What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-26 compared with 2023-03-28 · 266 added, 221 removed, 139 unchanged (78% of the section changed)

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

Following this transaction, we integrated

and fully adopted ScoutCam Ltd.’s business into our Company as our primary business activity.

On December 31, 2019, we changed

our name to ScoutCam Inc.

ScoutCam Ltd., we are a pioneer in the development, production, and marketing of innovative Predictive Maintenance (PdM) and Condition

Based Monitoring (CBM) technologies, providing visual sensing and AI-based video analytics solutions for critical systems in the aviation,

maritime, industrial non-destructing-testing industries, transportation, and energy industries.

Some of our products utilize our unique

micro visualization technology in medical devices for complex and minimally invasive medical procedures.

Our technology includes proven

video technologies and products amalgamated into a first-of-its-kind, FDA-cleared minimally invasive surgical device.

At the present

time, we derive a substantial portion of our revenue from applications of our micro visualization technology within the medical field.

and, on December 31, 2029, changed our

name to ScoutCam Inc.

Following this acquisition, we integrated and fully adopted the acquired miniaturized imaging business into our

Company as our primary business activity.

On June 5, 2023, we changed our name to Odysight.ai Inc.

are a pioneer in the development, production, and marketing of innovative Predictive Maintenance (PdM) and Condition Based Monitoring

(CBM) technologies, providing visual sensing and AI-based video analytics solutions for critical systems in the aviation, maritime, industrial

non-destructing-testing industries, transportation, and energy industries.

Some of our products utilize our unique micro visualization

technology in medical devices for complex and minimally invasive medical procedures.

Our technology includes proven video technologies

and products amalgamated into a first-of-its-kind, FDA-cleared minimally invasive surgical device.

At the present time, we derive a substantial

portion of our revenue from applications of our micro visualization technology within the medical field.

unique video-based sensors, embedded software, and AI algorithms are being deployed in hard-to-reach locations and harsh environments

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target businesses interested in integrating our micro visualization technology or commissioning individual projects using our technology.

Impact of the Ongoing War in Israel on Our Business

On October 7, 2023, the Hamas

terrorist organization launched a series of deadly terror attacks on civilian and military targets skirting the Gaza Strip in the southern

part of Israel and fired rockets on many of the communities in southern and central Israel.

Following the attack, Israel’s security

cabinet declared war and commenced a military campaign in Gaza against Hamas.

Since the outbreak of the war, the Hezbollah terrorist organization

has regularly fired rockets into northern Israel, other terrorist organizations have done so from western Iraq and the Houthis terrorist

organization operating out of Yemen has fired various projectiles and drones against commercial shipping vessels in the Gulf of Aden and

The war has led to consequences

and restrictions with respect to the Israeli economy, including a significant call-up of military reservists, most of whom have been released

from such service as of the date of this Annual Report.

To date the war has not had a material adverse effect on our business.

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 in the first month of the war 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.

In addition, several of our employees,

including company officers such as our CEO Yehu Ofer, were called up to military reserve duty, with many such call-ups having since lapsed.

As of the date of this Annual Report, Mr.

Ofer is 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.

As a result of the intensive

flight hours flown by all Israeli Air Force platforms as a result of the war and an enhanced Israel Ministry of Defense budget of approximately

$12 billion, we have experienced a growing interest in our technology from Israeli government agencies and R&D programs, which may

lead to more rapid assimilation of our technology into relevant platforms than we had anticipated prior to the start of the war, positively

affecting on our business activity in 2024.

See also Risk Factors – “Conditions in Israel, including the October 7, 2023 attack

by Hamas and other terrorist organizations and Israel’s war against them, if escalated, could negatively affect our operations.”

Accounting Policies and Estimates

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and results of operations.

Services Revenue and Contract Liabilities

determine at contract inception whether development services are distinct from the performance obligation to manufacture the product

under development.

Revenues from development services that we determine as distinct from our performance obligation to manufacture the

product under development are recognized over the period of the applicable service contract.

