Odysight.ai Inc.: Form 10-Q for the period ended Jun 30, 2026

Readers are advised to review the following discussion and analysis of our financial condition and results of operations together with our interim condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2025. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements”. You should review the “Risk Factors” in our Quarterly Report on Form 10-Q for the period ended March 31, 2026 and in our Annual Report for the year ended December 31, 2025 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

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

On December 30, 2019, we acquired all of the issued and outstanding share capital of ScoutCam Ltd. and, on December 31, 2019, we changed our name to ScoutCam Inc. Following this acquisition, we integrated and fully adopted the acquired miniaturized imaging business as our primary business activity. On June 5, 2023, we changed our name to Odysight.ai Inc. On February 11, 2025, our common stock began trading on the Nasdaq Capital Market under the symbol “ODYS” and on April 9, 2026, our common stock began trading on the Tel Aviv Stock Exchange under the ticker symbol “ODYS”.

We are a pioneer in the development, production and marketing of an innovative visual monitoring AI solution that deploys small visual sensors to monitor critical safety components in hard-to-reach locations and harsh environments, across various Predictive Maintenance, or PdM, and Condition Based Monitoring, or CBM, use cases applied both for the civil and defense sectors. We aim to be the industry benchmark for real-time, visual-based machine and infrastructure health monitoring and predictive maintenance analysis through AI and machine learning (ML) data analytics.

Our solution streams visual information to our processing unit, an in-platform, high-performance AI and ML computer, allowing maintenance and operations teams, on the ground and during operations, visibility into areas that are inaccessible under normal operating conditions or where conditions are not suitable for continuous monitoring. The data, continuously collected and analyzed by our solution on our secured cloud, provides customers with real-time failure / anomaly detection, events and data recordings, interfacing with platform mission systems and providing real-time alerts and streaming video or images, all while training our algorithms for ongoing improved accuracy and prediction capabilities. Our customers use the prediction capabilities of our solution to efficiently plan maintenance work on monitored components, benefiting from increased safety, a reduction in downtime, a more efficient data driven operation, increased mission readiness and lower maintenance costs for their monitored platforms.

Our solution enhances safety and minimizes downtime by enabling real-time visual analysis of any failure occurrences and to leverage advanced big data analytics to offer predictive insights throughout the entire system lifecycle. This includes efficient spare parts management and intelligent performance predictions, ensuring optimal system reliability and efficiency.

Our solutions are already deployed in the aviation, industrial and automotive sectors. While historically, our revenue stream has been derived mainly from the medical sector, today our customers include the Israeli Air Force, the Israeli Ministry of Defense, Honeywell Aerospace, a global international defense contractor, National Aeronautics and Space Administration (NASA) and Israel Railways Ltd., as well as a leading European provider of elevator monitoring solutions. We have also entered into a Cooperative Research and Development Agreement (CRADA) with the Naval Air Warfare Center Aircraft Division Lakehurst (NAWCAD). Historically, our revenue stream was derived mainly from the medical sector.

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Public Offering, Nasdaq Listing and TASE Listing

In February 2025, we closed a public offering, including the exercise of an over-allotment option granted to the underwriter in the public offering. 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. After deducting issuance costs, we received proceeds of approximately $20.9 million. Also in February 2025, our common stock began trading on the Nasdaq Capital Market under the symbol “ODYS”.

On April 9, 2026, our common stock began trading on TASE under the same symbol “ODYS” following our application to voluntarily list our shares of common stock on the TASE.

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

In October 2023, the Hamas terrorist organization launched a series of terror attacks on civilian and military targets adjacent to the Gaza Strip in southern Israel. Israel subsequently declared war and commenced a military campaign against Hamas. While the parties reached a framework in October 2025 that contemplates a potential permanent end to the war with Hamas, there can be no assurance that any ceasefire will be sustained or will result in a lasting resolution. Furthermore, Israel has experienced hostilities on other fronts, including with Hezbollah along Israel’s northern border, attacks and threats from the Houthis in Yemen and several significant direct confrontations with Iran. The security situation escalated significantly in late February 2026 when Israel and the United States preemptively attacked Iran. As part of this conflict, Iran launched missile and drone attacks toward population centers and military installations in Israel, Europe and neighboring countries in the Gulf region, and also launched counter-strikes against U.S. forces and allied bases throughout the Gulf region. In early March 2026, Hezbollah joined the conflict and carried out missile attacks against Israel, leading to Israeli retaliatory strikes and an extended ground incursion.

While temporary ceasefires between the United States, Israel, and Iran, and between Israel and Lebanon, were reached in April 2026, hostilities between Israel and Hezbollah remain ongoing with occasional flare ups between the United States and Iran, including involving neighboring countries in the Gulf region, there can be no assurance that the temporary ceasefires will be upheld or that a permanent ceasefire will be reached, and the situation remains volatile and highly unstable. The conclusion of wars or other conflicts may result in changes to regional alliances, shifts in security postures, and the imposition of new sanctions or trade restrictions, any of which could have an adverse impact on our operations. Additionally, such periods may be characterized by heightened uncertainty, including the possibility of contentious political debate and protests, economic instability or changes in government policies that could adversely affect the Israeli economy and, in turn, our business, financial condition and results of operations.

Although these conflicts have not had a material adverse effect on our business to date, we have experienced disruptions to work routines, periodic travel limitations and occasional rocket fire requiring employees at our Omer and Ramat Gan offices to take temporary shelter. Our offices were closed on certain days during the current conflict with Iran and Hezbollah pursuant to instructions from Israel’s Home Front Command. To mitigate these effects, we have adopted work-from-home measures, increased employee overtime and utilized third-party outsourcing where necessary. Furthermore, many of our employees and executives are obligated to perform military reserve duty. Since October 2023, several of our executives, including our CEO, have been periodically called up to active duty. Our operations could be disrupted by future call-ups and by the absence of a significant number of our employees or key management members.

The ongoing conflict has influenced our commercial environment in the following ways:

• Customer Prioritization: During more intense periods of the conflict, including during the recent round of hostilities with Iran, some Israeli clients have prioritized other matters, which has caused occasional delays in finalizing purchase orders and deliveries of existing projects. These delays have had a temporary impact on our business.
• Defense Technology Interest: Conversely, due to intensive flight hours flown by the Israeli Air Force and an enhanced Ministry of Defense budget, we have seen growing interest in our technology from Israeli government agencies and R&D programs. This may lead to a more rapid assimilation of our technology into relevant platforms than previously anticipated.
• International Sentiment: The war has increased negative sentiments regarding Israel and Israeli companies internationally, including efforts to boycott Israeli goods and services and specific efforts targeting Israeli defense firms. While we have faced challenges, such as initial bans from industry conferences that were later overturned, these efforts have not impacted our participation in such events to date.
• Insurance Coverage: Our insurance policies do not cover losses that may occur as a result of war and terrorism. While the Israeli government currently covers the reinstatement value of direct damages caused by such acts, there is no assurance this coverage will be maintained or will sufficiently cover our potential damages. Any significant damage to our facilities or disruption of trade between Israel and its trading partners could have a material adverse effect on our business.

Comparison of the six months ended June 30, 2026 and 2025

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

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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, 2026, we generated revenues of $502 thousand, compared to $2,427 thousand for the six months ended June 30, 2025.

The decrease in revenues was primarily attributable to the absence of revenue recognized from the Fortune 500 medical company arrangement, including the impact of the first quarter 2025 full derecognition of a $1,690 thousand contract liability, as described in Note 6a(1) to our interim condensed consolidated financial statements for the six months ended June 30, 2026.

Cost of Revenues

Cost of revenues for the six months ended June 30, 2026 was $322 thousand, compared to cost of revenues of $1,756 thousand for the six months ended June 30, 2025.

The decrease in cost of revenues is consistent with the decrease in revenues and primarily attributable to the same factors.

Gross Profit

Gross profit for the six months ended June 30, 2026, was $180 thousand, compared to gross profit of $671 thousand for the six months ended June 30, 2025.

The decrease in gross profit was due to the decrease in revenues partially offset by the decrease 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, 2026, were $4,797 thousand, compared to $4,843 thousand for the six months ended June 30, 2025.

The decrease in research and development expenses for the six months ended June 30, 2026 is primarily attributable to the rebuilding of our research and development teams, as well as efficiency steps taken with subcontractors and adoption of AI tools. This decrease was partly offset by an increase in expenses resulting from foreign exchange rate fluctuations resulting from the appreciation of the Israeli Shekel.

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Sales and Marketing Expenses

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

Sales and marketing expenses for the six months ended June 30, 2026 were $1,883 thousand, compared to $1,024 thousand for the six months ended June 30, 2025.

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

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

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, 2026 were $3,369 thousand, compared to $3,802 thousand for the six months ended June 30, 2025.

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

Operating loss

We incurred an operating loss of $9,869 thousand for the six months ended June 30, 2026, compared to an operating loss of $8,998 thousand for the six months ended June 30, 2025.

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

Cash Flows

Our primary uses of cash from operating activities have been for payroll expenses, research and development costs, manufacturing costs, marketing and promotional expenses, professional services costs and costs related to our facilities.

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

Operating Activities

During the six months ended June 30, 2026, cash used in operating activities was $8.7 million, consisting of net loss of $9.5 million and an unfavorable net change in operating assets and liabilities of $0.6 million partially offset by a non-cash benefit of $1.3 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 accounts receivable, increase in inventory, increase in current and non-current other assets and a decrease in operating lease liability, partially offset by inflows from decrease in right-of-use asset and increase in current and non-current contract liabilities.

During the six months ended June 30, 2025, cash used in operating activities was $6.4 million, consisting of net loss of $8.3 million, partially offset by a favorable net change in operating assets and liabilities of $0.2 million and a non-cash benefit of $1.7 million. Our non-cash benefit consisted primarily of non-cash charges for stock-based compensation. The net change in our operating assets and liabilities primarily reflects cash inflows from changes in accounts receivable and a decrease in contract fulfillment assets, partially offset by outflows from changes in current and non-current other assets and a decrease in current and non-current contract liabilities.

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Investing Activities

During the six months ended June 30, 2026, cash used in investing activities was $0.3 million, attributable mainly to an investment in short-term deposits.

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

Financing Activities

During the six months ended June 30, 2026, cash provided by financing activities was $0.1 million, consisting of proceeds from options exercise.

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

Comparison of the three months ended June 30, 2026 and 2025

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

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

The increase in revenue was primarily driven by the completion of ongoing projects, coupled with the commencement of new projects and continued progress on existing projects.

Cost of Revenues

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

The increase in cost of revenues is consistent with the increase in revenues and primarily attributable to the same factors.

Gross Profit

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

The change in gross profit was due to both an increase in revenues and an increase in cost of revenues, 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, 2026 were $2,240 thousand, compared to $2,356 thousand for the three months ended June 30, 2025.

The decrease was primarily from restructuring our research and development teams, as well as efficiency steps taken with subcontractors and adoption of AI tools.

Sales and Marketing Expenses

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

Sales and marketing expenses for the three months ended June 30, 2026 were $921 thousand, compared to $628 thousand for the three months ended June 30, 2025.

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

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

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, 2026, were $1,529 thousand, compared to $1,587 thousand for the three months ended June 30, 2025.

The decrease in general and administrative expenses was primarily due to a decrease in stock-based compensation partially offset by an increase in expenses due to foreign exchange rate fluctuations resulting from the appreciation of the Israeli Shekel.

Operating loss

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

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

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Cash Flows

Our primary uses of cash used in operating activities have been for payroll expenses, research and development costs, manufacturing costs, marketing and promotional expenses, professional services costs and costs related to our facilities.

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

Operating Activities

During the three months ended June 30, 2026, cash used in operating activities was $4.5 million, consisting of net loss of $4.3 million and an unfavorable net change in operating assets and liabilities of $0.6 million, partially offset by a non-cash benefit of $0.4 million. Our non-cash benefit consisted primarily of non-cash charges of $0.5 million for stock-based compensation. The net change in our operating assets and liabilities primarily reflects cash outflows from changes in accounts receivable, lease liability, current and non-current assets and accrued compensation, partially offset by cash inflows from current and non-current liabilities and right of use assets.

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

Investing Activities

For the three months ended June 30, 2026, net cash flows used in investing activities was $337 thousand, attributable mainly to an investment in short-term deposits.

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

Financing Activities

For the three months ended June 30, 2026, net cash flows provided by financing activities was $101 thousand, consisting of proceeds from options exercise.

For the three months ended June 30, 2025, net cash flows provided by financing activities was $34 thousand, consisting of proceeds from options exercise, partially offset by issuance expenses.

Backlog

Backlog 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.

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

Liquidity and Capital Resources

Overview

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

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

Additional Cash Requirements

We plan to continue to invest in long-term growth, and therefore we expect that our expenses will continue to grow. We currently believe that our existing cash and cash equivalents will allow us to fund our operating plan through at least the next 12 months from the date of this Quarterly Report on Form 10-Q. Our expenses may increase in connection with our ongoing activities, particularly as we continue our commercialization efforts, research and development and the scale up of our solutions. We expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Furthermore, we will continue to incur additional costs associated with operating as a public company. Accordingly, we expect that we will need to raise additional capital before we become profitable from sales of our solutions and may do so to expand our business, pursue strategic investments, take advantage of financing opportunities or for other reasons. We may raise these funds through equity financing, debt financing or other sources, which may result in further dilution in the equity ownership of our common stock. There is no assurance that we will be able to maintain operations at a level sufficient for investors to obtain a return on their investment in our common stock, or that we will be able to raise sufficient capital required to implement our business plan on acceptable terms, if at all. Even if we are successful in raising sufficient capital to implement our business plan, we will, most likely, continue to be unprofitable for the foreseeable future. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

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Contractual Obligations and Commitments

Operating lease payments represent our commitment for future payments under leases for our offices in Israel and for vehicle leasing. The total future payments for our operating lease obligation as of June 30, 2026 were approximately $889 thousand. For additional details regarding our lease, see Note 3 to our interim condensed consolidated financial statements for the six months ended June 30, 2026.

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

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, 2026 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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There have been no material changes from the information set forth in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC on March 19, 2026, and in our Quarterly Report on Form 10-Q for the period ended March 31, 2026, as filed with the SEC on May 14, 2026.