ODYS 10-K & 10-Q changes, risk factors and insider trading

We have devoted substantially all of our financial resources to the Odysightdevelopment TruVisionof solution.our solutions. We have financed our operations primarily primarily through the issuance of equity securities. We do not expect to be profitable for the foreseeable future as we invest in our business, business, build capacity and ramp up operations, and we cannot assure you that we will ever achieve or be able to maintain profitability in the future. Failure to become profitable would materially and adversely affect the value of your investment. The amount of our future net net losses will depend, in part, on the rate of penetration in the markets we are targeting, the rate of our future expenditures and our our continued ability to obtain funding through the issuance of our securities, strategic collaborations or grants. We anticipate that our our expenses will increase substantially if and as we:

We mayexpect that we will need to raise additional capital before we can expect to become profitable from sales of Odysightour solutions. This additional capital may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.

Based on our current business plan, we believe our current cash and cash equivalents and anticipated cash flow from operations, will be sufficient to meet our anticipated cash requirements over at least the next 12 months from the date of this Annual Report. We maynevertheless expect that we will need to raise additional capital before we can expect to become profitable from sales of Odysightour solutions and may raise additional additional capital to expand our business, to pursue strategic investments, to take advantage of financing opportunities or for other reasons. In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds sooner than planned. Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our products. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares of common stock to decline.

WhileDuring 2024 inand 20232025, we had one majorthree customer,customers a Fortune 500 medical company, whichthat accounted for approximately 98% of our revenues, for 2024 we had four customers which accounted for approximately 99% of our revenues in the aggregate. Our first revenues from the predictive maintenance and condition-based monitoring markets were generated in 2023. As of the date of this Annual Report, we have not received a purchase order from the Fortune 500 medical company customer with respect to 2025, and we do not expect to receive such purchase order for 2025, or if we do, it may be substantially lower in quantity than our 2024 purchase order from this customer. As this customer has accounted for the vast majority of our revenues to date, aA lack of a sufficient orders orderfrom new and existing customers may lead to a significant decrease in our revenues in the near term, which in turn could could result in us engaging in certain cost-cutting measures. Furthermore, because weof doour not yet have an establishedshort commercial operating history, and because the market for our products may rapidly evolve, it is hard for us to predict our future performance. Therefore, it may be difficult to evaluate our business and prospects and any predictions about our future performance may not be accurate.

Our future growth and success are highly dependent upon large-scale adoption of theour Odysight TruVision solutionsolutions in the markets in which we compete.

While we are establishing ourselves as a leading vision-based sensor technology company, our future growth depends upon large-scale adoption of theour Odysight TruVision solution.solutions. Although we anticipate continued market penetration for theour Odysightsolutions, TruVision solution, there is no guarantee of such future demand, or that our products will remain competitive. If our technology and products or any future product that we may develop does not achieve an adequate level of acceptance, or does not garner significant commercial appeal, we may not generate significant revenue and may not become profitable. The degree of market acceptance will depend on a number of factors, including:

Our efforts to penetrate industries and educate the marketplace regarding the benefits of our vision-based sensory technology, and reasons to seek the commissioning of products based on our technology, may require significant resources and may never be successful. Such efforts to educate the marketplace may require more resources than are required by conventional sensing technologies, and these resources may not be available to us.

We sell to governmental agency customers, as well as to customers in highly regulated industries such as defense. Sales to such entities are subject to a number of challenges and risks. Selling to such entities can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. Government demand and payment for our products and services may be impacted by public sector budgetary cycles and funding reductions or delays, which may adversely affect public sector demand for our products and services. Government contracting requirements may change and restrict our ability to sell into the government sector. Government demand and payment for theour Odysight TruVision solutionsolutions is affected by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our products.

OneA of our commercial agreements with aone customerof our customers includes exclusivity provisions affecting our ability to sell the underlying product to to third parties in the same segment, while certain other commercial agreements, with the Israeli Ministry of Defense for example, include restrictions on the sale of the products developed under these agreements, and limitations on the use of certain elements of intellectual property. Such agreements may also require payment of royalties to the Ministry of Defense in the event of sale of such products to third parties.

We believe that such exclusivity provisions and limitations promote thetrust development,with trustour customers and help facilitate the penetration of innovative new products and solutions. Such undertakings are typically limited to specific products or components, apply only in specific segments, and are limited in their duration. Such exclusivity provisions and limitations, however, may affect our ability to sell these products to third parties in the restricted markets or utilizing intellectual property developed under such agreements, which could slow or prevent our future growth.

If we are unable to ensure that theour Odysightsolutions TruVision solution interoperatesinteroperate with a variety of hardware and software platforms that are developed by others, including our partners, we may become less competitive and our business may be harmed.

TheOur Odysight TruVision solutionsolutions must integrate with a variety of hardware and software platforms, and we need to continuously modify and enhance theour Odysight TruVision solution solutions to adapt to changes in hardware and software technologies. Third-party services and products are constantly evolving, and we may not be able to modify Odysightour TruVision solutionsolutions to assure their compatibility with that of other third parties as they continue to develop or emerge in the future, or we may not be able to make such modifications in a timely and cost-effective manner. In addition, some of our competitors may be able to disrupt the operations or compatibility of the Odysightour TruVision solutionsolutions with their products or services, or exert strong business influence on our ability to, and terms on which we,we operate theour Odysight TruVision solution.solutions. Should any of our competitors modify their products or standards in a manner that degrades the functionality of theour Odysight TruVision solutionsolutions or gives preferential treatment to our competitors or to competitive products, products, whether to enhance their competitive position or for any other reason, the interoperability of theour Odysight TruVision solutionsolutions with these products could decrease decrease, and our business, results of operations and financial condition would be harmed. If we are not permitted or ableare unable to integrate with these andor with other third-party applications in the future, our business, results of operations and financial condition would be harmed.

