Odysight.ai
ODYS
#10128
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ยฃ48.43 M
Marketcap
ยฃ2.89
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Change (1 year)

Odysight.ai - 10-Q quarterly report FY2026 Q2


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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2026

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

 

Commission File No. 001-42497

 

ODYSIGHT.AI INC.
(Exact name of registrant as specified in its charter)

 

Nevada 47-4257143
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

 

12 Abba Hillel Silver RD, Sasson Hugi Tower  
Ramat Gan, Israel 5250606
(Address of Principal Executive Offices) (Zip Code)

 

+97273 370-4690
(Registrant’s telephone number, including area code)

 

 
(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of exchange on which registered
Common Stock, par value $0.001 per share ODYS TheNasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of August 12, 2026, the registrant had 16,806,905shares of common stock, par value $0.001per share of the registrant issued and outstanding.

 

As used in this Quarterly Report and unless otherwise indicated, the terms “Odysight.ai,” “we,” “us,” “our,” or “our Company” refer to Odysight.ai. Unless otherwise specified, all dollar amounts are expressed in United States dollars.

 

 

 

 
 

 

ODYSIGHT.AI INC.

 

QUARTERLY REPORT ON FORM 10-Q

 

TABLE OF CONTENTS

 

  Page
   
Special Note Regarding Forward-Looking Statements3
   
PART I-FINANCIAL INFORMATION 
   
Item 1.Consolidated Financial Statements (unaudited)4
   
 Consolidated Balance Sheets5
   
 Consolidated Statements of Operations and Comprehensive Loss7
   
 Statements of Stockholders’ Equity8
   
 Consolidated Statements of Cash Flows10
   
 Notes to Consolidated Financial Statements12
   
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations21
   
Item 3.Quantitative and Qualitative Disclosures about Market Risk28
   
Item 4.Controls and Procedures28
   
PART II-OTHER INFORMATION 
   
Item 1.Legal Proceedings29
   
Item 1A.Risk Factors29
   
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds29
   
Item 3.Defaults Upon Senior Securities29
   
Item 4.Mine Safety Disclosures29
   
Item 5.Other Information29
   
Item 6.Exhibits30
   
SIGNATURES31

 

-2-
 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

 

 our ability to scale up our operations, including market acceptance and large-scale adoption of our vision-based sensor products;
   
 the amount and timing of future sales and our long and unpredictable sales cycles;
   
 our ability to maintain product quality and performance at an acceptable cost and meet technical and quality specifications;
   
 our ability to accurately estimate the future supply and demand for our solutions and changes to various factors in our supply chain;
   
 the market for adoption of vision-based sensor technologies;
   
 compliance with existing laws and regulations and regulatory developments in the United States, Israel, and other jurisdictions, including trade control laws, export authorizations and safety regulations;
   
 our plans and ability to obtain, maintain, and protect intellectual property rights, including extensions of patent terms, and our ability to avoid infringing the intellectual property rights of others;
   
 the need to hire additional personnel and our ability to attract and retain such personnel, including key members of our senior management;
   
 our estimates regarding expenses, backlog, future revenue, capital requirements and need for additional financing;
   
 our dependence on third parties, including suppliers and strategic partners;
   
 our dependence on a limited number of customers for a substantial portion of our revenues and the impact if order volumes from existing or anticipated customers do not meet expectations;
   
 our financial performance and history of operating losses;
   
 the growth of regulatory requirements and incentives;
   
 the incorporation of artificial intelligence, or AI, and machine learning, or ML, into our products;
   
 risks related to product liability claims or product recalls;
   
 cybersecurity risks and potential data security breaches;
   
 the overall global economic environment and trade tensions, including the adoption or expansion of economic sanctions, tariffs or trade restrictions;
   
 challenges and risks related to sales to government entities and highly regulated organizations;
   
 the impact of competition and new technologies;
   
 limitations and exclusivity provisions in our customer agreements and restrictions on the use of intellectual property;
   
 our ability to ensure that our solutions interoperate with a variety of hardware and software platforms;
   
 our plans to continue to invest in research and develop technology for new products;
   
 our plans to potentially acquire complementary businesses;
   
 the impact of future pandemics on our business and on the business of our customers;
   
 fluctuations in foreign currency exchange rates;
   
 security, political and economic instability in the Middle East that could harm our business, including due to the security situation in Israel and military conflicts with Iran and terrorist organizations;
   
 the increased expenses and requirements associated with being a listed public company on the Nasdaq Capital Market, or Nasdaq; and
   
 risks associated with our dual listing on the Tel Aviv Stock Exchange, or the TASE, including price volatility, liquidity, and regulatory requirements.

 

Forward-looking statements are based on our management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate and our management’s beliefs and assumptions, are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, actual results may differ materially from those anticipated or implied in the forward-looking statements due to factors described in “Risk Factors” in our Quarterly Report on Form 10-Q for the period ended March 31, 2026 (filed with the SEC on May 14, 2026) and in our Annual Report on Form 10-K for the year ended December 31, 2025 (filed on March 19, 2026). In addition, management’s assumptions about future events may prove to be inaccurate. All readers are cautioned that the forward-looking statements contained in this Quarterly Report on Form 10-Q are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or that the forward-looking events and circumstances will occur. Readers are urged to consider these factors carefully in evaluating the forward-looking statements. You should read our Annual Report on Form 10-K for the year ended December 31, 2025, and the documents that we reference in and have filed as exhibits thereto, completely and with the understanding that our actual future results may be materially different from what we expect.

