ACTELIS NETWORKS INC

NOTE 1 – GENERAL:

NOTE 1 – GENERAL:(continued):

On June 13, 2025, Israel launched a preemptive attack on Iran, to which Iran responded with ballistic missiles and drone attacks. On June 23, 2025, Israel and Iran agreed to a ceasefire, although there is no assurance that cease fire will continue. In addition, on October 9, 2025, Gaza Strip (Gaza), Israel, Hamas, United States and other regional parties agreed to a framework for a cease-fire in Gaza. However, the duration and intensity of the ongoing conflicts in Gaza, Northern Israel, Lebanon, Iran and the broader region remain uncertain. As of the signing date, our operations and financial results have not been significantly impacted, though, as of November 14, 2025, two of our employees have been called to reserve duty in the Israel Defense Forces from time to time, which has not been materially affecting our operation. We do not anticipate any short-term material impact on our business performance due to the ongoing conflicts in the Gaza Strip, Lebanon, Iran and the security situation in Israel. However, as this is an unpredictable event, its continuation or resolution could influence our expectations. We are closely monitoring political and military developments and assessing their potential impact on our operations, financial performance, and overall business conditions. The company was deemed eligible for a government grant from the State of Israel in connection with the Iran war. During Q3 2025, an advance payment of $73 was received and recorded as other income. This amount is non-repayable.

NOTE 1 – GENERAL:(continued):

On August 19, 2025, Nasdaq issued a written notice stating that, as of June 30, 2025, the Company was not in compliance with the Minimum Shareholders’ Equity Requirement. Additionally, under Nasdaq Listing Rule 5815(d)(4)(B), the Company remained subject to a mandatory hearing panel monitor through August 27, 2025. As a result, the Company’s securities were subject to delisting unless a timely hearing request was submitted to the Nasdaq Hearing Panel. The Company held its hearing before the Panel on September 30, 2025, during which it presented a plan to demonstrate compliance with the Equity Rule and all other applicable listing criteria. On October 28, 2025 The Panel granted the Company’s request for continued listing on The Nasdaq Capital Market, pursuant to an extension through December 5, 2025, to regain compliance with the bid price requirement set forth in Nasdaq Listing Rule 5550(a)(1). In order to evidence compliance with the bid price requirement, the Company must evidence a closing bid price of at least $1.00 per share for a minimum of 10, but generally not more than 20, consecutive business days. The Company has scheduled a special meeting of shareholders for November 7, 2025, at which it will seek shareholder approval for the implementation of the Proposed Reverse Split in an effort to regain compliance with the bid price requirement by December 5, 2025. The Company will remain subject to a one-year discretionary Panel Monitor through October 28, 2026. If during that period the Company fails to satisfy any of the criteria for continued listing on The Nasdaq Capital Market set forth in Nasdaq Listing Rule 5550, the Staff may not grant the Company additional time to regain compliance with respect to a deficiency nor will the Company be afforded a cure period under Nasdaq Listing Rule 5810(c)(3). Rather, Nasdaq will issue a delist determination, which the Company may address by requesting a new hearing before the Panel.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES:

The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with Article 10 of the Securities and Exchange Commission (“SEC”)’s Regulation S-X. As permitted under those rules, certain footnotes and other financial information that are normally required by generally accepted accounting principles in the United States (“U.S. GAAP”) can be condensed or omitted. These financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of its financial position as of and for the periods presented. These condensed consolidated financial statements and notes thereto are unaudited and should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2024. The results of operations for the nine months ended September 30, 2025, are not necessarily indicative of results that could be expected for the 2025 fiscal year or any other interim period or for any other future year. All intercompany transactions and balances have been eliminated in consolidation.

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. The Company evaluates on an ongoing basis its assumptions, including those related to fair values of financial instruments, inventory write-offs, as well as in estimates used in applying the revenue recognition policy. The Company’s management believes that the estimates, judgments, and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the unaudited condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

Our Chief Executive Officer (CEO), as the Chief Operating Decision Maker (CODM), oversees the Company’s business activities as a single operating and reportable segment at the consolidated level. Accordingly, the CODM evaluates segment performance, allocates resources, and measures profit or loss based on consolidated net loss. Additionally, the CODM monitors and manages the Company’s operations by reviewing functional expenses—including cost of revenues, sales and marketing, research and development, and general and administrative expenses—at the consolidated level.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES:(continued):

Fair value measurements are classified and disclosed in one of the following three categories:

Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 – Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company measured the fair value of the warrants liability it issued based on Level 3 inputs, and the warrants liability amounted to $0 as of September 30, 2025 and December 31, 2024.

