What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-03-26 compared with 2024-03-26 · 232 added, 298 removed, 107 unchanged (83% of the section changed)

management’s discussion and analysis of financial condition and results of operations

following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial

statements and the related notes appearing elsewhere in this Annual Report on Form 10-K.

In addition to historical information, the following

discussion contains forward-looking statements that involve risks, uncertainties and assumptions.

See “Forward-looking Statements”

for a discussion of the uncertainties and assumptions associated with these statements.

Our actual results may differ materially from

those discussed below.

Factors that could cause or contribute to such differences include, but are not limited to, those identified below,

and those discussed in the section titled “Risk Factors” included elsewhere in this Annual Report on Form 10-K.

should read the following discussion and analysis of our financial condition and results of operations together with our financial statements

and the related notes appearing elsewhere in this Annual Report on Form 10-K.

In addition to historical information, this discussion

and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.

See “Special Note Regarding

Forward-Looking Statements” for a discussion of the uncertainties and assumptions associated with these statements.

results may differ materially from those discussed below.

Factors that could cause or contribute to such differences include, but are

not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this

Annual Report on Form 10-K.

were incorporated under the laws of the State of Nevada on March 22, 2013, under the name Intellisense Solutions Inc.

We were initially

engaged in the business of developing web portals to allow companies and individuals to engage in the purchase and sale of vegetarian

food products over the Internet.

However, were not able to execute our original business plan, develop significant operations, or achieve

commercial sales.

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

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.

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.

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

across a variety of PdM and CBM use cases.

Our solution allows maintenance and operations teams visibility into areas which are inaccessible

under normal circumstances, or where the operating ambience otherwise is not suitable for continuous real-time monitoring and has various

applications which have relevancy in a wide range of industry segments that utilize complicated mechanics requiring ongoing monitoring

and predictive maintenance applications.

Our current business model is a business-to-business (B2B) approach in which we seek to identify

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.”

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.

Odysight 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.

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.

Odysight TruVision solution is 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

As used in this Annual Report, 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.

Odysight solutions

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

Our 2024 financial results reflect orders and agreements from both the medical and aerospace sectors.

We have recently

secured several contracts for our PdM and CBM systems with major government clients and defense and aviation companies and our

backlog as of December 2024 of approximately $15 million (compared to approximately $2.6 million as of December 31, 2023) reflects

mostly those contracts.

Public Offering and Nasdaq Listing

2025, we closed a public offering, including the exercise of an over-allotment option granted to the underwriter in the public

The public offering and the over-allotment option exercise price was $6.50 per share.

In the aggregate, we sold a total of

3,653,124 shares of common stock, generating gross proceeds of approximately $23.7 million, prior to the deduction of underwriting

discounts, commissions and estimated offering expenses.

Also in February 2025, listing was approved for our common stock, which

began trading on the Nasdaq Capital Market under the symbol “ODYS”.

of the Ongoing War in Israel on Our Business

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 and, in October 2024, Israel invaded southern

Lebanon in response to these attacks.

On November 27, 2024, Israel and Lebanon agreed to a ceasefire, the

result of which is uncertain.

During the course of the war, other terrorist organizations have fired rockets into Israel, such as

various rebel militia groups in Syria and Iraq and the Houthi movement, which controls parts of Yemen.

The Houthis movement has also

attacked commercial shipping vessels in the Gulf of Aden and Red Sea.

In April and October 2024, the Islamic Republic of Iran

targeted various sites in Israel with waves of drones, cruise missiles and ballistic missiles.

Israel responded on both occasions

with air defenses and retaliatory strikes against Iran.

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.

In addition, several of our executives and

employees, including company officers such as our CEO, were called up to military reserve duty.

As of the date of this Annual Report,

our CEO 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

In addition, with the backdrop of the ongoing conflict, some of our Israeli 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 two 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.

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, 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 commencement of the

war, positively affecting on our business activity.

See also “Item 1A.

Risk Factors – Risks Related to our Operations

in Israel – Our headquarters and other significant operations are located in Israel and, therefore, our results may be adversely

affected by political, economic and military instability in Israel .”