Revenues from development services that

we determine as not distinct from our performance obligation to manufacture the product under development are deferred until commencement

of manufacturing and are recognized over the manufacturing term.

As a result, during the year 2021, we have deferred

all service revenues billed by us and the respective service costs.

Development Services Revenue

and Contract Liabilities

We determine at

contract inception whether development services are distinct from the performance obligation to manufacture the product under

Revenues from development services that we determine as not distinct from our performance obligation to manufacture the

product under development are deferred until commencement of manufacturing and are recognized over the manufacturing term.

result, during development phase we have deferred all service revenues billed by us to a Fortune 500 multinational healthcare

corporation and the respective service costs.

Further to the inception of the production

phase of the project in the second quarter of 2022, these deferred revenues and costs are recognized over the expected term of

production under the contract.

apply the fair value recognition provisions of ASC 718, Compensation—Stock Compensation , or ASC 718, for stock-based awards

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requisite service period.

Black-Scholes option-pricing model requires a number of assumptions, of which the most significant are the stock price volatility

and the expected option term.

Our expected dividend rate is zero since we do not currently pay cash dividends and do not

anticipate doing so in the foreseeable future.

Each of the above factors requires us to use judgment and make estimates in

determining the percentages and time periods used for the calculation.

If we were to use different percentages or time periods, the

fair value of option awards could be materially different.

We recognize stock-based compensation cost for option awards on an

accelerated basis over the employee’s requisite service period, net of estimated forfeitures.

Volatility is derived from the historical volatility of 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.

Black-Scholes option-pricing model requires a number of assumptions, of which the most significant are the stock price volatility and

the expected option term.

Our expected dividend rate is zero since we do not currently pay cash dividends and do not anticipate doing

so in the foreseeable future.

Each of the above factors requires us to use judgment and make estimates in determining the percentages

and time periods used for the calculation.

If we were to use different percentages or time periods, the fair value of option awards could

be materially different.

We recognize stock-based compensation cost for option awards on an accelerated basis over the employee’s

requisite service period, and forfeitures are accounted for as they occur.

is derived from the historical volatility of 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.

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

of the Year Ended December 31, 2023 and the Year Ended December 31, 2022

Company’s primary business activities during 2023 were:

● During the second quarter of 2022, the Company completed the development

of a product relating to a customer-specific project for a Fortune 500 multinational healthcare corporation, and moved from the development

phase of the project to its production phase.

As a result, during the year ended December 31, 2022, the Company recognized development

services revenues and related development costs that had been previously deferred.

The amounts were recognized based on the expected manufacturing

term of the product, which the Company estimates at seven years.

focus on R&D activities in the domain of I4.0 (including PdM and CBM in sectors such

as aerospace, maritime energy and other heavy machinery, engines and complicated mechanics

which have a need for monitoring and predictive maintenance applications).

The main effect

of this activity was an increase in the number of employees to enable the Company to manage

the anticipated increased workload and solution development.

and supply of product to a Fortune 500 multinational healthcare corporation.

our focus on R&D activities in the domain of I4.0 (including PdM and CBM in sectors such as aerospace, maritime energy and other

heavy machinery, engines and complicated mechanics which have a need for monitoring and predictive maintenance applications).

main effect of this activity was an increase in the number of employees to enable the Company to manage the anticipated increased

workload and solution development activity.

following table summarizes our results of operations for the years ended December 31, 2023 and 2022, together with the changes in those

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Cost of Revenues

Gross Profit (Loss)

Research and development expenses

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Operating Loss

(10,633,000 )

a result of the nature of our target market and the current stage of our development, a substantial portion of our revenue comes from

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the year ended December 31, 2023, we generated revenues of $3,033,000, an increase of $2,368,000, or 356%, from 2022 revenues.

in revenues was primarily due to the completion of development of the product relating to our miniature camera solution with a Fortune 500 company and moving to production stage.

Total revenues recorded from our miniature camera solution with the Fortune 500

company during 2022, amounted to approximately $538,000.