If we fail to scale our business operations or otherwise manage our future growth effectively as we attempt to grow our company, we may not be able to produce, market, service and sell theour Odysight TruVision solutionsolutions successfully.

Furthermore, we have no experience to date in high-volume manufacturing of our products and we cannot assure that we will be able to develop efficient, automated, low-cost manufacturing capabilities and processes, and reliable sources of component supply, that will enable us to meet the quality, price, engineering, design and production standards, as well as the production volumes, required to successfully market theour Odysight TruVision solutionsolutions as our operations expand. Any failure to effectively manage our growth could materially and adversely affect our business, prospects, financial condition, results of operations and cash flows.

We rely on AI and machine learning in the operation of some our vision-based sensing products. The AI models that we use are trained using various data sets. If our AI models are incorrectly designed or implemented or do not receive pictures or visual data, they may produce inaccurate or unreliable results, negatively impacting the performance and reliability of theour Odysight TruVision solution.solutions. The effectiveness of our AI models depends on the quality and completeness of the data used for training. If the data is incomplete, inadequate, or biased, it could lead to suboptimal model performance, impairing the functionality of theour Odysight TruVision solution.solutions. Any malfunction or unexpected behavior in our AI-driven systems could disrupt our operations, leading to increased downtime and higher maintenance costs for our customers, and potential loss of revenue. Additionally, failures in the performance of our AI models could damage our reputation, erode customer trust, and result in loss of business and negative publicity.

Continuing technological changes in the market for theour Odysight TruVision solutionsolutions could make our products less competitive or obsolete, either generally or for particular applications. Our future success will depend upon our ability to develop and introduce a variety of new capabilities and enhancements to our existing product and service offerings, as well as introduce a variety of new product offerings, to address the changing needs of the markets in which it offers products. Delays in introducing thesolutions Odysight TruVision solution and enhancements, the failure to choose correctly among technical alternatives or the failure to offer innovative products or enhancements at competitive prices may cause existing and potential customers to purchase our competitors’ products. If we are unable to devote adequate resources to develop new products or cannot otherwise successfully develop new products or enhancements that meet customer requirements on a timely basis, our products may no longer be as marketable as compared to competitors and we could lose a substantial portion of our market share in those products, resulting in a potential decline in our revenue and greater operating losses.

We have fourthree customers that account for a substantial portion of our revenues, and ourthe resultresults of our operationoperations could be harmed were we to lose these customers or receive lower than expected purchase orders.

WhileDuring 2024 inand 20232025, we had one majorthree customercustomers whichthat accounted for approximately 98% of our revenues, in 2024 we had four customers which accounted for approximately 99% of our revenues in the aggregate. Our first revenues from the predictive maintenance and condition-based monitoring markets were generated in 2023. As of the date of this Annual Report, we have not received a purchase order from the Fortune 500 medical company customer with respect to a 2025, and we do not expect to receive such purchase order for 2025, or if we do, it may be substantially lower in quantity than our 2024 purchase order from this customer. As this customer has accounted for the vast majority of our revenues to date, aA lack of a sufficient orderorders from new and existing customers may lead to a significant decrease in our revenues in the near term, which in turn could result in us engaging engaging in certain cost-cutting measures. In addition, if we lose this or any of our other customers or we receive lower than expected purchase purchase orders, our revenues would decline significantly, and our business would be harmed.

Most of the components and parts we use in our manufacturing operations are available from more than one source. However, we obtain certain components from single source suppliers. For example, the number of suppliers engaged in the provision of miniature video sensors which are suitable for our complementary metal-oxide semiconductor, or CMOS, technology that we utilize mainly in the medical domain is very limited. As we do not have a direct general contract in place with these suppliers, there is no contractual commitment on the part of such suppliers for any set quantity of such sensors. In the event of an extended failure of aone supplieror inmore thisof area,these suppliers, it is possible that that we could experience an interruption in supply until we established new sources or, in some cases, implemented alternative processes andprocesses. anyAny inability or delay in finding a suitable replacement supplier or suppliers could negatively affect our business, financial condition, results results of operations and reputation. However, we perform periodic supply chain risk analysis and seek to procure required components to enable consistency in production of our solutions.

We have entered into, and we may continue to enter into, strategic alliances with third parties to gain access to new and innovative technologies and markets. These parties are often large, established companies. NegotiatingNegotiation of and performingperformance under these arrangements involves significant time and expense, and we may not have sufficient resources to devote to our strategic alliances, particularly those with companies that have significantly greater financial and other resources than we do. The anticipated benefits of these arrangements may never materialize and performing under these arrangements may adversely affect our results of operations.

We face competition from providers of sensingsensing, PdM and CBM solutions. If we cannot successfully compete with new or existing technologies or future developed products, our marketing and sales will suffer, and we may never be profitable.

We compete primarily on the basis of product range, product features, industry certifications, reliability, brand, reputationreputation, and service and support. We believe we have a competitive advantage as the sole company we are aware of that is developing and marketing vision-based sensing which target PdM and CBM applications, providing comprehensive solutions as well as superior products for vision systems across a broad range of markets, applications and geographies. However, we expect our competitors to continue to develop and introduce new products and to enhance their existing products, which could cause a decline in demand for our products. Our competitors may also improve their manufacturing processes or expand their manufacturing capacity, which could make it more difficult or expensive for us to compete successfully. In addition, our competitors could enter into exclusive arrangements with our existing or potential customers or suppliers, which could limit our ability, or make it significantly more expensive, to produce our products or to generate sales.

