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Odysight.ai Inc.

Odysight.ai Inc.ODYSEarnings & Financial Report

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What changed in Odysight.ai Inc.'s 10-K — 2022 vs 2023

Top changes in Odysight.ai Inc.'s 2023 10-K

301 paragraphs added · 216 removed · 169 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

39 edited+36 added−11 removed41 unchanged
Proprietary Rights and Technology Our solution for the market is based on our core intellectual property which we seek to review and patent on a regular basis, where applicable. We are heavily invested in creating patents for our core technology. Our patent portfolio currently contains patent families which we consider material to our business and operating success.
Proprietary Rights and Technology Our solution for the market is based on our core intellectual property which we seek to review and patent on a regular basis, where applicable. We are heavily invested in creating patents for our core technology. 7 Our patent portfolio currently contains patent families which we consider material to our business and operating success.
For additional information on our patent portfolio, refer to – “PROPRIETARY RIGHTS AND TECHNOLOGY” below. 6 Our Customers Currently, we have one major customer, a leading Fortune 500 multinational healthcare corporation, that is expected to generate most of our forecasted revenue in the near term.
For additional information on our patent portfolio, refer to – “PROPRIETARY RIGHTS AND TECHNOLOGY” below. Our Customers Currently, we have one major customer, a leading Fortune 500 multinational healthcare corporation, that is expected to generate most of our forecasted revenue in the near term.
Such approval may entail additional payments to the IIA, as determined under the Innovation Law and regulations. Obligations relevant to us under the Innovation Law include the following: ● Local Manufacturing Obligation. The terms of the grants under the Innovation Law require that we manufacture the products developed with these grants in Israel.
Such approval may entail additional payments to the IIA, as determined under the Innovation Law and regulations. 10 Obligations relevant to us under the Innovation Law include the following: ● Local Manufacturing Obligation. The terms of the grants under the Innovation Law require that we manufacture the products developed with these grants in Israel.
Our intellectual property rights include patents and patent applications that were transferred to us by Medigus as part of the Addendum No. 1 to Amended and Restated Asset Transfer Agreement (the “Addendum”), the License Agreement and the Letter Agreement, and additional patent assets developed by ScoutCam.
Our intellectual property rights include patents and patent applications that were transferred to us by Medigus as part of the Addendum No. 1 to Amended and Restated Asset Transfer Agreement (the “Addendum”), the License Agreement and the Letter Agreement, and additional patent assets developed by us.
The expiration dates for the two patents in the United States are November 28, 2033 and February 28, 2033; ● Patent family related to Small Diameter Video Camera Heads and Medical Devices and Visualization Probes containing them: this patent family relates to our ability to develop cameras, visualization components, and medical devices with a small diameter, thus enabling the insertion of the camera into smaller cavities or leaving more space in the device for the use and application of other functions, such as a working channel.
The expiration dates for the three patents in the United States are November 28, 2033, February 28, 2033 and February 28, 2033, respectively; and ● Patent family related to Small Diameter Video Camera Heads and Medical Devices and Visualization Probes containing them: this patent family relates to our ability to develop cameras, visualization components, and medical devices with a small diameter, thus enabling the insertion of the camera into smaller cavities or leaving more space in the device for the use and application of other functions, such as a working channel.
Another outcome we expect is more cost effective management of resources, since components will only need to be replaced as a result of their actual condition rather than a strict maintenance schedule. 5 The use of an image based platform in the fields of PdM and CBM provides richer and more informative data and insights than traditional sensing methods.
Another outcome we expect is more cost-effective management of resources, since components will only need to be replaced as a result of their actual condition rather than a strict maintenance schedule. 5 The use of a vision-based platform in the fields of PdM and CBM provides richer and more informative data and insights than traditional sensing methods.
(Sumita), a specialty optical fiber technology company, pursuant to which we granted a non-exclusive license to Sumita to our patents related to “Small Diameter Video Camera Heads and Medical Devices and Visualization Probes containing them” in return for payment of royalties and a grant-back license to ScoutCam of Sumita’s patent and patent applications related to fiber optics illumination.
(Sumita), a specialty optical fiber technology company, pursuant to which we granted a non-exclusive license to Sumita to our patents related to “Small Diameter Video Camera Heads and Medical Devices and Visualization Probes containing them” in return for payment of royalties and a grant-back license to Odysight.ai of Sumita’s patent and patent applications related to fiber optics illumination.
On December 1, 2019, Medigus and ScoutCam Ltd. consummated a certain Amended and Restated Asset Transfer Agreement, which transferred and assigned certain assets and intellectual property rights related to its miniaturized imaging business.
On December 1, 2019, Medigus and Odysight.ai Ltd. consummated a certain Amended and Restated Asset Transfer Agreement, which transferred and assigned certain assets and intellectual property rights related to its miniaturized imaging business.
As a U.S. company with foreign offices, we are subject to a variety of foreign laws governing our foreign operations, as well as U.S. laws that restrict trade and certain practices, such as the Foreign Corrupt Practices Act. 9 Israeli Government Programs As a result of certain agreements between Medigus and ScoutCam Ltd.
As a U.S. company with foreign offices, we are subject to a variety of foreign laws governing our foreign operations, as well as U.S. laws that restrict trade and certain practices, such as the Foreign Corrupt Practices Act. Israeli Government Programs As a result of certain agreements between Medigus and Odysight.ai Ltd.
Accordingly, all rights and obligations with regard to the IIA under the Encouragement of Research, Development and Technological Innovation in the Industry Law, 5744-1984, or the Innovation Law, in connection with such know-how now apply to ScoutCam Ltd.
Accordingly, all rights and obligations with regard to the IIA under the Encouragement of Research, Development and Technological Innovation in the Industry Law, 5744-1984, or the Innovation Law, in connection with such know-how now apply to Odysight.ai.
The following are details regarding the rights and obligations within the framework of ScoutCam Ltd.’s activity in the Medigus Consortium, which continue to apply to ScoutCam Ltd. notwithstanding the termination of the Medigus Consortium: (i) The property rights to information which has been developed belongs to the Medigus Consortium member that developed it.
The following are details regarding the rights and obligations within the framework of our activity in the Medigus Consortium, which continue to apply to us notwithstanding the termination of the Medigus Consortium: (i) The property rights to information which has been developed belongs to the Medigus Consortium member that developed it.
On April 20, 2020, ScoutCam Ltd. entered into an Amended and Restated Intercompany Services Agreement with Medigus (the “Intercompany Services Agreement”), which effectively amended and restated an intercompany services agreement dated May 30, 2019.
On April 20, 2020, Odysight.ai entered into an Amended and Restated Intercompany Services Agreement with Medigus (the “Intercompany Services Agreement”), which effectively amended and restated an intercompany services agreement dated May 30, 2019.
In June 2022, we announced that we completed the verification and validation stage of our miniature camera solution with this client and, on January 26, 2023, we announced that we had received an order from this client for $1.45 million.
In June 2022, we announced that we completed the verification and validation stage of our endoscopic camera solution with this client and, on January 26, 2023, we announced that we had received a $1.45 million order from this client.
Our marketing efforts include, but are not limited to, the following: ● engaging third party companies and local consultants as territorial representatives in key markets and leading companies in relevant industries; ● initiating business engagements based on leads received through our marketing efforts, through active interaction with key industry influencers, providing financed proof of concept in order to generate tailored product orders, or via other methods or means; ● conducting proof of concept demonstrations in order to evaluate the feasibility of integration for monitoring their systems and to demonstrate the significant value proposition of our technology to customers; ● networking through personal contacts in the aerospace, critical industry, transportation, maritime, medical, and defense industries; and ● participating in major aerospace, maritime, and vision technology exhibitions as well as industry 4.0 specific events.
Our marketing efforts include, but are not limited to, the following: ● engaging third party companies and local consultants as territorial representatives in key markets and leading companies in relevant industries; ● initiating business engagements based on leads received through our marketing efforts, through active interaction with key industry influencers, providing financed proof of concept in order to generate tailored product orders, or via other methods or means; ● conducting proof of concept demonstrations in order to evaluate the feasibility of integration for monitoring their systems and to demonstrate the significant value proposition of our technology to customers; ● networking through personal contacts in the aerospace, critical industry, transportation, maritime, medical, and defense industries; and ● participating in major aerospace, maritime, and vision technology exhibitions as well as industry 4.0 specific events. 6 In addition to our business development efforts that are mainly based on currently existing or future customer needs, we aim to identify new market opportunities.
This patent has been granted in Canada, Europe (validated in Germany, Spain, France, Great Britain and Italy), Israel, Japan (original and divisional), and the United States (two patents), and has two pending continuations in the United States.
This patent has been granted in Canada, Europe (validated in Germany, Spain, France, Great Britain and Italy), Israel, Japan (original and divisional), and the United States (three patents), and has one pending continuation in the United States.
In order to engage new customers, we employ various marketing strategies. We employ several professional experienced managers in relevant fields of expertise, in addition to a team of consultants who analyze global trends and designated geographical territories to assist us in targeting potential customers.
We employ several professional experienced managers in relevant fields of expertise, in addition to a team of consultants who analyze global trends and designated geographical territories to assist us in targeting potential customers.
We intend to continue to invest in our research and development capabilities. 8 Our R&D efforts are focused on the following areas: (i) maturing our multi camera solution based on advanced visualization sensor technologies focusing on sensing, computing, and prediction, cooperating with customers for mutual development projects that demonstrate our technology by reaching customer KPIs and (ii) our industrial cloud-based product, which leverages our already in place cloud environment to develop mutual proof of concept and minimal valuable product for our customers that enable cloud base solutions for customer KPIs.
Our R&D efforts are focused on the following areas: (i) maturing our multi camera solution based on advanced visual sensing and AI\ML processing technologies focusing on sensing, computing, and prediction, cooperating with customers for mutual development projects that demonstrate our technology by reaching customer KPIs and (ii) our industrial cloud-based product, which leverages our already in place cloud environment to develop mutual proof of concept and minimal valuable product for our customers that enable cloud base solutions for customer KPIs.
The transfer of such know-how to a party outside Israel where the transferring company ceases to exist as an Israeli entity is subject to a redemption fee formula that is based, in general, on the ratio between aggregate IIA grants received by the company and the company’s aggregate research and development expenses, multiplied by the transaction consideration considering statutory depreciation and less royalties already paid to the IIA. 10 The regulations promulgated under the Innovation Law establish a maximum payment of the redemption fee paid to the IIA under the above mentioned formulas and differentiates between two situations: (i) in the event that the company transfers its IIA funded know-how, in whole or in part, or is sold as part of an M&A transaction, and subsequently ceases to conduct business in Israel, the maximum redemption fee under the above mentioned formulas will be no more than six times the amount received (plus annual interest) for the applicable know-how being transferred, or the entire amount received from the IIA, as applicable; (ii) in the event that following the transactions described above (e.g. asset sale of IIA funded know-how or transfer as part of an M&A transaction) the company continues to conduct its research and development activity in Israel (for at least three years following such transfer and maintain staff of at least 75% of the number of research and development employees it had for the six months before the know-how was transferred and keeps the same scope of employment for such research and development staff), then the company is eligible for a reduced cap of the redemption fee of no more than three times the amounts received (plus annual interest) for the applicable know-how being transferred.
The regulations promulgated under the Innovation Law establish a maximum payment of the redemption fee paid to the IIA under the above mentioned formulas and differentiates between two situations: (i) in the event that the company transfers its IIA funded know-how, in whole or in part, or is sold as part of an M&A transaction, and subsequently ceases to conduct business in Israel, the maximum redemption fee under the above mentioned formulas will be no more than six times the amount received (plus annual interest) for the applicable know-how being transferred, or the entire amount received from the IIA, as applicable; (ii) in the event that following the transactions described above (e.g. asset sale of IIA funded know-how or transfer as part of an M&A transaction) the company continues to conduct its research and development activity in Israel (for at least three years following such transfer and maintain staff of at least 75% of the number of research and development employees it had for the six months before the know-how was transferred and keeps the same scope of employment for such research and development staff), then the company is eligible for a reduced cap of the redemption fee of no more than three times the amounts received (plus annual interest) for the applicable know-how being transferred.
Competition There are currently several companies that develop and provide monitoring solutions for PdM and CBM. These monitoring solutions can be the sensor itself, data collection and storage, AI processing, or a combination of these capabilities. The CBM and PdM solutions are usually based on traditional sensing solutions such as vibration, temperature, and acoustic sensors.
These monitoring solutions can be the sensor itself, data collection and storage, AI processing, or a combination of these capabilities. The CBM and PdM solutions are usually based on traditional sensing solutions such as vibration, temperature, and acoustic sensors.
Patent Office is expected to conduct the reexamination proceedings during the course of 2024; and In addition, our intellectual property rights further include the following material patent applications filed by ScoutCam: ● Patent family related to Miniature Precision Medical Device: these pending patent applications relate to our ability to develop a miniature precision medical device comprising an endoscope with at least one camera, where at least one sensor of one camera is distally located at a tip of a shaft of the endoscope.
In addition, our intellectual property rights further include the following material patent applications filed by Odysight.ai: ● Patent family related to Miniature Precision Medical Device: these pending patent applications relate to our ability to develop a miniature precision medical device comprising an endoscope with at least one camera, where at least one sensor of one camera is distally located at a tip of a shaft of the endoscope.
Similarly, if a component part of ours is incorporated into an electronic device for the purpose of being used inside a human body, we comply with certain FDA requirements as well as IEC 60601 for safety and electrostatic discharge, including the heating of parts at more than 42 degrees Celsius and a variety of additional technical standards designed for the safety and essential performance of electronic medical equipment.
Furthermore, we prioritize our team’s compliance with the Restriction of Hazardous Substances Directives (RoHS) and REACH (EC 1907/2006). 9 Similarly, if a component part of ours is incorporated into an electronic device for the purpose of being used inside a human body, we comply with certain FDA requirements as well as IEC 60601 for safety and electrostatic discharge, including the heating of parts at more than 42 degrees Celsius and a variety of additional technical standards designed for the safety and essential performance of electronic medical equipment.
For additional information about the Exchange Agreement, the Amended and Restated Asset Transfer Agreement, the Letter Agreement and the Intercompany Services Agreement, refer to – “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE” below.
