make our products less competitive relative to domestically manufactured alternatives. These developments\ncould result in reduced demand for our products, pressure on our pricing, or the need for us to absorb additional costs in order to remain\ncompetitive.\n\n \n\nGeopolitical tensions and changes in global economic or security\ndynamics may also encourage governments to promote or subsidize the development of local manufacturing capabilities, including in the\nprinted circuit board (PCB) industry and related advanced electronics sectors. Such initiatives may include government incentives, subsidies,\nregulatory preferences or procurement policies designed to support domestic manufacturers. If countries in which we operate or sell our\nproducts expand support for local PCB manufacturing, our ability to compete in those markets could be adversely affected. Furthermore,\ngeopolitical conflicts, trade disputes, sanctions regimes or other political developments could disrupt global supply chains, restrict\naccess to certain markets, delay shipments or increase the cost and lead time of raw materials and components that we rely on in our manufacturing\nprocesses.\n\n \n\nAny of the foregoing developments could adversely affect our business,\nfinancial condition, results of operations and competitive position.\n\n7\n\n \n\nWe have in the past been, and currently are,\nsubject to claims and litigation relating to environmental matters.  If we are found to be in violation of environmental laws, we\nmight be liable for damages and costs of remediation and may be subject to criminal or administrative proceedings, including a halt in\nproduction, which may adversely affect our business, operating results and financial condition.\n\n \n\nWe have in the past been, and currently are, subject to claims\nand litigation relating to environmental matters.  We may be subject to further environmental claims alleging that we are in violation\nof environmental laws. If we are unsuccessful in such claims and other future claims and litigations or if actual results are not consistent\nwith our assumptions and judgments, we may be exposed to losses that could be material to our company.\n\n \n\nIn July 2022, we received a notification from the Israeli Ministry\nof Environmental Protection about its intention to impose a penalty of approximately $0.1 million for an alleged breach of the Hazardous\nMaterials Law (1993). We submitted a response to the notification and asked that the penalty be reduced by 40%. In June 2023, the Ministry\nof Environmental Protection decided to partially accept our request and reduced 20% of the amount of the financial sanction. We paid the\npenalty following the reduction.\n\n \n\nIn January 2023, we received a notification from the Ministry of\nEnvironmental Protection that it intends to impose a penalty of approximately $0.6 million for an alleged breach of the Clean Air Law\nduring the years 2019-2020. We have paid this penalty and recorded a relevant expense in our financial statements. We filed an administrative\nappeal to reduce the penalty and to obtain a refund for part of the penalty we paid. In February 2024, the court hearing the administrative\npetition ruled that we should receive a refund of 10% of the amount of the penalty we paid. Such refund was received and recorded.\n\n \n\nIn October 2023, we received a notice from the Ministry regarding\nsome suspicion of contamination of the soil from a drilling survey that was performed in May 2021 at the factory. On January 24, 2024,\nrepresentatives of the Ministry visited our facility and informed us that an additional survey of the soil and groundwater in the facility\narea would be required. In June 2025, we received a request from the Water Authority to carry out a preliminary investigation of the groundwater\nat the facility. We submitted our proposed investigation plan, which has been approved, and is expected to carried out in the coming months,\nwe are still in discussions with the Ministry regarding the need for and scope of a soil survey. We expect to hold a formal meeting with\nthe Ministry on this matter, particularly as the facility’s poison permit includes instructions on the subject, including applicable\ndeadlines.\n\n \n\nIn February 2026, we received a summons for a hearing from representatives\nof the Ministry of Environmental Protection in connection with two hazardous materials incidents that occurred during 2025. The hearing\nis scheduled to take place in April 2026. We are unable to assess the outcome of this hearing.\n\n \n\nIf we are found to be in violation of environmental laws, we could\nbe liable, in addition to fines, for damages, costs of remedial actions and a range of potential penalties, and could also be subject\nto a shutdown of our factory. Such sanctions could have a material adverse effect on our business, financial condition and results of\noperations.\n\n \n\nIncreased regulation associated with climate\nchange and greenhouse gas emissions, as well as increasing could impose significant additional costs on operations.\n\n \n\nVarious governments and governmental agencies have adopted or are\ncontemplating statutory and regulatory changes in response to the potential impacts of climate change and emissions of greenhouse gases.\nInternational treaties or agreements may also result in increasing regulation of climate change and greenhouse gas emissions, including\nthe introduction of greenhouse gas emissions trading mechanisms. Any such law or regulation regarding climate change and greenhouse gas\nemissions could impose significant costs on our operations and on the operations of our customers and suppliers, including increased energy,\ncapital equipment, environmental monitoring, reporting and other compliance costs. The potential costs of “allowances,” “offsets”\nor “credits” that may be part of potential cap-and-trade programs or similar proposed regulatory measures are still uncertain.\nAny adopted future climate change and greenhouse gas laws or regulations could negatively impact our ability, and that of our customers\nand suppliers, to compete with companies situated in areas not subject to such laws or regulations. These statutory and regulatory initiatives,\nif enacted, may impact our operations directly or indirectly through our suppliers or customers.  Until the timing, scope and extent\nof any future law or regulation becomes known, we cannot predict the effect on our business, financial condition, results of operations\nor cash flows.\n\n8\n\n \n\nRapid changes in the electronics industry and\nrecessionary pressures may adversely affect our business.\n\n \n\nOur principal customers include manufacturers of defense and aerospace,\nmedical, industrial, telecom and networking equipment, as well as contract electronic manufacturers. The electronics industry is subject\nto rapid technological changes and products obsolescence. Discontinuance or modification of products containing PCBs manufactured by our\ncompany could have a material adverse effect on us. In addition, the electronics industry is subject to sharp economic cycles. Increased\nor excess production capacity by our competitors in the PCB industry and recessionary pressure in major electronics industry segments\nmay result in intensified price competition and reduced margins.  As a result, our financial condition and results of operations\nmay be adversely affected. A decline in the Israeli and international electronic markets may cause a decline in our revenues and adversely\naffect our operating results and financial condition in the future.\n\n \n\nWe may not succeed in our efforts to further\nexpand our activity in the U.S. and other foreign markets, including as a result of the “tariffs wars”.  If we are unsuccessful,\nour future revenues and profitability would be adversely affected.\n\n \n\nOur business plan assumes an increase in revenues from the U.S.\nand other markets.  However, our efforts to increase sales to such markets may not succeed. Sales to the medical, defense and aerospace\nindustries may be affected by several factors, including the new U.S. tariffs on PCB imports. United States tariff rates on\nthese imports can range from 10 percent to higher levels. We expect that increases in tariffs will increase the Company’s cost of\nsales, although their timing and precise effects are unpredictable. In particular, if the additional reciprocal tariffs go into effect,\nthe Company will incur substantial additional increases in its cost of sales, and sales volumes into the United States would likely decline. Moreover,\ndue to market trends, more and more Western counties aim to build and sustain local PCB manufacturing capabilities in an effort to refrain\nfrom complete reliance on import. This could lead to reduced interest in our products.