Our future success depends substantially on the continued services of our executive officers and certain other key employees, including, but not limited to, Yehu Ofer, our Chief Executive Officer, Einav Brenner, our Chief Financial Officer, Eliand Israeli,Eilam Sagi, our Chief Technology OfficerBusiness and Jacob Avinu, our Senior VP of Product Portfolio.Officer. If one or more of our executive officers were unable or unwilling to continue in their present position, we might not be able to replace them easily or at all. In addition, if any of our executive officers joins a competitor or forms a competing company, we may lose experience, know-how, key professionals and staff members as well as business partners. Some of these executive officers could develop vision-based sensor technologies that could compete with and take customers and market share away from us. Should we lose the services of any member of our senior management team or key personnel, replacing such personnel could involve a prolonged search, diverting management time and attention, and we may not be able to locate and hire a qualified replacement. We do not carry key-man insurance to mitigate the financial effect of losing the services of any member of our management team.

If a significant portion of our employees leave us, we might fail to effectively manage a transition to new personnel, oror, if we fail to attract and retain qualified and experienced professionals on acceptable terms, our business, financial condition and results of operations could be adversely affected.

Our business, financial condition and results of operations could be adversely affected by disruptions in the global economy caused by geopolitical events, including the ongoing conflictconflicts in the Middle East and between Russia and Ukraine.

TheOur globalbusiness economyis has been negatively impactedaffected by the economic health of the global economy. If the conditions in the global economy remain uncertain or continue to be volatile, or if they deteriorate, including as a result of the impact of military conflictconflicts, such as the war between Russia and Ukraine.Ukraine and ongoing conflicts in the Middle East, terrorism or other geopolitical events, our business, operating results and financial condition may be adversely affected. Furthermore, governments in the United States, United Kingdom, European Union and Australia, among others, have each imposed export controls on certain products and/or financial and economic sanctions relating to Russia, including on certain industry sectors and parties in Russia. Although we have no operations in Russia or Ukraine, we believe some shortages in materials, increased costs for raw material and other supply chain issues are at least partially attributable to the negative impact of the Russia-Ukraine military conflict on the global economy. Further escalation of geopolitical geopolitical tensions related to the military conflict,conflicts, including increased trade barriers or restrictions on global trade, could result in, among other things, cyberattacks, additional supply disruptions, lower consumer demand and changes to foreign exchange rates and financial markets, any of which may adversely affect our business and supply chain. In addition, the effects of the ongoing conflict could heighten many of our known risks described herein under “Risk Factors.”

In the future, we expect to derive a substantial percentage of our sales from international markets. Accordingly, we expect to face significant operational risks from doing business internationally, including:

Further, international trade conflicts could have negative consequences on the demand for our products and services outside of Israel. Other risks of doing business internationally include political and economic instability in the countries of our customers and suppliers, changes in diplomatic and trade relationshipsrelationships, and increasing instances of terrorism worldwide. Some of these risks may be affected by Israel’s overall economic, political and military situation. See “Item 1A. Risk Factors – Risks Related to our Operations in Israel – Our headquarters and other significant operations are located in Israel and, therefore, our results may be adversely affected by political, economic and military instability in Israel” for further information.

While we make strategic planning decisions based on the assumption that the aerospace, industrial, transportation and energy markets that we we are targeting will grow, our business is dependent, in large part on, and directly affected by,by business cycles and other factors affecting affecting the aerospace, industrial, transportation, energytransportation and medicalenergy markets and the global economy generally. Aerospace and transportation in particular are highly cyclical markets and depend on general economic conditions and other factors, including consumer spending and preferences, changes in interest rates and credit availability, consumer confidence, fuel costs, fuel availability, environmental impact, governmental incentives and regulatory requirements and political volatility, especially in energy-producing countries and growth markets. In addition, our production and sales are affected by our customers’ ability to continue operating in response to challenging economic conditions and in response to labor relations issues, regulatory requirements, trade agreements and other factors. Any significant adverse change in any of these factors may result in a reduction in sales of Odysightour solutions and could have a material adverse effect on our business, results of operationsoperations, and financial condition.

General macro-economic conditions, such as a rise in interest rates, inflation in the cost of goods and services including labor, a recession or an economic slowdown in the United States or internationally, including as a result of continuinga uncertainty from any resurgence of the COVID-19 or other pandemic outbreaks,pandemic, the ongoing Russia-Ukraine military conflict or conflicts in the Middle East, could adversely affect demand for theour Odysight TruVision solutionsolutions and make it difficult to accurately forecast and plan our future business activities.

Global markets have beenin experiencingrecent years experienced volatility and disruption due to interest rate and inflation increases as well as the continued escalation escalation of geopolitical tensions. Although our business has not yet been materially negatively impacted by such inflationary pressures, we cannot be certain that neither we nor our customers will be materially impacted by continued inflationary pressures. We may find that we need to give higher than normal raises to employees or to start new employees at higher wage and/or benefit rates, while notbeing be able unable to price the higher costs through to customers.

Our business could be adversely affected if we fail to maintain product quality and product performance at an acceptable costcost, or if we incur significant losses, increased costs or harm to our reputation or brand as a result of product liability claims or product recalls.

In order to maintain and increase our net sales and reach and sustain profitable operations, we must produce high-quality products on a large-scale basis at acceptable manufacturing costs and yields. If we are unable to maintain the quality and performance of theour Odysightsolutions TruVision solution at acceptable costs, our brand, the market acceptance of our products and our results of operations would suffer. As we regularly modify our product lines and introduce changes to our manufacturing processes or incorporate new raw materials, we may encounter unanticipated issues with product quality or production delays. Regulatory, safety or reliability developments, many of which may be outside of our control, could also cause delays or otherwise impair commercial adoption of our products, which would adversely affect our growth. While we engage in product testing in an effort to identify and address any product quality issues before we introduce products to market, unanticipated product quality or performance issues may be identified only after a product has been introduced and sold.