As of September 30, 2025, and December 31, 2024, the fair values of the Company’s cash and cash equivalents, restricted cash equivalents, trade receivables, trade payables, long-term loan, short term loans, restricted bank deposits, Severance pay fund and other current assets approximated the carrying values presented in the Company’s condensed consolidated balance sheets because of their nature.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash equivalents, restricted bank deposits, and trade receivables. Cash and cash equivalents and restricted cash equivalents are placed with banks and financial institutions in the United States and Israel.

Management believes that the financial institutions that hold the Company’s investments are financially sound and, accordingly, present minimal credit risk with respect to those investments.

The Company’s trade receivables are derived primarily from telecommunication operators, the Company’s reseller customers and enterprises located mainly in the United States, Europe, and Asia.

Credit risk with respect to trade receivables exists to the full extent of the amounts presented in the condensed consolidated financial statements.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES:(continued):

The Company estimates Current Expected Credit Losses (CECL) on trade receivables at inception for estimated losses resulting from the inability of the Company’s customers to make required payments, based on estimated current expected credit losses. The allowance represents the current estimate of lifetime expected credit losses over the remaining duration of existing accounts receivable considering historical information, current market conditions and reasonable and supportable forecasts when appropriate. The estimate is a result of the Company’s ongoing evaluation of collectability, customer creditworthiness, historical levels of credit losses, and future expectations.

The Company has customers balances representing 10% or more of Trade receivables as follows:

The Company does not see any credit risk regarding the major trade receivable balance.

Accounting Pronouncements effective in future periods- not yet adopted

In December 2023, the FASB issued ASU 2023-09 Improvements to Income Tax Disclosures. The ASU improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The ASU is effective for the Company for annual periods beginning after December 15, 2025. The Company will be implementing the new income tax disclosures retrospectively. The Company expects the adoption of this standard to result in expanded disclosures in its consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03 Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosure (Subtopic 220-40): Disaggregation of Income Statement Expense and ASU 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date. The ASU improves the disclosures about a public business entity’s expenses and provides more detailed information about the types of expenses in commonly presented expense captions. The amendments require that at each interim and annual reporting period an entity will, inter alia, disclose amounts of purchases of inventory, employee compensation, depreciation and amortization included in each relevant expense caption (such as cost of sales, general and administrative, and research and development). The ASU is effective for annual reporting period beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is evaluating the potential impact of this guidance on its consolidated financial statement disclosures.

In July 2025, the FASB issued ASU 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. This amendment introduces a practical expedient for the application of the current expected credit loss (“CECL”) model to current accounts receivable and contract assets. The amendments will be effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods, on a prospective basis, with early adoption permitted. The Company is evaluating the potential impact of this guidance on its consolidated financial statement disclosures.

In September 2025, the FASB issued ASU 2025-07 Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606): Derivatives Scope Refinements and Scope Clarification for Share-Based Noncash Consideration from a Customer in a Revenue Contract, which refines the scope of derivative accounting under Topic 815 and clarifies the treatment of share-based noncash consideration under ASC 606. The ASU is effective for annual periods beginning after December 15, 2026, including interim periods within those annual periods, with early adoption permitted. Entities may apply the amendments prospectively to new contracts or retrospectively with a cumulative-effect adjustment. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

NOTE 3 – INVENTORIES:

Inventory write-downs amounted to $140 and $39 during the nine months ended September 30, 2025, and 2024, respectively and $48 and $14 during the three months ended September 30, 2025 and 2024, respectively. Inventories write-downs are recorded in cost of revenues.