For additional information about the Amended and Restated Asset Transfer Agreement, the Letter Agreement and the Intercompany Services Agreement, refer to – “CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS” below.
Such sensors can be used in conjunction with diagnostic software/hardware tools to display and analyze changes in critical images that could not have been displayed or analyzed using existing systems. This patent family includes a pending Patent Cooperation Treaty patent application and national phase applications filed in Israel and the U.S.
Such sensors can be used in conjunction with diagnostic software/hardware tools to display and analyze changes in critical images that could not have been displayed or analyzed using existing systems. This patent family includes national phase applications filed in Australia, Brazil, Canada, China, Europe, Israel, India, Japan, Korea, Singapore and the U.S.
For additional information about the License Agreement refer to – “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE” below.
For additional information about the License Agreement refer to – “CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS” below.
(for additional information about these agreements refer to – “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE” below) the Israel Innovation Authority, or the IIA, approved a transfer of IIA know-how developed by Medigus in the framework of the Bio Medical Photonic Consortium, or the Medigus Consortium, to ScoutCam Ltd.
(for additional information about these agreements refer to – “CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS” below), the IIA approved a transfer of IIA know-how developed by Medigus in the framework of the Bio Medical Photonic Consortium, or the Medigus Consortium, to Odysight.ai.
We received initial funding in March 2014 in the aggregate amount of $19,980 through the sale of common stock to two of our former officers and directors, who purchased in the aggregate 1,998,000 shares of our common stock at $0.01 per share.
However, we were unable to execute our original business plan, develop significant operations or achieve commercial sales. 4 We received initial funding in March 2014 in the aggregate amount of $19,980 through the sale of Common Stock to two of our former officers and directors, who purchased in the aggregate 1,998,000 shares of our Common Stock at $0.01 per share.
Our approach to the medical market is ordinarily conducted in two phases. During the first phase, we conduct the research and development that is required in order to specify, design, develop, and produce the designated visualization apparatus, for an agreed-upon compensation amount (e.g., a non-recurrent engineering fee).
During the first phase, we conduct the research and development that is required in order to specify, design, develop, and produce the designated visualization apparatus, for an agreed-upon compensation amount (e.g., a non-recurrent engineering fee). During the second phase, we manufacture the apparatus and offer it to the customer for an agreed-upon transfer price.
The expiration dates for these patents are March 16, 2031 (for the patents in the United States), and September 16, 2030 (for patents in each of the other aforementioned jurisdictions). 7 As a result of oppositional proceedings initiated by a third party in 2018, the Opposition Division of the EU Patent Office decided in 2019 to revoke two of the three European patents (EP 2.478.693 and EP 2.621.159) and in 2021 to maintain the third patent (EP 2.621.158).
As a result of oppositional proceedings initiated by a third party in 2018, the Opposition Division of the EU Patent Office decided in 2019 to revoke two of the three European patents (EP 2.478.693 and EP 2.621.159) and in 2021 to maintain the third patent (EP 2.621.158).
Our Business Model Our unique video-based sensors, embedded software, and AI algorithms are being deployed in hard-to-reach locations and harsh environments across a variety of PdM and CBM use cases.
Nevertheless, we have recently secured several contracts for our PdM and CBM systems with major government clients and defense and aviation companies. Our Business Model Our unique video-based sensors, embedded software, and AI algorithms are being deployed in hard-to-reach locations and harsh environments across a variety of PdM and CBM use cases.
The following graphic demonstrates ScoutCam’s value proposition, starting with increased safety and reduced down time due to our ability to visually analyze any failure occurrence in real time, and including more sophisticated benefits like big data analytics that provide predictive insights regarding to an entire system life cycle, spare parts management and smart prediction regrading system performance. 4 Who we are: History and Background We were incorporated as a corporation under the laws of the State of Nevada on March 22, 2013, under the name Intellisense Solutions Inc.
The following graphic demonstrates Odysight.ai’s value proposition, starting with increased safety and reduced down time due to our ability to visually analyze any failure occurrence in real time, and including more sophisticated benefits like big data analytics that provide predictive insights regarding to an entire system life cycle, spare parts management and smart prediction regrading system performance.
We were initially engaged in the business of developing web portals to allow companies and individuals to engage in the purchase and sale of vegetarian food products over the Internet. However, we were unable to execute our original business plan, develop significant operations or achieve commercial sales.
We were initially engaged in the business of developing web portals to allow companies and individuals to engage in the purchase and sale of vegetarian food products over the Internet.
On September 16, 2019, Intellisense and Medigus Ltd., an Israeli company traded on the Nasdaq Capital Market, entered into an Exchange Agreement (as defined herein). On December 30, 2019, we acquired ScoutCam Ltd.
On September 16, 2019, Intellisense and Medigus Ltd., an Israeli company traded on the Nasdaq Capital Market, entered into the Exchange Agreement, pursuant to which, on December 30, 2019, we acquired from Medigus Ltd. all of the issued and outstanding share capital of ScoutCam Ltd. On December 31, 2019, we changed our name to ScoutCam Inc.
Employment We currently have approximately 45 full-time (or near full-time) employees. This number is expected to grow. We may recruit additional employees to the R&D team. Research and Development Our R&D organization is responsible for the design, development, testing, and delivery of new technologies, features, products, and integrations of our component parts.
Research and Development Our R&D organization is responsible for the design, development, testing, and delivery of new technologies, features, products, and integrations of our component parts. We currently have approximately 24 employees engaged in research and development. We intend to continue to invest in our research and development capabilities.
When a potential opportunity is identified, we seek to protect our rights by establishing relevant intellectual property safeguards, developing prototypes for the required application.
These efforts include systematic analysis of various industrial and medical fields and procedures to identify where visualization solutions, including image analysis, might add value. When a potential opportunity is identified, we seek to protect our rights by establishing relevant intellectual property safeguards, developing prototypes for the required application.
Patent Office decided to open reexamination proceedings for 23 of the 24 granted claims. The U.S.
As a result of a supplemental examination filed by the Company regarding one of the U.S. Patents (10,188,275), the U.S. Patent Office decided to open reexamination proceedings for 23 of the 24 granted claims.
Our current business model is a business-to-business (B2B) approach in which we seek to identify target businesses interested in integrating our micro visualization technology or commissioning individual projects using our technology. We have several successful proof of concepts in airborne platforms of various OEM’s in aerospace and have completed a successful demonstration project for a top global elevator systems manufacturer.
Our current business model is a business-to-business (B2B) approach in which we seek to identify target businesses interested in integrating our micro visualization and AI\ML video analytics technology or commissioning individual projects using our technology.
This patent has been granted in Japan, Korea, Israel, the United States (2 patents, original and continuation in part), and Europe (3 patents, original and 2 divisionals, currently under appeal after opposition proceedings, validated in Germany, France, Great Britain, and Italy).
This patent has been granted in Japan, Korea, Israel, the United States (2 patents, original and continuation in part), and Europe (3 patents revoked after appeal in opposition proceedings). The expiration dates for these patents are March 16, 2031 (for the patents in the United States), and September 16, 2030 (for patents in each of the other aforementioned jurisdictions).
Furthermore, the IIA may impose certain conditions on any arrangement under which it permits ScoutCam Ltd. to transfer technology or development out of Israel.
Furthermore, the IIA may impose certain conditions on any arrangement under which it permits Odysight.ai to transfer technology or development out of Israel. 11 On May 21, 2023, the Company was awarded an additional grant by the IIA. The purpose of this grant is to support and enhance the Company’s production capabilities.
Sales and Marketing ScoutCam’s vision is to become a leading provider of video analytics based, PdM solutions for the aerospace, other industry and medical critical system markets. We engage companies seeking to add video visualization to their existing or new product(s) or considering the development of new products that include micro video visualization.
Sales and Marketing Our vision is to become a leading provider of visual sensing and AI\ML video analytics, PdM and CBM solutions for the aerospace, other industry and medical critical system markets.
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As a result of our acquisition of ScoutCam Ltd., we now own all of ScoutCam Ltd.’s issued and outstanding share capital and have integrated and adopted ScoutCam Ltd.’s business into our Company as our primary business activity.
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We have several successful proofs of concept in airborne platforms of various OEM’s in aerospace and have completed successful demonstration projects for multiple global elevator systems manufacturers.
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ScoutCam Ltd. was formed in the State of Israel on January 3, 2019, as a wholly-owned subsidiary of Medigus and commenced operations on March 1, 2019.
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Who we are: History and Background We were incorporated as a corporation under the laws of the State of Nevada on March 22, 2013, under the name Intellisense Solutions Inc. (“Intellisense”).
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ScoutCam Ltd. was incorporated as part of a reorganization of Medigus, which was designed to distinguish ScoutCam Ltd.’s miniaturized imaging business, or the micro ScoutCam™ portfolio, from Medigus’ other operations and to enable Medigus to form a separate business unit with dedicated resources focused on the promotion of such technology.
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Following this acquisition, we integrated and fully adopted the acquired miniaturized imaging business into our Company as our primary business activity. On June 5, 2023, we changed our name to Odysight.ai Inc.
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During the second phase, we manufacture the apparatus and offer it to the customer for an agreed-upon transfer price.
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On June 4, 2023, certain of the Company’s stockholders representing more than 50% of the Company’s outstanding share capital voted by written consent to change our name from “ScoutCam Inc.” to “Odysight.ai Inc.” The Company’s board of directors approved an amendment and restatement of the Company’s Amended and Restated Bylaws, effective as of June 4, 2023, to reflect the name change.
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In addition to our business development efforts that are mainly based on currently existing or future customer needs, we aim to identify new market opportunities. These efforts include systematic analysis of various industrial and medical fields and procedures to identify where visualization solutions, including image analysis, might add value.
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In addition, on June 5, 2023, the Company filed with the Secretary of State of the State of Nevada a Certificate of Amendment to its Articles of Incorporation to effect the name change, with such request approved as of June 5, 2023. In addition, the Company’s trading symbol was changed from “SCTC” to “ODYS”, effective February 13, 2024.
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In addition, we derive a substantial portion of our revenue from applications of our micro visualization technology within the medical field. In addition, we announced the completion of a major development stage to equip Elbit Systems Ltd.’s leading defense UAS aerial platforms with our real time video monitoring system.
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On February 28, 2024, we formed a new company, D. VIEW Ltd., wholly owned by Odysight.ai Inc., to act as a local agent for the defense market in Israel.
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Following appeals by Company and the third party of the 2019 and 2021 decisions, respectively, the Opposition Division of the EU Patent Office is expected to hear and decide these matters in early 2024; As a result of a supplemental examination filed by the Company regarding one of the U.S. Patents (10,188,275), the U.S.
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We engage companies seeking to add real time visualization and analytics to their existing or new product(s) or considering the development of new products that include miniature visualization sensors and failure detection capabilities. Our approach to the medical market ordinarily is conducted in two phases.
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If ultimately issued by the United States Patent and Trademark Office, such patent would be expected to expire in early 2042. Additional national phase patent application can be filed in other jurisdictions by the end of July 2023. We have also applied for provisional applications relating to our predictive maintenance innovative technology and developments.
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On July 31, 2023, we announced a collaboration with the Israel Aerospace Industries (IAI) through which the IAI will utilize our advanced visual sensing and video analytics technology in a visual based health monitoring system for UH60 (Blackhawk) helicopters.
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All of these applications are expected to have a lifetime of 20 years from filing. Despite our efforts to protect our intellectual property, unauthorized parties may still copy or otherwise obtain and use our technology. For additional information, refer to – “WE MAY NOT BE SUCCESSFUL IN ENFORCING OUR INTELLECTUAL PROPERTY RIGHTS AGAINST THIRD PARTIES” below.
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By harnessing our multiple highly resilient video-based sensors, embedded software, video analytics and AI algorithms specifically designed for the UH60 helicopter, this solution will provide real-time insights into the health of UH60 helicopters, improving safety measures, minimizing downtime, optimizing spare parts management, and enabling the implementation of predictive maintenance strategies.
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Research and development employees are located primarily in our principal corporate office on Omer, Israel. We currently have approximately 21 employees in our research and development organization.
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On December 4, 2023, we announced a strategic partnership to develop advanced applications for aerospace and industrial markets worldwide with SIPAL S.P.A., a leading company in Italy in the engineering sector.
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Furthermore, we prioritize our team’s compliance with the Restriction of Hazardous Substances Directives (RoHS) and REACH (EC 1907/2006).
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The goal of the collaboration is a next generation maintenance solution that will allow maintenance crews the ability to review and have real time visual inspection of an aircraft’s internal system without the need for removing a single panel or a hatch.
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On February 20, 2024, we announced the receipt of a purchase order for our PdM system for the Israel Air Force Boeing AH-64 Apache attack helicopter prototype. The partnership marks a significant milestone, integrating our autonomous, visual monitoring and predictive maintenance technology into a leading attack helicopter. There are approximately 2,700 Boeing AH-64 Apache attack helicopters deployed worldwide.
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On March 11, 2024, we announced the receipt of a purchase order exceeding $1 million from a major international defense contractor for our visual sensing and AI analytics solution. The systems will be installed in upgraded Lockheed Martin (Sikorsky) SH-60 Seahawk Maritime Rotary Wing Aircraft of the Israel Air Force.
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More than 4,000 UH-60 Black Hawk aircraft, and its variants such as the SH-60 Seahawk, are in service worldwide today. We estimate that the addressable market of rotary wing aircraft systems worldwide is more than a billion dollars. In order to engage new customers, we employ various marketing strategies.
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On October 17, 2023, we announced a solidified purchase order with this client and that formal commitments under the purchase order amount to a total of $3.3 million for fiscal year 2024. Competition There are currently several companies that develop and provide monitoring solutions for PdM and CBM.
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Following appeal hearings held in early 2024, the Board of Appeals revoked all three patents, with formal written decisions still pending. The Company will decide whether to petition for further review of this matter after it receives the formal written decisions. The revocations are not expected to have a material impact on the Company’s current business operations.
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A Notice of Intent to Issue a Reexamination Certificate was issued on March 21, 2024 and the certificate is expected to be issued during the course of 2024.
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(2 applications, original granted and a pending continuation application). The expiry date for the United States patent is January 2043. 8 We have also applied for provisional applications relating to our predictive maintenance technology and developments and for our medical imaging technology and development.