We develop, manufacture and sell a vision-based sensor solution that contains electronic components, and such components may contain materials that are subject to government regulation in both the locations where we develop, manufacture and assemble our products, as well as the locations where we sell our products. Among other things, certain applicable laws and regulations require or may in the future require the submission of annual reports to certain governmental agencies certifying that such products comply with applicable performance standards, the maintenance of manufacturing, testing and distribution records, and the reporting of certain product defects to such regulatory agencyagencies or consumers. If our products fail to comply with applicable regulations, we and/or our products could be subjected to a variety of enforcement actions or sanctions, such as product recalls, repairs or replacements, warning letters, untitled letters, safety alerts, injunctions, import alerts, administrative product detentions or seizuresseizures, or civil penalties. The occurrence of any of the foregoing could harm our business, results of operations and financial condition.

In addition, some of our customers may require that we comply with unique requirements specific to their operations. For example, there there exist U.S. Federal Aviation Administration and International Civil Aviation Organization requirements for certain airplane models to to be subject to CE certification, a regulatory standard that verifies certain products are safe for sale and use in much of Europe,Europe. These These and other requirements are applicable for theour Odysight TruVision solutionsolutions in various jurisdictions across the globe.

Government safety regulations are an important factor for our business. Historically, these regulations have imposed ever-more stringent safety regulations for the aerospace and transportation industries. These safety regulations often require, or customers may demand, more safety features for relevant products being sold in such industries.

U.S. and international regulators impose more stringent compliance and reporting requirements in response to product recalls and safety issues in the automotive and aeronautic industry. As the mechanical components that carry our products go into production, we may become subject to stringent requirements, including a duty to report,report safety defects with our products, subject to strict timing requirements, safety defects with our products.requirements. Such rules rules and regulations may impose potentially significant civil penalties for violationsviolations, including the failure to comply with such reporting actions. If we cannot rapidly address any safety concerns or defects with our products, our business, results of operations and financial condition may be adversely affected.

We may be prohibited from selling theour Odysightsolutions TruVision toin certain countries if we are unable to obtain Israeli authorization regarding the export of our products, or if current or future export laws limit or otherwise restrict our business.

As we expand our operations internationally, we may be prohibited from selling theour Odysightsolutions TruVision solution toin certain countries if we are unable to obtain certain governmental authorizations required to comply with Israeli laws regulating the export of our products from Israel. The export regulations and the governing policies applicable to our business are subject to change. In some cases, explicit authorization from the Israeli Israeligovernment may be needed to export our products. We cannot provide assurance that such export authorizations will be available in the future for theour Odysight TruVision solution.solutions. If and when our operations expand into other markets, we may have to comply with other governments’ regulations regarding the export of our products. Non-compliance with applicable export regulations could potentially expose us to fines, penalties and sanctions. If we cannot obtain required government approvals under applicable regulations, we may not be able to sell our solution in certain international jurisdictions, which could adversely affect our financial condition and results of operations.

We are subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, to Chapter 9 (sub-chapter 5) of the Israeli Penal Law, 5737-1977 and and the Israeli Prohibition on Money Laundering Law, 5760-2000, collectively, the Israeli Anti-Corruption Laws, and to other anticorruption, anti-bribery and anti-money laundering laws in the jurisdictions in which we do business, both domestic and abroad. These laws generally prohibit us and our employees from improperly influencing government officials or commercial parties in order to obtain or retain business, direct business to any person or gain any advantage. The FCPA, the Israeli Anti-Corruption Laws and other applicable anti-bribery and anti-corruption laws also may hold us liable for acts of corruption and bribery committed by our third-party business partners, representatives and agents. In addition, we leverage third parties to sell our products and conduct our business abroad. We and our third-party business partners, representatives and agents may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and we may be held liable for the corrupt or other illegal activities of these third-party business partners and intermediaries, our employees, representatives, contractors, channel partners and agents, even if we do not explicitly authorize such activities.

These laws also require that we keep accurate books and records and maintain internal controls and compliance procedures designed to prevent any such actions. While we have policies and procedures to address compliance with such laws, we cannot provide complete assurance that our employees and agents will not take actions in violation of our policies or applicable law, for which we may be ultimately held responsible. Our potential exposure for violating these laws increases as our international presence expands and we increase sales and operations in foreign jurisdictions. Any violation of the FCPA, the Israeli Anti-Corruption Laws or other applicable anti-bribery, anti-corruption laws and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, imposition of significant legal fees, loss of export privileges, severe criminal or civil sanctions orsanctions, suspension or debarment from U.S. government contracts, substantial substantial diversion of management’s attention, a decline in the market price of our common stock or overall adverse consequences to our reputation and business, all of which may have an adverse effect on our results of operations and financial condition.

Public companies have recentlyin recent years faced scrutiny related to ESG practices and disclosures from certain investors, capital providers, shareholder advocacy groups, other market participants and other stakeholder groups. Such scrutiny may result in increased costs, enhanced compliance or disclosure obligations, or other adverse impacts on our business, financial condition or results of operations. If our ESG practices and reporting do not meet investor or other stakeholder expectations, we may be subject to investor or regulator engagement regarding such matters. Our failure to comply with any applicable ESG rules or regulations could lead to penalties and adversely impact our reputation, access to capital and employee retention. Such ESG matters may also impact our third-party contract manufacturers and other third parties on which we rely, which may augment or cause additional impacts on our business, financial condition or results of operations.

As our operations and business grow, we may become subject to or affected by new or additional data protection laws and regulations and face increased scrutiny or attention from regulatory authorities. For example, the State of Israel has implemented data protection laws and regulations, including the Israeli Protection of Privacy LawLaw, of 1981.5741-1981. Although we work to comply with applicable laws, regulations and standards, our contractual obligations and other legal obligations, these requirements are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another or other legal obligations with which we must comply. Any failure or perceived failure by us or our employees, representatives, contractors, consultants, collaborators or other third parties to comply with such requirements or adequately address privacy and security concerns, even if unfounded, could result in additional cost and liability to us, damage our reputation and adversely affect our business, financial condition and prospects.