NOTE 4 – LOANS:

On July 1, 2020, the Company received Economic Injury Disaster Loan (the “EIDL Loan”) from an American Bank under the Small Business Administration COVID19 Program in the total of $150. The loan matures in June 2050 and bears interest of 3.75% per annum, payable monthly commencing on January 1, 2023, unless forgiven per program regulations. As of September 30, 2025, the total loan balance outstanding was $150.

In addition, the Company is obligated to issue Migdalor warrants to acquire common stock for up to $150 subject to the terms of amendment.

In July 2024, the company repaid the remaining loan balance to Migdalor, totaling 1.16 million ILS (approximately $0.3 million )

As of September 30, 2025, the total outstanding of the one-time interest payment was approximately $61.

NOTE 5 – COMMITMENTS AND CONTINGENCIES:

The Company is obligated to repay certain research and development grants received from the Government of Israel in the form of a royalty rate on future sales of products derived from the funded research and development activities. As of September 30, 2025, the Company had received approximately $14,373.

The aggregate amount of royalties to be paid is determined based on 100% of the total grants received for qualified projects plus interest. The Company may be required to pay royalties based on previous years funding in periods after September 30, 2025, for the future sale of product that includes technology developed and funded with these research and development grants received to date.

In October 2024, the company entered into a payment plan with the Israel Innovation Authority (“IIA”) to settle the outstanding amount as of the previous year. According to the agreement, the IIA agreed to offset a delayed payment of approximately $50 from the total outstanding amount. The company committed to making an immediate payment of $190 and to spread the remaining balance overtwo years, with quarterly installments of approximately $106 starting from October 2024. The outstanding debt will continue to accrue interest and linkage differences in accordance with legal requirements until fully settled. Additionally, the company is required to report and pay ongoing royalties starting from the first half of 2024.

During the nine and three months ended September 30, 2025 the company repaid $340 and $104 respectively.

As of September 30, 2025, the total royalty amount that may be payable by the company is approximately $14,373 ($15,903 including interest) and the Company repaid amounts of approximately $10,961.

As of September 30, 2025, and December 31, 2024, the Company had a liability to pay royalties in the amount of approximately $660 and $839 respectively.

NOTE 6 – SHAREHOLDERS’ EQUITY:

In July 2025, the Company entered into Stock Purchase Agreement” (“the Offering”) with certain investors (the “Investors”), pursuant to which the company agreed to issue and sell shares and warrants to the Investors in a private placement, for a total aggregate gross proceeds of approximately $1 million. The July 2025 Private Placement closed on July 2, 2025:

On November 7, 2025, the Company held a special meeting of its shareholders where it obtained Shareholder Approval, resulting in the Shareholder Approval Date being such date. Under the terms of the Common Warrants, the Investors may not exercise the warrants to the extent such exercise would cause the Investor, together with its affiliates, to beneficially own a number of shares of common stock which would exceed 4.99% (or, at such Investor’s option upon issuance, 9.99%), of the Company’s then outstanding Common Stock following such exercise, excluding for purposes of such determination shares of Common Stock issuable upon exercise of such warrants which have not been exercised. The Company classified the issued Common Stock and Warrants as equity based on the guidance provided under ASC 815-40. Offering Costs related to the Stock Purchase Agreement: Upon the closing of the Offering and pursuant to an agreement entered into with H.C. Wainwright & Co., LLC (the “Underwriter”), the Company paid in cash to the Underwriter a total amount fees totaling 7% of gross proceeds, plus $35,000 in expenses and issued to the Underwriter warrants equal to 7% of shares sold in the Offering, which are exercisable for five years after shareholder approval at the exercise price of 125% of the share price in the Offering ($0.7688). As of the issuance date of the underwriter warrants, the fair value of the warrants was estimated at $38. The valuation was based on a Black-Scholes option-pricing model, using an expected volatility of 73.6%, a risk-free rate of 3.71%, a contractual term of 5 years and a stock price at the issuance date of $0.5806. The issuance costs incurred by the company was approximately $199, which was recognized in equity.

(collectively, the “Existing Warrants”).