 

Forward-looking statements included in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission, or the SEC, after the date of this Quarterly Report on Form 10-Q. We qualify all of our forward-looking statements by these cautionary statements.

 

-3-
 

 

Item 1. Financial Statements

 

ODYSIGHT.AI INC.

 

INTERIM FINANCIAL STATEMENTS

AS OF JUNE 30, 2026

 

CONSOLIDATED ODYSIGHT.AI INC.

 

 Page
Interim Condensed Consolidated Financial Statements - in US Dollars (USD) in thousands 
Interim Condensed Consolidated Balance Sheets (unaudited)5
Interim Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)7
Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)8
Interim Condensed Consolidated Statements of Cash Flows (unaudited)10
Notes to the Interim Condensed Consolidated Financial Statements12

 

-4-
 

 

ODYSIGHT.AI INC.

 

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

 

  June 30,  December 31, 
  2026  2025 
  Unaudited    
  USD in thousands 
Assets      
       
CURRENT ASSETS:        
Cash and cash equivalents  17,220   25,677 
Restricted cash  -   333 
Short-term deposit  333   - 
Accounts receivable  677   278 
Unbilled receivables  682   615 
Inventory  244   50 
Other current assets  754   549 
Total current assets  19,910   27,502 
         
NON-CURRENT ASSETS:        
Property and equipment, net  249   346 
Operating lease right-of-use assets  806   739 
Severance pay asset  318   296 
Other non-current assets  96   96 
Total non-current assets  1,469   1,477 
         
TOTAL ASSETS  21,379   28,979 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

-5-
 

  

ODYSIGHT.AI INC.

 

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

 

  June 30,  December 31, 
  2026  2025 
  Unaudited    
  USD in thousands 
Liabilities and shareholders’ equity        
         
CURRENT LIABILITIES:        
Accounts payable  448   480 
Contract liabilities  342   165 
Operating lease liabilities - short term  588   511 
Accrued compensation expenses  1,586   1,400 
Related parties  113   115 
Other current liabilities  346   327 
Total current liabilities  3,423   2,998 
         
NON-CURRENT LIABILITIES:        
Operating lease liabilities - long term  246   259 
Liability for severance pay  318   296 
Total non-current liabilities  564   555 
         
TOTAL LIABILITIES  3,987   3,553 
         
SHAREHOLDERS’ EQUITY:        
Common stock, $0.001 par value; 300,000,000 shares authorized as of June 30, 2026 and December 31, 2025, 16,806,905 and 16,357,327 shares issued and outstanding as of June 30, 2026 and December 31, 2025, respectively  17   17 
Additional paid-in capital  89,889   88,418 
Accumulated deficit  (72,514)  (63,009)
TOTAL SHAREHOLDERS’ EQUITY  17,392   25,426 
         
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  21,379   28,979 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

-6-
 

 

ODYSIGHT.AI INC.

 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

  2026  2025  2026  2025 
  Six months ended June 30,  Three months ended June 30, 
  2026  2025  2026  2025 
  Unaudited 
  USD in thousands 
    
REVENUES  502   2,427   420   362 
COST OF REVENUES  322   1,756   261   229 
GROSS PROFIT  180   671   159   133 
RESEARCH AND DEVELOPMENT EXPENSES  4,797   4,843   2,240   2,356 
SALES AND MARKETING EXPENSES  1,883   1,024   921   628 
GENERAL AND ADMINISTRATIVE EXPENSES  3,369   3,802   1,529   1,587 
OPERATING LOSS  (9,869)  (8,998)  (4,531)  (4,438)
FINANCING INCOME, NET  364   658   207   363 
NET LOSS AND COMPREHENSIVE LOSS  (9,505)  (8,340)  (4,324)  (4,075)
Net loss per common share (basic and diluted, USD)  (0.57)  (0.54)  (0.26)  (0.25)
Weighted average common shares (basic and diluted, in thousands)  16,591   15,450   16,793   16,316 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

-7-
 

 

ODYSIGHT.AI INC.