We rely on systems and websites, including some that are managed by third parties, such as cloud infrastructure, that allow for the storage and transmission of proprietary or confidential information regarding our customers, employees and others, including personal information. We face numerous and evolving cybersecurity risks that threaten the confidentiality, integrity and availability of our systems and confidential information, including malicious code embedded in open-source software, or misconfigurations, “bugs” or other vulnerabilities in commercial software that is integrated into our (or our suppliers’ or service providers’) IT systems, products or services. The risk of a data security breach or a disruption has generally increased in number, intensity and sophistication over time. Techniques used to compromise or sabotage systems change frequently, may originate from less regulated and remote areas of the world and be difficult to detect, and generally are not recognized until launched against a target. As a result, we may be vulnerable to, and unable to anticipate or detect, detect data security breaches and data loss. In addition, data security breaches can also occur as a result of a breach by us or our employees employees or by persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information.

In addition to our own databases, we use third-party service providers to store, process and transmit confidential, personal or sensitive information on our behalf. A data security breach could occur in the future either at their location or within their systems that could affect our personal or confidential information. Similar security risks exist with respect to our third-party vendors that we rely on for aspects of our IT support services, pickup and delivery services, and administrative functions, including the systems owned, operated or controlled by other unaffiliated operatorsoperators, to the extent we rely on such other systems to deliver services to our customers. Our ability ability to monitor our third-party service providers’ data security is limited. As a result, we are subject to the risk that cyber-attacks on, or other security incidents affecting,affecting our third-party service providers may adversely affect our business, even if an attack or breach breach does not directly impact our systems. It is also possible that security breaches sustained by, or other security incidents affecting,affecting our competitors could result in negative publicity for our entire industry that indirectly harms our reputation and diminishes demand for our products and services. Practices regarding the collection, use, storage, transmission and security of personal information have recently come under increased public scrutiny. Any failure or perceived failure by us to prevent information security breaches or to comply with privacy policies or privacy-related legal obligations could cause our customers to lose trust in us and our services. Any perception that the confidentiality or privacy of information is unsafe or vulnerable when using our services could damage our reputation and substantially harm our business, financial condition and results of operations.

The secure processing, storage, maintenance and transmission of critical customer and business information are vital to our operations and our business strategy. Although we devote resources to protecting such informationinformation, and take what we believe to be reasonable measures, including a formal and dedicated IT department and limiting the amount of any data we store, to protect sensitive information from compromises such as unauthorized access, disclosure or modification or lack of availability, our information technology and infrastructure may still be vulnerable to attacks by hackers or viruses or breached due to employee error, malfeasance or other disruptions.

Our patent portfolio consists of an aggregate of 1718 patents and 5563 pending patent applications, as described in “Business — Intellectual Property.” We cannot offer any assurances about which, if any, patent applications will issue, the breadth of any such patent or whether any issued patents will be found invalid or otherwise unenforceableunenforceable, or will be threatened by third parties. Any successful opposition or other challenge to these patents or to any other patents owned by or licensed to us after patent issuance could deprive us of rights necessary for the successful commercialization of any new products that we may develop.

It is inherently difficult to conclusively assess our freedom to operate without infringing on third-party rights. Our competitive position position may be adversely affected if existing patents or patents resulting from patent applications by third parties or other third-party intellectual property rights are held to cover our products or elements thereof, or our manufacturing or uses relevant to our development plans. In such cases, we may not be in a position to develop or commercialize our products unless we successfully pursue litigation to nullify or invalidate the third-party intellectual property right concerned or enter into a license agreement with the intellectual property right holder, if available on commercially reasonable terms. There may also be published or yet unpublished pending patent applications applicationsby third parties that, if they result in issued patents, could be alleged to be infringed by our new products. If such an infringement claim should be brought against us and be successful, we may be required to pay substantial damages, be forced to abandon our new products products or seek a license from any patent holders. No assurances can be given that a license will be available on commercially reasonable terms, if at all.

It is also possible that we have failed to identify relevant third-party patents or applications. Patent applications in the United States and in many other countries are published approximately 18 months after the earliest filing date for which priority is claimed, with such such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our new products or solution solution technologies could have been filed by others without our knowledge. Additionally, pending patent applications which have been published published can, subject to certain limitations, be later amended in a manner that could cover our solution technologies, our new products or the use of our new products. Third-party intellectual property right holders may also actively bring infringement claims against us. We cannot guarantee that we will be able to successfully settle or otherwise resolve such infringement claims. If we are unable to successfully settle future claims on terms acceptable to us, we may be required to engage in or continue costly, unpredictable and time-consuming litigation and may be prevented from or experience substantial delays in pursuing the development of and/or marketing our new products. If we fail in any such dispute, in addition to being forced to pay damages, we may be temporarily or permanently prohibited from commercializing our new products that are held to be infringing. We might, if possible, also be forced to redesign our new products so that we no longer infringe the third-party’s intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business, and our business could suffer as a result.

Competitors may or might have infringed our intellectual property. If we were to initiate legal proceedings against a third-party to enforce a patent covering one of our products, the defendant could counterclaim that the patent covering our products is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of patentable subject matter, novelty, non-obviousness or enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the United States Patent and Trademark Office, or USPTO, or made a misleading statement, during prosecution. The validity of U.S. patents may also be challenged in post-grant proceedings before the USPTO. The outcome following legal assertions of invalidity and unenforceability is unpredictable.

Filing, prosecuting,prosecuting and defending patents on products or technologies, as well as monitoring their infringement in all countries throughout the the world would be prohibitively expensive,expensive. andIn addition, the scope of protection we obtain in various countries may be different or narrower than the scope obtained in the United States. Therefore, our intellectual property rights in some countries can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as as federal and state laws in the United States or the laws of the State of Israel.

A substantial part of our commercial success will depend on our ability to maintain, establish and protect our intellectual property assets, assets, maintain trade secret protection, register patents and trademarks,trademarks and operate without infringing the proprietary rights of third parties throughout the world. Our patent portfolio consists of an aggregate of 1618 patents and 4663 pending patent applications (including provisional patent applications) filed or registered in various jurisdictions worldwide, as described in “Business — Intellectual Property.”