Accounting Policies and Estimates

11 unchanged sentences

may differ from these estimates under different assumptions or conditions.

our significant accounting policies are more fully described in Note 2 to our financial statements appearing elsewhere in this Form 10-K,

we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition

and results of operations.

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.

our significant accounting policies are more fully described in Note 2 to our financial statements appearing elsewhere in this

Annual Report, we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial

condition and results of operations.

revenues are measured according to the ASC 606, “Revenue from Contracts with Customers” (“ASC 606”).

606, revenues are measured according to the amount of consideration that the Company expects to be entitled to receive in exchange for

transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

Revenues are presented

We recognize revenue

when a customer obtains control over promised goods or services.

For each performance obligation, we determine at contract inception

whether it satisfies the performance obligation over time or satisfies the performance obligation at a point in time.

obligations are satisfied over time if one of the following criteria is met:

the customer simultaneously receives and consumes the benefits provided by the Company’s performance;

(b) the Company’s performance

creates or enhances an asset that the customer controls as the asset is created or enhanced;

or (c) the Company’s performance does

not create an asset with an alternative use for the Company and the Company has an enforceable right to payment for performance completed

a performance obligation is not satisfied over time, we satisfy the performance obligation at a point in time.

Revenues from

product customization and development contracts in which the performance obligation is satisfied over time are recognized over the

duration of the contract and commensurate with the progress of services.

We measure the progress of services using the input

method, based on the effort expended relative to the estimated total effort to satisfy the performance obligation.

Revenues from product sales are recognized at a point in time when the customer obtains control of the Company’s

product, typically upon shipment to the customer.

Indirect taxes collected from customers relating to product sales and remitted to governmental

authorities are excluded from revenues.

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

29 unchanged sentences

of the Year Ended December 31, 2024 and the Year Ended December 31, 2023

Company’s primary business activities during 2023 were:

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.

primary business activity in 2024 was enlarging our focus on R&D activities in the domain of Industry 4.0, including PdM and CBM in sectors such as aerospace, maritime energy and other heavy

machinery, engines and complicated mechanics which require ongoing monitoring and predictive maintenance applications.

effect of this activity enabled us to accelerate our growth and support an increased workload and solution

development for customers.

following table summarizes our results of operations for the years ended December 31, 2024 and 2023, together with the changes in those

7 unchanged sentences

(12,507,000 )

(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

1 unchanged sentence

the year ended December 31, 2024, we generated revenues of $3,964,000, an increase of $931,000, or 31%, from 2023 revenues.

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.

increase in revenues was primarily due to an increase in revenues from our vision-based platform solutions for PdM and

of revenues for the year ended December 31, 2024, were $2,807,000 an increase of $283,000, or 11%, compared to cost of revenues of $2,524,000

for the year ended December 31, 2023.

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.

increase in cost of revenues was primarily due to an increase in revenues.

profit for the year ended December 31, 2024 was $1,157,000, an increase of $648,000, or 127%, compared to a gross profit of $509,000

for the year ended December 31, 2023.

change was due both to an increase in revenues and to an increase in cost of revenues, as described above.

and Development Expenses

7 unchanged sentences

for the year ended December 31, 2023.

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.

The increase in

research and development expenses was mainly due to the development of new products and the resulting increase in payroll and

related expenses for new employee recruitment, an increase in stock-based compensation from new option grants and procuring materials

and services of subcontractors for Industry 4.0 projects.

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

3 unchanged sentences

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 marketing expenses for the year ended December 31, 2024 were $1,218,000, an increase of $109,0000, or 10%, compared to $1,109,000

for the year ended December 31, 2023.

increase was mainly due to an increase in payroll and related expenses for new employee recruitment and an increase in stock-based compensation,

partially offset by one-time expenses incurred during the year ended December 31, 2023 related to rebranding activities.

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

and Administrative Expenses

7 unchanged sentences

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:

We did not record any revenue from A.M.

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

for the year ended December 31, 2021.

The increase was primarily due to:

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 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

year ended December 31, 2021.

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

as described above.