 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

Six Months Ended June 30, 2026 (Unaudited)

 

  Number  Amount  capital  deficit  equity 
  Common Stock  

Additional

paid-in

  Accumulated  

Total

Shareholders’

 
  Number  Amount  capital  deficit  equity 
  In thousands  USD in thousands 
Balance at January 1, 2026  16,358  $17  $88,418   (63,009) $25,426 
Stock based compensation  -   -   1,338   -   1,338 
Issuance of shares upon RSU vesting  4   -*   -(*)  -   - 
Options exercise  37   -*   133   -   133 
Warrants exercise  407   -*   -(*)  -   - 
Net loss  -   -   -   (9,505)  (9,505)
Balance at June 30, 2026  16,806  $17  $89,889  $(72,514) $17,392 

 

Three Months Ended June 30, 2026 (Unaudited)

 

  Common Stock  

Additional

paid-in

  Accumulated  

Total

Shareholders’

 
  Number  Amount  capital  Deficit  equity 
  In thousands  USD in thousands 
Balance as of April 1, 2026  16,773  $17  $89,336  $(68,190) $21,163 
Stock based compensation  -   -   452   -   452 
Issuance of shares upon RSU vesting  2   -* -(*)  -   - 
Options exercise  31   -   101   -   101 
Net loss  -   -   -   (4,324)  (4,324)
Balance as of June 30, 2026  16,806  $17  $89,889  $(72,514) $17,392 

 

*Represents an amount less than $1 thousand

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

-8-
 

 

Six Months Ended June 30, 2025 (Unaudited)

 

  Common Stock  

Additional

paid-in

  Accumulated  

Total

Shareholders’

 
  Number  Amount  capital  Deficit  equity 
  In thousands  USD in thousands 
Balance at January 1, 2025  12,613  $13  $64,205   (45,974) $18,244 
Stock based compensation  -   -   1,651   -   1,651 
Issuance of shares upon RSU vesting  5   -*   -(*)  -   - 
Issuance of shares, net of issuance cost  3,653   4   20,863   -   20,867 
Options exercise  56   -*   182   -   182 
Net loss  -   -   -   (8,340)  (8,340)
Balance at June 30, 2025  16,327  $17  $86,901  $(54,314) $32,604 

 

Three Months Ended June 30, 2025 (Unaudited)

 

  Common Stock  

Additional

paid-in

  Accumulated  

Total

Shareholders’

 
  Number  Amount  capital  Deficit  equity 
  In thousands  USD in thousands 
Balance as of April 1, 2025  16,308  $17  $85,987  $(50,239) $35,765 
Stock based compensation  -   -   845   -   845 
Options exercise  19   -   69   -   69 
Net loss  -   -   -   (4,075)  (4,075)
Balance as of June 30, 2025  16,327  $17  $86,901  $(54,314) $32,604 

 

*Represents an amount less than $1 thousand

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

-9-
 

 

ODYSIGHT.AI INC.

 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

  2026  2025  2026  2025 
  Six months ended June 30,  Three months ended June 30, 
  2026  2025  2026  2025 
  Unaudited 
  USD in thousands 
             
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss  (9,505)  (8,340)  (4,324)  (4,075)
Adjustments to reconcile net loss to net cash used in operations:                
Depreciation  56   58   29   31 
Stock based compensation  1,338   1,651   452   845 
Profit from exchange differences   (45)  (42)  (65)  (71)

Loss from sales of property and equipment

  

54

   

-

   

54

   

-

 
Interest income in respect of deposits  (3)  12   (3)  - 
                 
Changes in operating assets and liability items:                
Decrease (increase) in accounts receivable  (407)  1,023   (581)  (295)
Decrease (Increase) in inventory  (194)  203   69   - 
Decrease in operating lease liability  (270)  (242)  (131)  (106)
Increase in unbilled receivables  (67)  (257)  (33)  (161)
Decrease in right-of-use asset  231   239   104   121 
Increase in current and non-current other assets  (200)  (270)  (296)  (262)
Increase (decrease) in account payables  (13)  126   15   117 
Increase (decrease) in related parties  (2)  35   25   (63)
Decrease in contract fulfillment assets  -   1,017   -   - 
Increase (decrease) in current and non-current contract liabilities  177   (1,796)  209   36 
Increase (decrease) in accrued compensation expenses  97   122   (13)  (210)
Increase (decrease) in current and non-current other liabilities  40   58   30   (77)
Net cash flows used in operating activities  (8,713)  (6,403)  (4,459)  (4,170)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
                 
Purchase of property and equipment  (34)  (30)  (28)  (3)

Proceeds from sales of property and equipment

  

21

   

-

   

21

   

-

 
Withdrawal of (investment in) short term deposits  (330)  310   (330)  - 
Net cash flows provided by (used in) investing activities  (343)  280   (337)  (3)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from issuance of shares, net of issuance cost (issuance cost)  -   20,874   -   (35)
Proceeds from options exercise  133   182   101   69 
Net cash flows provided by financing activities  133   21,056   101   34 
                 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH  (8,923)  14,933   (4,695)  (4,139)
BALANCE OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF THE PERIOD  26,010   18,164   21,763   37,207 
EFFECT FROM EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH  133   141   152   170 
BALANCE OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT THE END OF THE PERIOD  17,220   33,238   17,220   33,238 
                 
Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheet:                
Cash and cash equivalents  17,220   32,910   17,220   32,910 
Restricted cash  -   328   -   328 
Total cash, cash equivalents and restricted cash  17,220   33,238   17,220   33,238 

 

-10-
 

 

Non-cash activities -

 

  Six months ended June 30,  Three months ended June 30, 
  2026  2025  2026  2025 
  Unaudited 
  USD in thousands 
SUPPLEMENTAL INFORMATION FOR CASH FLOW:            
Right-of-use assets obtained in exchange for operating lease liabilities  375   78   272   78 
Termination of right-of-use assets in exchange for cancellation of operating lease obligations  (76)  (33)  -   (33)

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

-11-
 

 

ODYSIGHT.AI INC.

