# Odysight.ai Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Odysight.ai Inc.](/companies/odys.md) (CIK 1577445)
- Form: 10-Q
- Filed: 2023-08-14
- Accepted by EDGAR: Aug 14, 2023, 16:06 ET
- Period: 2023-06-30
- Accession: 0001493152-23-028424
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1577445/000149315223028424/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1577445/000149315223028424/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $674.0k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $977.0k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $777.0k | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $1.3m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-04-01 to 2023-06-30 | −$103.0k | us-gaap:GrossProfit |
| Gross profit | 6 months, 2023-01-01 to 2023-06-30 | −$350.0k | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-04-01 to 2023-06-30 | $1.4m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2023-01-01 to 2023-06-30 | $2.8m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | −$3.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | −$5.9m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | −$2.9m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | −$5.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | −$0.28 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.63 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | −$0.28 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.63 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 10,435,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 8,864,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-04-01 to 2023-06-30 | −$2.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | −$5.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-04-01 to 2023-06-30 | $42.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $57.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-06-30 | $3.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $23.6m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $26.4m | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $3.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $5.6m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-06-30 | $20.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 20,219 characters.

*Readers are advised to review the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2022. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements”. You should review the “Risk Factors” section of our Annual Report for the fiscal year ended December 31, 2022 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.*

### Overview

#### Overview

The Company’s primary business activities during last few months were:

- Production and supply of product to a Fortune 500 multinational healthcare corporation.
- Enlarging 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). 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 activity.

### Comparison of the Six months ended June, 2023 and 2022

The following table summarizes our results of operations for the six month period ended June 30, 2023 and 2022, together with the changes in those items in dollars and as a percentage:

|  | Six months ended June 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: |
| Revenues | 977,000 | 372,000 | 163% |
| Cost of Revenues | 1,327,000 | 849,000 | 56% |
| Gross Loss | (350,000) | (477,000) | (27)% |
| Research and development expenses | 2,753,000 | 1,975,000 | 39% |
| Sales and marketing expense | 669,000 | 446,000 | 50% |
| General and administrative expenses | 2,126,000 | 2,452,000 | (13)% |
| Operating Loss | (5,898,000) | (5,350,000) | 10% |

### Revenues

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

For the six months ended June 30, 2023, we generated revenues of $977,000, an increase of $605,000, or 163%, compared to revenues of $372,000 for the six months ended June 30, 2022.

The increase in revenues was primarily due to the completion of development of the product relating to our miniature camera solution with a Fortune 500 company during the second quarter of 2022 and moving to production stage. Total revenues recorded from our miniature camera solution with the Fortune 500 company for the six months ended June 30, 2023 amounted to approximately $933,000 compared to $327,000 for the six months ended June 30, 2022.

### Cost of Revenues

Cost of revenue is primarily comprised of cost of personnel including warehouse personnel costs, certain allocated facilities, and expenses associated with logistics and quality control.

Cost of revenues for the six months ended June 30, 2023 was $1,327,000, an increase of $478,000, or 56%, compared to cost of revenues of $849,000 for the six months ended June 30, 2022.

The increase was primarily due to an increase in material costs due to an increase in the number of products sold and supplied to the Fortune 500 company.

### Gross Loss

Gross loss for the six months ended June 30, 2023 was $350,000, a decrease of $127,000, or 27%, compared to gross loss of $477,000 for the six months ended June 30, 2022.

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

### Research and Development Expenses

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

Research and development expenses for the six months ended June 30, 2023 were $2,753,000, an increase of $778,000, or 39%, compared to $1,975,000 for the six months ended June 30, 2022.

The increase was primarily due to an increase in payroll expenses from additional employee recruitments, as result of enlarging our focus on R&D activities in the domain of I4.0.

We 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.

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### Sales and Marketing Expenses

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

Sales and marketing expenses for the six months ended June 30, 2023 were $669,000, an increase of $223,000, or 50%, compared to $446,000 for the six months ended June 30, 2022.

The increase was primarily due to recent rebranding activities (including expenses related to the changing of the name of the Company which include among other designing a new logo and promotional materials). In addition, during June 2023 the Company participated on Paris Air Show, the world’s premier and largest event dedicated to the aviation and space industry.