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, 2022, were $4,197,000, an increase of $2,195,000, or 110%, compared to $2,002,000

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 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

research and development employees to the I4.0 domain.

and Marketing Expenses

and marketing expenses primarily consist of personnel costs, consulting services, promotional materials, demonstration equipment, and

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.

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

expect that our selling and marketing expenses will increase as we increase 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, 2022, were $3,577,000, a decrease of $1,904,000, or 35%, compared to $5,481,000

for the year ended December 31, 2021.

decrease was primarily due to:

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 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

a VAT audit by the Israeli Tax Authority for the years 2019-2021.

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

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 gross loss

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

increase in professional services expenses including financial consultant, IR consultant, HR consultant and the appointment

of new directors;

increase in payroll and related expenses due to the recruitment of a new CFO and cash compensation bonuses paid to senior executives;

increase in stock-based compensation from new option grants.

incurred an operating loss of $12,507,000 for the year ended December 31, 2024, an increase of $1,874,000, or 18%, compared to

operating loss of $10,633,000 for the year ended December 31, 2023.

The increase in operating loss was due to increases in research

and development expenses, general and administrative expenses and sales and marketing expense, each as described above, partially

offset by an increase in gross profit.

represents booked orders based on purchase orders or hard commitments but not yet recognized as revenue.

Orders included in backlog may

be cancelled or rescheduled by customers.

A variety of conditions, both specific to the individual customer and generally affecting the

customer’s industry, may cause customers to cancel, reduce or delay orders that were previously made or anticipated.

We cannot assure

the timely replacement of cancelled, delayed or reduced orders.

Backlog is presented for supplemental informational purposes only and is

not intended to be a substitute for any GAAP financial measures, including revenue or net income (loss), and, as calculated, may not be

comparable to companies in other industries or within the same industry with similarly titled measures of performance.

In addition, backlog

should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

Therefore, backlog

should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP.

Backlog as of December 31, 2024 was approximately $15 million compared

to approximately $2.6 million as of December 31, 2023.

and Capital Resources

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.

of December 31, 2024, we had cash, cash equivalents and restricted deposit of $18.5 million compared to cash and cash equivalents and

short-term deposits of $17 million as of December 31, 2023.

In addition, as of December 31, 2024, we incurred an accumulated deficit

of approximately $46 million, as compared to $34.2 million as of December 31, 2023.

In February 2025, we closed a public offering, including the exercise of

an over-allotment option granted to the underwriter in the public offering, at a price

of $6.50 per share.

In the aggregate, we issued 3,653,124 shares of common stock, generating gross proceeds of approximately

$23.7 million, prior to the deduction of underwriting discounts, commissions and estimated offering expenses.

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

Cash Requirements

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.

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 Annual Report.

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

the research and development and the scale up Odysight 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.

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 in spending on our business and to meet 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, 2024 and the Year Ended December 31, 2023

5 unchanged sentences

the year ended December 31, 2024, cash used in operating activities was $8.2 million, consisting of net loss of $11.8 million, partially

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

offset by a non-cash benefit of $2.4 million and a favorable net change in operating assets and liabilities of $1.2 million.

benefit consisted primarily of non-cash charges of $2.4 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, 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):

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 $2.1 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 favorable net change in our operating

assets and liabilities was primarily due to an increase in accrued compensation expenses of $0.6 million and decrease in inventory of

$0.3 million.

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 million and a favorable net change in operating assets and liabilities of $1.1 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.

benefit consisted primarily of non-cash charges of $1.7 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 of short-term

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, 2024, cash provided by investing activities was $7.6 million, consisting mainly of withdrawal of short terms

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, 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 the exercise of outstanding

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

the year ended December 31, 2024, cash provided by financing activities was $9.8 million, consisting of cash proceeds from issuance

of shares in a private placement, net of issuance costs.

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, net of issuance costs.

Contractual Obligations

and Commitments

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 December 31, 2024 were approximately $1.2 million.

For additional details

regarding our lease, see Note 10 to our consolidated financial statements for the year ended December 31, 2024 included in this

Annual Report on Form 10-K.

did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC

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