 

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – GENERAL:

 

 a.Odysight.ai Inc. (the “Company”) was incorporated under the laws of the State of Nevada on March 22, 2013.
   
  The Company’s wholly owned subsidiary, Odysight.ai Ltd (“Odysight.ai”), was incorporated in the State of Israel on January 3, 2019, and was merged into the Company on December 31, 2019 in a share exchange transaction, following which the surviving operations of the merged entity were the operations of Odysight.ai.
   
  On February 28, 2024, D. View Ltd., a wholly owned subsidiary of the Company was incorporated in the State of Israel to act as a representative for the defense market.
   
  

On January 9, 2025, Odysight.ai Eu S.r.l., a wholly owned subsidiary of the Company was incorporated under the laws of Italy.

 

References to the Company include the subsidiaries unless the context indicates otherwise.

   
  The Company, through its subsidiaries, provides vision-based solutions for the Predictive Maintenance (PdM) and Condition Based Monitoring (CBM) markets. The Company’s visual sensor-based solutions and its embedded software, and AI algorithms are deployed in hard-to-reach locations and harsh environments across a variety of PdM and CBM use cases and allow maintenance and operations teams visibility into areas which are inaccessible under normal operation, or where the operating ambience is not suitable for continuous real-time monitoring. By combining advanced visual sensing, real-time analytics, and AI-driven insights, the Company helps organizations improve safety, efficiency, and operational intelligence.
   
  On February 11, 2025, the Company’s common stock began trading on the Nasdaq Capital Market under the symbol “ODYS”. Prior to such date, the Company was quoted on the OTCQB under the same symbol. On April 9, 2026, the Company’s common stock began trading on Tel Aviv Stock Exchange under the symbol “ODYS”.

 

 b.Since incorporation of Odysight.ai and through June 30, 2026, the Company accumulated a deficit of approximately $72.5million and its activities have been funded mainly by its shareholders. The Company’s management believes the Company’s cash and cash resources will allow the Company to fund its operating plan through at least the next 12 months from the filing date of these interim condensed consolidated financial statements. However, the Company expects to continue to incur significant operational expenses related to its ongoing activities, requiring the Company to obtain additional funding in order to continue its future operations until becoming profitable.
   
 c.

On February 28, 2026, the United States and Israel 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. These events have resulted in civilian casualties and property damage in Israel. 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, 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.

 

As a result of the above-described events, the Company experienced delays in customer orders and in deliveries in existing projects.

 

In the Company’s assessment, should the security situation continue for an extended period and/or escalate, its consequences may have a material adverse effect on the Israeli economy, including on the Company. Given that this is a dynamic event characterized by significant uncertainty, the extent of the impact of the security situation on the Company’s future operations is currently unknown.

 

-12-
 

 

ODYSIGHT.AI INC.

 

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

a.Unaudited Interim Financial Statements

 

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included (consisting only of normal recurring adjustments except as otherwise discussed). For further information, reference is made to the interim condensed consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

 

b.Principles of Consolidation

 

The accompanying interim condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

 

c.Use of estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The Company evaluates on an ongoing basis its assumptions, including those related to contingencies, deferred taxes, inventory impairment and stock-based compensation, as well as in estimates used in applying the revenue recognition policy. Actual results may differ from those estimates.

 

-13-
 

 

ODYSIGHT.AI INC.

 

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued):

 

d.Significant Accounting Policies

 

The significant accounting policies followed in the preparation of these unaudited interim condensed consolidated financial statements are identical to those applied in the preparation of the latest annual financial statements, except for the following:

 

Short-term bank deposits

 

Bank deposits with maturities of more than three months but less than one year are included in short-term bank deposits. Such short-term bank deposits are stated at cost which approximates fair market value.

 

e.Recent Accounting Pronouncements

 

Recent accounting pronouncements are identical to those presented in the latest annual financial statements, except for the following:

 

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. ASU 2025-11 clarifies and improves existing interim reporting guidance by consolidating disclosure requirements within Topic 270 and introducing a disclosure principle requiring entities to disclose events and changes occurring after the most recent annual reporting period that are expected to have a material effect on the entity’s financial condition or results of operations. The ASU does not introduce significant changes to recognition or measurement guidance. The amendments in ASU 2025-11 are effective for interim reporting periods within fiscal years beginning after December 15, 2027, with early adoption permitted. ASU 2025-11 allows for either a prospective or retrospective approach on adoption. The Company is currently evaluating the impact of ASU 2025-11 on its consolidated financial statements and related disclosures.

 

NOTE 3 – LEASES:

 

 a.Omer office space

 

In December 2020, Odysight.ai entered into a lease agreement for office space in Omer, Israel (the “Original Space”), with the 36-month term for such agreement beginning on January 1, 2021. In March 2021, Odysight.ai entered into a lease agreement for additional office space in Omer, Israel (the “Additional Space”), with the term for such agreement ending on December 31, 2023.