\n\n \n\nIn order to sell PCBs to the U.S. defense market we were required\nto obtain International Traffic in Arms Regulations (ITAR) registration from the U.S. Department of State, which is subject to periodic\nextension. There can be no assurance that we will be able to retain our ITAR certification. In the event of a change in control of our\ncompany, the U.S. Department of State may investigate the transfer of control and oppose the transaction. The loss of our ITAR certification\ncould adversely affect our future revenues and profitability.\n\n \n\nWe may become subject to the requirements of\nthe National Industrial Security Program Operating Manual for our facility security clearance, which is a prerequisite to our ability\nto work on classified contracts for the U.S. government.\n\n \n\nA facility security clearance is required in order to be awarded\nand perform classified contracts for the U.S. Department of Defense, or the Department of War, and certain other agencies of the U.S.\ngovernment. To become a cleared entity, we must comply with the requirements of the National Industrial Security Program Operating Manual,\nor the NISPOM, and any other applicable U.S. government industrial security regulations. Further, due to the fact that a significant portion\nof our voting equity is owned by a non-U.S. entity, we are required to be governed by and operate in accordance with the terms and requirements\nof a Special Security Agreement, or the SSA.\n\n \n\nIf we were to violate the terms and requirements of the SSA, the\nNISPOM, or any other applicable U.S. government industrial security regulations (which may apply to us under the terms of classified contracts),\nwe could lose our security clearance. We cannot be certain that we will be able to maintain our security clearance. If for some reason\nour security clearance is invalidated or terminated, we may not be able to continue to perform on classified contracts and would not be\nable to enter into new classified contracts, which could materially adversely affect our business, financial condition, and results of\noperations.\n\n9\n\n \n\nOur governance, risk management and compliance\nprocesses may fail to detect violations of anti-corruption and anti-money laundering laws and our standards of ethics, including as a\nresult of the conduct of our managers, employees, suppliers, business partners and third parties who act in our name, interest or benefit,\nwhich may have a material and adverse impact on our business, financial condition, results of operations, reputation and market price\nof our ordinary shares.\n\n \n\nWe operate in jurisdictions that have a low to medium risk of corruption\naccording to the Corruption Perception Index from Transparency International. Mechanisms for preventing and combating bribery and corruption,\nmoney laundering, governance procedures, as well as our current internal procedures, may not be sufficient to ensure that all of our managers,\nemployees, suppliers, business partners and third parties who act on our behalf, interest or benefit always act in strict compliance with\nour internal policies and laws and regulations aimed at preventing and combating corruption that we are subject to. These laws and regulations\ninclude the United States Foreign Corrupt Practices Act of 1977, as amended, the United States Foreign Extortion Prevention Act of 2023,\nand the Bribery Act 2010 of the United Kingdom, as well as other standards related to the Convention on Combating Corruption of Foreign\nPublic Officials in International Business Transactions of the Organization for Economic Cooperation and Development - OECD, (collectively,\n“Anti-Corruption Laws”).\n\n \n\nIn general, the Anti-Corruption Laws prohibit companies and their\nemployees, shareholders or managers from making improper payments to government officials, directly or indirectly, for the purpose of\nobtaining or retaining business and/or other benefits. We cannot guarantee that our direct and indirect shareholders, directors, officers,\nemployees and other third parties (including agents, suppliers and service providers) and the companies to which some business operations\nare outsourced will fully comply with the Anti-Corruption Laws and related policies. Our governance, policies, risk management and compliance\nprocesses may not be able to, for example: (i) detect, prevent or respond to violations of the Anti-Corruption Laws or similar legislation,\nas well as violations of our internal compliance policies; (ii) detect, prevent or respond to occurrences of fraudulent and dishonest\nbehavior by our managers, employees, suppliers, customers, business partners or third parties acting on our behalf, interest or benefit;\n(iii) manage all risks identified in our risk management matrix and/or predict, identify or mitigate new risks; and (iv) detect, prevent\nor respond to other occurrences of behavior inconsistent with ethical and moral principles, which may materially and adversely affect\nour reputation, our business, financial conditions and operating results, as well as impact the market price of our Securities negatively.\nPublic authorities are empowered to impose penalties on us if acts of corruption are inadvertently or intentionally committed by members\nof our management, employees and/or third parties acting on our behalf or in our interest. Under the terms of certain Anti-Corruption\nLaws, companies may be jointly and severally liable for the payment of a fine and full compensation for damage for unethical practices\nattributed to their affiliates and consortia members. As a result, we may be held liable for any such violations.\n\n \n\nAs we increase and scale our business, we may engage with new business\npartners and third-party intermediaries to market our products and services and obtain necessary permits, licenses and other regulatory\napprovals. In addition, we or our third-party intermediaries may have direct or indirect interactions with officials and employees of\ngovernment agencies or state-owned or affiliated entities. We can be held liable for the corrupt or other illegal activities of these\nthird-party intermediaries, our employees, representatives, contractors, customers and agents, even if we do not authorize such activities.\n\n \n\nThe existence of any current or past investigations, inquiries\nor proceedings of an administrative or judicial nature related to the violation of the Anti-Corruption Laws, against us, our managers,\nemployees, suppliers, business partners or third parties acting on our behalf, interest or benefit may result in: (i) fines and indemnities\nin the administrative, civil and criminal spheres (the latter, to the administrators who contributed to the infraction); (ii) loss of\nunlawfully obtained benefits, including operating licenses; (iii) prohibition or suspension of our activities; and/or (iv) loss of rights\nto contract with the public administration, to receive incentives or tax benefits from any financing and resources from the public administration,\namong other applicable penalties. We may also be jointly and severally liable for the payment of a fine and full compensation for the\ndamage due to practices contrary to the Anti-Corruption Laws caused by our controlling, controlled, affiliated or, under the respective\ncontract, consortium companies, which could materially and adversely affect our reputation, business, financial condition and operating\nresults, as well as impact the market price of our Securities negatively.\n\n \n\nAll of these circumstances could have a material adverse effect\non us. Therefore, if we are not able to keep the governance, risk management and compliance processes operating effectively, we may not\nbe able to prevent the occurrence of fraud and/or the occurrence of other deviations, including in relation to the preparation of statements\nand accounting information.\n\n10\n\n \n\nThe existence of lawsuits, procedures, investigations, convictions,\npublications or negative comments in any media vehicle or social network involving us, our direct or indirect shareholders and subsidiaries,\nour business, our operations, executive officers, members of our Board, or any third party acting on our behalf, interest or benefit,\ncould seriously damage our reputation. The reputational risk arising from the negative perception of our brand by customers, counterparties,\nshareholders, subsidiaries, investors, regulators and society in general for involvement in any of the above cases can originate from\nseveral factors, including those related to non-compliance with legal obligations, inappropriate business practices related to our customers,\nproducts and services, relationships with partners with questionable ethical posture, employee misconduct, information leakage, anti-competitive\npractices, failures in the risk management process, among others.