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, which could make it difficult for us to stop the marketing of competing products in violation of our intellectual property rights generally.rights. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our future patents at at risk of being invalidated or interpreted narrowlynarrowly, andput our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to monitor and enforce our intellectual property rights around the world may be inadequate or insufficient to obtain a significant commercial advantage from the intellectual property that we develop or license. We use machine learning, artificial intelligence and automated decision making in our research and development process. We may not be able to protect our intellectual property rights related to products or services created by or based exclusively on machine learning, artificial intelligence and automated decision making.

On December 30, 2019, we acquired all of the issued and outstanding share capital of ScoutCam Ltd. and, on December 31, 2029,2019, we changed our name to ScoutCam Inc. Following this acquisition, we integrated and fully adopted the acquired miniaturized imaging business into us as our primary business activity. On June 5, 2023, we changed our name to Odysight.ai Inc. On February 11, 2025, our common stock began trading on the Nasdaq Capital Market under the symbol “ODYS”.

We are a pioneer in the development, production and marketing of an innovative visualizationvisual andmonitoring artificial intelligence, or AI, solutionsolutions that deploys small camerasvisual sensors to monitor critical safety components in hard-to-reach locations and harsh environments, across various Predictive Maintenance, or PdM, and Condition Based Monitoring, or CBM, use cases.cases applied both for the civil and defense sectors. We aim to be the industry benchmark for real-time, visual-based machine and infrastructure health monitoring and predictive maintenance analysis through AI and machine learning data analytics.

TheOur Odysightsolutions TruVision solution streamsstream visual information to our processing unit, an in-platform, high-performance AI/ML (machine learning ) computer, allowing maintenance and operations teams, on the ground and during operations, visibility into areas that are inaccessible under normal operating conditions or where conditions are not suitable for continuous real-time monitoring. The rich and informative data, continuously collected and analyzed by our solution on our secured cloud, provides customers with real-time failure / anomaly detection, events and data recordings, interfacing with platform mission systems and providing real-time alerts and streaming video or images, all while training our algorithms for ongoing improved accuracy and prediction capabilities. Our customers benefit from increased safety, a reduction in downtimedowntime, a more efficient data driven operation, increased mission readiness and lower maintenance costs for their monitored platforms, using the prediction capabilities of our solution to efficiently plan maintenance work on monitored components.

Our solution aims to enhance safety and minimizesminimize costly downtime by enabling real-time visual analysis of any failure occurrences.occurrences Additionally, weand to leverage advanced big data analytics to offer predictive insights throughout the entire system lifecycle. This includes efficient efficient spare parts management and intelligent performance predictions, ensuring optimal system reliability and efficiency.

In February February 2025, we closed a public offering, including the exercise of an over-allotment option granted to the underwriter in the public offering. The public offering and the over-allotment option exercise price was $6.50 per share. In the aggregate, we sold a total of 3,653,124 shares of common stock, generating gross proceeds of approximately $23.7 million, prior to the deduction of underwriting discounts, discounts, commissions and estimated offering expenses. After deducting issuance costs, we received proceeds of approximately $20.9 million. Also in February 2025, listing was approved for our common stock,stock which began trading on the Nasdaq Capital Market under the symbol “ODYS”.

OursOur revenues are measured according to the ASC 606, “Revenue from Contracts with Customers” (“ASC 606”). Under ASC 606, revenues are measured according to the amount of consideration that the Company expects to be entitled to receive in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. Revenues are presented net of VAT.

Volatility is derived from a blend of the historicalCompany’s volatility and historic volatility of a publicly traded set of peer companies. The risk-free interest rates used in the Black-Scholes calculations are based on the prevailing U.S. Treasury yield as determined by the U.S. Federal Reserve. We have not paid dividends and does not anticipate paying dividends in the foreseeable future. Accordingly, no dividend yield was assumed for purposes of estimating the fair value of our stock-based compensation. The weighted average expected life of options was estimated individually in respect of each grant.

Our primary business activity in 20242025 was enlarging our focus on R&D activities in the domain of Industry 4.0, including PdM and CBM in sectors such as aerospace, maritime energytransportation and other heavy machinery, engines and complicated mechanics whichthat require ongoing monitoring and predictive maintenance applications. The main effect of this activity enabled uswas to acceleratesupport our growthplanned andaccelerated support an increased workloadgrowth, and solution development forquality customers.and development.

As a result of the nature of our target market and the current stage of the deployment of our development,solutions, a substantial portion of our revenue comes from from a limited number of customers.

For the year ended December 31, 2024,2025, we generated revenues of $3,964,000,$3,015,000, ana increasedecrease of $931,000,$949,000, or 31%,24%, from 20232024 revenues.

Cost of revenues for the year ended December 31, 2024,2025, were $2,807,000$2,144,000, ana increasedecrease of $283,000,$663,000, or 11%,24%, compared to cost of revenues of $2,524,000$2,807,000 for the year ended December 31, 2023.2024.

The increasedecrease in cost of revenues wasis primarilyconsistent duewith tothe an increasedecrease in revenues.revenues, as described above.

Gross profit for the year ended December 31, 20242025 was $1,157,000,$871,000, ana increasedecrease of $648,000,$286,000, or 127%,25%, compared to a gross profit of $509,000$1,157,000 for for the year ended December 31, 2023.2024.

The changedecrease in gross profit was due both to anthe increasedecrease in revenues andpartially tooffset anby increasethe decrease in cost of revenues, as described above.

The increase in research and development expenses was mainly due to the development of new products and the resulting increase in payroll and and related expenses forrelated to the recruitment of new employee recruitment,employees, an increase in stock-based compensation from new option grants and procuring materials and services of subcontractors for Industry 4.0 projects.