 

On June 25, 2023, Odysight.ai entered into an amendment to these agreements pursuant to which the lease for the Additional Space was shortened and ended on June 30, 2023, and the lease for the Original Space was extended for an additional five years until December 31, 2028. It was also agreed that Odysight.ai has an option to terminate the agreement for the Original Space with six months’ notice during the first three years.

 

Monthly lease payments under the agreement for the Original Space are approximately $7 thousand.

 

In December 2025, the Company provided six months’ notice indicating its intention to terminate the lease agreement as of May 2026. In March 2026, the Company signed a two-year lease agreement for alternative office space in Omer, with the lease commencing on June 28, 2026. At the end of the term, the Company has an option to extend the lease for an additional two years, which the Company has not factored into its lease liability calculation. Monthly lease payments under the agreement are approximately $5thousand in the first year and approximately $6thousand in the second year.

 

 b.Ramat Gan office space

 

In May 2023, Odysight.ai entered into a lease agreement for office space in Ramat Gan, Israel. The agreement is for 48 months beginning on July 1, 2023, and the Company has an option to extend the lease period for an additional two years. The Company does not currently expect to extend the lease period. Monthly lease payments under the agreement are approximately $25 thousand.

 

Odysight.ai subleases part of the office space in Ramat Gan to a third party for approximately $8 thousand per month.

 

c. The Company leases vehicles for use by certain of its employees in Israel. The lease terms are typically for three-year periods.

 

Supplemental cash flow information related to operating leases was as follows:

 SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO OPERATING LEASES 

  2026  2025  2026  2025 
  Six months ended June 30,  Three months ended June 30, 
  2026  2025  2026  2025 
  Unaudited 
  USD in thousands 
                 
Cash paid for amounts included in the measurement of lease liabilities  304   296   148   149 

 

As of June 30, 2026, the Company’s operating leases had a weighted average remaining lease term of 0.79 years and a weighted average discount rate of 6% for vehicles and 12.8% for offices.

 

The maturities of lease liabilities under operating leases as of June 30, 2026, are as follows:

 SCHEDULE OF MATURITIES LEASE LIABILITIES UNDER OPERATING LEASES

  Operating leases 
  USD in thousands 
Remainder of 2026  313 
2027  418 
2028  156 
2029  2 
Total future lease payments  889 
Less imputed interest  (55)
Total lease liability balance  834 

 

-14-
 

 

ODYSIGHT.AI INC.

 

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 4 – OTHER CURRENT LIABILITIES:

 

Other current liabilities consisted of the following:

 SCHEDULE OF OTHER CURRENT LIABILITIES

  

June 30,

2026

  

December 31,

2025

 
  USD in thousands 
Government authorities  96   90 
Accrued expenses  176   209 
Other payables  74   28 
Total other current liabilities   346   327 

 

NOTE 5 – EQUITY:

 

 a.Private and Public Placements
   
 1.

On March 29, 2021, the Company issued to certain investors, including Moshe (Mori) Arkin, a major stockholder and director of the Company, an aggregate of 2,469,156 units in exchange for an aggregate purchase price of $20 million. Each such unit consisted of (i) one share of the Company’s common stock and (ii) one warrant to purchase one share of the Company’s common stock with an exercise price of $10.35 per share. Each such warrant was exercisable until March 31, 2026 and subject to customary adjustments. Pursuant to the terms of the foregoing warrants, following April 1, 2024, if the closing price of the Company’s common stock equaled or exceeded 135% of the aforementioned exercise price (subject to appropriate adjustments for stock splits, stock dividends, stock combinations and other similar transactions after the issue date of the warrants) for any thirty (30) consecutive trading days, the Company could force the exercise of the warrants, in whole or in part, by delivering to these investors a notice of forced exercise.

 

On March 31, 2026 all warrants expired.

   
 2.

On March 16, 2023, the Company entered into stock purchase agreements for a private placement with (i) Moshe (Mori) Arkin and (ii) The Phoenix Insurance Company Ltd. (“Phoenix Insurance”) and Shotfut Menayot Israel – Phoenix Amitim (“Phoenix Amitim”), in connection with the sale and issuance of an aggregate of 3,294,117 units, at a purchase price of $4.25per unit, and for an aggregate purchase price of $14 million. Each unit consisted of: (i) one share of the Company’s common stock and (ii) one warrant to purchase one share of the Company’s common stock. The warrants are immediately exercisable, expire three years from the date of issuance and are subject to customary adjustments.

 

During March 2026, all warrants were exercised on a cashless basis, and 407,497 shares were issued accordingly.

   
 3.On February 12, 2025, the Company completed a U.S. underwritten public offering issuing 3,307,692 shares of the Company’s common stock at a price of $6.50 per share. The Company also granted the underwriters a 30-day over-allotment option to purchase up to an additional 496,153 shares at a purchase price of $6.50 per share. On February 14, 2025, the Company sold an additional 345,432 shares of common stock as a result of a partial exercise of the over-allotment option at the public offering price of $6.50 per share. Following the exercise of the over-allotment option, the Company 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, the Company received proceeds of approximately $20.9 million.
   

