Odysight.ai Inc.

Previous wording

Readers are advised to review the following discussion and analysis of our financial condition and results of operations together with our 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, 2024. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, 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 of our Annual Report for the year ended December 31, 2024 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Current wording

Readers are advised to review the following discussion and analysis of our financial condition and results of operations together with our 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 this Quarterly Report on Form 10-Q and in our Annual Report for the year ended December 31, 2025 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Previous wording

On December 30, 2019, we acquired all of the issued and outstanding share capital of ScoutCam Ltd. and, on December 31, 2029, 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.

Current wording

On December 30, 2019, we acquired all of the issued and outstanding share capital of ScoutCam Ltd. and, on December 31, 2019, we changed our name to ScoutCam Inc. Following this acquisition, we integrated and fully adopted the acquired miniaturized imaging business 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” and on April 9, 2026, our common stock began trading on the Tel Aviv Stock Exchange under the ticker symbol “ODYS”.

Previous wording

We are a pioneer in the development, production and marketing of an innovative visualization and artificial intelligence, or AI, solution that deploys small cameras 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.

Current wording

We are a pioneer in the development, production and marketing of innovative visual monitoring artificial intelligence, or AI, solutions that deploy small visual 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 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.

Previous wording

TheOdysight TruVision solution streams visual information to our processing unit, an in-platform, high-performance AI/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 downtime and lower maintenance costs for their monitored platforms, using the prediction capabilities of our solution to efficiently plan maintenance work on monitored components.

Current wording

Our solutions stream 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 monitoring. The data, continuously collected and analyzed by our solutions 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 solutions 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.

Previous wording

Our solution aims to enhance safety and minimizes downtime by enabling real-time visual analysis of any failure occurrences. Additionally, we 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.

Current wording

Our solutions aim to enhance safety and minimize costly 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.

Previous wording

Odysightsolutions are already deployed in the aviation and medical sectors. Our customers include the Israeli Air Force, the Israeli Ministry of Defense, France-based Safran Aircraft Engines, a global international defense contractor, a leading Fortune 500 medical company as well as NASA, who came back to us for a repeat order. Historically, our revenue stream has been derived mainly from the medical sector. We have secured several contracts for our PdM and CBM systems with major government clients and defense and aviation companies and our backlog as of September 30, 2025 of approximately $14.2 million reflects mostly those contracts.

Current wording

Our solutions are already deployed in the industrial, automotive and aviation sectors. Our customers include the Israeli Air Force, the Israeli Ministry of Defense, a global international defense contractor, NASA and Israel Railways Ltd., as well as a leading European provider of elevator monitoring solutions. Historically, our revenue stream was derived mainly from the medical sector.

Previous wording

The war has had significant economic, military and social consequences to Israel. To date the war has not had a material adverse effect on our business. While we have offices in Omer and Ramat Gan, Israel, neither of our sites is located near Israel’s relevant borders where the main impact of the war has been felt. Nevertheless, we have experienced some minor disruptions to our routine work, including some difficulties in traveling outside of Israel and occasional rocket fire on the municipalities where our offices are located, requiring our employees to take temporarily shelter for a few minutes at a time in on-site safe rooms. Pursuant to instructions from Israel’s Home Front Command, the Company’s offices were closed on certain days during the war with Iran. In addition, several of our executives and employees were called up to military reserve duty, including company officers such as our CEO, who until recent months was subject to military reserve duty a few days a month. We have taken various measures to mitigate the effects of the war, including adopting work-from-home measures, increased employee overtime and third-party outsourcing where needed, and reviewing our business continuity plan. In addition, with the backdrop of the ongoing conflict, some of our clients and potential clients have not prioritized conducting transactions with us, and the war may have caused some delays in their finalizing purchase orders. We do not believe that such delays have had a material impact on our business. The war has also increased negative sentiments regarding Israel and Israeli companies in the international community. For example, Israeli defense companies were initially banned from participating in prestigious industry conferences in France during 2024; however, both bans were later overturned by French courts and did not impact our participation in such conferences.

Current wording

The war has had economic, military and social consequences for Israel. While the conflict has not had a material adverse effect on our business to date, we have experienced disruptions to our routine work, including travel limitations and occasional rocket fire requiring employees at our Omer and Ramat Gan offices to take temporary shelter in on-site safe rooms. Pursuant to instructions from Israel’s Home Front Command, our offices were closed on certain days during the recent period of heightened hostilities conflict with Iran and Hezbollah.

Previous wording

The following table summarizes our results of operations for the three months period ended September 30, 2025, and 2024, together with the changes in those items in dollars in thousands and as a percentage:

Current wording

The following table summarizes our results of operations for the three months period ended March 31, 2026 and 2025, together with the changes in those items in dollars and as a percentage:

Previous wording

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

Current wording

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.

Previous wording

For the three months ended September 30, 2025, we generated revenues of $149 thousand, a decrease of $1,143 thousand, or 88%, compared to $1,292 thousand for the three months ended September 30, 2024.

Current wording

For the three months ended March 31, 2026, we generated revenues of $82,000, compared to revenues of $2,065,000 for the three months ended March 31, 2025.

Previous wording

The decrease in revenues was primarily attributable to the decrease in revenues from the Fortune 500 medical company customer.

Current wording

The decrease in revenues was primarily attributable to Q1 2025 derecognition of the contract liability associated with a Fortune 500 medical company customer, in the amount of $1,690,000, as described in Note 6a(1), and additional decrease of our vision-based solutions for PdM and CBM due to certain delays caused by the geopolitical situation with Iran.

Previous wording

Cost of revenues for the three months ended September 30, 2025, was $126 thousand, a decrease of $761 thousand, or 86%, compared to cost of revenues of $887 thousand for the three months ended September 30, 2024.

Current wording

Cost of revenues for the three months ended March 31, 2026 was $61,000, a decrease of $1,466,000, or 96%, compared to cost of revenues of $1,527,000 for the three months ended March 31, 2025.

Previous wording

Gross profit for the three months ended September 30, 2025, was $23 thousand, a decrease of $382 thousand, or 94%, as compared to the three months ended September 30, 2024.

Current wording

Gross profit for the three months ended March 31, 2026 was $21,000, a decrease of $517,000, or 96%, compared to gross profit of $538,000 for the three months ended March 31, 2025.

Previous wording

The decrease in cost of revenues was due to the decrease in revenues partially offset by the decrease in cost of revenues, as described above.

Current wording

The decrease in gross profit was due to the decrease in revenues partially offset by the decrease in cost of revenues, as described above.

Previous wording

Research and development efforts are focused on new product development and on developing additional functionality for our new and existing products. These expenses primarily consist of employee-related expenses, including salaries, benefits, and stock-based compensation expense for personnel engaged in research and development functions, consulting, and professional fees related to research and development activities, prototype materials, facility costs and other allocated expenses, including expenses for rent and maintenance of our facilities, utilities, depreciation and other supplies. We expense research and development costs as incurred.

Current wording

Research and development efforts are focused on new product development and on developing additional functionality for our new and existing products. These expenses primarily consist of employee-related expenses, including salaries, benefits, and stock-based compensation expense for personnel engaged in research and development functions, consulting, and professional fees related to research and development activities, prototype materials, facility costs, and other allocated expenses, which include expenses for rent and maintenance of our facility, utilities, depreciation, and other supplies. We expense research and development costs as incurred.

Previous wording

TheOdysight TruVision solution was successfully used by NASA as we seek to reshape the aerospace, Industry 4.0, transportation and energy markets with a vison-based technology leveraging AI and machine learning to deliver innovative solutions that transform maintenance practices. As used in this Quarterly Report on Form 10-Q, Industry 4.0, or I4.0, refers to the integration of advanced technologies into manufacturing and industrial processes to create smart, interconnected systems for improved efficiency and productivity.

Current wording

We expect our research and development expenses to grow modestly as we continue to develop our products and services and recruit additional experts to support our focus on Industry 4.0 solutions (Industry 4.0 refers to the integration of advanced technologies into manufacturing and industrial processes to create smart, interconnected systems for improved efficiency and productivity).

Previous wording

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

Current wording

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

Previous wording

The increase in sales and marketing expenses was primarily driven by our enhanced selling and marketing activity, including efforts to penetrate new markets and verticals and enhance product visibility. This led to higher payroll and related expenses associated with the recruitment of new employees and additional expenses resulting from the engagement of new marketing consultants.

Current wording

The increase in sales and marketing expenses was primarily driven by our enhanced global selling and marketing activity, including efforts to penetrate new territories and market verticals and enhance product visibility. This led to higher expenses associated with the recruitment of new workforce and marketing consultants.

Previous wording

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

Current wording

We expect that our sales and marketing expenses will increase as we expand our global selling and marketing efforts.

Previous wording

The increase in general and administrative expenses was primarily due to:

Current wording

The decrease in general and administrative expenses was primarily due to a decrease in expenses related to our fund raising and uplisting to Nasdaq, which occurred during the three months ended March 31, 2025, partially offset by an increase in stock-based compensation.

Previous wording

We incurred an operating loss of $4,707 thousand for the three months ended September 30, 2025, an increase of $1,691 thousand, or 56%, compared to operating loss of $3,016 thousand for the three months ended September 30, 2024.

Current wording

We incurred an operating loss of $5,338,000 for the three months ended March 31, 2026, an increase of $778,000, or 17%, compared to operating loss of $4,560,000 for the three months ended March 31, 2025.

Previous wording

The increase in operating loss was due to decreases in gross profit and increases in research and development expenses, sales and marketing expenses and general and administrative expenses, each as described above.

Current wording

The increase in operating loss was due to a decrease in gross profit and increases in research and development expenses and sales and marketing expenses, each as described above, partially offset by a decrease in general and administrative expenses.

Previous wording

Our backlog as of September 30, 2025 was approximately $14.2 million compared to approximately $15.0 million as of December 31, 2024.

Current wording

Our backlog as of March 31, 2026 was approximately 14.0 million compared to approximately $13.8 million as of December 31, 2025.

Previous wording

Our primary uses of cash used in operating activities have been for payroll expenses, research and development costs, manufacturing costs, marketing and promotional expenses, professional services costs and costs related to our facilities. We expect that cash flows from operating activities will continue to increase due to an expected increase in the expenses of our business and our working capital requirements.

Current wording

Our primary uses of cash from operating activities have been for payroll expenses, research and development costs, manufacturing costs, marketing and promotional expenses, professional services costs and costs related to our facilities. We expect that cash flows from operating activities will continue to increase due to an expected increase in the expenses of our business and our working capital requirements.

Previous wording

The following table sets forth the significant sources and uses of cash for the periods set forth below (in dollars in thousands):

Current wording

The following table sets forth the significant sources and uses of cash for the periods set forth below (in dollars):

Previous wording

During the nine months ended September 30, 2024, cash used in operating activities was $5.5 million, consisting of net loss of $8.2 million, partially offset by a favorable net change in operating assets and liabilities of $1 million and a non-cash benefit of $1.7 million. Our non-cash benefit consisted primarily of non-cash charges for stock-based compensation. The net change in our operating assets and liabilities primarily reflects cash inflows from changes in accounts receivable and accrued compensation expenses, partially offset by outflows from changes in current and non-current other assets and contract liabilities.

Current wording

During the three months ended March 31, 2025, cash used in operating activities was $2.2 million, consisting of net loss of $4.3 million, a non-cash benefit of $0.9 million and a favorable net change in operating assets and liabilities of $1.2 million. Our non-cash benefit consisted primarily of non-cash charges for stock-based compensation. The net change in our operating assets and liabilities primarily reflects cash inflows from changes in accounts receivable, inventory, compensation expenses and fulfillment asset, partially offset by cash outflows from changes in current and non-current liabilities.

Previous wording

For the three months ended September 30, 2025, net cash flows used in investing activities was $11 thousand, attributable to a purchase of property and equipment.

Current wording

During the three months ended March 31, 2026, cash used in investing activities was $6,000, consisting of purchase of property and equipment.

Previous wording

During the nine months ended September 30, 2025, net cash provided by investing activities was $0.3 million, consisting mainly of a withdrawal of short-term deposits.

Current wording

During the three months ended March 31, 2025, cash provided by investing activities was $283,000, consisting mainly of withdrawal of short-term deposits.

Previous wording

During the nine months ended September 30, 2024, cash provided by financing activities was $9.9 million, consisting of cash proceeds from issuance of shares, net of issuance costs.

Current wording

During the three months ended March 31, 2026, cash provided by financing activities was $32,000, consisting of cash proceeds from options exercises.

Previous wording

During the nine months ended September 30, 2025, cash provided by financing activities was $21.1 million, consisting of cash proceeds from issuance of shares, net of issuance costs and proceeds from options exercise.

Current wording

During the three months ended March 31, 2025, cash provided by financing activities was $21 million, consisting of cash proceeds from issuance of shares in our public offering that closed in February 2025 and cash proceeds from options exercises.

Previous wording

As of September 30, 2025, we had cash and cash equivalents and restricted cash of $29.8 million compared to cash and cash equivalents and restricted deposit of $18.5 million as of December 31, 2024. In addition, as of September 30, 2025, we incurred an accumulated deficit of $58.7 million compared to $46 million as of December 31, 2024.

Current wording

As of March 31, 2026, we had cash and cash equivalents of $21.8 million compared to cash and cash equivalents and restricted cash of $26.0 million as of December 31, 2025. In addition, as of March 31, 2026, we incurred an accumulated deficit of $68.2 million compared to $63.0 million as of December 31, 2025.

Previous wording

We plan to continue to invest in long-term growth, and therefore we expect that our expenses will grow. We currently believe that our existing cash and cash equivalents and short-term deposits will allow us to fund our operating plan through at least the next 12 months from the date of this report. We expect our expenses will increase in connection with our ongoing activities, particularly as we continue the research and development and the scale upOdysightTruVision solutions. We expect to incur significant commercialization expenses related to product sales, marketing, 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 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 or eliminate our research and development programs or future commercialization efforts.

Current wording

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 will allow us to fund our operating plan through the at least the next 12 months from the date of this Quarterly Report on Form 10-Q. Our expenses may increase in connection with our ongoing activities, particularly as we continue our commercialization efforts, research and development and the scale up of our solutions. We expect to incur significant commercialization expenses related to product sales, marketing, 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 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 or eliminate our research and development programs or future commercialization efforts.

Previous wording

Operating lease payments represent our commitment for future rent made leases for our offices in Israel and for vehicle leasing. The total future payments for our operating lease obligation as of September 30, 2025 were approximately $0.9 million. For additional details regarding our lease, see Note 3 to our interim consolidated financial statements for the nine months ended September 30, 2025.

Current wording

Operating lease payments represent our commitment for future payments under leases for our offices in Israel and for vehicle leasing. The total future payments for our operating lease obligation as of March 31, 2026 were approximately $838 thousand. For additional details regarding our lease, see Note 3 to our interim consolidated condensed financial statements for the three months ended March 31, 2026.