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All of these applications are expected to have a lifetime of 20 years from filing, if granted. We have also applied for trademark applications covering our brand names. The trademarks are registered in Israel and international applications were filed under the Madrid protocol, which are under currently examination procedures.
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Opposition proceedings have been filed by a third party in the European Union Intellectual Property Office against the Company’s EU trademark applications for “Odysight” and “OdysightAI”. The opposition proceedings are expected to be finalized in 2024 or 2025.
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Pursuant to the Addendum, on February 7, 2023, we returned the patent family related to Camera Head to Medigus in return for a license from Medigus to use the same patent family. Despite our efforts to protect our intellectual property, unauthorized parties may still copy or otherwise obtain and use our technology.
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For additional information, refer to – “WE MAY NOT BE SUCCESSFUL IN ENFORCING OUR INTELLECTUAL PROPERTY RIGHTS AGAINST THIRD PARTIES” above. Employment We currently have approximately 49 full-time (or near full-time) employees. This number is expected to grow. We may recruit additional employees to the R&D team.
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The transfer of such know-how to a party outside Israel where the transferring company ceases to exist as an Israeli entity is subject to a redemption fee formula that is based, in general, on the ratio between aggregate IIA grants received by the company and the company’s aggregate research and development expenses, multiplied by the transaction consideration considering statutory depreciation and less royalties already paid to the IIA.
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Subject to the Company successfully achieving all predetermined milestones, the maximum grant amount that can be received is NIS 1 million. Under the Innovation Law and the terms of the grant, royalties on the revenues derived from sales of products developed with IIA funding will be payable to the Israeli government, generally at the rate of 3%.
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The royalty terms shall differ if we receive IIA approval to manufacture or to transfer the rights to manufacture our products developed by way of the IIA grant outside of Israel. The obligation to make these payments terminates upon full repayment of the grant amount, subject to adjustment for fluctuation in the dollar/shekel exchange rate, plus interest.
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Pursuant to the terms of the grant under the Innovation Law, recipients of funding from the IIA are prohibited from (i) manufacturing products developed using IIA grants or derived from technology developed with IIA grants outside of Israel and (ii) transferring rights to manufacture such products outside of Israel.
Added
However, the IIA could, in special cases, approve the transfer of manufacturing or of manufacturing rights of a product developed in an approved program or which resulted therefrom, outside of Israel.
Added
If we were to receive approval to manufacture or to transfer the rights to manufacture our products developed with IIA-funding outside of Israel, we would be required to pay an increased total amount of royalties (possibly up to 300% of the grant plus interest), depending on the portion of total manufacturing that was performed outside of Israel.
Added
The terms of the grant under the Innovation Law prohibit transferring or licensing our IIA-financed technologies, technologies derived therefrom, and related intellectual property rights and know-how outside of Israel, except under limited circumstances and only with the approval of the IIA and generally upon making a payment to the IIA.
Added
If received, we could be required to pay the IIA an amount calculated in accordance with the applicable formula set out in the applicable IIA grant track.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Any violation of the FCPA, the Israeli Anti-Corruption Laws, the UK Bribery Act, or other applicable anti-bribery, anti-corruption laws and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, imposition of significant legal fees, loss of export privileges, severe criminal or civil sanctions or suspension or debarment from U.S. government contracts, substantial diversion of management’s attention, a decline in the market price of our common stock or overall adverse consequences to our reputation and business, all of which may have an adverse effect on our results of operations and financial condition. 17 Risks Related to Intellectual Property We may not be able to obtain patents or other intellectual property rights necessary to protect our proprietary technology and business.
Any violation of the FCPA, the Israeli Anti-Corruption Laws, the UK Bribery Act, or other applicable anti-bribery, anti-corruption laws and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, imposition of significant legal fees, loss of export privileges, severe criminal or civil sanctions or suspension or debarment from U.S. government contracts, substantial diversion of management’s attention, a decline in the market price of our Common Stock or overall adverse consequences to our reputation and business, all of which may have an adverse effect on our results of operations and financial condition. 18 Risks Related to Intellectual Property We may not be able to obtain patents or other intellectual property rights necessary to protect our proprietary technology and business.
We face an increasingly difficult challenge to attract and retain highly qualified security personnel to assist us in combatting these security threats. We may be subject to product liability claims, product actions, including product recalls, and other field or regulatory actions that could be expensive, divert management’s attention, and harm our business.
We face an increasingly difficult challenge to attract and retain highly qualified security personnel to assist us in combatting these security threats. 21 We may be subject to product liability claims, product actions, including product recalls, and other field or regulatory actions that could be expensive, divert management’s attention, and harm our business.
The commercial success of our technologies, commissioned products, and any future product that we may develop depends in part on the medical community as well as other industries for various use cases, depending on the acceptance by such industries of our commissioned products as a useful and cost-effective solution compared to current technologies.
The commercial success of our technologies, current products, and any future product that we may develop depends in part on the medical community as well as other industries for various use cases, depending on the acceptance by such industries of our products as a useful and cost-effective solution compared to current technologies.
If we are unable to appropriately manage growth, our business, prospects, financial condition, and results of operations could be adversely affected. 14 Our commercial success depends upon the degree of market acceptance by such prospective markets and industries as defense and aviation, as well as by the medical community.
If we are unable to appropriately manage growth, our business, prospects, financial condition, and results of operations could be adversely affected. Our commercial success depends upon the degree of market acceptance by such prospective markets and industries as defense and aviation, as well as by the medical community.
Risk Related to Third Parties Our reliance on third-party suppliers for most of the components of our products could harm our ability to meet demand for our products in a timely and cost-effective manner. We rely on our third-party suppliers to obtain an adequate supply of quality components on a timely basis with favorable terms to manufacture our commissioned products.
Risk Related to Third Parties Our reliance on third-party suppliers for most of the components of our products could harm our ability to meet demand for our products in a timely and cost-effective manner. We rely on our third-party suppliers to obtain an adequate supply of quality components on a timely basis with favorable terms to manufacture our products.
We are a public reporting company in the United States, and accordingly, subject to the information and reporting requirements of the Securities Exchange Act of 1934 and other federal securities laws. The costs of preparing and filing annual and quarterly reports and other information with the SEC and furnishing audited reports to stockholders are substantial.
We are a public reporting company in the United States, and accordingly, subject to the information and reporting requirements of the Exchange Act, and other federal securities laws. The costs of preparing and filing annual and quarterly reports and other information with the SEC and furnishing audited reports to stockholders are substantial.
If inventory shortages occur, they could be expected to have a material and adverse effect on our future revenues and ability to effectively project future sales and operating results. 16 We may not be able to manage our strategic partners effectively.
If inventory shortages occur, they could be expected to have a material and adverse effect on our future revenues and ability to effectively project future sales and operating results. We may not be able to manage our strategic partners effectively.
If we try and are unable to negotiate a license or secure the agreement of such alleged infringing party to cease its activities, we must make decisions as to how best to enforce our intellectual property rights. 18 The process of negotiating a license with a third party can be lengthy, and may take months or even years in some circumstances.
If we try and are unable to negotiate a license or secure the agreement of such alleged infringing party to cease its activities, we must make decisions as to how best to enforce our intellectual property rights. 19 The process of negotiating a license with a third party can be lengthy and may take months or even years in some circumstances.
If such an event were to occur, it could have an adverse effect on our business, financial condition, and results of operations. In addition, if we cannot supply commissioned products or future potentially developed products due to a lack of components or are unable to utilize other components in a timely manner, our business will be significantly harmed.
If such an event were to occur, it could have an adverse effect on our business, financial condition, and results of operations. In addition, if we cannot supply current products or future potentially developed products due to a lack of components or are unable to utilize other components in a timely manner, our business will be significantly harmed.
Volatility in exchange rates and global financial markets is expected to continue due to political and economic uncertainty globally Certain technology developed and used by us received Israeli government grants for certain research and development activities. The terms of those grants require us to satisfy specified conditions in addition to repayment of the grants upon certain events.
Volatility in exchange rates and global financial markets is expected to continue due to the ongoing global political and economic uncertainty. Certain technology developed and used by us received Israeli government grants for certain research and development activities. The terms of those grants require us to satisfy specified conditions in addition to repayment of the grants upon certain events.
There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. In the event we required additional capital, the inability to obtain such capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations.
There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. In the event we require additional capital, the inability to obtain such capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations.
The market price of our common stock may fluctuate significantly in response to numerous factors, some of which are beyond our control, such as: ● the announcement of new products or product enhancements by us or our competitors; ● developments concerning intellectual property rights; 22 ● changes in legal, regulatory, and enforcement frameworks impacting our technology or the application of our technology; ● variations in our and our competitors’ results of operations; ● fluctuations in earnings estimates or recommendations by securities analysts, if our common stock is covered by analysts; ● the results of product liability or intellectual property lawsuits; ● future issuances of common stock or other securities; ● the addition or departure of key personnel; ● announcements by us or our competitors of acquisitions, investments or strategic alliances; ● current or anticipated impact of military conflict, including the conflict between Russia and Ukraine, terrorism or other geopolitical events; ● sanctions imposed by the United States and other countries in response to such conflicts, including the one in Ukraine, may also adversely impact the financial markets and the global economy, and any economic countermeasures by affected countries and others could exacerbate market and economic instability; and ● general market conditions and other events or factors, many of which are beyond our control.
The market price of our Common Stock may fluctuate significantly in response to numerous factors, some of which are beyond our control, such as: ● the announcement of new products or product enhancements by us or our competitors; ● developments concerning intellectual property rights; ● changes in legal, regulatory, and enforcement frameworks impacting our technology or the application of our technology; ● variations in our and our competitors’ results of operations; ● fluctuations in earnings estimates or recommendations by securities analysts, if our Common Stock is covered by analysts; ● the results of product liability or intellectual property lawsuits; ● future issuances of Common Stock or other securities; ● the addition or departure of key personnel; ● announcements by us or our competitors of acquisitions, investments or strategic alliances; ● current or anticipated impact of military conflict, including the conflict between Russia and Ukraine, Israel’s war or conflicts with Hamas or Lebanon, terrorism or other geopolitical events; ● sanctions imposed by the United States and other countries in response to such conflicts, including the one in Ukraine, may also adversely impact the financial markets and the global economy, and any economic countermeasures by affected countries and others could exacerbate market and economic instability; and ● general market conditions and other events or factors, many of which are beyond our control.
Any of the foregoing could have a negative effect on the value of our common stock. 19 We may be subject to infringement claims and other litigation, which could adversely affect our business.
Any of the foregoing could have a negative effect on the value of our Common Stock. 20 We may be subject to infringement claims and other litigation, which could adversely affect our business.
General Risk Factors Related to Our Business Our business and operations would suffer in the event of computer system failures, cyber-attacks, or deficiencies in our cyber-security.
General Risk Factors Related to Our Business Our business and operations may suffer in the event of computer system failures, cyber-attacks, or deficiencies in our cyber-security.
The degree of market acceptance will depend on a number of factors, including: ● the cost, safety, efficacy/performance, perceived value and convenience of our technology and any commissioned product and any future product that we may develop in relation to alternative products; ● the ability of third parties to enter into relationships with us; ● the effectiveness of our sales and marketing efforts; ● the strength of marketing and distribution support for, and timing of market introduction of, competing technology and products; and ● publicity concerning our technology or commissioned products or competing technology and products.
The degree of market acceptance will depend on a number of factors, including: ● the cost, safety, efficacy/performance, perceived value and convenience of our technology and any current or future product that we may develop; ● the ability of third parties to enter into relationships with us; ● the effectiveness of our sales and marketing efforts; ● the strength of marketing and distribution support for, and timing of market introduction of, competing technology and products; and ● publicity concerning our technology or products or competing technology and products.
Israel is still engaged in sporadic armed conflicts with Hamas, an Islamist terrorist group that controls the Gaza Strip, with Hezbollah, an Islamist terrorist group that controls large portions of southern Lebanon, and with Iranian-backed military forces in Syria. In addition, Iran has threatened to attack Israel and may be developing nuclear weapons.
In addition to Hamas, Israel is engaged in sporadic armed conflicts with Hezbollah, an Islamist terrorist group that controls large portions of southern Lebanon, and with Iranian-backed military forces in Syria. In addition, Iran has threatened to attack Israel and may be developing nuclear weapons.
We may require substantial additional funding, which may not be available to us on acceptable terms, or at all. Our cash and short-term deposit balance as of December 31, 2022 was $13.1 million. We may require additional funding to fund and grow our operations and to develop certain products.
We may require substantial additional funding, which may not be available to us on acceptable terms, or at all. Our cash and short-term deposit balance as of December 31, 2023 was $17 million. We may require additional funding to fund and grow our operations and to develop certain products.
Our business exposes us to potential liability risks, product actions, and other field or regulatory actions that are inherent in the manufacturing, marketing and sale of medical device, or any other products that we may have commissioned for a target business.
Our business exposes us to potential liability risks, product actions, and other field or regulatory actions that are inherent in the manufacturing, marketing and sale of medical devices, or any other products that we may develop for a target business.
General Risk Factors Related to Our Business ● Our business and operations would suffer in the event of computer system failures, cyber-attacks, or deficiencies in our cyber-security. ● We may be subject to product liability claims, product actions, including product recalls, and other field or regulatory actions that could be expensive, divert management’s attention, and harm our business. ● Testing of our technologies potential applications for our products will be required and there is no assurance of regulatory approval. ● We rely on highly skilled personnel, and, if we are unable to attract, retain, or motivate qualified personnel, we may not be able to operate our business effectively.
General Risk Factors Related to Our Business ● Our business and operations may suffer in the event of computer system failures, cyber-attacks, or deficiencies in our cyber-security. ● We may be subject to product liability claims, product actions, including product recalls, and other field or regulatory actions that could be expensive, divert management’s attention, and harm our business. ● Testing of our technologies potential applications for our products will be required and there is no assurance of regulatory approval. ● We rely on highly skilled personnel, and, if we are unable to attract, retain, or motivate qualified personnel, we may not be able to operate our business effectively. ● Our data and information systems and network infrastructure may be subject to hacking or other cybersecurity threats. ● We incorporate artificial intelligence, or AI, into some of our products.