We did not record any revenue from our miniature camera solution with the Fortune

increase in revenues was primarily due to increase in revenues from a Fortune 500 company (see “Customer A” in note 10 to our annual financial statements) due to:

increase in the number of products sold and supplied to the customer during 2023, and

- formalization

of negotiations with the customer, according to which the price per unit increased significantly

compared to the previous price.

of revenues for the year ended December 31, 2023, were $2,524,000 an increase of $893,000, or 55%, compared to cost of revenues of $1,631,000

for the year ended December 31, 2022.

The increase was primarily due to an increase in the number of products sold and supplied

to the Fortune 500 company, partially offset by an improvement in the production process which resulted in a reduced scrap rate.

Profit (Loss)

profit for the year ended December 31, 2023 was $509,000, an increase of $1,475,00, or 153%, compared to a gross loss of $966,000 for

the year ended December 31, 2022.

The increase was primarily due to an increase in revenues, partially offset by an increase in cost

of revenues as described above.

transition from a gross loss to a gross profit is attributable to the formalization of negotiations with the healthcare customer.

this framework, the unit price experienced a substantial increase compared to its previous rate.

We also benefited from an increase in the number of

products sold and supplied to the customer during 2023.

and Development Expenses

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.

and development expenses for the year ended December 31, 2023 were $5,602,000, an increase of $1,405,000, or 33%, compared to $4,197,000

for the year ended December 31, 2022.

The increase was primarily due to an increase in payroll expenses due to additional employee recruitment,

as result of enlarging our focus on R&D activities in the domain of I4.0.

expect that our research and development expenses will increase as we continue to develop our products and services and recruit additional

research and development employees due to increased focus on R&D activities in the domain of I4.0.

and Marketing Expenses

and marketing expenses primarily consist of payroll expenses, consulting services, promotional materials, exhibitions, demonstration

equipment, and certain allocated facility infrastructure costs.

and marketing expenses for the year ended December 31, 2023 were $1,109,000, an increase of $410,000, or 59%, compared to $699,000 for

the year ended December 31, 2022.

increase was primarily due to recent rebranding activities, including expenses related to the changing the name of the Company from “ScoutCam

Inc.” to “Odysight.ai Inc.”, which included among other expenses designing a new logo and promotional materials.

addition, the Company incurred expenses by participating in the Paris Air Show in June 2023, the world’s premier and largest event

dedicated to the aviation and space industry.

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

and Administrative Expenses

and administrative expenses primarily consist of salaries and other related costs, including stock-based compensation, for personnel

in executive, finance, and administrative functions.

General and administrative expenses also include direct and allocated facility-related

costs as well as professional fees for legal, patent, consulting, investor, public relations, accounting, auditing, tax services, and

insurance costs.

and administrative expenses for the year ended December 31, 2023 were $4,431,000, an increase of $854,000, or 24%, compared to $3,577,000

for the year ended December 31, 2022.

increase was primarily due to:

an increase in payroll expenses, due to additional employee recruitment;

an increase in patent related expenses due to maintenance, defense, and commercialization

efforts involving existing patents;

an increase in professional services expenses due to the hiring of a financial consultant, IR consultant,

HR consultant and the appointment of new directors ;

an increase in rent and maintenance, due to our new offices in Ramat Gan;

In 2022, we benefited from the cancellation of a provision of $129,000 related to additional taxes due following entrance into an

agreement with the Israel Tax Authority (the “ITA”).

In September 2021, the Company accrued approximately NIS

740,000 ($229,000) for additional taxes due following a VAT audit by the ITA for the years 2019-2021.

In July 2022, the Company

reached an agreement with the ITA, according to which the amount due in additional taxes was reduced to approximately NIS 340,000

incurred an operating loss of $10,633,000 for the year ended December 31, 2023, an increase of $1,194,000, or 13%, compared to operating

loss of $9,439,000 for the year ended December 31, 2022.