 

-15-
 

 

ODYSIGHT.AI INC.

 

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 – EQUITY (continued):

 

b. Stock-based compensation for employees, directors and service providers:

 

In February 2020, the Company’s Board of Directors approved the 2020 Share Incentive Plan (the “2020 Plan”).

 

The 2020 Plan initially included a pool of 580,890 shares of common stock for grant to Company employees, consultants, directors and other service providers. On March 15, 2020, the Company’s Board of Directors approved an increase to the Company’s option pool pursuant to the 2020 Plan by an additional 64,099 shares of common stock. On June 22, 2020, the Company’s Board of Directors approved an increase to the Company’s option pool pursuant to the 2020 Plan by an additional 401,950 shares of common stock. During the second quarter of 2021, the Company’s Board of Directors approved an increase to the Company’s option pool pursuant to the 2020 Plan by an additional 777,778 shares of common stock. During the first quarter of 2023, the Company’s Board of Directors approved an increase to the option pool pursuant to the 2020 Plan by an additional 1,000,000 shares of common stock.

 

In June 2024, the Company’s Board of Directors approved the 2024 Share Incentive Plan (the “2024 Plan”). With adoption of the 2024 Plan, the Company ceased making new awards under the 2020 Plan.

 

The 2024 Plan initially included a pool of 234,484 shares of common stock, representing the number of shares remaining available for grant under the 2020 Plan. These shares are available for future grant to Company employees, consultants, directors and other service providers. Shares that were subject to awards granted under either the 2020 Plan or the 2024 Plan that have expired or were cancelled or become un-exercisable for any reason without having been exercised in full shall become available for future grant under the 2024 Plan.

 

In July 2024, the Company’s Board of Directors approved an increase to the 2024 Plan’s option pool by an additional 850,000shares of common stock. Also in July 2024, the Company’s stockholders approved the 2024 Plan. In December 2025, the Company’s Board of Directors approved an increase to the 2024 Plan’s option pool by an additional 777,000 shares of common stock.

 

The 2020 Plan and 2024 Plan each provide for the grant of stock options (including incentive stock options and nonqualified stock options), shares of common stock, restricted shares, restricted share units, and other share-based awards.

 

Stock option activity

 

The following table summarizes stock option activity for the six months ended June 30, 2026 and June 30, 2025:

SCHEDULE OF STOCK OPTION ACTIVITY

 

  

For the Six months ended

June 30,

 
   2026  2025 
  Amount of
options
  Weighted average
exercise price
($)
  Amount of
options
  Weighted average
exercise price
($)
 
Outstanding at beginning of period  3,340,514   3.95   3,227,234   3.78 
Granted  324,000   4.99   181,000   6.50 
Exercised  (37,914)  3.49   (58,101)  3.70 
Forfeited  (147,913)  3.89   (28,336)  4.09 
Outstanding at end of period  3,478,687   4.05   3,321,797   3.94 
                 
Vested at end of period  2,754,023   3.78   2,035,607   3.52 

 

The Company estimates the fair value of stock option awards on the grant date using the Black-Scholes option pricing model. The weighted-average grant date fair value per option granted during the six months ended June 30, 2026, was $3.93. The fair value of each award is estimated using Black-Scholes option-pricing model based on the following assumptions: underlying value of shares of $4.64-$5.14, exercise price of $4.70-$5.14, expected volatility of 80.21%-86.88%, term of the options of 4.375-10 years and risk-free interest rate of 3.74%-4.67%.

 

On February 19, 2026, the Company’s Board of Directors approved a three-year extension of the term of 407,034 options that were originally set to expire in 2027 (the “Designated Options”). As a result of this extension, the Company estimated the fair value of the Designated Options both before and after the modification and recognized approximately $400 thousand in stock-based payment expenses. The fair value of the Designated Options was estimated using the Black-Scholes option-pricing model, based on the following assumptions: underlying value of shares of $5.14, exercise price of $2.61, expected volatility of 84.89%-90.02%, term of the options of 0.98-4.34years and risk-free interest rate of 3.49-3.575%.

 

-16-
 

 

ODYSIGHT.AI INC.

 

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 – EQUITY (continued):

 

Restricted stock unit (“RSU”) activity

 

Each RSU vests based on continued service to the Company, generally over three years. The grant date fair value of the award is recognized as stock-based compensation expense over the requisite service period. The fair value of restricted stock units was estimated on the date of grant based on the fair value of the Company’s common stock.