\n\n \n\nAny such damage to our reputation and imposition of sanctions or\nother penalties may adversely affect our business, financial condition and results of operations, as well as the market price of our ordinary\nshares.\n\n \n\nWe may encounter difficulties with our international\noperations and sales that may have a material adverse effect on our sales and profitability.\n\n \n\nContracts with U.S. military agencies, as well as military equipment\nmanufacturers in Europe, are subject to certain regulatory restrictions and approvals, which we may not be able to comply with or obtain.\nWe may not be able to maintain or increase international market demand for our products.  To the extent that we cannot do so, our\nbusiness, operating results and financial condition may be adversely affected.\n\n \n\nInternational operations are subject to inherent risks, including the following:\n\n \n\n•\n\nthe impact of possible recessionary environments or economic instability in multiple foreign markets;\n\n \n\n•\n\nchanges in regulatory requirements and complying with a wide variety of foreign laws;\n\n \n\n•\n\ntariffs and other trade barriers;\n\n \n\n•\n\nthe imposition of exchange or price controls or other restrictions on the conversion of foreign currencies; and\n\n \n\n•\n\ndifficulties and costs of staffing and managing foreign operations.\n\n \n\nSignificant political developments could also have a materially\nadverse effect on us. In the United States, potential or actual changes in fiscal, defense appropriations, tax and labor policies could\nhave uncertain and unexpected consequences that materially impact our business, results of operations and financial condition.\n\n \n\nDamage to our manufacturing facilities due\nto fire, natural disaster, or other events could materially adversely affect our business, financial condition, insurance premiums and\nresults of operations.\n\n \n\nAll of our manufacturing is conducted in our headquarters building\nin Israel. The destruction or closure of our facility for a significant period of time as a result of fire, explosion, act of war or terrorism,\nflood, tornado, earthquake, lightning, other natural disasters, required maintenance, or other events could harm us financially, increasing\nour costs of doing business and limiting our ability to deliver our manufacturing services on a timely basis.\n\n \n\nOur insurance coverage with respect to damage to our facility or our customers’\nproducts caused by natural disasters is limited and is subject to deductibles and coverage limits. Such coverage may not be adequate or\ncontinue to be available at commercially reasonable rates and terms. In addition, our insurance premiums have risen due to recent events.\n\n \n\nIn the event our facility is closed on a temporary or permanent\nbasis as a result of a natural disaster, required maintenance or other event, our operations could be significantly disrupted. Such events\ncould delay or prevent product manufacturing and shipment for the time required to transfer production or repair, rebuild or replace the\naffected manufacturing facilities. This time frame could be lengthy and result in significant expenses for repair and related costs. While\nwe have disaster recovery plans in place, there can be no assurance that such plans will be sufficient to allow our operations to continue\nin the event of disaster, required repair or other extraordinary event. Any extended inability to continue our operations at unaffected\nfacilities following such an event would reduce our revenue and potentially damage our reputation as a reliable supplier.\n\n11\n\n \n\nOutbreaks of epidemic and pandemic diseases\nand any relevant governmental responses thereto could adversely affect our business, operating results, or financial condition.\n\n \n\nGlobal public health threats, such as COVID-19, influenza and other\nhighly communicable diseases or viruses, outbreaks which have from time to time occurred in various parts of the world, could disrupt\nglobal financial markets and economic conditions and adversely impact our operations.\n\n \n\nFor example, restrictions and future prevention and mitigation\nmeasures against outbreaks of epidemic and pandemic diseases, such as travel restrictions and temporarily closing business, are likely\nto have an adverse impact on global economic conditions, which could materially and adversely affect our future operations. As a result\nof such measures, we may experience severe operational disruptions and delays, and disruptions in the supply chain, among other potential\nconsequences attendant to epidemic and pandemic diseases.\n\n \n\nIn particular, we may be required to limit the number of employees\nworking based on our physical space.\n\n \n\nUnlike other industries, as a manufacturer of physical products,\nwe cannot rely on our main workforce to be working from home. In the past, Israel and other countries enforced quarantines and shutdowns.\nWe continue to monitor public health developments and related impacts on all aspects of our business and geographies, including our workforce,\nsupply chain and customers.\n\n \n\nOur quarterly operating results fluctuate significantly.\nResults of operations in any period should not be considered indicative of the results to be expected for any future period.\n\n \n\nOur quarterly operating results have fluctuated significantly in\nthe past and are likely to fluctuate significantly in the future.  Our future operating results will depend on many factors, including\n(but not limited to) the following:\n\n \n\n•\n\nthe size and timing of significant orders and their fulfillment;\n\n \n\n•\n\ndemand for our products and the mix of products purchased by our customers;\n\n \n\n•\n\ncompetition from lower priced manufacturers;\n\n \n\n•\n\nfluctuations in foreign currency exchange rates, primarily the NIS against the Dollar and the Euro;\n\n \n\n•\n\nmanufacturing yield;\n\n \n\n•\n\nplant utilization;\n\n \n\n•\n\navailability of raw materials;\n\n \n\n•\n\nplant or line shutdowns to repair or replace malfunctioning manufacturing equipment;\n\n \n\n•\n\nthe length of our sales cycles;\n\n \n\n•\n\nchanges in our strategy;\n\n \n\n•\n\nthe number of working days in the quarter;\n\n \n\n•\n\nchanges in seasonal trends; and\n\n \n\n•\n\ngeneral domestic and international economic and political conditions.\n\n \n\nDue to the foregoing factors, quarterly revenues and operating\nresults are difficult to forecast, and it is likely that there will be significant differences between the results from one quarter to\nanother.\n\n \n\nQuarterly sales and operating results are also difficult to forecast\nbecause they are dependent almost exclusively on the volume and timing of orders during the quarter and our customers generally operate\nwith a short delivery cycle and expect delivery of a significant portion of the order within 30 working days.  The delivery of such\norders is subject to the number of available working days during the quarter, which can fluctuate significantly from quarter to quarter\ndue to holidays and vacations. Certain prototype and pre-production runs require even shorter turn-around times stemming from customers’\nproduct launches and design changes. In addition, there might be sudden increases, decreases or cancellations of orders for which there\nare commitments, which further characterize the electronics industry and the companies that operate in it. The industry practice is to\nmake such changes without any penalties, except for the time and materials expended on the order.\n\n12\n\n \n\nOur expenses are, in significant part, relatively fixed. If revenue\nlevels fall below expectations, our net income is likely to be disproportionately adversely affected because a proportionately smaller\namount of the expenses varies with our revenues.  An ongoing pattern of cancellations, reductions in orders and delays could have\na material adverse effect on our results of operations. Due to all of the foregoing, it is very difficult to predict revenues for any\nfuture quarter with any significant degree of accuracy. Accordingly, we believe that period-to-period comparisons of our operating results\nare not necessarily meaningful and should not be relied upon as indications of future performance.