This increase was partially offset by a decrease in payroll expenses (including stock-based compensation) due to the resignation of our VP Business Development during the fourth quarter of 2022.

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

### General and Administrative Expenses

General 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.

General and administrative expenses for the six months ended June 30, 2023 were $2,126,000, a decrease of $326,000, or 13%, compared to $2,452,000 for the six months ended June 30, 2022.

The decrease was primarily due to stock-based compensation vesting of options and to a decrease in D&O insurance costs.

### Operating loss

We incurred an operating loss of $5,898,000 for the six months ended June 30, 2023, an increase of $548,000, compared to operating loss of $5,350,000 for the six months ended June 30, 2022.

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

### Cash Flows

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

|  | Six month ended June 30, 2023 | 2022 |
| --- | ---: | ---: |
| Cash used in Operating Activity | (5,083,000) | (2,398,000) |
| Cash provided by (used in) Investing Activity | (15,557,000) | 1,458,000 |
| Cash provided by Financing Activity | 13,913,000 | - |

### Operating Activities

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

During the six months ended June 30, 2023, cash used in operating activities was $5.1 million, consisting of net loss of $5.5 million, an unfavorable net change in operating assets and liabilities of $0.3 million, partially offset by a non-cash benefit of $0.8 million. Our non-cash benefit consisted primarily of non-cash charges for stock-based compensation. The net change in our operating assets and liabilities primarily reflects cash outflows from changes in contract liability and other current assets, was partially offset by inflows from changes in account payables and other accounts payables.

During the six months ended June 30, 2022, cash used in operating activities was $2.4 million, consisting of net loss of $5.6 million, partially offset by a non-cash benefit of $1.5 million, a favorable net change in operating assets and liabilities of $1.3 million and loss from exchange differences on cash and cash equivalents of $0.3 million. Our non-cash benefit consisted primarily of non-cash charges of $1.5 million for stock-based compensation. The net change in our operating assets and liabilities primarily reflects cash inflows from changes in contract liability of $1.4 million.

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### Investing Activities

During the six months ended June 30, 2023, cash used in investing activities was $15.6 million, consisting mainly of investment, net on short-term deposits.

For the six months ended June 30, 2022, net cash flows provided by investing activities was $1.5 million consisting mainly of withdrawal of short terms deposits.

### Financing Activities

During the six months ended June 30, 2023, cash provided by financing activities was $13.9 million, consisting of cash proceeds from issuance of shares and warrants, net of issuance costs.

### Comparison of the three months ended June 30, 2023 and 2022

The following table summarizes our results of operations for the three months period ended June 30, 2023, and 2022, together with the changes in those items in dollars and as a percentage:

|  | Three months ended June 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: |
| Revenues | 674,000 | 370,000 | 82% |
| Cost of Revenues | 777,000 | 561,000 | 39% |
| Gross Loss | (103,000) | (191,000) | (46)% |
| Research and development expenses | 1,355,000 | 1,021,000 | 33% |
| Sales and marketing expense | 493,000 | 203,000 | 143% |
| General and administrative expenses | 1,168,000 | 1,166,000 | -% |
| Operating Loss | (3,119,000) | (2,581,000) | 21% |

### Revenues

For the three months ended June 30, 2023, we generated revenues of $674,000, an increase of $304,000, or 82%, from the three months ended June 30, 2022.

The increase 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 for the three months ended June 30, 2023 amounted to approximately $645,000, compared to $327,000 for the three months ended June 30, 2022.

### Cost of Revenues

Cost of revenue is primarily comprised of cost of personnel including warehouse personnel costs, certain allocated facilities, and expenses associated with logistics and quality control.

Cost of revenues for the three months ended June 30, 2023 was $777,000, an increase of $216,000, or 39%, compared to cost of revenues of $561,000 for the three months ended June 30, 2022.

The increase was primarily due to an increase in material costs due to an increase in the number of products sold and supplied to the Fortune 500 company.

### Gross Loss

Gross loss for the three months ended June 30, 2023 was $103,000, a decrease of $88,000, or 46%, compared to gross loss of $191,000 for the three months ended June 30, 2022.

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

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### Research and Development Expenses

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

Research and development expenses for the three months ended June 30, 2023 were $1,355,000, an increase of $334,000, or 33%, compared to $1,021,000 for the three months ended June 30, 2022.

The increase was primarily due to an increase in payroll expenses from additional employee recruitments, as result of enlarging our focus on R&D activities in the domain of I4.0.

We 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.

### Sales and Marketing Expenses

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

Sales and marketing expenses for the three months ended June 30, 2023 were $493,000, an increase of $290,000, or 143%, compared to $203,000 for the three months ended June 30, 2022.

The increase was primarily due to recent rebranding activities (including mainly expenses related to the changing of the name of the Company which include among other designing a new logo and promotional materials). In addition, during June 2023 the Company participated in the Paris Air Show, the world’s premier and largest event dedicated to the aviation and space industry.

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

### General and Administrative Expenses

General 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.

General and administrative expenses for the three months ended June 30, 2023 were $1,168,000, an increase of $2,000, compared to $1,166,000 for the three months ended June 30, 2022.

### Operating loss

We incurred an operating loss of $3,119,000 for the three months ended June 30, 2023, an increase of $538,000, compared to operating loss of $2,581,000 for the three months ended June 30, 2022.

The increase in operating loss was primarily due to increases in expenses related to research and development and sales and marketing expenses.

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### Cash Flows

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

|  | Three month ended June 30, 2023 | 2022 |
| --- | ---: | ---: |
| Cash used in Operating Activity | (2,609,000) | (2,174,000) |
| Cash provided by (used in) Investing Activity | (3,542,000) | 1,482,000 |
| Cash used in Financing Activity | (64,000) | - |

### Operating Activities

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

During the three months ended June 30, 2023, cash used in operating activities was $2.6 million, consisting of net loss of $2.9 million, a favorable net change in operating assets and liabilities of $0.1 million and a non-cash benefit of $0.2 million. Our non-cash benefit consisted primarily of non-cash charges of $0.3 million for stock-based compensation.

During the three months ended June 30, 2022, cash used in operating activities was $2.2 million, consisting of net loss of $2.8 million and an unfavorable net change in operating assets and liabilities of $0.4 million partially offset by a non-cash benefit of $0.7 million, and loss from exchange differences on cash and cash equivalents of $0.3 million. Our non-cash benefit consisted primarily of non-cash charges of $0.7 million for stock-based compensation. The net change in our operating assets and liabilities primarily reflects cash inflows from changes in inventory of $0.4 million.

### Investing Activities

For the three months ended June 30, 2023, net cash flows used in investing activities was $3.5 million, consisting mainly of investment, net on short-term deposits.

For the three months ended June 30, 2022, net cash flows provided by investing activities was $1.5 million consisting mainly of withdrawal of short terms deposits.

### Financing Activities

For the three months ended June 30, 2023, net cash flows used in financing activities was $64,000, consisting of issuance expenses.

### Liquidity and Capital Resources

As of June 30, 2023, we had cash and cash equivalents of $3.3 million and $18.7 million of short-term deposits compared to cash and cash equivalents $10.1 million and $3.0 million of short-term deposits as of December 31, 2022. In addition, as of June 30, 2023 we incurred an accumulated deficit of approximately $30.3 million, compared to $24.8 million as of December 31, 2022.

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

### Additional 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, as of August 14, 2023, will allow us to fund our 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. 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.

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### Off-Balance Sheet Arrangements

None.

## Controls and procedures

As filed, 818 characters.

#### Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Exchange Act Rule 13a-15(e). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

No change in our internal control over financial reporting, as defined in Exchange Act Rule 13a-15(e), occurred during the fiscal quarter ended June 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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## Risk factors

As filed, 202 characters.

There have been no material changes from the information set forth in “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31,2022 as filed with the SEC on March 28, 2023.

Filed Aug 14, 2023.
Source: SEC EDGAR, the filing index for accession 0001493152-23-028424. Last ingested by Listed: Nov 3, 2026, 19:34 ET. No prices; not investment advice.