 

The following table summarizes RSU activity for the six months ended June 30, 2026 and June 30, 2025:

 SCHEDULE OF RESTRICTED STOCK UNIT (“RSU”) ACTIVITY 

  For the Six months ended 
  June 30,  
  2026  2025 
  Number of  

Weighted

Average

Grant Date

Fair Value

  Number of  

Weighted

Average

Grant Date

Fair Value

 
  RSUs  per Share ($)  RSUs  per Share ($) 
Outstanding at beginning of period  4,167   3.00   

15,419

   3.56 
Granted  -   -   -   - 
Forfeited  -   -   -   - 
Vested  (4,167)  3.00   (7,085)  4.21 
Unvested and Outstanding at end of period  -   -   8,334   3.0 

 

The following table sets forth the total stock-based payment expenses resulting from options and RSUs granted, included in the statements of operations and comprehensive income:

 SCHEDULE OF STOCK-BASED PAYMENT EXPENSE

  2026  2025  2026  2025 
  

Six months ended

June 30,

  

Three months ended

June 30,

 
  2026  2025  2026  2025 
  Unaudited 
  USD in thousands 
             
Cost of revenues  -   (3)  -   - 
Research and development  267   466   154   219 
Sales and marketing expenses  221   202   82   99 
General and administrative  850   986   216   527 
Total expenses  1,338   1,651   452   845 

 

-17-
 

 

ODYSIGHT.AI INC.

 

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 6 – REVENUES:

 

 a.Disaggregation of revenue:

 

 (1)During the second quarter of 2022, the Company completed the development of a customer-specific project for a Fortune 500 medical company customer (the “Client”) and moved from the project development phase to its production phase. Through March 30, 2025, the Company recognized development services revenues and costs that had been previously deferred based on the expected manufacturing term of the product, which the Company estimated originally at seven years. During the first quarter of 2025, due to the fact that the Company has not received a purchase order from the Client and did not expect to receive such order, the Company decided to fully derecognize the fulfillment asset and contract liability associated with the Client, in the amount of $957 thousand and $1,690 thousand, respectively.
   
 (2)During the six months ended June 30, 2026, the Company recognized revenues from customization and development services in which the performance obligation is satisfied over time in the amount of $497 thousand.

 

 b.Unbilled receivables, Contract fulfillment assets and Contract liabilities:

 

Unbilled receivables represent revenue recognized for goods or services delivered to a customer, but not yet invoiced.

 

The change in unbilled receivables:

 

SCHEDULE OF CHANGE IN UNBILLED RECEIVABLES  

  June 30,  December 31, 
  2026  2025 
  USD in thousands 
Balance at beginning of period  615   185 
Contract revenues recognized during the period  67   430 
Balance at end of period  682   615 

 

The change in contract fulfillment assets:

SCHEDULE OF CONTRACT FULFILLMENT ASSETS AND CONTRACT LIABILITIES 

 

  June 30,  December 31, 
  2026  2025 
  USD in thousands 
Balance at beginning of period  -   1,017 
Contract costs recognized during the period  -   (1,017)
Balance at end of period  -   - 

 

Contract liabilities include deferred service and advance payments.

 

The change in contract liabilities:

 

  June 30,  December 31, 
  2026  2025 
  USD in thousands 
Balance at beginning of period  165   2,075 
Contract liabilities, Balance at beginning of the period  165   2,075 
Deferred revenue during the period  203   178 
Revenue recognized during the period  (26)  (2,088)
Balance at end of period  342   165 
Contract liabilities, Balance at end of the period  342   165 

 

Remaining Performance Obligations

 

Remaining Performance Obligations (“RPO”) represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that are expected to be invoiced and recognized as revenue in future periods. As of June 30, 2026, the total RPO amounted to approximately $14.1million.

 

-18-
 

 

ODYSIGHT.AI INC.

 

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7 - INVENTORY:

 

Composed as follows:

 

SCHEDULE OF INVENTORY

  June 30,  December 31, 
  2026  2025 
  USD in thousands 
Raw materials and supplies  42   50 
Finished goods  202   - 
Inventory gross  244   50 

 

During the period ended June 30, 2026, no impairment occurred.

 

NOTE 8 – LOSS PER SHARE

 

Basic loss per share is computed by dividing net loss attributable to ordinary shareholders of the Company by the weighted average number of common shares as described below.

 

Basic net loss per share is computed based on the weighted average number of shares outstanding during each year. Diluted net loss per share is computed based on the weighted average number of shares outstanding during each year, plus the dilutive potential of the common stock considered outstanding during the year, in accordance with ASC 260-10 “Earnings per Share”.

 

All outstanding stock options and warrants have been excluded from the calculation of the diluted loss per share for the period, since all such securities have an anti-dilutive effect.

 

The following table represents potential common shares outstanding that were excluded from the computation of diluted net loss per share because their effect would have been anti-dilutive:

 

SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE

  June 30,  December 31, 
  2026  2025 
Options  3,478,687   3,340,514 
Restricted stock unit  -   4,167 
Warrants  -   5,763,273 
   3,478,687   9,107,954 

 

NOTE 9 - COMMITMENTS AND CONTINGENCIES

 

In April 2023, the Company received approval from the Israel Innovation Authority (the “IIA”) to support and enhance the Company’s production line and capabilities in the next 24 months until April 2025. Pursuant to the agreement with the IIA relating to the program, the Company is required to pay royalties of 3% to the IIA up to the amount of IIA funding received and the accrued interest repayment of the grant is contingent upon the Company successfully completing its enhancement plans and generating sales from the enhancements performed. The Company has no obligation to repay these grants if its enhancement plans are not completed or aborted or if it generates no sales.