\n\n \n\nOur products and product components need to\nmeet certain industry standards.\n\n \n\nOur products and product components need to meet certain standards\nfor the aerospace, defense, and other industries to which we market our products.  In addition, new industry standards in the aviation\nand defense industries could cause some or all of our products and services to become obsolete and unmarketable, which would adversely\naffect our results of operations.  Noncompliance with any of these standards could limit our sales and adversely affect our business,\nfinancial condition, and results of operations.\n\n \n\nOur operating margins may be affected as a\nresult of price increases for our principal raw materials.\n\n \n\nIn recent years, our suppliers have increased their prices for\nmost of our principal raw materials. We have faced pressure to raise our prices for our products to compensate for supplier price increases\nin order to maintain our operating margins, which we may not be able to achieve due to the competitive market. Furthermore, our existing\nsuppliers or new suppliers or sources of materials may pass the increase in sourcing costs due to the coronavirus outbreak to us through\nprice increases, thereby impacting our margins. Material changes in the pricing practices of our suppliers could negatively impact our\nprofitability. Additional price increases for our principal raw materials may materially affect our operating margins and future profitability.\n\n \n\nWe compete with PCB manufacturers in Asia whose\nmanufacturing costs are lower than ours.\n\n \n\nIn recent years, many electronics manufacturers have moved their\ncommercial production to Asia to take advantage of its exceptionally large, relatively low-cost labor pool. The continued outsourcing\nof production to Asia is likely to result in additional commercial market share potential for PCB manufacturers with a strong presence\nand reputation in such markets. Accordingly, we will need to compete with PCB manufacturers whose costs of production may be substantially\nlower than ours. This competition may limit our ability to price our products profitably, which could significantly harm our financial\ncondition and results of operations. In addition, we distinguish ourselves by focusing on developing cutting edge technologies for high-end\nproducts, in order to serve our sophisticated defense, aerospace and medical customers. This may limit our ability to reach certain clientele\nthat demand lower-end products in order to reduce their costs.\n\n \n\nOur enterprise resource planning system is\nno longer being fully supported by its developer and the hardware on which it runs may not be supported in the future. The failure\nof such system before we transition to a new system may adversely affect our business and results of operations and the effectiveness\nof our internal control over financial reporting.\n\n \n\nOur current enterprise resource planning system (“ERP”)\nis designed to improve the efficiency of our supply chain and financial transaction processes, accurately maintain our books and records,\nand provide information important to the operation of the business to our management team. Our system is no longer being fully supported\nby its developer and the hardware on which the ERP runs and the operating system of the hardware are at high risk of not being supported\nin the near future. We started the process of replacing our ERP system; however, it will take at least 18 months until such new system\nwill be operative. Any significant disruption or deficiency in our ERP could have a material adverse effect on our ability to fulfill\nand invoice customer orders, apply receipts, place purchase orders with suppliers, and make disbursements, and could negatively impact\ndata processing and electronic communications among business locations, which may have a material adverse effect on our business, consolidated\nfinancial condition or results of operations.\n\n13\n\n \n\nWe may fail to maintain effective internal\ncontrol over our  financial reporting which could have a material adverse effect on our operating results, investor confidence in\nour reported financial information, and the market price of our ordinary shares.\n\n \n\nOur efforts to comply with the requirements of Section 404 of the\nSarbanes-Oxley Act of 2002, governing internal control and procedures for financial reporting have resulted in increased general and administrative\nexpenses and a diversion of management time and attention, and we expect these efforts to require the continued commitment of significant\nresources. We may identify material weaknesses or significant deficiencies in our assessments of our internal control over financial reporting.\nFailure to maintain effective internal control over financial reporting could result in investigations or sanctions by regulatory authorities,\nand could have a material adverse effect on our operating results, investor confidence in our reported financial information, and the\nmarket price of our ordinary shares.\n\nTechnological change may adversely affect the\nmarket acceptance of our products.\n\n \n\nTechnological change in the PCB industry is rapid and continual.\nTo satisfy customers’ needs for increasingly complex products, PCB manufacturers must continue to develop improved manufacturing\nprocesses, provide innovative solutions and invest in new facilities and equipment. To the extent we determine that new technologies and\nequipment are required to remain competitive, the development, acquisition and implementation of such technologies and equipment are likely\nto require significant capital investment.  We expect that we will need to invest large amounts in the next few years to replace\nor refurbish old equipment and to remain competitive in the market. This capital may not be available to us in the future for such purposes\nand any new manufacturing processes developed by us may not become or remain commercially viable. As a result, we may not be able to maintain\nour current technological position. Furthermore, the PCB industry may in the future encounter competition from new technologies that may\nreduce demand for PCBs or may render existing technology less competitive or obsolete. Our future process development efforts may not\nbe successful or the emergence of new technologies, industry standards or customer requirements may render our technology, equipment or\nprocesses obsolete or uncompetitive.\n\n \n\nThe measures we take in order to protect our\nintellectual property may not be effective or sufficient.\n\n \n\nOur success depends in part on our proprietary techniques and manufacturing\nexpertise, particularly in the area of complex multi-layer and flex-rigid PCBs. We currently rely on a combination of trade secrets, copyright\nand trademark law, together with non-disclosure and invention assignment agreements, to establish and protect the proprietary rights and\ntechnology used in our products. Like many companies in the PCB industry, we currently do not hold any patents.  We believe that,\nbecause of the rapid pace of technological change in the electronics industry, the legal protections for our products are less significant\nfactors in our success than the knowledge, ability and experience of our employees, the frequency of product enhancements and the timeliness\nand quality of support services that we provide.\n\n \n\nWe generally enter into confidentiality agreements with our employees,\nconsultants, customers and potential customers and limit the access to and the distribution of our proprietary information. Despite these\nprecautions, it may be possible for a third party to copy or otherwise obtain and use our technology without authorization, or to develop\nsimilar technology independently.  Further, the laws of certain countries in which we sell our products do not protect our intellectual\nproperty rights to the same extent as do the laws of the United States. Substantial unauthorized use of our products could have a material\nadverse effect on our business. We cannot make assurances that our means of protecting our proprietary rights will be adequate or that\nour competitors will not independently develop similar technology.\n\n \n\nClaims that our products infringe upon the\nintellectual property of third parties may require us to incur significant costs.