We expect that our research and development expenses willmay increasemodestly grow as we continue to develop our products and services and recruit additional additional research and development employees dueexperts to increasedsupport our focus on R&DIndustry activities4.0 in the domain of I4.0.solutions.

We expect that our sales and marketing expenses will increase as we expand our global selling and marketing efforts in the I4.0 domain.efforts.

The increase/decrease was primarily due to:

WeThe incurred an operating loss of $12,507,000 for the year ended December 31, 2024, an increase of $1,874,000, or 18%, compared to operating loss of $10,633,000 for the year ended December 31, 2023. The increase in operating loss was due to increases in research and development expenses, general and administrative expenses and sales and marketing expense,expenses, each as described above, partially offset by an increase in gross profit.above.

Backlog representsis a key business metric that we define as booked orders based on purchase orders or hard commitments but not yet recognized as revenue. Orders included in backlog may be cancelled or rescheduled by customers. A variety of conditions, both specific to the individual customer and generally affecting the customer’s industry, may cause customers to cancel, reduce or delay orders that were previously made or anticipated. We cannot assure assure the timely replacement of cancelled, delayed or reduced orders. Backlog is presented for supplemental informational purposes only and is not intended to be a substitute for any GAAP financial measures, including revenue or net income (loss), and, as calculated, may not be comparable to companies in other industries or within the same industry with similarly titled measures of performance. In addition, backlog backlog should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Therefore, backlog backlog should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP.

As of December 31, 2024,2025, we had cash, cash equivalents and restricted depositcash of $18.5$26 millionmillion, compared to cash and cash equivalents and restricted short-term deposits of $17$18.5 million as of December 31, 2023.2024. In addition, as of December 31, 2024,2025, we incurred an accumulated deficit of approximately $46 $63 million, as compared to $34.2$46 million as of December 31, 2023.2024.

Our primary sources of liquidity to date have been from fund-raising,fundraising, revenues offrom customers and warrant exercises.

We plan to continue to invest in long-term growth, and therefore we expect that our expenses will continue to grow. We currently believe that our existing cash and cash equivalents and short-term deposits will allow us to fund our operating plan through the at least the next 12 months from the date of this Annual Report. We expect ourOur expenses willmay increase in connection with our ongoing activities, particularly as we continue the our commercialization efforts, research and development and the scale up Odysightof our solutions. We expect to incur significant commercialization expenses related to product sales, marketing, manufacturing,manufacturing and distribution. Furthermore, we will continue to incur additional costs associated with operating as a public company. Accordingly, we may need to raise additional capital before we become profitable from sales of our solutions and may do so to expand our business, pursue strategic investments, take advantage of financing opportunities or for other reasons. We may raise these funds through equity financing, debt financing,financing or other sources, which may result in further dilution in the equity ownership of our common stock. There is no assurance that we will be able to maintain operations at a level sufficient for investors to obtain a return on their investment in our common stock, or that we will be able to raise sufficient capital required to implement our business plan on acceptable terms, if at all. Even if we are successful in raising sufficient capital to implement our business plan, we will, most likely, continue to be unprofitable for the foreseeable future. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce,reduce or eliminate our research and development programs or future commercialization efforts.

During the year ended December 31, 2023,2024, cash used in operating activities was $10$8.2 million, consisting of net loss of $9.4$11.8 million, partially offset by a non-cash benefit of $1.8$2.4 million and ana unfavorablefavorable net change in operating assets and liabilities of $2.4$1.2 million. Our non-cash benefit consisted primarily of non-cash charges of $1.7$2.4 million for stock-based compensation. The unfavorablefavorable net change in our operating assets and liabilities was primarily due to an increasedecrease in accounts receivable of $1.3 million and decrease in fulfillment asset partially offset by decrease in contract liabilities of $1.3 million.liabilities.

Except for the additional risk factors provided below, thereThere have been no material changes from the information set forth in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC on March 19, 2026, and in our Quarterly Report on Form 10-Q for the period ended March 31, 2026, as filed with the SEC on May 14, 2026.

Readers are advised to review the following discussion and analysis of our financial condition and results of operations together with our interim interim condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2025. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements”. You should review the “Risk Factors” section in thisour Quarterly Report on Form 10-Q for the period ended March 31, 2026 and in our Annual Report for the year ended December 31, 2025 for a discussion of important factors that that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained contained in the following discussion and analysis.

We are a pioneer in the development, production and marketing of an innovative visual monitoring artificialAI intelligence,solution or AI, solutions that deploydeploys small visual sensors to monitor critical safety components in hard-to-reach locations and harsh environments, across various Predictive Predictive Maintenance, or PdM, and Condition Based Monitoring, or CBM, use cases applied both for the civil and defense sectors. We aim to be the industry benchmark for real-time, visual-based machine and infrastructure health monitoring and predictive maintenance analysis analysis through AI and machine learning (ML) data analytics.

Our solutionssolution streamstreams visual information to our processing unit, an in-platform, high-performance AI/ and ML (machinecomputer, allowing learning) computer, allowing maintenance and operations teams, on the ground and during operations, visibility into areas that are inaccessible under normal operating conditions or where conditions are not suitable for continuous monitoring. The data, continuously collected and analyzed by our solutions solution on our secured cloud, provides customers with real-time failure / anomaly detection, events and data recordings, interfacing with platform mission systems and providing real-time alerts and streaming video or images, all while training our algorithms for ongoing improved accuracy and prediction capabilities. Our customers use the prediction capabilities of our solutionssolution to efficiently plan maintenance work on monitored components, benefiting from increased safety, a reduction in downtime, a more efficient data driven operation, increased mission readiness and lower maintenance costs for their monitored platforms.

Our solutionssolution aim to enhanceenhances safety and minimize costlyminimizes downtime by enabling real-time visual analysis of any failure occurrences and to leverage advanced big data analytics to offer predictive insights throughout the entire system lifecycle. This includes efficient spare parts management and intelligent performance predictions, ensuring optimal system reliability and efficiency.