If we require and are unable to obtain additional financing, we will likely be required to curtail our development plans. In that event, current stockholders would likely experience a loss of most or all of their investment. Additional funding that we do obtain may be dilutive to the interests of existing stockholders.
If we require and are unable to obtain additional financing, we will likely be required to curtail our development plans. In that event, current stockholders would likely experience a loss of most or all of their investment.
Any armed conflicts or political instability in the region would likely negatively affect business conditions and could harm our results of operations. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict business with the State of Israel and with Israeli companies.
Any armed conflict or political instability in the region would likely negatively affect business conditions and could harm our results of operations. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts.
Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a stock exchange like NASDAQ or the NYSE. Our common stock has a history of thin trading.
Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a stock exchange like NASDAQ or the NYSE.
As of March 28, 2023, our directors, executive officers, principal stockholders, and affiliated entities may be deemed to beneficially own, in the aggregate, approximately 84.40% of our outstanding voting securities.
As of March 26, 2024, our directors, executive officers, principal stockholders, and affiliated entities may be deemed to beneficially own, in the aggregate, approximately 84.11% of our outstanding voting securities.
Failure to comply with anti-bribery, anti-corruption and anti-money laundering laws could subject us to penalties and other adverse consequences. We are subject to the U.S.
If we fail to comply with anti-bribery, anti-corruption and anti-money laundering laws, we could be subject to penalties and other adverse consequences. We are subject to the U.S.
If applicable, the penny stock rules may make it difficult for stockholders to sell their shares of our common stock. Because of the rules and restrictions applicable to a penny stock, there is less trading in penny stocks and the market price of our common stock may be adversely affected.
The penny stock rules may make it difficult for stockholders to sell their shares of our Common Stock. Because of the rules and restrictions applicable to a penny stock, there is less trading in penny stocks and the market price of our Common Stock may be adversely affected. Also, many brokers choose not to participate in penny stock transactions.
Also, many brokers choose not to participate in penny stock transactions. Accordingly, stockholders may not always be able to resell their shares of our common stock publicly at times and prices that they feel are appropriate. 23 Compliance with the reporting requirements of federal securities laws can be expensive.
Accordingly, stockholders may not always be able to resell their shares of our Common Stock publicly at times and prices that they feel are appropriate. Compliance with the reporting requirements of federal securities laws can be expensive.
As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current and/or former employees, or be forced to litigate such claims, which could negatively affect our business.
As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current and/or former employees, or be forced to litigate such claims, which could negatively affect our business. Item 1b. unresolved staff comments Not applicable.
There are risks involved with establishing our own sales, marketing, and distribution capabilities. For example, recruiting and training a sales force could be expensive and time consuming and could delay any product launch. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
For example, recruiting, and training a sales force could be expensive and time consuming and could delay any product launch. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
Our amended and restated articles of incorporation and bylaws currently contain provisions that, together with Nevada law, could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our board of directors.
Anti-takeover provisions contained in our articles and bylaws, as well as provisions of Nevada law, could impair a takeover attempt. Our amended and restated articles of incorporation and bylaws currently contain provisions that, together with Nevada law, could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our board of directors.
Such risks include, but are not limited to, the following: ● the absence of a lengthy operating history; ● potential for ongoing operating losses; ● operating in multiple currencies; ● our ability to anticipate and adapt to a developing market(s); ● acceptance of our products by the medical and industrial (I4.0) markets and consumers; ● introducing innovation to conservative industries; ● development risks and implementation of new software and algorithm for AI and cloud utilization; ● insufficient capital to fully realize our operating plan; ● a competitive environment; ● the ability to identify, attract, and retain qualified personnel; and ● operating in an environment that is highly regulated by a number of agencies.
Such risks include, but are not limited to, the following: ● the absence of a lengthy operating history; ● potential for ongoing operating losses; ● operating in multiple currencies; ● our ability to anticipate and adapt to a developing market(s); ● acceptance of our products by the medical and industrial (I4.0) markets and consumers; ● introducing innovation to conservative industries; ● development risks and implementation of new software and algorithm for AI and cloud utilization; ● insufficient capital to fully realize our operating plan; ● a competitive environment; ● the ability to identify, attract, and retain qualified personnel; and ● operating in an environment that is highly regulated by a number of agencies. 14 Because we are subject to these risks, evaluating our business may be difficult, our business strategy may be unsuccessful and we may be unable to address such risks in a cost-effective manner, if at all.
Our failure to effectively manage growth could impair our business. Our business strategy contemplates a period of rapid growth which may put a strain on our administrative and operational resources, and our funding requirements.
If we fail to effectively manage growth, our business could be impaired. Our business strategy contemplates a period of rapid growth which may put a strain on our administrative and operational resources, and our funding requirements.
Negotiating and performing under these arrangements involves significant time and expense, and we may not have sufficient resources to devote to our strategic alliances, particularly those with companies that have significantly greater financial and other resources than we do. The anticipated benefits of these arrangements may never materialize and performing under these arrangements may adversely affect our results of operations.
Negotiating and performing under these arrangements involves significant time and expense, and we may not have sufficient resources to devote to our strategic alliances, particularly those with companies that have significantly greater financial and other resources than we do.
Any provision of our amended and restated articles of incorporation, our bylaws or Nevada law that has the effect of delaying or deterring a change in control of our company could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.
Any provision of our amended and restated articles of incorporation, our bylaws or Nevada law that has the effect of delaying or deterring a change in control of our Company could limit the opportunity for our stockholders to receive a premium for their shares of our Common Stock and could also affect the price that some investors are willing to pay for our Common Stock. 24 The market price of our Common Stock may be highly volatile and such volatility could cause you to lose some or all of your investment.
At this stage, where the proposed legislation has not become effective, and its scope is not fully determined, we cannot assess the possible impacts of these changes and their likelihood.
At this stage, where most of the proposed legislation has not become effective and its scope is not fully determined, we cannot assess the likelihood of the legislation going into effect or the possible impact of these changes.
We have not earned a profit in any full fiscal year since our inception, and we cannot be certain as to when or if we will achieve or maintain profitability.
We have not earned a profit in any full fiscal year since our inception, and we cannot be certain as to when or if we will achieve or maintain profitability. If we are unable to successfully address these risks our business could be harmed.
The terms of such grants require ScoutCam Ltd. to comply with the requirements of the Innovation Law.
The terms of such grants require Odysight.ai to comply with the requirements of the Innovation Law.
Some of these hostilities were accompanied by missiles being fired from the Gaza Strip against civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected business conditions in Israel.
Some of these hostilities have been accompanied by missiles being fired from Lebanon against civilian targets in various parts of Israel, including areas in which some of our employees and consultants may be located, and negatively affected business conditions in Israel.
Risks Related to Our Business, Operations and Financial Condition ● We have had a limited operating history and may not be able to successfully operate our business or execute our business plan. ● If we are unable to establish sales, marketing and distribution capabilities or enter into successful relationships with business targets and third parties to perform these services, we may not be successful in commercializing our products and technology. ● We may require substantial additional funding, which may not be available to us on acceptable terms, or at all. ● Our failure to effectively manage growth could impair our business. ● Our commercial success depends upon the degree of market acceptance by prospective markets and industries. ● Weakened global economic conditions may harm our industry, business and results of operations. ● The continuing effects of the COVID-19 pandemic are highly unpredictable and could be significant, and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain. 11 Risk Related to Third Parties ● Our reliance on third-party suppliers for most of the components of our products, including miniature video sensors could harm our ability to meet demand for our products in a timely and cost-effective manner. ● We may not be able to manage our strategic partners. ● We may not have sufficient manufacturing capabilities to satisfy any growing demand for our products.
Risks Related to Our Business, Operations and Financial Condition ● We have had a limited operating history and may not be able to successfully operate our business or execute our business plan. ● If we are unable to establish sales, marketing and distribution capabilities or enter into successful relationships with business targets and third parties to perform these services, we may not be successful in commercializing our products and technology. ● We may require substantial additional funding, which may not be available to us on acceptable terms, or at all. ● We have a single customer that accounts for a substantial portion of our revenues, and our business would be harmed were we to lose this customer. ● If we fail to effectively manage growth, our business could be impaired. ● Our commercial success depends upon the degree of market acceptance by prospective markets and industries. ● Weakened global economic conditions may harm our industry, business and results of operations. 12 Risk Related to Third Parties ● Our reliance on third-party suppliers for most of the components of our products could harm our ability to meet demand for our products in a timely and cost-effective manner. ● We may not be able to manage our strategic partners effectively. ● We may not have sufficient manufacturing capabilities to satisfy any growing demand for our products.
We may be unable to control the availability or cost of producing such products. Risks Related to Competition ● We expect to face some competition possibly from our customer.
We may be unable to control the availability or cost of producing such products. Risks Related to Competition ● We expect to face competition in the future.
In recent years, Israel has been subject to certain political instability and increased number of elections were held. Actual or perceived political instability in Israel or any negative changes in the political environment, may individually or in the aggregate adversely affect the Israeli economy and, in turn, our business, financial condition, results of operations and growth prospects.
Actual or perceived political instability in Israel or any negative changes in the political environment, may individually or in the aggregate adversely affect the Israeli economy and, in turn, our business, financial condition, results of operations and growth prospects.
The transfer of IIA-supported technology or know-how or manufacturing or manufacturing rights related to aspects of such technologies outside of Israel may involve the payment of significant penalties and other amounts, depending upon the value of the transferred technology or know-how, the amount of IIA support, the time of completion of the IIA-supported research project and other factors.
Furthermore, the IIA may impose certain conditions on any arrangement under which it permits us to transfer technology or development out of Israel. 29 The transfer of IIA-supported technology or know-how or manufacturing or manufacturing rights related to aspects of such technologies outside of Israel may involve the payment of significant penalties and other amounts, depending upon the value of the transferred technology or know-how, the amount of IIA support, the time of completion of the IIA-supported research project and other factors.
If any of our commissioned products are defective, whether due to design or manufacturing defects, improper use of the product, or other reasons, we may voluntarily or involuntarily undertake an action to remove, repair, or replace the product at our expense.
If any of our products are defective, whether due to design or manufacturing defects, improper use of the product, or other reasons, we may voluntarily or involuntarily undertake an action to remove, repair, or replace the product at our expense. In some circumstances we will be required to notify regulatory authorities of an action pursuant to a product failure.
In addition, many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (or older, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty.
A campaign of boycotts, divestment and sanctions has been undertaken against Israel, which could also adversely impact our business. 28 Many Israeli citizens are also obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (or older, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty.
Our success depends in large part on continued employment of senior management and key personnel who can effectively operate our business, as well as our ability to attract and retain skilled employees.
We rely on highly skilled personnel, and if we are unable to attract, retain, or motivate qualified personnel, we may not be able to operate our business effectively. Our success depends in large part on continued employment of senior management and key personnel who can effectively operate our business, as well as our ability to attract and retain skilled employees.
The research and development efforts that contributed to certain technology used by us was financed in part through grants from the IIA to Medigus, which was subsequently transferred to ScoutCam Ltd. (for more information about such agreements, refer to – “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE” below”).
The research and development efforts that contributed to certain technology used by us was financed in part through grants from the Israel Innovation Authority (“IIA”) to Medigus, which was subsequently transferred to Odysight.ai (for more information about such agreements, refer to – “CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS” below).
We also may experience lower than expected sales and potential adverse impacts on our competitive position if there is a decrease in consumer spending or a negative reaction to our pricing.
We also may experience lower than expected sales and potential adverse impacts on our competitive position if there is a decrease in consumer spending or a negative reaction to our pricing. A reduction in our revenue would be detrimental to our profitability and financial condition and could also have an adverse impact on our future growth.
Furthermore, the consideration available to our shareholders in a transaction involving the transfer outside of Israel of technology or know-how developed with IIA funding (such as a merger or similar transaction) may be reduced by any amounts that we are required to pay to the IIA. 26 We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.
Furthermore, the consideration available to our shareholders in a transaction involving the transfer outside of Israel of technology or know-how developed with IIA funding (such as a merger or similar transaction) may be reduced by any amounts that we are required to pay to the IIA.
If we are unable to successfully address these risks our business could be harmed. 13 If we are unable to establish sales, marketing and distribution capabilities or enter into successful relationships with business targets and third parties to perform these services, we may not be successful in commercializing our products and technology.
If we are unable to establish sales, marketing and distribution capabilities or enter into successful relationships with business targets and third parties to perform these services, we may not be successful in commercializing our products and technology. Given that we are currently as a B2B company, our business is reliant on our ability to successfully attract potential business targets.
We may be unable to keep pace with changes in technology as our business and market strategy evolves. We will need to respond to technological advances in a cost-effective and timely manner in order to remain competitive. The need to respond to technological changes may require us to make substantial, unanticipated expenditures.
Further, the volatility of our stock price may make our equity compensation less attractive to current and potential employees. 22 We may be unable to keep pace with changes in technology as our business and market strategy evolves. We will need to respond to technological advances in a cost-effective and timely manner in order to remain competitive.
While we have policies and procedures to address compliance with such laws, we cannot assure you that our employees and agents will not take actions in violation of our policies or applicable law, for which we may be ultimately held responsible and our exposure for violating these laws increases as our international presence is established and as we increase sales and operations in foreign jurisdictions.
While we have policies and procedures to address compliance with such laws, we cannot provide complete assurance that our employees and agents will not take actions in violation of our policies or applicable law, for which we may be ultimately held responsible.
Even if our board of directors decides to declare and pay dividends, the timing, amount, and form of future dividends, if any, will depend on our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiary, our financial condition, contractual restrictions, and other factors deemed relevant by our board of directors.
Even if our board of directors decides to declare and pay dividends, the timing, amount, and form of future dividends, if any, will depend on our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our wholly-owned subsidiary Odysight.ai Ltd., our financial condition, contractual restrictions, and other factors deemed relevant by our board of directors. 26 Risks Related to our Operations in Israel We are subject to the risks of political, economic, health, and military instability in countries outside the United States in which we operate.
Further, the volatility of our stock price may make our equity compensation less attractive to current and potential employees. Our success also depends on our having highly trained financial, technical, R&D, sales, and marketing personnel. We will need to continue to hire additional personnel as our business grows.