\n\n \n\nWhile we do not believe that our products (which are produced based\non specifications provided by our customers) and proprietary rights infringe upon the proprietary rights of others, third parties may\nassert infringement claims against us or claims that we have violated a patent or infringed on a copyright, trademark or other proprietary\nright belonging to them, whether directly against us or as a result of an infringement claim against any of our customers. Any infringement\nclaim, even one without merit, could result in the expenditure of significant financial and managerial resources to defend against the\nclaim. Moreover, a successful claim of product infringement against us or a settlement could require us to pay substantial amounts or\nobtain a license to continue to use the technology that is the subject of the claim, or otherwise restrict or prohibit our use of the\ntechnology. We might not be able to obtain a license from the third party asserting the claim on commercially reasonable terms, if at\nall. We also may not be able to obtain a license from another provider of suitable alternative technology to permit us to continue offering\nthe product. Infringement claims asserted against us could have a material adverse effect on our business, operating results and financial\ncondition.\n\n14\n\n \n\nDuring the last several years, a supplier of one of our software\npackages requested us to conduct an audit of our operations to verify that we do not breach any intellectual property rights it allegedly\nowns. We believe that we have fully, diligently and timely complied with our obligation toward the supplier. We also believe that the\nsupplier has no right to conduct any audit of our products or services and such audit may cause us to breach confidentiality obligations\nto other entities, and therefore replied that there were no grounds for his request.  If we are found to be in violation of such\nsupplier’s intellectual property rights, we could be liable for compensation and costs of an unknown amount. Such liability could\nhave a material adverse effect on our business, financial condition and results of operations.\n\n \n\nWe are affected by increasing global inflation and higher interest\nrates which may increase our cost of goods and services and borrowing costs.\n\n \n\nGlobal inflation and high interest rates pose a significant risk\nfactor to our company. The rise in inflation may lead to an increase in the cost of goods and services and affect our sales and revenues.\nIn addition, higher rates of inflation in Israel and globally, and demand for high-tech personnel in Israel, have impacted, and may continue\nto impact our costs of labor and the prices at which we are able to acquire goods and services from third-party vendors on which we rely.\n\n \n\nHigh interest rates have increased borrowing costs, which may reduce\nour ability to finance operations and investments, and potentially impact our financial stability. As a result, we are closely monitoring\nglobal economic trends and proactively taking measures to mitigate the impact of inflation and high interest rates on our business operations\nand financial performance.\n\n \n\nRisks Related to Our Human Capital\n\n \n\nIf our workforce will be represented by a labor union, we could\nincur additional costs or experience work stoppages as a result of the renegotiation of our labor contracts.\n\n \n\nOur employees have previously sought to establish an employees’\nunion committee, which effort was soon abandoned. If our employees are represented by a union in the future, we could incur additional\ncosts, experience work stoppages, either of which could adversely affect our business operations, including through a loss of revenue\nand strained relationships with customers. Strikes and work stoppages occur relatively frequently in Israel. If Israeli trade unions threaten\nadditional strikes or work stoppages and such strikes or work stoppages occur, these may, if prolonged, have a material adverse effect\non the Israeli economy and on our business, including our ability to deliver products to our customers in a timely manner.\n\n \n\nUnder current Israeli law, we may not be able to enforce covenants\nnot to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees.\n\n \n\nWe currently have non-competition clauses in the employment agreements\nwith most of our employees who have knowledge critical to our operations. The provisions of such clauses prohibit our employees, if they\ncease working for us, from directly competing with us or working for our competitors.  Recently, Israeli labor courts have required\nemployers, seeking to enforce non-compete undertakings against former employees, to demonstrate that the competitive activities of the\nformer employee will cause harm to one of a limited number of material interests of the employer recognized by the courts (for example,\nthe confidentiality of certain commercial information or a company’s intellectual property).  In the event that any of our\nemployees chooses to leave and work for one of our competitors, we may be unable to prevent our competitors from benefiting from the expertise\nour former employee obtained from us, if we cannot demonstrate to the court that we would be harmed.\n\n15\n\n \n\nWe depend on key personnel for the success of our business.\n\n \n\nOur success depends, to a significant extent, on the continued\nactive participation of our executive officers and other key personnel. In addition, there is significant competition for employees with\ntechnical expertise in our industry.  In order to succeed we would need to be able to:\n\n \n\n•\n\nretain our executive officers and key technical personnel;\n\n \n\n•\n\nattract and retain additional qualified personnel to provide technological depth and support to enhance existing products and develop\nnew products; and\n\n \n\n•\n\nattract and retain highly skilled operations, marketing and financial personnel in order to grow our business.\n\n \n\nWe cannot make assurances that we will be successful in attracting,\nintegrating, motivating and retaining key personnel.  If we are unable to retain our key personnel and attract additional qualified\npersonnel as and when needed, our business may be adversely affected.\n\n \n\nOur ability to maintain our directors’\nand officers’ insurance may be curtailed, which may adversely affect our ability to retain and attract directors and officers.\n\n \n\nIn recent years we have experienced difficulties in obtaining directors’\nand officers’ insurance on reasonable terms as result of a tightening insurance market. If we are unable to continue to obtain directors\n& officers’ insurance or in limits of coverage sufficient to satisfy our indemnification obligations to our directors and officers,\nwe may be unable to retain such directors and officers and have limited ability to attract replacements.\n\n \n\nWe may be required to make payments to satisfy our indemnification\nobligations.\n\n \n\nWe have agreements with our directors and senior officers which\nmay require us, subject to Israeli law and certain limitations in the agreements, to indemnify our directors and senior officers for certain\nliabilities and expenses that may be imposed on them due to acts performed, or failures to act, in their capacity as office holders as\ndefined in the Israeli Companies Law, 5759-1999, or the Israeli Companies Law. These liabilities may include financial liabilities imposed\nby judgments or settlements in favor of third parties, and reasonable litigation expenses imposed by a court in relation to criminal charges\nfrom which the indemnitee was acquitted or criminal proceedings in which the indemnitee was convicted of an offense that does not require\nproof of criminal intent. Furthermore, we agreed to exculpate our directors and officers with respect to a breach of their duty of care\ntowards our company. On October 17, 2017, our shareholders approved an updated indemnification agreement to be entered into with our directors\nand officers, and our shareholders approved an amendment thereto on December 5, 2019.\n\n \n\nRisks Related to Our Ordinary Shares\n\n \n\nOur share price has been volatile in the past\nand may continue to be susceptible to significant market price and volume fluctuations in the future.