Our solutions are already deployed in the industrial,aviation, industrial and automotive and aviation sectors. OurWhile historically, our revenue stream has been derived mainly from the medical sector, today our customers include the Israeli Air Force, the Israeli Ministry of Defense, Honeywell Aerospace, a global international defense contractor, National Aeronautics and Space Administration (NASA) and Israel Railways Ltd., as well as a leading European provider of elevator monitoring solutions. We have also entered into a Cooperative Research and Development Agreement (CRADA) with the Naval Air Warfare Center Aircraft Division Lakehurst (NAWCAD). Historically, our revenue stream was derived mainly from the medical sector.

Impact of the Ongoing War in Israelthe Middle East on Our Business

OnIn October October 7, 2023, the Hamas terrorist organization launched a series of terror attacks on civilian and military targets adjacent to the Gaza Strip in southern Israel. Israel subsequently declared war and commenced a military campaign against Hamas. While the parties reached a framework Sincein then,October 2025 that contemplates a potential permanent end to the war with Hamas, there can be no assurance that any ceasefire will be sustained or will result in a lasting resolution. Furthermore, Israel has been involved in an ongoing military campaign and has facedexperienced hostilities on multipleother fronts, including regularwith Hezbollah rocketalong andIsrael’s dronenorthern border, attacks and threats from Hamas in the Gaza Strip, Hezbollah in Lebanon, the Houthi movementHouthis in Yemen and otherseveral terroristsignificant direct confrontations with organizationsIran. active in the region. While Israel and Hamas reached a ceasefire framework in October 2025 contemplating a permanent end to that conflict, there is no assurance the agreement will hold. Furthermore, the regionalThe security situation escalated significantly in late February 2026,2026 following preemptive strikes bywhen Israel and the United States againstpreemptively Iranianattacked nuclearIran. andAs ballisticpart capabilities. Inof response,this conflict, Iran launched missile and drone attacks toward population centers and military installations in Israel, Europe and neighboring countries in the Gulf region, and also launched counter-strikes against U.S. forces and allied bases throughout the Gulf region. In addition, in early March 2026, Hezbollah initiatedjoined furtherthe conflict and carried out missile strikes attacks against Israel, leading to Israeli retaliatory strikes and limitedan extended ground incursions into Lebanon. On April 8, 2026, the United States and Iran agreed to a temporary ceasefire with the aim of reaching a permanent agreement and ending the war and on April 16, 2026, a cessation of hostilities was announced between Israel and Lebanon. However, the military operation in Lebanon against Hezbollah is still ongoing and the Iran ceasefire remains fragile, with reports of continued military operations by both sides.incursion.

TheAlthough warthese hasconflicts had economic, military and social consequences for Israel. While the conflict hashave not had a material adverse effect on our business to date, we have experienced disruptions to ourwork routineroutines, work, including periodic travel limitations and occasional rocket fire requiring employees at our Omer and Ramat Gan offices to take temporary sheltershelter. in on-site safe rooms. Pursuant to instructions from Israel’s Home Front Command, ourOur offices were closed on certain days during the recent period of heightened hostilitiescurrent conflict with Iran and Hezbollah.Hezbollah pursuant to instructions from Israel’s Home Front Command. To mitigate these effects, we have adopted work-from-home measures, increased employee overtime and utilized third-party outsourcing where necessary. Furthermore, many of our employees and executives are obligated to perform military reserve duty. Since October 2023, several of our executives, including our CEO, have been periodically called up to active duty. Our operations could be disrupted by future call-ups and by the absence of a significant number of our employees or key management members.

Comparison of the threesix months ended MarchJune 31,30, 2026 and 2025

The following table summarizes our results of operations for the three monthssix-month period ended MarchJune 31,30, 2026 and 2025, together with the changes in those items in dollars in thousands and as a percentage:

As a result of the nature of our target market and the current stage of our sales development, a substantial portion of our revenue comes from a limited number of customers.

For the threesix months ended MarchJune 31,30, 2026, we generated revenues of $82,000,$502 thousand, compared to revenues$2,427 thousand of $2,065,000 for the threesix months ended MarchJune 31,30, 2025.

The decrease in revenues revenues was primarily attributable to Q1the 2025 derecognitionabsence of revenue recognized from the contract liability associated with a Fortune 500 medical company customer,arrangement, inincluding the impact of the amountfirst quarter 2025 full derecognition of $1,690,000,a $1,690 thousand contract liability, as described in Note 6a(1), and additional decrease ofto our interim vision-basedcondensed solutionsconsolidated financial statements for PdM and CBM due to certain delays caused by the geopoliticalsix situationmonths withended Iran.June 30, 2026.

Cost of revenues for the threesix months ended MarchJune 31,30, 2026 was $61,000,$322 a decrease of $1,466,000, or 96%,thousand, compared to cost of revenues of of $1,527,000$1,756 thousand for the threesix months ended MarchJune 31,30, 2025.

Gross profit for the threesix months ended MarchJune 31,30, 20262026, was $21,000,$180 a decrease of $517,000, or 96%,thousand, compared to gross profit of $538,000$671 thousand for the threesix months ended MarchJune 31,30, 2025.

Research and development expenses for the threesix months ended MarchJune 31,30, 20262026, were $2,557,000,$4,797 an increase of $70,000, or 3%,thousand, compared to $4,843 $2,487,000 thousand for the threesix months ended MarchJune 31,30, 2025.

Sales and marketing expenses primarily consist of payroll expenses, consulting services, promotional materials, exhibitions, demonstration equipment, travel and certain allocated facility infrastructure costs.

Sales and marketing expenses for the six months ended June 30, 2026 were $1,883 thousand, compared to $1,024 thousand for the threesix months ended MarchJune 31, 2026 were $962,000, an increase of $566,000, or 143%, compared to $396,000 for the three months ended March 31,30, 2025.