Offering of warrants September 2025: As part of the same transaction mentioned above, the Company issued the following new warrants (the “New Warrants”) to the holder of existing warrants :

On November 7, 2025, the Company held a special meeting of its shareholders where it obtained Shareholder Approval, resulting in the Shareholder Approval Date being such date. The exercise price and number of new Shares issuable upon exercise of the New Warrants is subject to appropriate adjustment in the event of stock dividends, stock splits, subsequent rights offerings, pro rata distributions, reorganizations, or similar events affecting the Company’s Common Stock and the exercise price. In accordance with ASC Topic 815 guidance on equity classified warrant modifications, the incremental change in fair value of the induced warrants was accounted for as an additional equity issuance cost for the warrant inducement, which was recorded to additional paid-in capital.

As of the issuance date of the September Warrants, the fair value of the warrants was estimated at $2,802. The Company valuation was based using the Black-Scholes valuation model. The significant inputs into the Black-Scholes valuation model at the initial recognition date are as follows:

Offering Costs related to September 2025 fund-raising round: Rodman & Renshaw LLC and H.C. Wainwright & Co., LLC (“Wainwright”) acted as financial advisors to the Company in connection with the transactions contemplated by the Inducement Letter. Pursuant to an engagement letter with Wainwright, the Company has agreed to pay the financial advisors a cash fee equal to 7.0% of the aggregate gross proceeds received from the holder’s exercise of the Existing Warrants, as well as a management fee equal to 1.0% of the gross proceeds from the exercise of the Existing Warrants. The Company has also agreed to issue to the financial advisors or their designees warrants (the “Inducement Placement Agent Warrants”) to purchase up to 298,914 shares of Common Stock (representing 7.0% of the Existing Warrants being exercised), which will have the same terms as the New Warrants having a term of five years of Stockholder Approval (as defined above) except the Inducement Placement Agent Warrants will have an exercise price equal to $0.4625 per share (125% of the exercise price of the Existing Warrants). As of the issuance date of the underwriter warrants, the fair value of the warrants was estimated at $78. The valuation was based on a Black-Scholes option-pricing model, using an expected volatility of 73.91%, a risk-free rate of 3.71%, a contractual term of 5 years and a stock price at the issuance date of $0.4322 The issuance costs incurred by the company which was recognized in equity was :

The total gross proceeds were $850,000 The Pre-Funded Warrants are immediately exercisable at an exercise price of $0.0001 per share of Common Stock and will not expire until exercised in full. The Company may not effect any exercise of the Pre-Funded Warrants, and White Lion does not have the right to exercise any portion of the Pre-Funded Warrants, if such exercise, aggregated with all other shares then beneficially owned by White Lion (as calculated pursuant to Section 13(d) of the Exchange Act) would result in White Lion beneficially owning more than 4.99% of the outstanding Common Stock. The beneficial ownership limitation may be increased or decreased by White Lion to any other percentage not in excess of 9.99% upon notice to the Company.

The White Lion Private Placement closed on September 29, 2025. The Company had a right to redeem 488,263 of the shares of Common Stock at a redemption price of $0.0001 per share. The Company and White Lion have agreed that, in lieu of such redemption, the Company has the right to redeem these shares, provided that it does not terminate the ELOC agreement on or prior to October 1, 2025 (also see note 9).

The common stock and pre-funded warrants were classified as equity pursuant to ASC 815-40. The company paid issuance expense of about $60 which are recognized in equity.

As the ELOC is in substance a purchased call option over the Company’s own shares at a discount off an adjusted market share price, the fair value of this agreement will generally be approximately zero until the Company sells shares under the ELOC Agreement. Once the Company sold shares under the agreement, the difference between cash raised (net of transaction costs) and the closing price of the Company’s ordinary shares as of the date of their issuance will be recognized as financing income or expenses.

As of September 30, 2025, the Company only holds a contractual right to enter into the ELOC agreement; the agreement itself has not yet become effective.

According to the ELOC agreement the commitments shares will be issued no later then 30 days following the effectiveness of the registration statement, however, the Company can issue unregistered shares at any time following the effective date of the ELOC.

If the Resale Registration Statement is not effective by November 15, 2025, the Company must issue White Lion $250,000 in shares based on the lowest trading price, plus an additional $250,000 in shares for every 30-day delay thereafter, unless the delay is resulted by a government shutdown, in which case the deadline to take the Resale Registration Statement effective is extended by one business day for each business day that the SEC is closed as a result of the government shutdown.