Our success also depends on our having highly trained financial, technical, R&D, sales, and marketing personnel. We will need to continue to hire additional personnel as our business grows.
Accordingly, political, economic, and military conditions in Israel and the surrounding region may directly affect our business and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its neighboring countries.
Our offices and management team are located in Israel. Accordingly, our business and operations may be affected by economic, political, geopolitical and military conditions in Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its neighboring countries and Muslim based terrorist organizations active in the region.
Failure to manage our current partners effectively or enter into new strategic alliances may affect our success in executing our business plan and may adversely affect our business, financial condition, and results of operation. We may not realize the anticipated benefits of any or all partnerships or may not realize them in the time frame expected.
The anticipated benefits of these arrangements may never materialize and performing under these arrangements may adversely affect our results of operations. 17 Failure to manage our current partners effectively or enter into new strategic alliances may affect our success in executing our business plan and may adversely affect our business, financial condition, and results of operation.
There can be no assurance that our commissioned products can be manufactured at our desired commercial quantities, in compliance with our requirements, and at an acceptable cost. Any such failure could delay or prevent us from shipping said products and marketing our technologies in accordance with our target growth strategies. Risks Related to Competition We expect to face competition.
Any such failure could delay or prevent us from shipping said products and marketing our technologies in accordance with our target growth strategies. Risks Related to Competition We expect to face competition in the future.
Risks Related to this Offering and Our Common Stock ● Although we have filed an application to list our securities on Nasdaq, there can be no assurance that our securities will be so listed or, if listed, that we will be able to comply with the continued listing standards. ● Trading on the OTC Markets is volatile, sporadic and often thin, which could depress the market price of our common stock and make it difficult for our stockholders to resell their common stock. ● Nevada law and provisions in our amended and restated articles of incorporation and amended and restated bylaws could make a merger, tender offer or proxy contest difficult, thereby depressing the market price of our common stock. ● The market price of our common stock may be highly volatile and such volatility could cause you to lose some or all of your investment. ● Because our common stock may be deemed a “penny stock,” it may be more difficult for investors to sell shares of our common stock, and the market price of our common stock may be adversely affected. ● Compliance with the reporting requirements of federal securities laws can be expensive. ● Our investors’ ownership in the Company may be diluted in the future. ● Directors, executive officers, principal stockholders, and affiliated entities own a significant percentage of our capital stock, and they may make decisions that our stockholders do not consider to be in their best interests. ● We do not anticipate paying any cash dividends in the foreseeable future. 12 Risks Related to our Operations in Israel ● We are subject to the risks of political, economic, health, and military instability in countries outside the United States in which we operate. ● Political, economic and military instability in Israel may impede our ability to operate and harm our financial results. ● It may be difficult for investors in the United States to enforce any judgments obtained against us or some of our directors or officers. ● Exchange rate fluctuations between foreign currencies and the U.S.
Risks Related to Our Common Stock ● If the ownership of our Common Stock continues to be highly concentrated, it may prevent you and other minority stockholders from influencing significant corporate decisions and may result in conflicts of interest. ● Future resales of Common Stock may cause the market price of our Common Stock to drop significantly, even if our business is doing well. ● Trading on the OTC Markets is volatile, sporadic and often thin, which could depress the market price of our Common Stock and make it difficult for our stockholders to resell their Common Stock. ● Anti-takeover provisions contained in our articles and bylaws, as well as provisions of Nevada law, could impair a takeover attempt. ● The market price of our Common Stock may be highly volatile and such volatility could cause you to lose some or all of your investment. ● Our Common Stock is currently a “penny stock,” which imposes additional sales practice requirements on broker-dealers that sell such securities. ● Compliance with the reporting requirements of federal securities laws can be expensive. ● Our investors’ ownership in the Company may be diluted in the future. ● Directors, executive officers, principal stockholders, and affiliated entities own a significant percentage of our capital stock, and they may make decisions that our stockholders do not consider to be in their best interests. ● We do not anticipate paying any cash dividends in the foreseeable future. 13 Risks Related to our Operations in Israel ● We are subject to the risks of political, economic, health, and military instability in countries outside the United States in which we operate. ● Conditions in Israel, including the October 7, 2023 attack by Hamas and other terrorist organizations and Israel’s war against them, if escalated, could negatively affect our operations. ● Other instances of political, economic, or military instability in Israel, if escalated, could impede our ability to operate and harm our financial results. ● It may be difficult for investors in the United States to enforce any judgments obtained against us or some of our directors or officers. ● Exchange rate fluctuations between foreign currencies and the U.S.
Weak economic conditions or the perception thereof, or significant uncertainty regarding the stability of financial markets related to stock market volatility, inflation, recession, changes in tariffs, trade agreements, or governmental fiscal, monetary and tax policies, among others, could adversely impact our business, financial condition and operating results.
Weak economic conditions or the perception thereof, or significant uncertainty regarding the stability of financial markets related to stock market volatility, inflation, recession, changes in tariffs, trade agreements, or governmental fiscal, monetary and tax policies, among others, could adversely impact our business, financial condition and operating results. 16 More recently, inflation rates in the U.S. have been higher than in previous years, which may result in decreased demand for our products and services, increases in our operating costs including our labor costs, constrained credit and liquidity, reduced government spending and volatility in financial markets.
In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be military reserve duty call-ups in the future. Our operations could be disrupted by such call-ups, which may include the call-up of members of our management.
As has been the case with the ongoing war with Hamas, in response to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be additional military reserve duty call-ups in the future.
To achieve commercial success for our technologies or any future developed product, we will need to establish a sales and marketing infrastructure or to out-license such future products. In the future, we may consider building a focused sales and marketing infrastructure to market any developed products and potentially other products in the United States or elsewhere in the world.
Furthermore, we have a limited sales and marketing infrastructure and have limited experience in the sale, marketing, or distribution of our technologies beyond the B2B model. To achieve commercial success for our technologies or any future developed product, we will need to establish a sales and marketing infrastructure or to out-license such future products.
Changes in the Israeli economy could make it more difficult for us to operate our business and could have a material adverse effect on our business, reputation, financial condition, results of operation, and cash flow. 25 It may be difficult for investors in the United States to enforce any judgments obtained against us or some of our directors or officers.
Changes in the Israeli economy could make it more difficult for us to operate our business and could have a material adverse effect on our business, reputation, financial condition, results of operation and cash flow. In the beginning of 2023, the newly formed government commenced a legislative process to effect changes in the Israeli legal system.
We may not have sufficient manufacturing capabilities to satisfy any growing demand for our commissioned products. We may be unable to control the availability or cost of producing such products. Our current manufacturing capabilities may not reach the required production levels necessary in order to meet growing demands for any products we may commission or future products we may develop.
We may not realize the anticipated benefits of any or all partnerships or may not realize them in the time frame expected. We may not have sufficient manufacturing capabilities to satisfy any growing demand for our products. We may be unable to control the availability or cost of producing such products.
During the 52-week period ended December 31, 2022, trades were only reported on 37 trading days. These factors may result in investors having difficulty reselling any shares of our common stock . Anti-takeover provisions contained in our articles and bylaws, as well as provisions of Nevada law, could impair a takeover attempt.
Our Common Stock has a history of thin trading. During the 52-week period ended February 29, 2024, trades were only reported on 78 trading days. These factors may result in investors having difficulty reselling any shares of our Common Stock .
Risks Related to our Operations in Israel We are subject to the risks of political, economic, health, and military instability in countries outside the United States in which we operate. Some of our products are produced in Israel, India, China, and other countries which are particularly subject to risks of political, economic, health, and military instability.
Some of our products are produced in Israel, India, China, and other countries which are particularly subject to risks of political, economic, health, and military instability. This instability could result in wars, riots, nationalization of industry, currency fluctuations, and labor unrest or unavailability.
If we cannot successfully compete there might be adverse effect on the company. ● Failure to comply with anti-bribery, anti-corruption and anti-money laundering laws could subject us to penalties and other adverse consequences.
If we cannot successfully compete with new or existing technologies or future developed products, our marketing and sales will suffer, and we may never be profitable. ● If we fail to comply with anti-bribery, anti-corruption and anti-money laundering laws, we could be subject to penalties and other adverse consequences.
A significant portion of our intellectual property has been developed by our employees in the course of their employment for us.
We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business. A significant portion of our intellectual property has been developed by our employees in the course of their employment for us.
We have principal manufacturing facilities and operations located in Israel. Accordingly, our business will be directly influenced by the political, economic and military conditions affecting Israel at any given time. 24 Political, economic and military instability in Israel may impede our ability to operate and harm our financial results. Our offices and management team are located in Israel.
We have principal manufacturing facilities and operations located in Israel. Accordingly, our business will be directly influenced by the political, economic, and military conditions affecting Israel at any given time. Conditions in Israel, including the October 7, 2023 attack by Hamas and other terrorist organizations and Israel’s war against them, if escalated, could negatively affect our operations.
We have never experienced any material interruption in our operations attributable to these factors, in spite of several Middle East crises, including wars. A change in the security and political situation in Israel and in the economy could have a material adverse effect on our business, operating results, and financial condition.
Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its neighboring countries. We have never experienced any material interruption in our operations attributable to these factors, in spite of several Middle East crises.
These restrictive laws and policies may have an adverse impact on our operating results, financial condition, or the expansion of our business. A campaign of boycotts, divestment, and sanctions has been undertaken against Israel, which could also adversely impact our business.
Several countries still restrict business with the State of Israel and with Israeli companies and may do so in the future as a result of the war with Hamas or for other reasons. These restrictive laws and policies may have an adverse impact on our operating results, financial condition, or the expansion of our business.
The market price of our common stock may be highly volatile and such volatility could cause you to lose some or all of your investment.
These sales, or the perception in the market that such sales can occur, could reduce the market price of our Common Stock and increase the volatility in the market price of our Common Stock.
In some circumstances we will be required to notify regulatory authorities of an action pursuant to a product failure. 20 Testing of our technologies potential applications for our products will be required and there is no assurance of regulatory approval.
The successful assertion of any large claim against us could seriously harm our business. Even if not successful, these claims may result in significant legal and other costs, be a distraction to our management and harm our reputation. Testing of our technologies potential applications for our products will be required and there is no assurance of regulatory approval.
Removed
Because we are subject to these risks, evaluating our business may be difficult, our business strategy may be unsuccessful and we may be unable to address such risks in a cost-effective manner, if at all.
Added
This technology is new and developing and may present both compliance and reputational risks.
Removed
Given that we are currently as a B2B company, our business is reliant on our ability to successfully attract potential business targets. Furthermore, we have a limited sales and marketing infrastructure and have limited experience in the sale, marketing, or distribution of our technologies beyond the B2B model.
Added
In the future, we may consider building a focused sales and marketing infrastructure to market any developed products and potentially other products in the United States or elsewhere in the world. There are risks involved with establishing our own sales, marketing, and distribution capabilities.
Removed
More recently, inflation rates in the U.S. have been higher than in previous years, which may result in decreased demand for our products and services, increases in our operating costs including our labor costs, constrained credit and liquidity, reduced government spending and volatility in financial markets.
Added
Additional funding may be dilutive to the interests of existing stockholders. 15 We have a single customer that accounts for a substantial portion of our revenues , and our business would be harmed were we to lose this customer.
Removed
A reduction in our revenue would be detrimental to our profitability and financial condition and could also have an adverse impact on our future growth. 15 The continuing effects of the COVID-19 pandemic are highly unpredictable and could be significant, and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain.
Added
We currently have one major customer, a leading Fortune 500 multinational healthcare corporation, which accounted for approximately 98% and 81% of our revenues for 2023 and 2022, respectively, and is expected to generate most of our forecasted revenue in the near term. Were we to lose this customer, our revenues would decline significantly, and our business would be harmed.
Removed
The extent to which the COVID-19 pandemic ultimately impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, such as the duration of future outbreaks, including current and subsequent variants of COVID-19, travel restrictions and social distancing in Israel, the United States and other countries, business closures or business disruptions, and the effectiveness of actions taken in Israel, the United States and other countries to contain and treat the disease and to address its impact, including on financial markets or otherwise.
Added
Our current manufacturing capabilities may not reach the required production levels necessary in order to meet growing demands for any products we may commission or future products we may develop. There can be no assurance that our products can be manufactured at our desired commercial quantities, in compliance with our requirements, and at an acceptable cost.

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Item 2. Properties

Properties — owned and leased real estate

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Item 2. properties We do not own property and currently lease our principal corporate office and corporate headquarters, which is also our registered office, and is located at Industrial Park, P.O. Box 3030, Omer, Israel 8496500. Our Omer facility, part of which we sublease to a third party, include approximately 1,356 square meters of office and laboratory space.
Item 2. properties We do not own property and currently lease our principal corporate office and corporate headquarters, which is also our registered office, and is located at Industrial Park, P.O. Box 3030, Omer, Israel 8496500. Our Omer facility includes approximately 807 square meters of office and laboratory space.
In addition, we lease offices in Raman Gan, Israel and Haifa, Israel. We believe our leased office is sufficient to meet our current needs.
In addition, we lease approximately 1,000 square meters of office space in Raman Gan, Israel, part of which we sublease to a third party. We believe our leased office space is sufficient to meet our current needs.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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item 3. legal proceedings Three of our European patents in our patent family related to Small Diameter Video Camera Heads and Medical Devices and Visualization Probes are currently in oppositional proceedings before the Opposition Division of the EP Patent Office. One U.S. patent of the same family is currently under reexamination proceedings before the U.S. Patent and Trademark Office.
Added
item 3. legal proceedings As a result of oppositional proceedings initiated by a third party in 2018, the Opposition Division of the EU Patent Office decided in 2019 to revoke two of the three European patents (EP 2.478.693 and EP 2.621.159) and in 2021 to maintain the third patent (EP 2.621.158).
Removed
For additional information about these proceedings refer to – “PROPRIETARY RIGHTS AND TECHNOLOGY” above.
Added
Following appeal hearings held in early 2024, the Board of Appeals revoked all three patents, with formal written decisions still pending. The Company will decide whether to petition for further review of this matter after it receives the formal written decisions. The revocations are not expected to have a material impact on the Company’s current business operations.
