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 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.

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” in our 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 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

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.

Current wording

We are a pioneer in the development, production and marketing of an innovative visual monitoring AI solution that deploys 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 (ML) data analytics.

Previous 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.

Current wording

Our solution streams visual information to our processing unit, an in-platform, high-performance AI and ML 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 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 solution 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 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.

Current wording

Our solution enhances safety and minimizes 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

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.

Current wording

Our solutions are already deployed in the aviation, industrial and automotive sectors. While 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.

Previous wording

Impact of the Ongoing War in Israel on Our Business

Current wording

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

Previous wording

On October 7, 2023, the Hamas terrorist organization launched a series of terror attacks on civilian and military targets in southern Israel. Since then, Israel has been involved in an ongoing military campaign and has faced hostilities on multiple fronts, including regular rocket and drone attacks and threats from Hamas in the Gaza Strip, Hezbollah in Lebanon, the Houthi movement in Yemen and other terrorist organizations 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 regional security situation escalated significantly in late February 2026, following preemptive strikes by Israel and the United States against Iranian nuclear and ballistic capabilities. In response, 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 initiated further missile strikes against Israel, leading to retaliatory strikes and limited 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.

Current wording

In October 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 in 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 experienced hostilities on other fronts, including with Hezbollah along Israel’s northern border, attacks and threats from the Houthis in Yemen and several significant direct confrontations with Iran. The security situation escalated significantly in late February 2026 when Israel and the United States preemptively attacked Iran. As part of 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 early March 2026, Hezbollah joined the conflict and carried out missile attacks against Israel, leading to Israeli retaliatory strikes and an extended ground incursion.

Previous 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.

Current wording

Although these conflicts have not had a material adverse effect on our business to date, we have experienced disruptions to work routines, periodic travel limitations and occasional rocket fire requiring employees at our Omer and Ramat Gan offices to take temporary shelter. Our offices were closed on certain days during the current conflict with Iran and 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.

Previous 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.

Current 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.

Previous wording

Sales and marketing expenses primarily consist of payroll 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, travel and certain allocated facility infrastructure costs.

Previous 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.

Current wording

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

Previous 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.

Current wording

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

Previous 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.

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.

Previous wording

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

Current wording

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

Previous 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.

Current wording

During the six months ended June 30, 2025, cash used in operating activities was $6.4 million, consisting of net loss of $8.3 million, partially offset by a favorable net change in operating assets and liabilities of $0.2 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 a decrease in contract fulfillment assets, partially offset by outflows from changes in current and non-current other assets and a decrease in current and non-current contract liabilities.

Previous 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.

Current wording

During the six months ended June 30, 2025, cash provided by investing activities was $0.3 million, attributable mainly to a withdrawal, net of short-term deposits.

Previous 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.

Current wording

During the six months ended June 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.

Previous 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:

Current wording

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

Previous 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.

Current wording

For the three months ended June 30, 2026, we generated revenues of $420 thousand, compared to $362 thousand for the three months ended June 30, 2025.

Previous 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.

Current wording

Cost of revenues for the three months ended June 30, 2026, was $261 thousand, compared to cost of revenues of $229 thousand for the three months ended June 30, 2025.

Previous 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.

Current wording

Gross profit for the three months ended June 30, 2026, was $159 thousand, compared to gross profit of $133 thousand for the three months ended June 30, 2025.

Previous 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.

Current wording

We incurred an operating loss of $4,531 thousand for the three months ended June 30, 2026, compared to an operating loss of $4,438 thousand for the three months ended June 30, 2025.

Previous wording

During the three months ended March 31, 2026, cash used in operating activities was $4.3 million, consisting of net loss of $5.2 million and a non-cash benefit of $0.9 million. Our non-cash benefit consisted primarily of non-cash charges for stock-based compensation.

Current wording

During the three months ended June 30, 2025, cash used in operating activities was $4.2 million, consisting of net loss of $4.1 million, an unfavorable net change in operating assets and liabilities of $1.0 million and a non-cash benefit of $0.9 million. Our non-cash benefit consisted primarily of non-cash charges of $0.8 million for stock-based compensation. The net change in our operating assets and liabilities primarily reflects cash outflows from changes in accounts receivable, lease liability, current and non-current assets and accrued compensation.

Previous wording

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

Current wording

For the three months ended June 30, 2025, net cash flows used in investing activities was $3 thousand, attributable to a purchase of property and equipment.

Previous wording

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

Current wording

Our backlog as of June 30, 2026 was approximately $14.1 million compared to approximately $13.8 million as of December 31, 2025.

Previous 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.

Current wording

As of June 30, 2026, we had cash and cash equivalents and short-term deposit of approximately $17.6 million compared to cash and cash equivalents and restricted cash of approximately $26.0 million as of December 31, 2025. In addition, as of June 30, 2026, we incurred an accumulated deficit of $72.5 million compared to $63.0 million as of December 31, 2025.

Previous wording

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

Current wording

Our primary sources of liquidity to date have been from fundraising, revenues from customers, warrant and options exercises. On June 5, 2026, we entered into a Sales Agreement with Roth Capital Partners, LLC, as sales agent, pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $20,000,000 from time to time in “at the market” offerings. The sales agent is entitled to a commission of up to 3.0% of the gross proceeds from any sales under the Sales Agreement. As of the date of this Quarterly Report on Form 10-Q, we have not sold any shares under the Sales Agreement.

Previous 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.

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 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 expect that we will 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 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.

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 June 30, 2026 were approximately $889 thousand. For additional details regarding our lease, see Note 3 to our interim condensed consolidated financial statements for the six months ended June 30, 2026.