The ELOC does not meet the requirement to be classified as equity pursuant to ASC 815-40.

Total outstanding warrants as of September 30, 2025, are as follow:

On September 18, 2024, the Company entered into At the Market Offering Agreement (the “ATM Agreement”), with H.C. Wainwright & Co. (“Wainwright”), as sales agent, pursuant to which the Company may issue and sell shares of its common stock, from time to time, through Wainwright.

Under the ATM Agreement, Wainwright may sell shares in transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act, as amended, or in any other method permitted by law, including in privately negotiated transactions.

The Company or Wainwright may suspend or terminate the ATM Agreement upon notice to the other party and subject to other conditions.

The Company will pay Wainwright a commission of 3.0% of the gross sales price of any common stock sold under the ATM Agreement and has agreed to provide Wainwright with customary indemnification and contribution rights. The Company will also reimburse Wainwright for certain specified expenses.

During the nine months and three months ended in September 2025, the company issued and sold 3,051,195 and 1,149,896 shares of common stock respectively, for gross proceeds of approximately $2,637 and $537 respectively. Total cost related to the offerings is approximately $262 and $39 respectively.

NOTE 6 – SHAREHOLDERS’ EQUITY: (continued):

Pursuant to the current Section 102 of the Israeli Tax Ordinance, which came into effect on January 1, 2003, options may be granted through a trustee (i.e., Approved 102 Options) or not through a trustee (i.e., Unapproved 102 Options). The Company elected to grant its options and RSU’s through a trustee. As a result, the Company will not be allowed to claim as an expense for tax purposes in Israel the amounts credited to the employee as capital gains to the grantees, although it will generally be entitled to do so in respect of the salary income component (if any) of such awards when the related tax is paid by the employee.

NOTE 6 – SHAREHOLDERS’ EQUITY: (continued):

The majority of the share-based compensation expenses included in the Condensed consolidated statements of comprehensive loss under General and Administrative.

As of September 30, 2025, the unrecognized compensation costs related to those unvested stock options are $7, which are expected to be recognized over a weighted-average period of 6 months.

The majority of the RSUs expenses included in the Condensed consolidated statements of comprehensive loss under General and Administrative.

As of September 30, 2025, the unrecognized compensation cost related to unvested RSUs is approximately $1,036 which are expected to be recognized over a weighted-average period of 3 years.

NOTE 7 – BASIC AND DILUTED LOSS PER SHARE:

Basic net loss per share is computed using the weighted average number of shares of common stock and pre-funded warrants and fully vested RSUs outstanding during the period, net of treasury shares. In computing diluted loss per share, basic loss per share is adjusted to take into account the potential dilution that could occur upon the exercise of options and RSUs granted under employee stock compensation plans, and the exercise of warrants using the treasury stock method.

Diluted loss per share excludes 12,027,944 shares underlying outstanding warrants,40,589 shares underlying outstanding options, and 1,743,073 shares underlying outstanding RSUs for the three and nine months ended September 30, 2025, because the effect of their inclusion in the computation would be antidilutive.

Diluted loss per share excludes 4,602,053 shares underlying outstanding warrants,65,380 shares underlying outstanding options, and 36,254 shares underlying outstanding RSUs for the three and nine months ended September 30, 2024, because the effect of their inclusion in the computation would be antidilutive.

The following table sets forth the computation of basic and diluted net loss per share attributable to common shareholders:

NOTE 8 – ENTITY WIDE INFORMATION AND DISAGGREGATED REVENUES:

The Company operates asone operating segment (developing and marketing access broadband equipment for copper and fiber networks).

Following is a summary of revenues by geographic areas. Revenues attributed to geographic areas, based on the location of the end customers:

NOTE 8 – ENTITY WIDE INFORMATION AND DISAGGREGATED REVENUES:(continued):

As of September 30, 2025, the aggregate amount of the transaction price allocated to the remaining performance obligation is $277, and the Company will recognize this revenue over the next 12-18 months.

The majority of the Company’s revenues are recognized at a point in time.

NOTE 9 – SUBSEQUENT EVENTS: