ACTELIS NETWORKS INC

NOTE 1 – GENERAL:

NOTE 1 – GENERAL(continued):

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES:

The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with Article 10 of the 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 consolidated financial statements for the year ended December 31, 2025. The results of operations for the three and nine months ended September 30, 2026, are not necessarily indicative of results that could be expected for the 2026 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, provisions, as well as 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.

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 liability associated with the pre-funded warrants issued in December 2025 amounted to $750 as of December 31, 2025. During April and May 2026, all such pre-funded warrants were exercised, and the related liability was reclassified to shareholders’ equity upon exercise. Accordingly, no liability associated with these warrants remained outstanding as of September 30, 2026.

On July 1, 2026, in connection with the Exchange and Amendment Agreement with White Lion (see Note 6b), the Company issued pre-funded warrants and common warrants as part of the amendment consideration. As of September 30, 2026, these warrants were classified as liabilities.

The Amendment Commitment pre-funded warrants are measured using the quoted price of the Company’s common stock less the nominal exercise price. The Amendment Commitment Common Warrants are measured using a probability-weighted Black-Scholes model (Level 3).

As of September 30, 2026, the pre-funded warrants liability and the common warrants liability amounted to $192 and $8, respectively.

As of September 30, 2026, and December 31, 2025, the fair values of the Company’s cash, cash equivalents, short and long-term deposits, restricted bank deposits, trade receivables, other current assets, trade payables, long-term loan and restricted cash approximated the carrying values of these instruments presented in the Company’s 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 and 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 Governmental authorities such as municipalities, military and other federal agencies, enterprises and telecommunication operators, as well as the Company’s reseller customers 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. Management makes judgments as to its ability to collect outstanding accounts receivable and provides allowances for the applicable portion of accounts receivable when collection becomes doubtful.

Management provides allowances based upon a specific review of all significant outstanding invoices, analysis of its historical collection experience, and current economic trends.

The Company has customer balances representing 10% or more of trade receivables as of September 30, 2026 or December 31, 2025 as follows:

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

Our Chief Executive Officer (CEO), as the Chief Operating Decision Maker (CODM), oversees the Company’s business activities as asingle operating and reportable segment at the consolidated level. The CODM makes decisions on resource allocation, assesses performance of the business and monitors budget versus actual results on a consolidated basis. As such, the segment’s profit (loss) is the Company’s consolidated net income (loss) and the segment’s assets are the Company’s consolidated assets. Additionally, the CODM monitors and manages the Company’s operations by reviewing functional expenses- including cost of revenues, sales and marketing, research and development, general and administrative expenses, interest expense, other financial expense/income net and other income- at the consolidated level.

As an “emerging growth company,” the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act. The adoption dates discussed below reflect this election.

Recently adopted accounting pronouncements:

In July 2025, the FASB issued Accounting Standards Update 2025-05,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets (“ASU 2025-05”). ASU 2025-05 provides a practical expedient that all entities can use when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under ASC 606, Revenue from Contracts with Customers. Under this practical expedient, an entity is allowed to assume that the current conditions it has applied in determining credit loss allowances for current accounts receivable and current contract assets remain unchanged for the remaining life of those assets. ASU 2025-05 is effective for fiscal years beginning after December 15, 2025, including interim reporting periods within those fiscal years. Entities that elect the practical expedient and, if applicable, make the accounting policy election are required to apply the amendments prospectively. ASU 2025-05 did not have a material impact on the Company’s consolidated financial statements.

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. 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 expense 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 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.

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements (“ASU 2025-11”). ASU 2025-11 provides clarifications intended to improve the consistency and usability of interim disclosure requirements, including a comprehensive listing of required interim disclosures and a new disclosure principle for reporting material events occurring after the most recent annual period. The amendments do not change the underlying objectives of interim reporting but are designed to enhance clarity in application. The guidance is effective for fiscal years beginning after December 15, 2027, including interim periods within those fiscal years. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

In December 2025, the FASB issued ASU 2025-10 “Government Grants (Topic 832)” to establish authoritative guidance on the accounting for government grants received by business entities. This update is effective beginning with the Company’s 2029 fiscal year annual reporting period, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.

NOTE 3 – INVENTORIES:

Inventory write-downs amounted to $92 and $140 during the nine months ended September 30, 2026, and 2025, respectively, and $54 and $48 during the three months ended September 30, 2026 and 2025, respectively. Inventories write-downs are recorded in cost of revenues.

NOTE 4 – EVENTS OCCURRED DURING THE PERIOD:

As of February 23, 2026, the Company recorded the related asset and liability at the present value of payments over the lease term, discounted using the lessee’s incremental borrowing rate, which was 7.6%.

As of September 30, 2026, the maturity of lease liabilities under our non-cancelable operating leases was as follows:

In March 2026, the Company repurchased an aggregate of 2,674,709 shares of its common stock for a total consideration of $1,039. All repurchased shares were subsequently cancelled and returned to the status of authorized but unissued shares.

NOTE 5 – COMMITMENTS AND CONTINGENCIES:

In October 2024, the Company entered into a payment plan with the Israel Innovation Authority (“IIA”) to settle the outstanding balance as of the prior year. Pursuant to the agreement, the IIA agreed to offset a delayed payment of approximately $50 against the total outstanding balance, and the Company paid $190. The remaining balance is payable in quarterly installments of approximately $106, commencing in October 2024. The outstanding balance continues to accrue interest and linkage differentials in accordance with applicable legal requirements until fully settled.

In addition, the Company is required to report and pay ongoing royalties commencing from the first half of 2024.

During the three and nine months ended September 30, 2026, the Company repaid $130 and $254, respectively and during the three and nine months ended September 30, 2025, the Company repaid $104 and $340, respectively.

As of September 30, 2026, and December 31, 2025, the Company had a liability to pay royalties in the amount of approximately $625 and $612, respectively.

NOTE 6 – SHAREHOLDERS’ EQUITY:

According to the agreement, if, at any point during the term of the Common Stock Purchase Agreement, the Company fails to be listed on the Nasdaq, the Commitment Fee Amount will increase to $1,000 if remedied within six months or less, to $1,250 if remedied after six months but before twelve months, and $1,500 if not remedied within twelve months (the “Delisting Penalty Provision”). If the Common Stock Purchase Agreement is terminated, the Delisting Penalty Provision shall automatically be waived on the date that is six (6) months after the later of (A) the date on which shareholder approval is obtained and (B) the date on which the resale registration statement has been declared effective by the SEC.

Since the Company failed to maintain its listing on the Nasdaq Capital Market, the Company recorded additional liability to commitment fees in the amount of $625 based on management’s remediation plan, recorded in other financial income (expense), net during the nine months ended September 30, 2026.

In December 2025, the Company initiated a draw under the Equity Line of Credit Purchase Agreement (the “ELOC”). In connection with this draw, the Company issued 21,000 shares of its Common Stock to White Lion in accordance with the terms of the agreement.

During April and May 2026, White Lion exercised all 1,703,147 pre-funded warrants, resulting in the issuance of an equivalent number of shares of the Company’s common stock. Upon exercise, the related liability was remeasured and reclassified to shareholders’ equity.

The Company may terminate the ELOC Purchase Agreement at any time, which shall be effected by written notice being sent by the Company to White Lion.

Exchange and Amendment Agreement - July 2026

On July 1, 2026, the Company and the ELOC Holder entered into an Exchange and Amendment Agreement (the “ELOC Amendment”), pursuant to which, in exchange for White Lion’s right to receive shares of common stock under the Commitment Shares provisions and the Delisting Penalty Provision, the Company issued to White Lion an aggregate of 9,850,000 Amendment Commitment Securities, comprised of (i)3,000,000 shares of common stock, (ii)3,850,000 pre-funded warrants (the “Amendment Commitment Pre-Funded Warrants”) and (iii)3,000,000 common warrants (the “Amendment Commitment Common Warrants”).