The increase in operating loss was due to increases in research and development

expenses, general and administrative expenses and sales and marketing expense, each as described

of the Year Ended December 31, 2022 and the Year Ended December 31, 2021

Company’s primary business activities during 2022 were:

the second quarter of 2022, the Company completed the development of a product relating to a customer-specific project for a Fortune

500 multinational healthcare corporation and moved from the development phase of the project to its production phase.

during the year ended December 31, 2022, the Company recognized development services revenues and related development costs that

have been previously deferred.

The amounts were recognized based on the expected manufacturing term of the product, which the Company

estimates at seven years.

focus on R&D activities in the domain of I4.0 (including PdM and CBM in sectors such as aerospace, maritime energy and other

heavy machinery, engines and complicated mechanics which have a need for monitoring and predictive maintenance applications).

main effect of this activity was an increase in the number of employees to enable the Company to manage the anticipated increased

workload and solution development activity.

following table summarizes our results of operations for the years ended December 31, 2022 and 2021, together with the changes in those

items in dollars and as a percentage:

Cost of revenues

Research and development expenses

Sales and marketing expense

General and administrative expenses

Operating Loss

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.

the year ended December 31, 2022, we generated revenues of $665,000, an increase of $278,000, or 72%, from 2021 revenues.

in revenues was primarily due to the completion of development of the product relating to our endoscopic camera solution with a Fortune

500 company and moving to production stage.

Total revenues recorded from our endoscopic camera solution with the Fortune 500 company

during 2022, amounted to approximately $538,000.

We did not record any revenue from our endoscopic camera solution with the Fortune 500

company during 2021.

increase in revenues was partly offset by the following:

- Total revenues recorded from A.M.

during 2021 amounted to approximately $199,000.

We did not record any revenue from A.M.

Surgical during 2022.

- A decrease of $61,000 due to an overall decrease in sales of the Company’s

component products to occasional customers.

performance obligations (“RPO”) represents contracted revenue that have not yet been recognized, which include deferred revenue

and amounts that will be invoiced and recognized as revenue in future periods.

As of December 31, 2022, the total RPO amounted to $3.6

million, which we expect to recognize over the expected manufacturing term of the product under development.

Surgical during 2022, a decrease of approximately $199,000 from 2021.

A decrease of $61,000 due to an overall decrease in sales of the Company’s component products to occasional customers.

performance obligations (“RPOs”) represents contracted revenue that have not yet been recognized, which include deferred

revenue and amounts that will be invoiced and recognized as revenue in future periods.

As of December 31, 2022, the total RPO amounted

to $3.6 million, which we expect to recognize over the expected manufacturing term of the product under development.

of revenues for the year ended December 31, 2022, were $1,631,000, an increase of $523,000, or 47%, compared to cost of revenues of $1,108,000

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The increase was primarily due to:

An increase in payroll expenses due to additional employee recruitments (such as in the areas of procurement, production planning and

An increase in payroll expenses due to additional employee recruitment (such as in the areas of procurement, production planning and

control, engineering, and quality inspectors) to support the transition to serial production for the Fortune 500 customer.

In the second quarter of 2022, the Company completed the development service stage of its miniature camera solution and moved to the

production stage.

As a result, the Company recognized expenses of $180,000 during the year ended December 31, 2022, based on the expected

manufacturing term of the product.

In the second quarter of 2022, the Company completed the development stage of its endoscopic camera solution and moved to the production

As a result, the Company recognized expenses of $180,000 during the year ended December 31, 2022, based on the expected manufacturing

term of the product.

loss for the year ended December 31, 2022, was $966,000, an increase of $245,000, or 34%, compared to a gross loss of $721,000 for the

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for the year ended December 31, 2021.

The increase was primarily due to an increase in payroll expenses (including

stock-based compensation) due to additional employee recruitments, materials and subcontractors, rent and maintenance expenses due

to enlarging focus on R&D activities in the domain of I4.0.