Added
In addition, one U.S. patent of the same family is currently under reexamination proceedings before the U.S. Patent and Trademark Office. Furthermore, opposition proceedings have been filed in the European Union Intellectual Property Office against the Company’s EU trademark applications for “Odysight” and “OdysightAI”. For additional information about these proceedings refer to – “PROPRIETARY RIGHTS AND TECHNOLOGY” above.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Certain awards under the 2020 Plan may constitute or provide for a deferral of compensation, subject to Section 409A of the Code, which may impose additional requirements on the terms and conditions of such awards. 28 Each award will expire seven years from the date of the grant thereof, unless such shorter term of expiration is otherwise designated by the administrator.
Certain awards under the 2020 Plan may constitute or provide for a deferral of compensation, subject to Section 409A of the Code, which may impose additional requirements on the terms and conditions of such awards. Each award will expire seven years from the date of the grant thereof, unless such shorter term of expiration is otherwise designated by the administrator.
Notwithstanding any of the foregoing, if a grantee’s employment or services with the company or any of its affiliates is terminated for “cause” (as defined in the 2020 Plan), all outstanding awards held by such grantee (whether vested or unvested) will terminate on the date of such termination and the shares covered by such awards shall again be available for issuance under the 2020 Plan. 29 Transactions.
Notwithstanding any of the foregoing, if a grantee’s employment or services with the company or any of its affiliates is terminated for “cause” (as defined in the 2020 Plan), all outstanding awards held by such grantee (whether vested or unvested) will terminate on the date of such termination and the shares covered by such awards shall again be available for issuance under the 2020 Plan.
The maximum number of ordinary shares available for issuance under the 2020 Plan is equal to the sum of 1,824,717 shares, or such number as our board of directors may determine from time to time. Administration. Our board of directors, or a duly authorized committee of our board of directors, will administer the 2020 Plan.
The maximum number of ordinary shares available for issuance under the 2020 Plan is equal to the sum of 2,824,717 shares, or such number as our board of directors may determine from time to time. Administration. Our board of directors, or a duly authorized committee of our board of directors, will administer the 2020 Plan.
In the event of a merger or consolidation of our company, or a sale of all, or substantially all, of the Company’s shares or assets, or other transaction having a similar effect on the Company, or change in the composition of the board of directors, or liquidation or dissolution, or such other transaction or circumstances that the board of directors determines to be a relevant transaction, then without the consent of the grantee, the administrator may but is not required to (i) cause any outstanding award to be assumed or substituted by such successor corporation, or (ii) regardless of whether or not the successor corporation assumes or substitutes the award (a) provide the grantee with the option to exercise the award as to all or part of the shares, and may provide for an acceleration of vesting of unvested awards, or (b) cancel the award and pay in cash, shares of the company, the acquirer, or other corporation which is a party to such transaction, or other property as determined by the administrator as fair in the circumstances.
In the event of a distribution of a cash dividend to all shareholders, the administrator may determine, without the consent of any holder of an award, that the exercise price of an outstanding and unexercised award shall be reduced by an amount equal to the per share gross dividend amount distributed by the Company, subject to applicable law. 34 In the event of a merger or consolidation of our Company, or a sale of all, or substantially all, of the Company’s shares or assets, or other transaction having a similar effect on the Company, or change in the composition of the board of directors, or liquidation or dissolution, or such other transaction or circumstances that the board of directors determines to be a relevant transaction, then without the consent of the grantee, the administrator may but is not required to (i) cause any outstanding award to be assumed or substituted by such successor corporation, or (ii) regardless of whether or not the successor corporation assumes or substitutes the award (a) provide the grantee with the option to exercise the award as to all or part of the shares, and may provide for an acceleration of vesting of unvested awards, or (b) cancel the award and pay in cash, shares of the company, the acquirer, or other corporation which is a party to such transaction, or other property as determined by the administrator as fair in the circumstances.
The shares of common stock and warrants were issued in a private placement pursuant to Regulation S of the Securities Act of 1933, as amended. Issuer Purchases of Equity Securities During the period from January 1, 2022, to December 31, 2022, we did not purchase any of our equity securities.
The shares of common stock and warrants were issued in a private placement pursuant to Regulation S of the Securities Act of 1933, as amended. See “Liquidity and Capital Resources” for more information. Issuer Purchases of Equity Securities During the period from January 1, 2023, to December 31, 2023, we did not purchase any of our equity securities.
Holders As of December 31, 2022, there were 35 stockholders of record of our common stock and 7,121,737 shares of our common stock outstanding. The number of stockholders of record does not include beneficial owners of our common stock, whose shares are held in “street name” in the names of various brokers, dealers, clearing agencies, banks, and other fiduciaries.
Holders As of December 31, 2023, there were 41 stockholders of record of our common stock and 10,443,768 shares of our common stock outstanding. The number of stockholders of record does not include beneficial owners of our common stock, whose shares are held in “street name” in the names of various brokers, dealers, clearing agencies, banks, and other fiduciaries.
item 5. market for registrant’s common equity, related stockholder matters and issuer purchases Market Information Our common stock is quoted on the OTCQB under the symbol “SCTC”.
item 5. market for registrant’s common equity, related stockholder matters and issuer purchases Market Information Our common stock is currently quoted on the OTCQB under the symbol “ODYS” and, until February 13, 2024, was quoted on the OTCQB under the symbol “SCTC”.
Equity Compensation Plan Information 2020 Share Incentive Plan We have adopted the 2020 Share Incentive Plan, or the 2020 Plan, under which we may grant equity-based incentive awards to attract, motivate, and retain the talent for which we compete. Authorized Shares .
The application of the penny stock rules may affect your ability to resell your shares. Equity Compensation Plan Information 2020 Share Incentive Plan We have adopted the 2020 Share Incentive Plan, or the 2020 Plan, under which we may grant equity-based incentive awards to attract, motivate, and retain the talent for which we compete. Authorized Shares .
Options granted under the 2020 Plan to our employees who are U.S. residents may qualify as “incentive stock options” within the meaning of Section 422 of the Code, or may be non-qualified stock options.
The 2020 Plan provides 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. 33 Options granted under the 2020 Plan to our employees who are U.S. residents may qualify as “incentive stock options” within the meaning of Section 422 of the Code, or may be non-qualified stock options.
Removed
Awards. The 2020 Plan provides 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.
Added
Section 15(g) of the Exchange Act Our shares are covered by Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rules 15g-1 through 15g-6 and Rule 15g-9 promulgated thereunder.
Removed
In the event of a distribution of a cash dividend to all shareholders, the administrator may determine, without the consent of any holder of an award, that the exercise price of an outstanding and unexercised award shall be reduced by an amount equal to the per share gross dividend amount distributed by the Company, subject to applicable law.
Added
This section and related rules impose additional sales practice requirements on broker-dealers who sell our securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses).
Added
While Section 15(g) and Rules 15g-1 through 15g-6 apply to brokers-dealers, they do not apply to us. Rule 15g-1 exempts a number of specific transactions from the scope of the penny stock rules. Rule 15g-2 declares unlawful broker-dealer transactions in penny stocks unless the broker-dealer has first provided to the customer a standardized disclosure document.
Added
Rule 15g-3 provides that it is unlawful for a broker-dealer to engage in a penny stock transaction unless the broker-dealer first discloses and subsequently confirms to the customer current quotation prices or similar market information concerning the penny stock in question.
Added
Rule 15g-4 prohibits broker-dealers from completing penny stock transactions for a customer unless the broker-dealer first discloses to the customer the amount of compensation or other remuneration received as a result of the penny stock transaction.
Added
Rule 15g-5 requires that a broker-dealer executing a penny stock transaction, other than one exempt under Rule 15g-1, disclose to its customer, at the time of or prior to the transaction, information about the sales persons compensation. 32 Rule 15g-6 requires broker-dealers receiving penny stocks to provide their customers with monthly account statements.
Added
Rule 15g-9 requires broker-dealers to approved the transaction for the customer’s account; obtain a written agreement from the customer setting forth the identity and quantity of the stock being purchased; obtain from the customer information regarding his investment experience; make a determination that the investment is suitable for the investor; deliver to the customer a written statement for the basis for the suitability determination; notify the customer of his rights and remedies in cases of fraud in penny stock transactions; and, the FINRA’s toll free telephone number and the central number of the North American Administrators Association, for information on the disciplinary history of broker-dealers and their associated persons.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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The main effect of this activity was an increase in the number of employees to enable the Company to manage the anticipated increased workload and solution development.
The main effect of this activity was an increase in the number of employees to enable the Company to manage the anticipated increased workload and solution development activity.
The decrease was primarily due to: - A decrease in IP expenses of $506,000. - A decrease in stock-based compensation of $580,000. - A decrease in professional services of $334,000, mainly due to expenses of $206,000 in expenses incurred in 2021 related to our efforts to uplist to Nasdaq. - Cancellation of a provision of $129,000 related to additional taxes due following entrance into an agreement with the Israeli Tax Authority.
The decrease was primarily due to: - A decrease in stock-based compensation of $580,000. - A decrease in IP expenses of $506,000. - A decrease in professional services of $334,000, mainly due to expenses of $206,000 in expenses incurred in 2021 related to our efforts to uplist to Nasdaq. - Cancellation of a provision of $129,000 related to additional taxes due following our entrance into an agreement with the Israeli Tax Authority.
In September 2021, the Company accrued an amount of approximately NIS 740,000 ($229,000) for additional taxes due following a VAT audit by the Israeli Tax Authority for the years 2019-2021. In July 2022, the Company reached an agreement with the Israeli Tax Authority, according to which the amount due in additional taxes was reduced to approximately NIS 340,000 ($100,000).
In September 2021, the Company accrued an amount of approximately NIS 740,000 ($229,000) for additional taxes due following a VAT audit by the Israeli Tax Authority for the years 2019-2021. In July 2022, the Company reached an agreement with the Israeli Tax Authority, according to which the amount due of additional taxes was reduced to approximately NIS 340,000 ($100,000).
The main effect of this activity was an increase in the number of employees to enable the Company to manage the anticipated increased workload and solution development.
The main effect of this activity was an increase in the number of employees to enable the Company to manage the anticipated increased workload and solution development activity.
Financing Activities During the year ended December 31, 2021, cash provided by financing activities was $22.6 million, consisting primarily of $19.1 million from cash proceeds from issuance of shares and warrants in a private placement and $3.5 million proceeds from exercise of outstanding warrants.
Financing Activities During the year ended December 31, 2021, cash provided by financing activities was $22.6 million, consisting primarily of $19.1 million from cash proceeds from issuance of shares and warrants in a private placement and $3.5 million proceeds from the exercise of outstanding warrants.
Comparison of the Year Ended December 31, 2022 and the Year Ended December 31, 2021 The following table sets forth the significant sources and uses of cash for the years ended December 31, 2022 and December 31, 2021 (in dollars): 2022 2021 Cash used in Operating Activities (6,095,000 ) (5,886,000 ) Cash provided by (used in) Investing Activities 7,882,000 (11,595,000 ) Cash provided by Financing Activities - 22,559,000 Operating Activities During the year ended December 31, 2022, cash used in operating activities was $6.1 million, consisting of net loss of $9.5 million, partially offset by a non-cash benefit of $2.1 million and a favorable net change in operating assets and liabilities of $1.3 million.
Comparison of the Year Ended December 31, 2022 and the Year Ended December 31, 202 1 The following table sets forth the significant sources and uses of cash for the years ended December 31, 2022 and December 31, 2021 (in dollars): 2022 2021 Cash used in Operating Activities (6,095,000 ) (5,886,000 ) Cash provided by (used in) Investing Activities 7,882,000 (11,595,000 ) Cash provided by Financing Activities - 22,559,000 Operating Activities During the year ended December 31, 2022, cash used in operating activities was $6.1 million, consisting of net loss of $9.5 million, partially offset by a non-cash benefit of $2.1 million and a favorable net change in operating assets and liabilities of $1.3 million.
During the year ended December 31, 2021, cash used in operating activities was $5.9 million, consisting of net loss of $9 million, partially offset by a non-cash benefit of $2 million and an favorable net change in operating assets and liabilities of $1.1 million. Our non-cash benefit consisted primarily of non-cash charges of $2 million for stock-based compensation.
During the year ended December 31, 2021, cash used in operating activities was $5.9 million, consisting of net loss of $9 million, partially offset by a non-cash benefit of $2 million and a favorable net change in operating assets and liabilities of $1.1 million. Our non-cash benefit consisted primarily of non-cash charges of $2 million for stock-based compensation.
We expect that our research and development expenses will increase as we continue to develop our products and service and recruit additional research and development employees to the I4.0 domain. Sales and Marketing Expenses Sales and marketing expenses primarily consist of personnel costs, consulting services, promotional materials, demonstration equipment, and certain allocated facilities infrastructure costs.
We expect that our research and development expenses will increase as we continue to develop our products and service and recruit additional research and development employees to the I4.0 domain. 40 Sales and Marketing Expenses Sales and marketing expenses primarily consist of personnel costs, consulting services, promotional materials, demonstration equipment, and certain allocated facilities infrastructure costs.
The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis.
GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis.
We expense research and development costs as incurred. 33 Research and development expenses for the year ended December 31, 2022, were $4,197,000, an increase of $2,195,000, or 110%, compared to $2,002,000 for the year ended December 31, 2021.
We expense research and development costs as incurred. Research and development expenses for the year ended December 31, 2022, were $4,197,000, an increase of $2,195,000, or 110%, compared to $2,002,000 for the year ended December 31, 2021.
The amounts were recognized based on the expected manufacturing term of the product, which the Company estimates at seven years. ● enlarging focus on R&D activities in the domain of I4.0 (including PdM and CBM in sectors such as aerospace, maritime energy and other heavy machinery, engines and complicated mechanics which have a need for monitoring and predictive maintenance applications).
The amounts were recognized based on the expected manufacturing term of the product, which the Company estimates at seven years. ● Increased focus on R&D activities in the domain of I4.0 (including PdM and CBM in sectors such as aerospace, maritime energy and other heavy machinery, engines and complicated mechanics which have a need for monitoring and predictive maintenance applications).
We currently believe that our existing cash and cash equivalents and short-term deposits will allow our to fund ours operating plan through at least the next 12 months. We expect our expenses will increase in connection with our ongoing activities, particularly as we continue the research and development and the scale up process of our I4.0 solutions.