\n\n \n\nOur ordinary shares have experienced significant market price and\nvolume fluctuations in the past and may experience significant market price and volume fluctuations in the future in response to factors\nsuch as the following, some of which are beyond our control:\n\n \n\n•\n\nquarterly variations in our operating results;\n\n \n\n•\n\noperating results that vary from the expectations of securities analysts and investors;\n\n \n\n•\n\nchanges in expectations as to our future financial performance, including financial estimates by securities analysts and investors;\n\n \n\n•\n\nannouncements of technological innovations or new products by us or our competitors;\n\n \n\n•\n\nannouncements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital\ncommitments;\n\n \n\n•\n\nchanges in the status of our intellectual property rights;\n\n16\n\n•\n\nannouncements by third parties of significant claims or proceedings against us;\n\n \n\n•\n\nannouncements by governmental or regulatory authorities of significant investigations or proceedings against us;\n\n \n\n•\n\nadditions or departures of key personnel;\n\n \n\n•\n\nchanges in our cost structure due to factors beyond our control, such as new laws or regulations relating to environmental matters\nand employment;\n\n \n\n•\n\nfuture sales of our ordinary shares;\n\n \n\n•\n\nour involvement in litigation;\n\n \n\n•\n\ngeneral stock market price and volume fluctuations;\n\n \n\n•\n\nchanges in the prices of our products and services; and\n\n \n\n•\n\ndevaluation of the dollar against the NIS.\n\n \n\nDomestic and international stock markets often experience extreme\nprice and volume fluctuations. Market fluctuations, as well as general political and economic conditions, such as a recession, interest\nrate or currency rate fluctuations or political events or hostilities in or surrounding Israel, could adversely affect the market price\nof our ordinary shares. Low trading volume may also increase the price volatility of our ordinary shares. A thin trading market could\ncause the price of our ordinary shares to fluctuate significantly more than the stock market as a whole.\n\n \n\nThe voting interest of Mr. Nissan, individually\nand through Nistec Golan, our controlling shareholder, may conflict with the interests of other shareholders.\n\n \n\nMr. Yitzhak Nissan, our Chairman of the Board and the controlling\nshareholder of Nistec Golan, beneficially owned 58.7% of our outstanding ordinary shares as of March 19, 2026. Accordingly, Mr. Nissan\nand Nistec Golan have the ability to exercise a significant influence over our business and affairs and generally have the power to determine\nall matters submitted to a vote of our shareholders where our shares vote together as a single class, including the election of directors\nand approval of significant corporate transactions. Mr. Nissan and Nistec Golan may make decisions regarding Eltek and our business that\nare opposed to other shareholders’ interests or with which other shareholders may disagree. Nistec Golan’s and Mr. Nissan’s\nvoting power could have the effect of deterring or preventing a change in control of our company that might otherwise be beneficial to\nour other shareholders.\n\n \n\nWe may in the future be classified as a passive\nforeign investment company, or PFIC, which would subject our U.S. investors to adverse tax rules.\n\n \n\nU.S. holders of our ordinary shares may face income tax risks.\nThere is a risk that we will be treated as a “passive foreign investment company” (“PFIC”). Our treatment as a\nPFIC could result in a reduction in the after-tax return to U.S. Holders (as defined below in “United States Federal Income Taxation”)\nof our ordinary shares and would likely cause a reduction in the value of such shares. A foreign corporation will be treated as a PFIC\nfor U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of\n“passive income,” or (2) at least 50% of the average value of the corporation’s gross assets produce, or are held for\nthe production of, such “passive income.” For purposes of these tests, “passive income” includes dividends, interest,\ngains from the sale or exchange of investment property and rents and royalties other than rents and royalties that are received from unrelated\nparties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance\nof services does not constitute “passive income.” If we are treated as a PFIC, U.S. Holders of ordinary shares would be subject\nto a special adverse U.S. federal income tax regime with respect to the income derived by us, the distributions they receive from us,\nand the gain, if any, they derive from the sale or other disposition of their ordinary shares. In particular, dividends paid by us, if\nany, would not be treated as “qualified dividend income,” eligible for preferential tax rates in the hands of non-corporate\nU.S. shareholders.  We believe that we were not a PFIC for the 2025 tax year. However, since PFIC status depends upon the composition\nof our income and the market value of our assets from time to time, there can be no assurance that we will not become a PFIC in any future\ntaxable year. U.S. Holders should carefully read “United States Federal Income Taxation” for a more complete discussion of\nthe U.S. federal income tax risks related to owning and disposing of our ordinary shares.\n\n17\n\n \n\nWe cannot assure you that we will pay dividends\nin the future.\n\n \n\nIn November 2022, our board of directors declared the Company’s\nfirst cash dividend, in the amount of US$0.17 per share and approximately $1 million in the aggregate. The dividend was paid in US dollars\non December 19, 2022 to all of our shareholders of record as of December 12, 2022. In November 2023, our board of directors declared another\ncash dividend in the amount of $0.22 per share and in the aggregate an amount of approximately $1.3 million. The dividend was paid on\nDecember 21, 2023, in US dollars, to all of the Company’s shareholders of record as of December 13, 2023. In April 2025, our board\nof directors declared another cash dividend in the amount of $0.19 per share, and in the aggregate amount of approximately $1.3 million.\nThe dividend was paid on April 29, 2025, in US dollars, to all of the Company’s shareholders of record as of April 22, 2025.\n\n \n\nThe distribution of dividends is limited by the Israeli Companies\nLaw, according to which, a company may distribute dividends out of its Profits (the “Profitability Threshold”), provided that\nthere is no reasonable concern that such dividend distribution will prevent the company from paying all its current and foreseeable obligations,\nas they become due (the “Solvency Threshold”). The distribution amount is limited to the “Profits”. Profits, for\npurposes of the Israeli Companies Law, means the greater of retained earnings or earnings accumulated during the preceding two years,\nafter deducting previous distributions that were not deducted from the surpluses. The Profitability Threshold and the Solvency Threshold\nare cumulative and our company is required to meet both thresholds in order to be able to distribute dividends. Notwithstanding the foregoing,\ndividends may be paid even if not out of Profit, with the approval of a court, provided that the company can demonstrate that the Solvency\nThreshold is met. An equity repurchase is generally treated as a deemed dividend for purposes of the aforementioned limitations on dividend\ndistributions. However, since our company is listed on an exchange outside of Israel, even if we lack the requisite Profit, we do not\nneed to seek court approval for an equity repurchase, provided that we notify our creditors of the proposed equity repurchase and allow\nsuch creditors an opportunity to initiate court proceedings to review the terms of repurchase. If within 30 days of such notification\ncreditors do not file an objection, we may proceed with the repurchase without obtaining court approval. In the event cash dividends are\ndeclared, such dividends will be subject to applicable Israeli withholding taxes. For additional information, see Item 10E. “Additional\nInformation – Taxation – Taxation of Gains Upon Disposition of, and Dividends Paid on, our Ordinary Shares.” \n\n \n\nRisks Related to Our Organization and Location in Israel\n\n \n\nPolitical, economic and military instability\nin the State of Israel, including as a result of the war with Iran and the current “Iron Swords” war in Israel, where our\nheadquarters, members of our management team and our research and development facilities are located, may adversely affect our results\nof operations.\n\n \n\nOur executive offices and manufacturing facility are located in\nIsrael. In addition, all of our employees, officers and directors are residents of Israel. Accordingly, political, economic and military\nconditions in the Middle East may affect our business directly. Since the establishment of the State of Israel in 1948, a number of armed\nconflicts have occurred between Israel and its neighboring countries and terrorist organizations active in the region, including Hamas\n(an Islamist militia and political group in the Gaza Strip), Hezbollah (an Islamist militia and political group in Lebanon) and other\nterrorist organizations active in the region. These conflicts have involved missile strikes, hostile infiltrations and terrorism against\ncivilian targets in various parts of Israel, which have negatively affected business conditions in Israel.