The increase was primarily due to an increase in payroll expenses (including stock-based compensation)

due to additional employee recruitment, materials and subcontractors, rent and maintenance expenses due to increased focus on R&D

activities in the domain of I4.0.

expect that our research and development expenses will increase as we continue to develop our products and service and recruit additional

3 unchanged sentences

certain allocated facilities infrastructure costs.

and marketing expenses for the year ended December 31, 2022, were $699,000, a decrease of $209,000, or 23%, compared to $908,000 for the

year ended December 31, 2021.

and marketing expenses for the year ended December 31, 2022, were $699,000, a decrease of $209,000, or 23%, compared to $908,000 for

the year ended December 31, 2021.

The decrease was primarily due to reductions in sales and marketing costs in the medical field.

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decrease was primarily due to:

A decrease in IP expenses of $506,000.

A decrease in stock-based compensation of $580,000.

A decrease in IP expenses of $506,000.

A decrease in professional services of $334,000, mainly due to expenses of $206,000 in expenses incurred in 2021 related to our efforts

to uplist to Nasdaq.

Cancellation of a provision of $129,000 related to additional taxes due following entrance into an agreement with the Israeli Tax

Cancellation of a provision of $129,000 related to additional taxes due following our entrance into an agreement with the Israeli Tax

In September 2021, the Company accrued an amount of approximately NIS 740,000 ($229,000) for additional taxes due following

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In July 2022, the Company reached an agreement with the Israeli Tax

Authority, according to which the amount due in additional taxes was reduced to approximately NIS 340,000 ($100,000).

We incurred an operating loss

of $9,439,000 for the year ended December 31, 2022, an increase of $327,000, or 4%, compared to operating loss of $9,112,000 for the year

ended December 31, 2021.

The increase in operating loss was primarily due to increases in gross loss and expenses related to research

and development, partially offset by decrease in general and administrative expenses and sales and marketing expenses.

of the Year Ended December 31, 2021 and the Year Ended December 31, 2020

Company’s primary business activities during 2021 were:

of R&D and transition to the serial production in connection with a customer-specific project for a Fortune 500 multinational

healthcare corporation;

its focus on R&D activities in the domain of I4.0 (including PdM and CBM in sectors such as the aviation, energy and automotive).

The main effect of this activity was an increase in the number of employees to enable the Company to manage the anticipated increased

workload and solution development.

major activities were the following:

marketing activities, including the recruitment of VP Business Development for Industry 4.0, and launching a multi-platform digital

marketing campaign;

activity in connection with the Company’s IP, including submissions of new patent applications as well as maintenance, defense,

and commercialization efforts of existing patents;

operation expenses in order to improve the current Company’s R&D capabilities;

in research and development activities, including the development of new products and the improvement of existing technology, and

the examination of additional applications for our visualization solutions, including in the domains of PdM and CBM, as well as additional

industries outside of the medical, defense, and aerospace fields, including sectors such as automotive, industrial non-destructing-testing

industries, automotive and energy;

in capital expenses to provide the necessary facilities, IT, and lab tools for our newly recruited employees and to upgrade the Company’s

production and quality control capabilities.

following table summarizes our results of operations for the years ended December 31, 2021 and 2020, together with the changes in those

items in dollars and as a percentage:

Cost of Revenues

Research and development expenses

Sales and marketing expense

General and administrative expenses

Operating Loss

the year ended December 31, 2021, we generated revenues of $387,000, a decrease of $104,000, or 21%, from 2020 revenues.

in revenues was primarily due to sales of products to A.M.

Total sales to A.M.

Surgical during year ended December 31, 2021

amounted to approximately $199,000, a decrease from approximately $383,000 in 2020.

This decrease was partially offset by increase in

the sales of our products to other customers.

performance obligations (“RPO”) represents contracted revenue that has not yet been recognized, which includes deferred revenue

and amounts that will be invoiced and recognized as revenue in future periods.

As of December 31, 2021, the total RPO amounted to $3.2

million, which we expect to recognize over the expected manufacturing term of the product under development.

of revenues for the year ended December 31, 2021 were $1,108,000, an increase of $114,000, or 11%, compared to cost of revenues of $994,000

for the year ended December 31, 2020.