We currently believe that our existing cash and cash equivalents and short-term deposits will allow us to fund our operating plan through at least the next 12 months. We expect our expenses will increase in connection with our ongoing activities, particularly as we continue the research and development and the scale up process of our I4.0 solutions.
Through ScoutCam Ltd., we are a pioneer in the development, production, and marketing of innovative Predictive Maintenance (PdM) and Condition Based Monitoring (CBM) technologies, providing visual sensing and AI-based video analytics solutions for critical systems in the aviation, maritime, industrial non-destructing-testing industries, transportation, and energy industries.
We are a pioneer in the development, production, and marketing of innovative Predictive Maintenance (PdM) and Condition Based Monitoring (CBM) technologies, providing visual sensing and AI-based video analytics solutions for critical systems in the aviation, maritime, industrial non-destructing-testing industries, transportation, and energy industries.
As a result, during the year ended December 31, 2022, the Company recognized development services revenues and related development costs that had been previously deferred.
As a result, during the year ended December 31, 2022, the Company recognized development services revenues and related development costs that have been previously deferred.
The following table summarizes our results of operations for the years ended December 31, 2022 and 2021, together with the changes in those items in dollars and as a percentage: 2022 2021 % Change Revenues 665,000 387,000 72 % Cost of Revenues 1,631,000 1,108,000 47 % Gross Loss (966,000 ) (721,000 ) 34 % Research and development expenses 4,197,000 2,002,000 110 % Sales and marketing expense 699,000 908,000 (23 )% General and administrative expenses 3,577,000 5,481,000 (35 )% Operating Loss (9,439,000 ) (9,112,000 ) 4 % 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. 32 For the year ended December 31, 2022, we generated revenues of $665,000, an increase of $278,000, or 72%, from 2021 revenues.
The following table summarizes our results of operations for the years ended December 31, 2022 and 2021, together with the changes in those items in dollars and as a percentage: 2022 2021 % Change Revenues 665,000 387,000 72 % Cost of revenues 1,631,000 1,108,000 47 % Gross Loss (966,000 ) (721,000 ) 34 % Research and development expenses 4,197,000 2,002,000 110 % Sales and marketing expense 699,000 908,000 (23 )% General and administrative expenses 3,577,000 5,481,000 (35 )% Operating Loss (9,439,000 ) (9,112,000 ) 4 % 39 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.
The increase was primarily due to: - An increase in payroll expenses due to additional employee recruitments (such as in the areas of procurement, production planning and control, engineering, and quality inspectors) to support the transition to serial production for the Fortune 500 customer. - In the second quarter of 2022, the Company completed the development service stage of its miniature camera solution and moved to the production stage.
The increase was primarily due to: - An increase in payroll expenses due to additional employee recruitment (such as in the areas of procurement, production planning and control, engineering, and quality inspectors) to support the transition to serial production for the Fortune 500 customer. - In the second quarter of 2022, the Company completed the development stage of its endoscopic camera solution and moved to the production stage.
The increase was primarily due to an increase in payroll expenses (including stock-based compensation) due to additional employee recruitments, materials and subcontractors, rent and maintenance expenses due to enlarging focus on R&D activities in the domain of I4.0.
The increase was primarily due to an increase in payroll expenses (including stock-based compensation) due to additional employee recruitment, materials and subcontractors, rent and maintenance expenses due to increased focus on R&D activities in the domain of I4.0.
Our cash flows from operating activities will continue to be affected due to the expected increase of spending on our business and our working capital requirements.
Our cash flows from operating activities will continue to be affected due to the expected increase in spending on our business and to meet our working capital requirements.
Surgical during 2022. - A decrease of $61,000 due to an overall decrease in sales of the Company’s component products to occasional customers. Remaining performance obligations (“RPO”) represents contracted revenue that have not yet been recognized, which include deferred revenue and amounts that will be invoiced and recognized as revenue in future periods.
Surgical during 2022, a decrease of approximately $199,000 from 2021. - A decrease of $61,000 due to an overall decrease in sales of the Company’s component products to occasional customers. Remaining performance obligations (“RPOs”) represents contracted revenue that have not yet been recognized, which include deferred revenue and amounts that will be invoiced and recognized as revenue in future periods.
We did not record any revenue from our miniature camera solution with the Fortune 500 company during 2021. This increase in revenues was partly offset by the following: - Total revenues recorded from A.M. Surgical during 2021 amounted to approximately $199,000. We did not record any revenue from A.M.
Total revenues recorded from our endoscopic camera solution with the Fortune 500 company during 2022, amounted to approximately $538,000. We did not record any revenue from our endoscopic camera solution with the Fortune 500 company during 2021. This increase in revenues was partly offset by the following: - We did not record any revenue from A.M.
The increase in operating loss was primarily due to increases in expenses related to general and administrative, research and development, and sales and marketing, as described above.
The increase in operating loss was due to increases in research and development expenses, general and administrative expenses and sales and marketing expense, each as described above.
We have not paid dividends and does not anticipate paying dividends in the foreseeable future. Accordingly, no dividend yield was assumed for purposes of estimating the fair value of our stock-based compensation. The weighted average expected life of options was estimated individually in respect of each grant.
Treasury yield as determined by the U.S. Federal Reserve. We have not paid dividends and does not anticipate paying dividends in the foreseeable future. Accordingly, no dividend yield was assumed for purposes of estimating the fair value of our stock-based compensation. The weighted average expected life of options was estimated individually in respect of each grant.
Revenues from development services that we determine as not distinct from our performance obligation to manufacture the product under development are deferred until commencement of manufacturing and are recognized over the manufacturing term.
Development Services Revenue and Contract Liabilities We determine at contract inception whether development services are distinct from the performance obligation to manufacture the product under development. Revenues from development services that we determine as not distinct from our performance obligation to manufacture the product under development are deferred until commencement of manufacturing and are recognized over the manufacturing term.
Liquidity and Capital Resources As of December 31, 2022, we had cash and cash equivalents of $10.1 million and short-term deposits of $3 million compared to cash and cash equivalents of $8.6 million and short-term deposits of $11 million as of December 31, 2021.
Liquidity and Capital Resources As of December 31, 2023, we had cash and cash equivalents of $8.9 million and short-term deposits of $8.1 million compared to cash and cash equivalents of $10.1 million and short-term deposits of $3 million as of December 31, 2022.
Our non-cash benefit consisted primarily of non-cash charges of $2 million for stock-based compensation. The net change in our operating assets and liabilities primarily reflects cash inflows from changes in contract liability of $1.6 million partially offset by cash outflows from changes in contract fulfillment assets of $0.5 million.
Our non-cash benefit consisted primarily of non-cash charges of $1.6 million for stock-based compensation. The net change in our operating assets and liabilities primarily reflects cash inflows from changes in contract liability of $1.2 million.
We recognize stock-based compensation cost for option awards on an accelerated basis over the employee’s requisite service period, net of estimated forfeitures. Volatility is derived from the historical volatility of publicly traded set of peer companies. The risk-free interest rates used in the Black-Scholes calculations are based on the prevailing U.S. Treasury yield as determined by the U.S. Federal Reserve.
We recognize stock-based compensation cost for option awards on an accelerated basis over the employee’s requisite service period, and forfeitures are accounted for as they occur. 36 Volatility is derived from the historical volatility of publicly traded set of peer companies. The risk-free interest rates used in the Black-Scholes calculations are based on the prevailing U.S.
Investing Activities During the year ended December 31, 2022, cash provided by investing activities was $7.9 million, consisting mainly of withdrawal, net of short-term deposits. During the year ended December 31, 2021, cash used in investing activities was $11.6 million, consisting of investment in short-term deposits of $11 million and purchases of property and equipment of $0.6 million.
During the year ended December 31, 2021, cash used in investing activities was $11.6 million, consisting of investment in short-term deposits of $11 million and purchases of property and equipment of $0.6 million.
On December 30, 2019, we acquired all of the issued and outstanding share capital of ScoutCam Ltd. Following this transaction, we integrated and fully adopted ScoutCam Ltd.’s business into our Company as our primary business activity. On December 31, 2019, we changed our name to ScoutCam Inc.
On December 30, 2019, we acquired all of the issued and outstanding share capital of ScoutCam Ltd. and, on December 31, 2029, changed our name to ScoutCam Inc. Following this acquisition, we integrated and fully adopted the acquired miniaturized imaging business into our Company as our primary business activity. On June 5, 2023, we changed our name to Odysight.ai Inc.
Some of our products utilize our unique micro visualization technology in medical devices for complex and minimally invasive medical procedures. Our technology includes proven video technologies and products amalgamated into a first-of-its-kind, FDA-cleared minimally invasive surgical device. At the present time, we derive a substantial portion of our revenue from applications of our micro visualization technology within the medical field.
Some of our products utilize our unique micro visualization technology in medical devices for complex and minimally invasive medical procedures. Our technology includes proven video technologies and products amalgamated into a first-of-its-kind, FDA-cleared minimally invasive surgical device.
During the year ended December 31, 2020, cash used in operating activities was $4.2 million, consisting of net loss of $4.7 million, non-cash charges of $1.1 million and a unfavorable net change in operating assets and liabilities of $0.6 million. Our non-cash charges consisted primarily of stock-based compensation expense of $1.1 million.
During the year ended December 31, 2022, cash used in operating activities was $6.1 million, consisting of net loss of $9.5 million, partially offset by a non-cash benefit of $2.1 million and a favorable net change in operating assets and liabilities of $1.3 million. Our non-cash benefit consisted primarily of non-cash charges of $1.6 million for stock-based compensation.
We expect that our research and development expenses will increase as we continue to develop our products and service and recruit additional research and development employees to the I4.0 domain.
We expect that our research and development expenses will increase as we continue to develop our products and services and recruit additional research and development employees due to increased focus on R&D activities in the domain of I4.0.
Cash Flows Our primary uses of cash from operating activities have been for headcount-related expenditures, research and development costs, manufacturing costs, marketing and promotional expenses, professional services cost, and costs related to our facilities. Our cash flows from operating activities will continue to be affected due to the expected increase of spending on our business and our working capital requirements.
Cash Flows Our primary uses of cash from operating activities have been for headcount-related expenditures, research and development costs, manufacturing costs, marketing and promotional expenses, professional services cost, and costs related to our facilities.
The net change in our operating assets and liabilities primarily reflects cash outflows from the changes in contract fulfillment assets of $1.1 million, accrued expenses and other of $0.4 million and other assets of $0.3 million, partially offset by cash inflows from changes in inventory of $0.7 million and change in contract liability of $0.3 million. 38 Investing Activities During the year ended December 31, 2021, cash used in investing activities was $11.6 million, consisting of investment in short-term deposits of $11 million and purchases of property and equipment of $0.6 million.
The net change in our operating assets and liabilities primarily reflects cash inflows from changes in contract liability of $1.6 million partially offset by cash outflows from changes in contract fulfillment assets of $0.5 million. Investing Activities During the year ended December 31, 2022, cash provided by investing activities was $7.9 million, consisting mainly of withdrawal of short-term deposits, net.
Determining the amount of stock-based compensation to be recorded requires us to develop estimates of the fair value of stock options as of their grant date. We estimate the fair value of each stock option grant using the Black-Scholes option-pricing model. Calculating the fair value of stock-based awards requires that we make subjective assumptions.
We estimate the fair value of each stock option grant using the Black-Scholes option-pricing model. Calculating the fair value of stock-based awards requires that we make subjective assumptions.
The net change in our operating assets and liabilities primarily reflects cash inflows from changes in contract liability of $1.2 million. 37 During the year ended December 31, 2021, cash used in operating activities was $5.9 million, consisting of net loss of $9 million, partially offset by a non-cash benefit of $2 million and a favorable net change in operating assets and liabilities of $1.1 million.
The net change in our operating assets and liabilities primarily reflects cash inflows from changes in contract liability of $1.2 million. 42 Investing Activities During the year ended December 31, 2023, cash used in investing activities was $5.1 million, consisting mainly of investment of short-term deposits, net.
Our unique video-based sensors, embedded software, and AI algorithms are being deployed in hard-to-reach locations and harsh environments across a variety of PdM and CBM use cases.
At the present time, we derive a substantial portion of our revenue from applications of our micro visualization technology within the medical field. 35 Our unique video-based sensors, embedded software, and AI algorithms are being deployed in hard-to-reach locations and harsh environments across a variety of PdM and CBM use cases.
In addition, as of December 31, 2022, we incurred an accumulated deficit of $24.8 million compared to $15.3 million as of December 31, 2021. Our primary sources of liquidity to date have been from fund raising and warrant exercises. Additional Cash Requirements We plan to continue to invest for long-term growth, and therefore we expect that our expenses will increase.
In addition, as of December 31, 2023, we incurred an accumulated deficit of $34.2 million compared to $24.8 million as of December 31, 2022. Our primary sources of liquidity to date have been from fund raising and warrant exercises.
The increase in revenues was primarily due to the completion of development of the product relating to our miniature camera solution with a Fortune 500 company and moving to production stage. Total revenues recorded from our miniature camera solution with the Fortune 500 company during 2022, amounted to approximately $538,000.
For the year ended December 31, 2022, we generated revenues of $665,000, an increase of $278,000, or 72%, from 2021 revenues. The increase in revenues was primarily due to the completion of development of the product relating to our endoscopic camera solution with a Fortune 500 company and moving to production stage.
Cost of Revenues Cost of revenues for the year ended December 31, 2021 were $1,108,000, an increase of $114,000, or 11%, compared to cost of revenues of $994,000 for the year ended December 31, 2020.
Cost of Revenues Cost of revenues for the year ended December 31, 2023, were $2,524,000 an increase of $893,000, or 55%, compared to cost of revenues of $1,631,000 for the year ended December 31, 2022.
Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.
See also Risk Factors – “Conditions in Israel, including the October 7, 2023 attack by Hamas and other terrorist organizations and Israel’s war against them, if escalated, could negatively affect our operations.” Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States, or U.S.
Financing Activities During the year ended December 31, 2021, cash provided by financing activities was $22.6 million, consisting primarily of $19.1 million from cash proceeds from issuance of shares and warrants in a private placement and $3.5 million proceeds from exercise of outstanding warrants.
During the year ended December 31, 2022, cash provided by investing activities was $7.9 million, consisting mainly of withdrawal of short-term deposits, net. Financing Activities During the year ended December 31, 2023, cash provided by financing activities was $13.8 million, consisting of cash proceeds from issuance of shares and warrants in a private placement.
As a result, during the year 2021, we have deferred all service revenues billed by us and the respective service costs. 31 Stock-Based Compensation We apply the fair value recognition provisions of ASC 718, Compensation—Stock Compensation , or ASC 718, for stock-based awards granted to employees, directors, and other providers for their services.
Stock-Based Compensation We apply the fair value recognition provisions of ASC 718, Compensation—Stock Compensation , or ASC 718, for stock-based awards granted to employees, directors, and other providers for their services. Determining the amount of stock-based compensation to be recorded requires us to develop estimates of the fair value of stock options as of their grant date.
The increase in operating loss was primarily due to increases in gross loss and expenses related to research and development, partially offset by decrease in general and administrative expenses and sales and marketing expenses. 34 Comparison of the Year Ended December 31, 2021 and the Year Ended December 31, 2020 Overview The Company’s primary business activities during 2021 were: ● completion of R&D and transition to the serial production in connection with a customer-specific project for a Fortune 500 multinational healthcare corporation; and ● enlarging its focus on R&D activities in the domain of I4.0 (including PdM and CBM in sectors such as the aviation, energy and automotive).
Comparison of the Year Ended December 31, 2023 and the Year Ended December 31, 2022 Overview The Company’s primary business activities during 2023 were: ● Production and supply of product to a Fortune 500 multinational healthcare corporation. ● Enlarging our focus on R&D activities in the domain of I4.0 (including PdM and CBM in sectors such as aerospace, maritime energy and other heavy machinery, engines and complicated mechanics which have a need for monitoring and predictive maintenance applications).
The increase was primarily due to a decrease in revenues and an increase in cost of revenues as described above. Research and Development Expenses Research and development expenses for the year ended December 31, 2021 were $2,002,000, an increase of $1,277,000, or 176%, compared to $725,000 for the year ended December 31, 2020.
We expense research and development costs as incurred. Research and development expenses for the year ended December 31, 2023 were $5,602,000, an increase of $1,405,000, or 33%, compared to $4,197,000 for the year ended December 31, 2022.
The following table summarizes our results of operations for the years ended December 31, 2021 and 2020, together with the changes in those items in dollars and as a percentage: 2021 2020 % Change Revenues 387,000 491,000 (21 )% Cost of Revenues 1,108,000 994,000 11 % Gross Loss (721,000 ) (503,000 ) 43 % Research and development expenses 2,002,000 725,000 176 % Sales and marketing expense 908,000 443,000 105 % General and administrative expenses 5,481,000 3,035,000 81 % Operating Loss (9,112,000 ) (4,706,000 ) 94 % Revenues For the year ended December 31, 2021, we generated revenues of $387,000, a decrease of $104,000, or 21%, from 2020 revenues.
The following table summarizes our results of operations for the years ended December 31, 2023 and 2022, together with the changes in those items in dollars and as a percentage: 2023 2022 % Change Revenues 3,033,000 665,000 356 % Cost of Revenues 2,524,000 1,631,000 55 % Gross Profit (Loss) 509,000 (966,000 ) 153 % Research and development expenses 5,602,000 4,197,000 33 % Sales and marketing expense 1,109,000 699,000 59 % General and administrative expenses 4,431,000 3,577,000 24 % Operating Loss (10,633,000 ) (9,439,000 ) 13 % 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.
Our non-cash benefit consisted primarily of non-cash charges of $1.6 million for stock-based compensation.
Our non-cash benefit consisted primarily of non-cash charges of $1.7 million for stock-based compensation. The unfavorable net change in our operating assets and liabilities was primarily due to an increase in accounts receivable of $1.3 million and decrease in contract liabilities of $1.3 million.
Sales and Marketing Expenses Sales and marketing expenses for the year ended December 31, 2021 were $908,000, an increase of $465,000, or 105%, compared to $443,000 for the year ended December 31, 2020.
Sales and Marketing Expenses Sales and marketing expenses primarily consist of payroll expenses, consulting services, promotional materials, exhibitions, demonstration equipment, and certain allocated facility infrastructure costs. Sales and marketing expenses for the year ended December 31, 2023 were $1,109,000, an increase of $410,000, or 59%, compared to $699,000 for the year ended December 31, 2022.
The increase was primarily due to: ● an increase of $675,000 in IP expenses due to maintenance, defense, and commercialization efforts of existing patents; ● the provision of $229,000 due to a VAT audit by the Israeli Tax Authority; ● an increase of $528,000 in stock-based compensation due to new option grants; ● expenses of approx. $206,000 related to our efforts to uplist to Nasdaq; ● an increase in in payroll expenses due to the hiring of additional employees, including a new CEO and controller, and a shift in the position of the CFO from part-time to full-time; and ● an increase in professional services expenses due to the hiring of a financial consultant, HR consultant, the appointment of new directors and additional hires. 36 Operating loss We incurred an operating loss of $9,112,000 for the year ended December 31, 2021, an increase of $4,406,000, or 94%, compared to operating loss of $4,706,000 for the year ended December 31, 2020.
General and administrative expenses for the year ended December 31, 2023 were $4,431,000, an increase of $854,000, or 24%, compared to $3,577,000 for the year ended December 31, 2022. 38 The increase was primarily due to: - an increase in payroll expenses, due to additional employee recruitment; - an increase in patent related expenses due to maintenance, defense, and commercialization efforts involving existing patents; - an increase in professional services expenses due to the hiring of a financial consultant, IR consultant, HR consultant and the appointment of new directors ; - an increase in rent and maintenance, due to our new offices in Ramat Gan; and - In 2022, we benefited from the cancellation of a provision of $129,000 related to additional taxes due following entrance into an agreement with the Israel Tax Authority (the “ITA”).
General and Administrative Expenses General and administrative expenses for the year ended December 31, 2021 were $5,481,000, an increase of $2,446,000, or 81%, compared to $3,035,000 for the year ended December 31, 2020.
For the year ended December 31, 2023, we generated revenues of $3,033,000, an increase of $2,368,000, or 356%, from 2022 revenues.
Removed
Development Services Revenue and Contract Liabilities We determine at contract inception whether development services are distinct from the performance obligation to manufacture the product under development. Revenues from development services that we determine as distinct from our performance obligation to manufacture the product under development are recognized over the period of the applicable service contract.
Added
Impact of the Ongoing War in Israel on Our Business On October 7, 2023, the Hamas terrorist organization launched a series of deadly terror attacks on civilian and military targets skirting the Gaza Strip in the southern part of Israel and fired rockets on many of the communities in southern and central Israel.
Removed
Other major activities were the following: - Expanding marketing activities, including the recruitment of VP Business Development for Industry 4.0, and launching a multi-platform digital marketing campaign; - Extensive activity in connection with the Company’s IP, including submissions of new patent applications as well as maintenance, defense, and commercialization efforts of existing patents; - Increased operation expenses in order to improve the current Company’s R&D capabilities; - Increase in research and development activities, including the development of new products and the improvement of existing technology, and the examination of additional applications for our visualization solutions, including in the domains of PdM and CBM, as well as additional industries outside of the medical, defense, and aerospace fields, including sectors such as automotive, industrial non-destructing-testing industries, automotive and energy; and - Investment in capital expenses to provide the necessary facilities, IT, and lab tools for our newly recruited employees and to upgrade the Company’s production and quality control capabilities.
Added
Following the attack, Israel’s security cabinet declared war and commenced a military campaign in Gaza against Hamas.
Removed
The decrease in revenues was primarily due to sales of products to A.M. Surgical. Total sales to A.M. Surgical during year ended December 31, 2021 amounted to approximately $199,000, a decrease from approximately $383,000 in 2020. This decrease was partially offset by increase in the sales of our products to other customers.
Added
Since the outbreak of the war, the Hezbollah terrorist organization has regularly fired rockets into northern Israel, other terrorist organizations have done so from western Iraq and the Houthis terrorist organization operating out of Yemen has fired various projectiles and drones against commercial shipping vessels in the Gulf of Aden and Red Sea.
Removed
Remaining performance obligations (“RPO”) represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. As of December 31, 2021, the total RPO amounted to $3.2 million, which we expect to recognize over the expected manufacturing term of the product under development.
Added
The war has led to consequences and restrictions with respect to the Israeli economy, including a significant call-up of military reservists, most of whom have been released from such service as of the date of this Annual Report. To date the war has not had a material adverse effect on our business.
Removed
The increase was primarily due to an increase in payroll expenses (including stock-based compensation) as a result of hiring additional employees as part of the transition to the production stage with respect to the contract with a Fortune 500 multinational healthcare corporation, partially offset by decrease in materials as a result of a decrease in revenues. 35 Gross Loss Gross loss for the year ended December 31, 2021 was $721,000, an increase of $218,000, or 43%, compared to a gross loss of $503,000 for the year ended December 31, 2020.
Added
While we have offices in Omer and Ramat Gan, Israel, neither of our sites is located near Israel’s relevant borders where the main impact of the war has been felt.
Removed
The increase was primarily due to an increase in payroll expenses (including stock-based compensation) due to additional employee recruitments, materials and subcontractors, and because we have recently begun examining additional applications for our micro ScoutCam™ portfolio outside of the medical, defense and aerospace fields, including in sectors such as automotive, industrial non-destructing-testing industries, automotive, and energy.
Added
Nevertheless, we have experienced some minor disruptions to our routine work, including some difficulties in traveling outside of Israel in the first month of the war and occasional rocket fire on the municipalities where our offices are located, requiring our employees to take temporarily shelter for a few minutes at a time in on-site safe rooms.
Removed
In addition, there was an increase in R&D payroll expenses in 2021 due to the fact that during 2020 a substantial part of the payroll expenses was capitalized to contract fulfillment asset and was not recognized as expenses in profit and loss.
Added
In addition, several of our employees, including company officers such as our CEO Yehu Ofer, were called up to military reserve duty, with many such call-ups having since lapsed. As of the date of this Annual Report, Mr. Ofer is subject to military reserve duty a few days a month.
Removed
The increase was primarily due to expanding marketing activity, including the recruitment of a VP Business Development in Industry 4.0, hiring consultants and launching a multi-platform digital marketing campaign. We expect that our selling and marketing expenses will increase as we continue to increase our selling and marketing efforts.
Added
We have taken various measures to mitigate the effects of the war, including adopting work-from-home measures, increased employee overtime and third-party outsourcing where needed, and reviewing our business continuity plan.
Removed
Comparison of the Year Ended December 31, 2021 and the Year Ended December 31, 2020 The following table sets forth the significant sources and uses of cash for the years ended December 31, 2021 and December 31, 2020 (in dollars): 2021 2020 Cash used in Operating Activities (5,886,000 ) (4,187,000 ) Cash used in Investing Activities (11,595,000 ) (276,000 ) Cash provided by Financing Activities 22,559,000 4,506,000 Operating Activities Our primary uses of cash from operating activities have been for headcount-related expenditures, research and development costs, manufacturing costs, marketing and promotional expenses, professional services cost and costs related to our facilities.
Added
As a result of the intensive flight hours flown by all Israeli Air Force platforms as a result of the war and an enhanced Israel Ministry of Defense budget of approximately $12 billion, we have experienced a growing interest in our technology from Israeli government agencies and R&D programs, which may lead to more rapid assimilation of our technology into relevant platforms than we had anticipated prior to the start of the war, positively affecting on our business activity in 2024.
Removed
The net change in our operating assets and liabilities primarily reflects cash inflows from changes in contract liability of $1.6 million partially offset by cash outflows from changes in contract fulfillment assets of $0.5 million.
Added
As a result, during development phase we have deferred all service revenues billed by us to a Fortune 500 multinational healthcare corporation and the respective service costs. Further to the inception of the production phase of the project in the second quarter of 2022, these deferred revenues and costs are recognized over the expected term of production under the contract.
Removed
During the year ended December 31, 200, cash used in investing activities was $0.3 million, consisting of purchases of property and equipment.
Added
The increase in revenues was primarily due to increase in revenues from a Fortune 500 company (see “Customer A” in note 10 to our annual financial statements) due to: - an increase in the number of products sold and supplied to the customer during 2023, and - formalization of negotiations with the customer, according to which the price per unit increased significantly compared to the previous price.
Removed
During the year ended December 31, 2020, cash provided by financing activities was $4.5 million, consisting primarily of $2.9 million from cash proceeds from issuance of shares and warrants and $1.8 million proceeds from exercise of warrants.
Added
The increase was primarily due to an increase in the number of products sold and supplied to the Fortune 500 company, partially offset by an improvement in the production process which resulted in a reduced scrap rate. 37 Gross Profit (Loss) Gross profit for the year ended December 31, 2023 was $509,000, an increase of $1,475,00, or 153%, compared to a gross loss of $966,000 for the year ended December 31, 2022.
Added
The increase was primarily due to an increase in revenues, partially offset by an increase in cost of revenues as described above. The transition from a gross loss to a gross profit is attributable to the formalization of negotiations with the healthcare customer. Under this framework, the unit price experienced a substantial increase compared to its previous rate.
Added
We also benefited from an increase in the number of products sold and supplied to the customer during 2023. 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.
Added
The increase was primarily due to an increase in payroll expenses due to additional employee recruitment, as result of enlarging our focus on R&D activities in the domain of I4.0.
Added
The increase was primarily due to recent rebranding activities, including expenses related to the changing the name of the Company from “ScoutCam Inc.” to “Odysight.ai Inc.”, which included among other expenses designing a new logo and promotional materials.
Added
In addition, the Company incurred expenses by participating in the Paris Air Show in June 2023, the world’s premier and largest event dedicated to the aviation and space industry. We expect that our selling and marketing expenses will increase as we expand our selling and marketing efforts in the I4.0 domain.
Added
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.
Added
In September 2021, the Company accrued approximately NIS 740,000 ($229,000) for additional taxes due following a VAT audit by the ITA for the years 2019-2021. In July 2022, the Company reached an agreement with the ITA, according to which the amount due in additional taxes was reduced to approximately NIS 340,000 ($100,000).

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