\n\n \n\nIn October 2023, Hamas terrorists infiltrated Israel’s southern\nborder from the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas also launched extensive rocket attacks\non the Israeli population and industrial centers located along Israel’s border with the Gaza Strip and in other areas within the\nState of Israel. These attacks resulted in extensive deaths, injuries and kidnapping of civilians and soldiers. Following the attack,\nIsrael’s security cabinet declared war against Hamas and a military campaign against these terrorist organizations commenced in\nparallel to their continued rocket and terror attacks. In January 2025, Israel and Hamas entered into a ceasefire agreement, which remained\nin effect until March 18, 2025, when hostilities resumed. As of October 9, 2025, Israel and Hamas entered into a renewed ceasefire agreement\ncalling for a permanent end of the war. However, there are no assurances that such as agreement will hold. While the conflict has created\nheightened security concerns, disruptions to business operations, and economic instability, the ceasefire may contribute to improved regional\nstability. However, the security situation remains fluid, and any renewed military actions, restrictions, or government-imposed measures\ncould adversely affect our operations, supply chains, and financial condition.\n\n18\n\n \n\nIn addition, in April 2024 and October 2024, Iran launched direct\nattacks on Israel involving hundreds of drones and missiles and has threatened to continue to attack Israel and is widely believed to\nbe developing nuclear weapons. In June 2025, in light of continued nuclear threats and intelligence assessments indicating imminent attacks,\nIsrael launched a preemptive strike directly targeting military and nuclear infrastructure inside Iran, aimed at disrupting Iran’s\ncapacity to coordinate or launch further hostilities against Israel, as well as to degrade its nuclear program. In response, Iran launched\nmultiple waves of drones and ballistic missiles at Israeli cities. While most of these attacks were intercepted, several caused civilian\ncasualties and damage to infrastructure. A ceasefire was reached between Israel and Iran in June 2025 after 12 days of hostilities, but\nthe hostilities between Israel and Iran resumed on February 28, 2026. Hezbollah rejoined the conflict as well and launched attacks against\nIsrael, which lead to Israel commencing a combined aerial and ground operation in south Lebanon on March 3, 2026. A broader regional conflict\ninvolving additional state and non-state actors remains a significant risk, especially because Iran also has a strong influence among\nextremist groups in the region in addition to Hezbollah, such as Hamas in Gaza, the Houthi movement in Yemen and various rebel militia\ngroups in Syria and Iraq. These situations may potentially escalate in the future to more violent events which may affect Israel and us.\n\n \n\nSince the war broke out on October 7, 2023, our operations have\nnot been adversely affected by this situation in a material manner, and we have not experienced disruptions to our business operations.\nThe intensity and duration of the security situation in Israel continue to be difficult to predict, as are the economic implications on\nour business and operations and on Israel’s economy in general; the continued hostilities could increase the risk of disruptions\nto our business and the Israeli economy in general. The continuation of the hostilities or expansion of the armed conflict to involve\nadditional state and non-state actors could delay any expansion plans, increase costs, disrupt supply chains and distribution, adversely\naffect demand, and materially and adversely affect our business, financial condition and results of operations.\n\n \n\nOur commercial insurance does not cover losses that may occur as\na result of an event associated with the security situation in the Middle East. Although the Israeli government is currently committed\nto covering the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that the\ngovernment coverage will be maintained or, if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or\ndamages incurred by us could have a material adverse effect on our business, financial condition and results of operations.\n\n \n\nThe continued political instability and hostilities between Israel\nand its neighbors and any future armed conflict, terrorist activity or political instability in the region could adversely affect our\noperations in Israel and adversely affect the market price of our ordinary shares. In addition, several organizations and countries may\nrestrict doing business with Israel and Israeli companies have been and are today subjected to economic boycotts. The interruption or\ncurtailment of trade between Israel and its present trading partners could adversely affect our business, financial condition and results\nof operations.\n\n \n\nAt this time, it is not possible to predict the intensity or duration\nof the conflict, nor can we predict how this conflict will ultimately affect Israel’s economy in general, including the potential\nfor further credit rating actions, changes in foreign investment, currency volatility, inflationary pressures, or reduced economic activity.\nCredit rating agencies have previously taken actions with respect to Israel’s credit rating and outlook, and additional actions\nor continued negative outlooks could further increase borrowing costs and contribute to market volatility. We continue to monitor the\nsituation closely and examine the potential disruptions that could adversely affect our operations. These situations may potentially escalate\nin the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instability\nin Israel or in the region could adversely affect business conditions, could harm our results of operations and could make it more difficult\nfor us to raise capital. Parties with whom we do business may decline to travel to Israel during periods of heightened unrest or tension,\nforcing us to make alternative arrangements, when necessary, in order to meet our business partners face to face.\n\n \n\nOur results of operations may be negatively\naffected by the obligation of our personnel to perform military reserve service.\n\n \n\nMany Israeli citizens, including some of our employees, are obligated\nto perform several days, and in some cases, more, of annual reserve duty in the Israeli Defense Forces until they reach the age of 40\n(or older for certain reservists) and, in the event of a military conflict, may be called to active duty for extended periods of time.\nOur operations could be disrupted by the absence for a significant period of one or more of our executive officers or key employees or\na significant number of other employees due to military service. Any disruption in our operations could adversely affect our business.\nCurrently, only a few of our employees have been called up to military service, none of whom are in management positions. However, if\nthe number of reservists in our company increases and becomes significant, our operations could be disrupted by such call-ups.\n\n19\n\n \n\nService and enforcement of legal process on\nus and our directors and officers may be difficult to obtain.\n\n \n\nService of process upon our directors and officers and the Israeli\nexperts named herein, all of whom reside outside the United States, may be difficult to obtain within the United States. Furthermore,\nsince substantially all of our assets, all of our directors and officers and the Israeli experts named in this annual report are located\noutside the United States, any judgment obtained in the United States against us or these individuals or entities may not be collectible\nwithin the United States.\n\n \n\nThere is doubt as to the enforceability of civil liabilities under\nthe Securities Act and the Exchange Act in original actions instituted in Israel. However, subject to certain time limitations and other\nconditions, Israeli courts may enforce final judgments of United States courts for liquidated amounts in civil matters, including judgments\nbased upon the civil liability provisions of those and similar acts.\n\n \n\nProvisions of Israeli law may delay, prevent\nor make difficult an acquisition of us, which could prevent a change of control and therefore impact the price of our shares.\n\n \n\nProvisions of Israeli corporate and tax laws may have the effect\nof delaying, preventing or making more difficult a merger with, or other acquisition of, us or all or a significant portion of our assets. \nIsraeli corporate law regulates acquisitions of shares through tender offers and mergers, requires special approvals for transactions\ninvolving significant shareholders and regulates other matters that may be relevant to these types of transactions. These provisions of\nIsraeli 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\nus, even if doing so would be beneficial to our shareholders.  These provisions may limit the price that investors may be willing\nto pay in the future for our ordinary shares. Furthermore, Israeli tax considerations may make potential transactions undesirable to us\nor to some of our shareholders.\n\n \n\nThese laws may have the effect of delaying or deterring a change\nin control of our company, thereby limiting the opportunity for shareholders to receive a premium for their shares and possibly affecting\nthe price that some investors are willing to pay for our company’s securities. This could cause our ordinary shares to trade at\nprices below the price for which third parties might be willing to pay to gain control of us.  Third parties who are otherwise willing\nto pay a premium over prevailing market prices to gain control of us may be unable or unwilling to do so because of these provisions of\nIsraeli law.\n\n \n\nThe rights and responsibilities of our shareholders\nare governed by Israeli law and differ in some respects from the rights and responsibilities of shareholders under U.S. law.\n\n \n\nWe are incorporated under Israeli law. The rights and responsibilities\nof holders of our ordinary shares are governed by our memorandum of association, articles of association and by Israeli law. These rights\nand responsibilities differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations. \nIn particular, each shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising his or her\nrights and fulfilling his or her obligations toward the company and other shareholders and to refrain from abusing his or her power in\nthe company, including, among other things, in voting at the general meeting of shareholders on certain matters.  Israeli law provides\nthat these duties are applicable in shareholder votes on, among other things, amendments to a company’s articles of association,\nincreases in a company’s authorized share capital, mergers and interested party transactions requiring shareholder approval. In\naddition, a controlling shareholder of an Israeli company, or a shareholder who knows that he or she possesses the power to determine\nthe outcome of a shareholder vote or who has the power to appoint or prevent the appointment of a director or officer in the company,\nhas a duty of fairness toward the company.  Currently there is not a clear definition of the duty of fairness under Israeli law.\nThere is limited case law available to assist us in understanding the nature of this duty or the implications of these provisions. These\nprovisions may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not typically\nimposed on shareholders of U.S. corporations.\n\n20\n\n \n\nAs a foreign private issuer whose shares are\nlisted on the NASDAQ Capital Market, we may follow certain home country corporate governance practices instead of certain NASDAQ requirements.\nWe follow Israeli law and practice instead of NASDAQ rules regarding the composition of the board of directors, director nomination process\nand quorum at shareholders’ meetings.\n\n \n\nAs a foreign private issuer whose shares are listed on the NASDAQ\nCapital Market, we are permitted to follow certain home country corporate governance practices instead of certain requirements of the\nNASDAQ Stock Market Rules. We follow Israeli law and practice instead of the NASDAQ Stock Market Rules regarding the composition of the\nboard of directors, director nomination process and quorum at shareholders’ meetings.  As a foreign private issuer listed on\nthe NASDAQ Capital Market, we may also follow home country practice regarding, for example, the requirement to obtain shareholder approval\nfor certain dilutive events (such as for the establishment or amendment of certain equity based compensation plans, an issuance that will\nresult in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest\nin the company and certain acquisitions of the stock or assets of another company).  A foreign private issuer that elects to follow\na home country practice instead of NASDAQ requirements must submit to NASDAQ in advance a written statement from an independent counsel\nin such issuer’s home country certifying that the issuer’s practices are not prohibited by the home country’s laws.\nIn addition, a foreign private issuer must disclose in its annual reports filed with the SEC, or on its website, each such requirement\nthat it does not follow and describe the home country practice followed by the issuer instead of any such requirement. Accordingly, our\nshareholders may not be afforded the same protection as provided under NASDAQ’s corporate governance rules.\n\n \n\nThe expenses incurred by public companies generally\nfor reporting and corporate governance purposes have been increasing.\n\n \n\nWe are subject to the reporting requirements of the Exchange Act,\nthe Sarbanes-Oxley Act, the Dodd-Frank Act, the Nasdaq listing rules and other applicable securities laws and regulations. The expenses\nincurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and\nregulations to continue to increase our legal and financial compliance costs and to make some activities more difficult, time-consuming\nand costly. Being a public company and being subject to such rules and regulations also makes it more expensive for us to obtain director\nand officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage.\nFurthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our ordinary shares,\nfines, sanctions and other regulatory action and potentially civil litigation. These factors may therefore strain our resources, divert\nmanagement’s attention and affect our ability to attract and retain qualified board members and executive officers.\n\n \n\nThe termination or reduction of tax and other\nincentives that the Israeli government provides to domestic companies may increase the costs involved in operating a company in Israel.\n\n \n\nThe Israeli government currently provides tax and capital investment\nincentives to domestic companies, as well as grant and loan programs relating to research and development and marketing and export activities.\nIn recent years, the Israeli government has reduced the benefits available under these programs and the Israeli governmental authorities\nhave indicated that the government may in the future further reduce or eliminate the benefits of those programs. We have taken in the\npast and may take advantage of these benefits and programs again in the future, however, there is no assurance that such benefits and\nprograms will continue to be available to us in the future. If such benefits and programs were terminated or further reduced, it could\nhave an adverse effect on our business, operating results and financial condition. The government tax benefits that we currently are entitled\nto receive require us to meet several conditions and may be terminated or reduced in the future.\n\n \n\nSome of our operations in Israel may entitle us to certain tax\nbenefits under the Law for the Encouragement of Capital Investments, 5719-1959, or the Investment Law, once we are profitable. If we do\nnot meet the requirements for maintaining these benefits, they may be reduced or canceled and the relevant operations would be subject\nto Israeli corporate tax at the standard rate, which is set at 23% in 2018 and thereafter. In addition to being subject to the standard\ncorporate tax rate, we could be required to refund any tax benefits that we have already received, plus interest and penalties thereon.\nEven if we continue to meet the relevant requirements, the tax benefits that our current “Benefited Enterprise” is entitled\nto may not be continued in the future at their current levels or at all. If these tax benefits were reduced or eliminated, the amount\nof taxes that we pay would likely increase, as all of our operations would consequently be subject to corporate tax at the standard rate,\nwhich could adversely affect our results of operations. Additionally, if we increase our activities outside of Israel, for example, by\nway of acquisitions, our increased activities may not be eligible for inclusion in Israeli tax benefits programs.\n\n21"}