The increase was primarily due to an increase in payroll expenses (including stock-based compensation)

as a result of hiring additional employees as part of the transition to the production stage with respect to the contract with a Fortune

500 multinational healthcare corporation, partially offset by decrease in materials as a result of a decrease in revenues.

loss for the year ended December 31, 2021 was $721,000, an increase of $218,000, or 43%, compared to a gross loss of $503,000 for the

year ended December 31, 2020.

The increase was primarily due to a decrease in revenues and an increase in cost of revenues as described

and Development Expenses

and development expenses for the year ended December 31, 2021 were $2,002,000, an increase of $1,277,000, or 176%, compared to

$725,000 for the year ended December 31, 2020.

The increase was primarily due to an increase in payroll expenses (including

stock-based compensation) due to additional employee recruitments, materials and subcontractors, and because we have recently begun examining additional applications for

our micro ScoutCam™ portfolio outside of the medical, defense and aerospace fields, including in sectors such as automotive,

industrial non-destructing-testing industries, automotive, and energy.

addition, there was an increase in R&D payroll expenses in 2021 due to the fact that during 2020 a substantial part of the payroll

expenses was capitalized to contract fulfillment asset and was not recognized as expenses in profit and loss.

expect that our research and development expenses will increase as we continue to develop our products and service and recruit additional

research and development employees to the I4.0 domain.

and Marketing Expenses

and marketing expenses for the year ended December 31, 2021 were $908,000, an increase of $465,000, or 105%, compared to $443,000 for

the year ended December 31, 2020.

increase was primarily due to expanding marketing activity, including the recruitment of a VP Business Development in Industry 4.0, hiring

consultants and launching a multi-platform digital marketing campaign.

expect that our selling and marketing expenses will increase as we continue to increase our selling and marketing efforts.

and Administrative Expenses

and administrative expenses for the year ended December 31, 2021 were $5,481,000, an increase of $2,446,000, or 81%, compared to $3,035,000

for the year ended December 31, 2020.

increase was primarily due to:

increase of $675,000 in IP expenses due to maintenance, defense, and commercialization efforts of existing patents;

provision of $229,000 due to a VAT audit by the Israeli Tax Authority;

increase of $528,000 in stock-based compensation due to new option grants;

$206,000 related to our efforts to uplist to Nasdaq;

increase in in payroll expenses due to the hiring of additional employees, including a new CEO and controller, and a shift in the

position of the CFO from part-time to full-time;

increase in professional services expenses due to the hiring of a financial consultant, HR consultant, the appointment of new directors

and additional hires.

Authority, according to which the amount due of additional taxes was reduced to approximately NIS 340,000 ($100,000).

incurred an operating loss of $9,439,000 for the year ended December 31, 2022, an increase of $327,000, or 4%, compared to operating

loss of $9,112,000 for the year ended December 31, 2021.

The increase in operating loss was primarily due to increases in expenses related

to general and administrative, research and development, and sales and marketing, as described above.

The increase in operating loss was primarily due to increases in gross loss

and expenses related to research and development, partially offset by decrease in general and administrative expenses and sales and marketing

and Capital Resources

of December 31, 2022, we had cash and cash equivalents of $10.1 million and short-term deposits of $3 million compared to cash and

cash equivalents of $8.6 million and short-term deposits of $11 million as of December 31, 2021.

In addition, as

of December 31, 2022, we incurred an accumulated deficit of $24.8 million compared to $15.3 million as of December 31,

of December 31, 2023, we had cash and cash equivalents of $8.9 million and short-term deposits of $8.1 million compared to cash and cash

equivalents of $10.1 million and short-term deposits of $3 million as of December 31, 2022.

In addition, as of December 31, 2023, we

incurred an accumulated deficit of $34.2 million compared to $24.8 million as of December 31, 2022.

primary sources of liquidity to date have been from fund raising and warrant exercises.

On March 27, 2023, we issued

3,294,117 units (the “Units”) in consideration for approximately $14 million (the “Private Placement”) to Phoenix

Insurance Company Ltd.