The Amendment Commitment Pre-Funded Warrants and common warrants have been classified as liabilities.

As of September 30, 2026, neither the Amendment Commitment Pre-Funded Warrants nor the Amendment Commitment Common Warrants were exercisable.

In addition, the ELOC Amendment modified the purchase notice mechanisms under the original ELOC Purchase Agreement, including the replacement of the delisting purchase notice mechanism with amended Rapid Purchase Notice and Regular Purchase Notice provisions. Under the amended provisions, the purchase price is generally determined as 97% of the applicable market reference price, as defined in the agreement, less $0.005 per share, subject to the terms and limitations set forth therein.

The Company agreed not to submit purchase notices until the later of 30 days following the ELOC Amendment and the effectiveness of the applicable resale registration statement.

On July 1, 2026, the Company filed a registration statement covering the resale of the Amendment Commitment Securities and up to 6,000,000 additional shares issuable under the ELOC Purchase Agreement, which was declared effective by the SEC on July 7, 2026.

Except as amended, the ELOC Purchase Agreement remains in effect in accordance with its terms.

Following the ELOC Amendment, on July 1, 2026, the Company derecognized the outstanding commitment fee liability of $625 and recognized the following consideration issued to White Lion:

The difference of $81 between the carrying amount of the derecognized liability and the aggregate fair value of the consideration issued was recognized as a gain in other financial income (expense), net, during the three months ended September 30, 2026.

The Amendment Commitment Pre-Funded Warrants and Amendment Commitment Common Warrants were classified as liabilities in accordance with ASC 815-40 because the Company did not have sufficient authorized and unissued shares available to settle the warrants. These liabilities are subsequently remeasured at fair value at each reporting date, with changes in fair value recognized in other financial income (expense), net.

As of September 30, 2026, the liabilities associated with the Amendment Commitment Pre-Funded Warrants and Amendment Commitment Common Warrants amounted to $192 and $8, respectively.

For the three and nine months ended September 30, 2026, the Company recognized net financial income of $198 and $103, respectively, in connection with the ELOC Purchase Agreement and the ELOC Amendment.

No shares of common stock were sold pursuant to purchase notices under the ELOC Purchase Agreement during the three months ended September 30, 2026.

On September 18, 2024, the Company entered into an 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.

On January 5, 2026, the Company updated the offering amount based on the issuance in the preceding twelve months to $12 million of its common stock, par value $0.0001 per share through a filing of a prospectus supplement related to its ATM with Wainwright. The agreement has an effectiveness period from September 25, 2024 through September 24, 2027, and the Company is not obligated to sell any shares of common stock during such period.

During the nine months ended September 30, 2026, the Company issued and sold 18,429,137 shares of common stock for gross proceeds of approximately $7,311. The issuance cost was $368.

The Company is currently unable to utilize its ATM facility as a result of its delisting from Nasdaq until it is relisted.

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

As of September 30, 2026, the unrecognized compensation costs related to those unvested stock options are $0.4.

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

As of September 30, 2026, the unrecognized compensation cost related to unvested RSUs totaled approximately $385 and is expected to be expensed over a weighted-average recognition period of approximately 1 year.

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 10,893,298 shares underlying outstanding warrants,3,627 shares underlying outstanding options, and 106,534 shares underlying outstanding RSUs for the nine months ended September 30, 2026, because the effect of their inclusion in the computation would be antidilutive.

NOTE 7 – BASIC AND DILUTED LOSS PER SHARE (continued):

Diluted loss per share excludes 1,202,794 shares underlying outstanding warrants,4,059 shares underlying outstanding options, and 174,307 shares underlying outstanding RSUs for the nine months ended September 30, 2025, 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 are 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, 2026, the aggregate amount of the transaction price allocated to the remaining performance obligation is $350, and the Company will recognize this revenue over the next 30 months.

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