 

Total IIA royalty-bearing grants approved for the Company amounted to approximately $80,000.

 

-19-
 

 

ODYSIGHT.AI INC.

 

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 10 – SEGMENT REPORTING

 

Segment information is prepared on the same basis that the chief executive officer, who is the Company’s chief operating decision maker, manages the business, makes business decisions and assesses performance. The Company has one reportable segment specializing in vision-based platform solutions as described in Note 1.

 

The chief executive officer assesses performance for this segment and decides how to allocate resource. The measure of segment assets is reported on the balance sheet as total assets. The chief executive officer performs the assessment of segment performance by using the reported measure of segment profit or loss to monitor budget versus actual results.

 

The table below summarizes the significant expense categories regularly reviewed by the chief operating decision maker, for the six months and three months ended June 30, 2026 and 2025:

 

 SCHEDULE OF SEGMENT REPORTING INFORMATION 

  2026  2025  2026  2025 
  Six months ended June 30,  Three months ended June 30, 
  2026  2025  2026  2025 
  Unaudited 
  USD in thousands 
    
Revenues  502   2,427   420   362 
                 
Cost of Revenues (*)  322   1,749   261   229 
                 
Research and Development expenses (*)  4,483   4,340   2,061   2,112 
                 
Sales and marketing (*)  1,661   820   839   527 
                 
General and Administrative expenses (*)  2,457   2,807   1,255   1,056 
                 
Other segment items:                
Stock-based payments  1,338   1,651   452   845 
Depreciation  56   58   29   31 

Loss from sales of property and equipment

  

54

   -   

54

   - 
Finance income, net  364   658   207   363 
                 
Net loss  (9,505)  (8,340)  (4,324)  (4,075)

 

(*) Excluding share-based payments, depreciation expense, loss from sales of property and equipment and finance income, net

 

NOTE 11 – SUBSEQUENT EVENTS

 

The Company evaluated subsequent events and transactions that occurred after the balance sheet date through the date the financial statements were issued and identified none requiring disclosure or adjustment.

 

-20-
 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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.

 

-21-
 

 

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:

 

  Six months ended June 30,    
  2026  2025  % Change 
Revenues  502   2,427   (79)%
Cost of Revenues  322   1,756   (82)%
Gross Profit  180   671   (73)%
Research and development expenses  4,797   4,843   (1)%
Sales and marketing expense  1,883   1,024   84%
General and administrative expenses  3,369   3,802   (11)%
Operating Loss  (9,869)  (8,998)  10%

 

-22-
 

 

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.

 

-23-
 

 

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):

 

  Six months ended June 30, 
  2026  2025 
Cash used in Operating Activities  (8,713)  (6,403)
Cash provided by (used in) Investing Activities  (343)  280 
Cash provided by Financing Activities  133   21,056 

 

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.

 

-24-
 

 

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:

 

  Three months ended June 30,    
  2026  2025  % Change 
Revenues  420   362   16%
Cost of Revenues  261   229   14%
Gross Profit  159   133   20%
Research and development expenses  2,240   2,356   (5)%
Sales and marketing expense  921   628   47%
General and administrative expenses  1,529   1,587   (4)%
Operating Loss  (4,531)  (4,438)  2%

 

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.

 

-25-
 

 

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.

 

-26-
 

 

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):

 

  Three months ended June 30, 
  2026  2025 
Cash used in Operating Activities  (4,459)  (4,170)
Cash used in Investing Activities  (337)  (3)
Cash provided by Financing Activities  101   34 

 

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.

 

-27-
 

 

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.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

As a smaller reporting company, we are not required to provide the information requested by this Item.

 

Item 4. Controls and Procedures.

 

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.

 

-28-
 

 

PART II- OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may become involved in legal proceedings relating to claims arising from the ordinary course of business. Our management believes that there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations, financial condition or cash flows.

 

ITEM 1A. RISK FACTORS.

 

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.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During the three months ended June 30, 2026, we did not have any sales of unregistered securities.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURE

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

Not applicable.

 

During the quarter ended June 30, 2026, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (in each case, as defined in Item 408 of Regulation S-K).

 

-29-
 

 

ITEM 6. EXHIBITS.

 

 (a)The following documents are filed as exhibits to this Quarterly Report on Form 10-Q or incorporated by reference herein.

 

Exhibit

Number

 Description
   
3.1.1 Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1.1 to our Form S-1 filed with the SEC on July 17, 2023)
   
3.2.1 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed with the SEC on June 8, 2023)
   
31.1* Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
   
31.2* Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
   
32.1** Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
32.2** Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
101.SCH Inline XBRL Instance Document
   
101.INS Inline XBRL Taxonomy Extension Schema Document
   
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
   
104 Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)
   
* Filed herewith.
   
** Furnished herewith.

 

-30-
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: August 13, 2026ODYSIGHT.AI INC
   
 By:/s/ Yehu Ofer
 Name:Yehu Ofer
 Title:Chief Executive Officer
  Odysight.ai Inc
   
 By:/s/ Einav Brenner
 Name:Einav Brenner
 Title:Chief Financial Officer
  Odysight.ai Inc

 

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