(for Moshe Arkin through his individual retirement account), The Phoenix Insurance Company Ltd.

Insurance”) and Shotfut Menayot Israel – Phoenix Amitim (“Phoenix Amitim”).

Each Unit consisted of (i) one share

of the Company’s Common Stock and (ii) one warrant to purchase one share of Common Stock with an exercise price of US$5.50 per share

(the “Warrant”).

The Warrants are immediately exercisable and will expire three (3) years from the date of issuance and are

subject to customary adjustments.

In connection with the Private Placement, we undertook to file a Registration Statement on Form S-1

with the Securities and Exchange Commission covering the resale of all shares of Common Stock issued pursuant to the Private Placement,

including those shares of Common Stock to be held by the Selling Stockholders assuming the exercise of the Warrants issued pursuant to

the Private Placement, and any other shares of Common Stock and shares of Common Stock underlying warrants to the extent previously issued

Arkin, Phoenix Insurance or Phoenix Amitim.

We further undertook that the Registration Statement on Form S-1 would not include

any shares of Common Stock or other securities for the account of any other holder without the prior written consent of Mr.

Arkin, Phoenix

Insurance and Phoenix Amitim.

Arkin currently serves as a director on our board of directors.

Cash Requirements

We plan to continue to invest

for long-term growth, and therefore we expect that our expenses will increase.

We currently believe that our existing cash and cash

equivalents and short-term deposits will allow our to fund ours operating plan through at least the next 12 months.

We expect our expenses

will increase in connection with our ongoing activities, particularly as we continue the research and development and the scale up process

of our I4.0 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 will

need to obtain substantial additional funding in connection with our continuing operations.

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.

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.

plan to continue to invest for long-term growth, and therefore we expect that our expenses will increase.

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

We expect our expenses will increase in connection with our ongoing activities, particularly as we continue the research and

development and the scale up process of our I4.0 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 will need to obtain substantial additional funding in connection with our continuing operations.

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.

primary uses of cash from operating activities have been for headcount-related expenditures, research and development costs, manufacturing

1 unchanged sentence

Our cash flows from operating

activities will continue to be affected due to the expected increase of spending on our business and our working capital requirements.

activities will continue to be affected due to the expected increase in spending on our business and to meet our working capital

requirements.

of the Year Ended December 31, 2023 and the Year Ended December 31, 202 2

1 unchanged sentence

Cash used in Operating Activities

Cash provided by (used in) Investing Activities

(10,009,000 )

Cash provided by (used in) Investing Activities

Cash provided by Financing Activities

the year ended December 31, 2023, cash used in operating activities was $10 million, consisting of net loss of $9.4 million, partially

offset by a non-cash benefit of $2.1 million and a favorable net change in operating assets and liabilities of $1.3 million.

benefit consisted primarily of non-cash charges of $1.6 million for stock-based compensation.

The net change in our operating assets

and liabilities primarily reflects cash inflows from changes in contract liability of $1.2 million.

offset by a non-cash benefit of $1.8 million and an unfavorable net change in operating assets and liabilities of $2.4 million.

non-cash benefit consisted primarily of non-cash charges of $1.7 million for stock-based compensation.

The unfavorable net change in

our operating assets and liabilities was primarily due to an increase in accounts receivable of $1.3 million and decrease in contract

liabilities of $1.3 million.

the year ended December 31, 2022, cash used in operating activities was $6.1 million, consisting of net loss of $9.5 million, partially

1 unchanged sentence

benefit consisted primarily of non-cash charges of $1.6 million for stock-based compensation.

The net change in our operating assets and

liabilities primarily reflects cash inflows from changes in contract liability of $1.6 million partially offset by cash outflows from

changes in contract fulfillment assets of $0.5 million.

the year ended December 31, 2022, cash provided by investing activities was $7.9 million, consisting mainly of withdrawal, net of short-term

the year ended December 31, 2021, cash used in investing activities was $11.6 million, consisting of investment in short-term deposits

of $11 million and purchases of property and equipment of $0.6 million.

the year ended December 31, 2021, cash provided by financing activities was $22.6 million, consisting primarily of $19.1 million from

cash proceeds from issuance of shares and warrants in a private placement and $3.5 million proceeds from exercise of outstanding warrants.

The net change in our operating assets and liabilities primarily reflects cash inflows from changes in contract liability of $1.2 million.

the year ended December 31, 2023, cash used in investing activities was $5.1 million, consisting mainly of investment of short-term

deposits, net.

the year ended December 31, 2022, cash provided by investing activities was $7.9 million, consisting mainly of withdrawal of short-term

deposits, net.

the year ended December 31, 2023, cash provided by financing activities was $13.8 million, consisting of cash proceeds from

issuance of shares and warrants in a private placement.

of the Year Ended December 31, 2022 and the Year Ended December 31, 202 1

following table sets forth the significant sources and uses of cash for the years ended December 31, 2022 and December 31, 2021 (in dollars):

Cash used in Operating Activities

Cash used in Investing Activities

(11,595,000 )

Cash provided by Financing Activities

primary uses of cash from operating activities have been for headcount-related expenditures, research and development costs, manufacturing

costs, marketing and promotional expenses, professional services cost and costs related to our facilities.

Our cash flows from operating

activities will continue to be affected due to the expected increase of spending on our business and our working capital requirements.

used in Operating Activities

provided by (used in) Investing Activities

provided by Financing Activities

the year ended December 31, 2022, cash used in operating activities was $6.1 million, consisting of net loss of $9.5 million, partially

offset by a non-cash benefit of $2 million and an favorable net change in operating assets and liabilities of $1.1 million.

offset by a non-cash benefit of $2.1 million and a favorable net change in operating assets and liabilities of $1.3 million.

benefit consisted primarily of non-cash charges of $1.6 million for stock-based compensation.

The net change in our operating assets

and liabilities primarily reflects cash inflows from changes in contract liability of $1.2 million.

the year ended December 31, 2021, cash used in operating activities was $5.9 million, consisting of net loss of $9 million, partially

offset by a non-cash benefit of $2 million and a favorable net change in operating assets and liabilities of $1.1 million.

benefit consisted primarily of non-cash charges of $2 million for stock-based compensation.

The net change in our operating assets and

1 unchanged sentence

changes in contract fulfillment assets of $0.5 million.

the year ended December 31, 2020, cash used in operating activities was $4.2 million, consisting of net loss of $4.7 million, non-cash

charges of $1.1 million and a unfavorable net change in operating assets and liabilities of $0.6 million.

Our non-cash charges consisted

primarily of stock-based compensation expense of $1.1 million.

The net change in our operating assets and liabilities primarily reflects

cash outflows from the changes in contract fulfillment assets of $1.1 million, accrued expenses and other of $0.4 million and other assets

of $0.3 million, partially offset by cash inflows from changes in inventory of $0.7 million and change in contract liability of $0.3

the year ended December 31, 2022, cash provided by investing activities was $7.9 million, consisting mainly of withdrawal of short-term

deposits, net.

the year ended December 31, 2021, cash used in investing activities was $11.6 million, consisting of investment in short-term deposits

of $11 million and purchases of property and equipment of $0.6 million.

the year ended December 31, 200, cash used in investing activities was $0.3 million, consisting of purchases of property and equipment.

the year ended December 31, 2021, cash provided by financing activities was $22.6 million, consisting primarily of $19.1 million from

cash proceeds from issuance of shares and warrants in a private placement and $3.5 million proceeds from exercise of outstanding warrants.

the year ended December 31, 2020, cash provided by financing activities was $4.5 million, consisting primarily of $2.9 million from cash

proceeds from issuance of shares and warrants and $1.8 million proceeds from exercise of warrants.

cash proceeds from issuance of shares and warrants in a private placement and $3.5 million proceeds from the exercise of outstanding

quantitative and qualitative disclosures about market risk

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis